UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
ANNUAL REPORT
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1994
or
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 0-8804
THE SEIBELS BRUCE GROUP, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-
0672136
(State or other jurisdiction of
(IRS employer
incorporation or organization)
identification no.)
1501 Lady Street (P.O. Box 1)
Columbia, S.C. 29201(2)
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (803) 748-
2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common stock, par value $1.00 per share
(Title of class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non
affiliates of the registrant as of March 31, 1995: $19,048,555.
The number of shares outstanding of the registrant's common stock
as of March 31, 1995: 16,717,686.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
Portions of the annual proxy statement in connection with the
annual meeting to be held on June 13, 1995 are incorporated
herein by reference into Part III.
<PAGE>
Table of Contents
Table of Contents i
Acronyms ii
PART I
Item 1. Business 1
Item 2. Properties
8
Item 3. Legal Proceedings
8
Item 4.Submission of Matters to a vote of Security Holders
8
PART II
Item 5.Market for the Registrant's Common Stock and Related
Security
Holder Matters 10
Item 6. Selected Financial Data11
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations
12
Item 8. Financial Statements and Supplementary Data26
Item 9.Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
50
PART III
Item 10.Directors, Executive Officers, Promoters and Control
Persons of the Registrant 50
Item 11. Executive Compensation50
Item 12.Security Ownership of Certain Beneficial Owners
and Management 50
Item 13. Certain Relationships and Related Transactions50
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on
Form 8-K 50
SIGNATURES 55
<PAGE>
ACRONYMS
The following acronyms used in the text have the meaning set
forth
below unless the context requires otherwise:
CAT Catastrophe
FASB Financial Accounting
Standards
Board
FLT Forest Lake Travel Service
GAAP Generally Accepted
Accounting
Principles
IBNR Incurred-But-Not-Reported
KIC Kentucky Insurance Company
LAE Loss Adjustment
Expenses
MGA Managing General Agent
NAIC National Association of
Insurance
Commissioners
NCCI National Council on
Compensation
Insurance
PFC Policy Finance Company
PSC Premium Service Corporation
RBC Risk Based Capital
SAP Statutory Accounting Principles
SBIG The Seibels Bruce Group,
Inc.
(and the "Company")
SCIC South Carolina Insurance
Company
WYO Write-Your-Own
<PAGE>
PART I
Item 1. Business
Company Profile
The Seibels Bruce Group, Inc. (the "Company") is the parent
company of South Carolina Insurance Company and its
wholly-owned subsidiaries. Founded in 1869, the Company
performs servicing carrier activities for several large state
and federal insurance facilities. MGA services are also
performed for a large nonaffiliated insurance company. SCIC
consists of a group of multiline property and casualty
insurance companies and associated companies with
headquarters in South Carolina and Kentucky. The
underwriting activities are primarily conducted in North
Carolina, South Carolina, Kentucky, Georgia and Tennessee
by offering insurance products through independent insurance
agents.
Major Events
During the first quarter of 1995, the Company received net
proceeds from a Rights Offering (the "Offering") in the
amount of $5.1 million. Pursuant to the
Offering, each stockholder of record
received one Right for each five shares of Common Stock held
of record at the close of business on December 9, 1994. The
Right allowed the stockholders to purchase shares of Common
Stock at a price of $2.40 per share. The gross
proceeds were generated from
2,217,152 shares being exercised. On the date of receipt of
the
proceeds, the Company made a capital contribution of $5 million
to
SCIC, its wholly-owned subsidiary.
In 1994, a substantial portion of the Company's servicing
carrier
business, the South Carolina Reinsurance Facility, became subject
to a first time bid and qualification process for designation
as a servicing carrier. The bidding was open
to all qualified insurers
with the successful bidders being awarded a five year
servicing
contract beginning in October 1994. The facility separated
the business into three blocks with "Block 1" being the
largest. The Company was successful in winning the contract for
"Block 2", a block approximately 22% smaller than "Block 1",
its former book of business under the facility. Although
<PAGE>
"Block 2" is smaller and will be serviced at a lower
commission rate, the Company believes the effect on net income in
1995 will be mitigated
to some extent by planned reductions in operating costs
and claims adjusting expenses.
In the second quarter of 1994, the Company settled a
previously disclosed
dispute which was in pending arbitration. The settlement
agreement resolved all issues arising from the dispute as well as
a commutation of the Company's reinsurance obligation. Under
the settlement, the Company paid $10.3 million to the other
party and such party agreed to pay up to $20 million in
direct losses on American Star claims. Any loss payments in
excess of $20 million that are
not collected through reinsurance will be shared equally
between the parties and the Company will only share in
those payments
to the extent of 50% of its insurance company's
consolidated statutory surplus above $20 million. At December
31, 1994, such statutory deficit, after adjustments, was $1.6
million. This settlement had a negative impact on earnings of $2.9
million in the first and second quarter of 1994, excluding
a realized investment loss of $.8 million upon the sale of
securities in order to generate the cash necessary to make the
payment.
In the third quarter of 1994, the Company's recorded
workers' compensation reserves in the amount of $22.4 million
were commuted to the National Council on Compensation
Insurance, Inc., resulting in a reduction of incurred losses of
approximately $6.1 million. NCCI is the administrator and
agent for the various workers' compensation reinsurance
pools from which the Company assumed business.
The cash necessary for this commutation was generated
through the sale of securities, which resulted in
realized
investment losses of $1.7 million in the same quarter.
The Company initiated a recapitalization plan in December
1993. Under this plan, the prior outstanding $23 million term loan
and the accrued interest thereon was purchased from the original
holder by new investors. These new investors then exchanged the
note for a new note
with a principal balance of $10 million, bearing interest
at 8.5%, due June 30, 1994 and secured by 100% of the stock of
SCIC.
The effect of this transaction for 1993 was an increase in
net income of $9.2 million, net of taxes ($1.23 per share).
In accordance with the recapitalization plan, on June 28, 1994,
the new note was then cancelled and exchanged for 7,000,000 newly
issued shares of the Company's common stock. A note for $439,000
equal to the accrued interest was given to the new investors.
After the exchange,
completed in the second quarter of 1994, $10 million was
added to the Company's GAAP equity.
In mid 1993, the Company sold Investors National Life
Insurance Company, its credit life and credit accident and health
subsidiary. Under the sale agreement, the Company retained
substantial assets and the responsibility for policies in
existence at the sales date. The Company has withdrawn from
this business and is currently running off the remaining book
of business.
In early 1994, the Company sold substantially all of the
receivables of Premium Service Corporation, its premium
financing subsidiary, and has withdrawn from that business. In
addition, during 1994, Southern
Intermediaries, Inc. and Investors National Service
Corporation were dissolved into Seibels, Bruce and Company
("SB&C") and Investors National Life Insurance Company of South
Carolina, their parent companies, respectively.
During the first quarter of 1995, the accounts receivable and
other immaterial assets of Forest Lake Travel Service, Inc.
were sold. The Company is withdrawing from this business
as well and
anticipates transferring the remaining assets (primarily cash
and short-term investments) to SB&C, its parent company, and
dissolving the subsidiary.
All of the sales were made at a gain while the dissolutions
resulted in increased liquidity for their respective parent
companies. The
sales and dissolutions took place because of management's
emphasis on restructuring the Company's core operations. In the
Company's continuing focus on its primary business, none of
these companies were considered to be an integral part of
operations. The impact on 1994 and 1993 was not material and
future years' operations are not anticipated to be significantly
affected.
Servicing Carrier Activities
The Company provides services to the South Carolina and
North Carolina Reinsurance Facilities, two automobile residual
market plans, and the Kentucky Fair Plan, a homeowners' residual
market. Additionally, the Company is a major participant in the
WYO federal flood facility of the National Flood Insurance
Program. All
servicing functions are performed on a commission basis without
any underwriting risk to the Company. Ceded premiums
written and commission and service income for the facilities in
1994 are as follows:
<PAGE>
<TABLE>
<CAPTION>
Ceded Commission
and Facility Premiums
S
ervice Income
<S>
<C>
<C>
South Carolina Reinsurance Facility $ 80,073,000
$16,501,000 National Flood Insurance Program
29,517,000 4,894,000
Kentucky Fair Plan 5,852,000
987,000
North Carolina Reinsurance Facility 6,513,000
1,051,000
</TABLE>
The ceded premium amounts above represent 92.8% of the
Company's total consolidated ceded premiums written during
1994. The
commission and service income amounts above represent 88.1% of
the Company's total commission and service income as stated
in the consolidated financial statements and are reduced by
certain expenses related to servicing the business. The
Company's internal analysis indicates that the servicing of
these facilities contributed a profit during 1994.
Managing General Agent Services
All of the Company's commercial underwriting was written under
an MGA agreement with an unaffiliated insurance company. The
Company serviced these policies and claims on a commission basis
without any underwriting risk. This agreement became effective
May 1, 1993. Direct premiums written for the carrier's account
during 1994 were $25.4 million. Commission and service income
generated under this contract was $2.7 million, which represents
10.1% of the Company's total commission and service income as
stated in the consolidated
financial statements. With the current premium volume and
the corresponding expenses, the Company has not made a profit
under the current contract. The Company is considering various
alternatives to make this business more profitable.
Property and Casualty Insurance Underwriting Segments
SCIC and its insurance subsidiaries, Consolidated American
Insurance Company (Consolidated American), Catawba Insurance
Company (Catawba) and Kentucky Insurance Company, comprise the
Company's property and casualty insurance group. Each company
conducts a substantially similar multi-line property and
casualty business. One or more members of SCIC is currently
licensed to do business in 46 states.
The Company's current A.M. Best rating is a group rating of NA-
5 ("Not Assigned - Significant Change"). This rating is
currently under the normal annual review by A.M. Best.
The Company anticipates a rating of NA-9 ("Not Assigned -
Company Request") after review. A.M. Best is an independent
company which rates insurance companies based on its judgement
of factors related to the ability to meet policyholder and other
contractual obligations. A low rating would not directly impact
the Company's servicing carrier or MGA operations. The Company
believes such a rating would not have a material impact on its
ongoing risk-taking operations as this business can be
maintained because of the quality of its agency relationships,
and these lines are generally not as sensitive to the rating of
the insuring company.
In 1994, the voluntarily retained property and casualty
business written by the Company was limited to personal
lines business written in the states of Georgia, Kentucky,
North Carolina, South Carolina and Tennessee. This business
included four major lines of insurance: private passenger
automobile, homeowners, dwelling fire and watercraft inland
marine. However, the lack of underwriting profit potential
from the personal property book of business along with the high
cost of catastrophe reinsurance has resulted in a decision to
withdraw as a personal property carrier in all operating states.
The Company will begin the year long process of nonrenewing
this business effective June 30, 1995.
Following the general practice in the insurance industry,
the Company cedes (transfers through reinsurance) a portion of
premiums written to other insurers or reinsurers, which agree to
assume the associated liability or risk. By doing so, the
Company reduces its net liability on individual risks and
endeavors to protect against catastrophic losses. Reinsurance
is ceded on an automatic basis under reinsurance contracts
known as "treaties" or through negotiation on individual
risks. In addition, the Company purchases "excess of loss"
coverage, which transfers the Company's risks above certain
minimum amounts to other insurers. The maximum limits
retained by the Company are currently $100,000 for casualty
risks and $60,000 for property.
<PAGE>
The Company also purchases catastrophe property reinsurance
from other insurers. This program is designed to limit the
Company's risk in the event of a catastrophe as defined by
the Company's reinsurance agreement. The CAT coverage is on a
June 30 annual renewal and is placed with a number of
reinsurers, each of which assumes a certain level of losses
above the CAT minimum. The current program is fully
subscribed and provides coverage for 95% of $13.5 million in
excess of $1.5 million. Therefore, the Company's share of a CAT
loss would be $1.5 million plus 5% of $13.5 million. If a CAT loss
exceeded $15 million, such excess would be incurred by the
Company. The Company believes this amount is adequate based on
its use of industry CAT modeling programs and its reduced level
of premium writings. In light of the Company's decision to
withdraw as a personal property carrier in all operating
states, it is anticipated the current CAT program will be
extended to April 1, 1996 to provide protection as this book of
business runs off.
For all reinsurance programs, the Company has a contingent
liability for amounts ceded to reinsurers in the event any of the
reinsurers should be unable to meet their obligations.
Effective March 15, 1995 (for new business) and May 1, 1995
(for renewals), the Company has begun the process of ceding back
to the South Carolina Reinsurance Facility and North Carolina
Reinsurance Facility portions of the Company's retained
voluntary automobile business. After these programs are
initiated in those states, the Company will explore similar
substandard automobile opportunities in other southeastern states.
As discussed in Item 1. Business - Regulation and Note 13 to
the financial statements included herein, the Company has taken
steps in 1995 to further curtail business written. See the
referenced discussions for detailed steps taken.
Claims Operations
The Company services and adjusts claims for its retained
business, servicing carrier functions and MGA services. In 1994,
the Company has moved away from using outside adjusters and
towards direct handling of claims. This shift has resulted
in a significant reduction in allocated LAE, exclusive of
reserve strengthening. Through the earlier involvement of the
Company's claims personnel in the claim process, the Company
has recognized lower overall adjustment expenses. The
Company has continued this trend into 1995.
Salvage on claims is primarily related to automobile claims.
The
Company utilized auction yards and has been obtaining 14% to 18%
of actual cash value. Subrogation on servicing carrier
claims is handled in a separate subrogation unit. On its
retained and MGA business, the Company's claims
representatives handle their own subrogation.
The Company, within the context of the weather related
catastrophes of recent years, has developed a comprehensive
catastrophe plan designed to maximize customer service in the
event of a catastrophe. This plan has been particularly useful
with the widespread incidence of flood claims over the last
several years. There are currently no significant cases
remaining from the winter storm of 1993 or Hurricane Andrew.
Management, in conjunction with the Company's independent
actuaries, reviews the loss reserves to determine their adequacy.
Such review is based upon past experience and current
circumstances and includes an analysis of reported claims, an
estimate of losses for IBNR claims, estimates for LAE,
reductions for salvage/subrogation reserves and assumed
reinsurance losses. Management believes the reserves, which
approximate the amount determined by independent actuarial
reviews, are sufficient to prevent prior years' losses from
adversely affecting future periods; however, establishing
reserves is an estimation process and adverse developments in
future years may occur and would be recorded in the year so
determined.
For information regarding insurance reserves, see Item
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Other Business Services
The Company offers additional services through the
following subsidiaries:
Agency Specialty, Inc. assists local agents in providing excess
and surplus lines for difficult or unusual risks. This
business is placed with nonaffiliated insurers on a commission
basis.
<PAGE>
Forest Lake Travel Service, Inc. provides travel services
for businesses and individuals in the Columbia, South
Carolina
community. Effective January 1, 1995, the accounts receivable
and various immaterial assets of this subsidiary were sold.
As mentioned previously, services for premium financing,
credit life, and credit accident and health insurance are
no longer provided.
Investments and Investment Results
The Company's invested assets were distributed as follows
at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994
1993
Asset Values PercentageAsset Values Percentage
(thousands of (thousands of
dollars) dollars)
<S> <C> <C>
<C>
<C>
U.S. Government and
agency obligations $33,916 54.8% $ 97,935 82.7%
States, municipalities, and
political subdivisions1,121 1.8 1,741 1.5
Corporate bonds 2,402 3.9 500 0.4
Mortgage backed (government
guaranteed) securities1,498 2.4 1,606 1.3
Redeemable preferred stocks 4 - -
- -
Total fixed maturities$38,941 62.9% $101,782 85.9%
Commercial paper and
invested cash 20,458 33.1 11,135 9.4
Equity securities 458 0.7 3,164 2.7
Mortgage loan on real estate1,965 3.2 2,278 1.9
Other long-term investments 46 0.1 108 0.1
Total invested assets $61,868 100.0% $118,467 100.0%
</TABLE>
Asset values for 1994 represent market values at December 31,
1994. The 1993 asset values represent December 31, 1993 amortized
cost for fixed maturities and market values for all other
invested assets. The Company reorganized the investment
portfolio during 1994 to reduce the percentage concentration in
fixed maturities and increase the concentration in more liquid
securities such as cash and shortterm investments. The
Company believes that this mix more accurately matches with
the Company's liabilities at this time.
The following table sets forth the consolidated investment
results for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
<C>
<C>
(amounts in thousands)
1994 1993 1992
Invested assets (1) $ 89,906 $ 126,199 $ 168,515
Net investment income 5,322
5,456
9,973
Average yield 5.92% 4.32% 5.92%
Net realized investment gains (losses) $ (6,327)
$ 1,969 $ 7,040
</TABLE>
(1) Average of the aggregate invested amounts at the beginning
of the year, as of June 30 and as of the end of the year.
Amortized cost of fixed maturities is used for this calculation.
<PAGE>
Regulation
Insurance companies are subject to supervision and regulation in
the jurisdictions in which they transact business, and such
supervision and regulation relates to numerous aspects of an
insurance company's business and financial condition. The
primary purpose of such supervision and regulation is the
protection of policyholders. The
extent of such regulation varies but generally derives from
state statutes which delegate regulatory, supervisory and
administrative authority to state insurance departments.
Accordingly, the state insurance departments have the authority
to establish standards of solvency which must be met and
maintained by insurers; license insurers and agents; impose
limitations on the nature and amount of investments; regulate
premium rates; delineate the provisions which insurers must
make for current losses and future liabilities; require the
deposit of securities for the benefit of policyholders; and
approve policy forms. State insurance departments also conduct
periodic examinations of the affairs of insurance companies
and require the filing of annual and other reports
relating the financial condition of insurance companies.
Most states have also enacted legislation which regulates
insurance holding company systems, including acquisitions,
dividends, the terms of surplus notes, the terms of affiliate
transactions and other related matters. Three of the
Company's insurance subsidiaries are domiciled in the State of
South Carolina and are principally regulated by the South
Carolina Department of Insurance. KIC is domiciled in Kentucky.
The insurance industry has recently received a considerable
amount of publicity because of rising insurance costs, a number
of high profile insurance company insolvencies and a limited
exemption from the provisions of federal anti-trust
prohibitions. Changes in the law are being proposed which
would bring the insurance industry under the regulation of the
Federal government and eliminate current exemptions from anti-
trust prohibitions. It is not possible to predict whether, in
what form or in which jurisdictions any of these proposals might
be adopted, or the effect, if any, on the Company. The NAIC has
developed and recommended for adoption by the state insurance
regulatory authorities various model laws and regulations
pertaining to, among other things, capital requirements for
the insurance industry members.
The NAIC has adopted Risk-Based Capital (RBC) requirements
for property and casualty insurance companies to evaluate the
adequacy of statutory capital and surplus in relation to
investment and
insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy, and other business factors. The
RBC formula will be used by state insurance regulators as an
early warning tool to identify, for the purpose of initiating
regulatory action, insurance companies that potentially are
inadequately capitalized. Compliance is determined by ratio of
the Company's regulatory total adjusted capital to its authorized
control level RBC (as defined by the NAIC). As of December
31, 1994, three of the four insurance subsidiaries have ratios of
total adjusted capital to RBC that are comfortably in excess
of the level which would prompt regulatory action. In
addition, SCIC not only falls below the required RBC
level, but the statutory surplus as adjusted is negative.
See
"Regulatory Activity During 1995".
South Carolina and most states have insurance laws requiring
that property-liability rate schedules, policy or coverage
forms, and other information be filed with the state's
regulatory authority. In many cases, such rates and/or policy
forms must be approved prior to use.
Rate and form regulation and supervision were originally
designed primarily to ensure the financial stability of
insurance companies and to protect policyholders, and were not
designed to protect shareholders or creditors. There can be no
assurance that state or federal regulatory requirements will
not become more stringent in the future and have an adverse
effect on the operations of the Company's insurance
subsidiaries. The Company regularly monitors proposed
legislation in the states in which it currently does business
as it relates to the insurance products sold or anticipated
to be sold in such states. Based on that monitoring, the
Company is not aware of currently proposed legislation in those
states that would materially limit insurance rates for its
products or the Company's ability to raise those rates.
Insurance companies are required to file detailed annual
statements with the state insurance regulators in each of the
states in which they do business, and their business and
accounts are subject to examination by such agencies at any
time. In addition, these insurance regulators periodically
examine the insurer's financial condition,
adherence to statutory accounting principles, and
compliance with insurance department rules and regulations.
South Carolina insurance laws, rather than federal bankruptcy
laws, would apply to the liquidation or reorganization of
the insurance companies.
An examination of SCIC, Consolidated American and
Catawba as of December 31, 1994 is currently in progress.
The
insurance departments of certain other states may also
participate in these examinations. KIC has been examined by
the state of Kentucky as of December 31, 1991.
<PAGE>
Regulation of Dividends and Other Payments from
Insurance
Subsidiaries
The Company is a legal entity separate and distinct from
its subsidiaries. As a holding company, the primary sources of
cash needed to meet its obligations, including principal and
interest payments with respect to indebtedness, are dividends
and other statutorily permitted payments from its subsidiaries
and affiliates.
South Carolina insurance laws and regulations require a
domestic insurer to report any action authorizing
distributions to
shareholders and material payments from subsidiaries and
affiliates at least thirty days prior to distribution or
payment except in limited circumstances. Additionally, those
laws and regulations provide the Department of Insurance with
the right to disapprove and prohibit distributions meeting the
definition of an "Extraordinary Dividend" under the statutes and
regulations. If the ability of the
insurance subsidiaries to pay dividends or make other payments
to the Company is materially restricted by regulatory
requirements, it could affect the Company's ability to service
its debt and/or pay dividends. No assurance can be given that
South Carolina will not adopt statutory provisions more
restrictive than those currently in effect.
If insurance regulators determine that payment of a dividend or
any other payments to an affiliate would, because of the
financial condition of the paying insurance company or otherwise,
be hazardous to such insurance company's policyholders or
creditors, the
regulators may disapprove, prohibit, or mandate return of
such payments that would otherwise be permitted without prior
approval.
Regulatory Activity During 1995
As of December 31, 1994, SCIC reported a statutory surplus of
$7.3 million in the annual statement as filed. Subsequent
thereto, new management obtained input from additional actuarial
consultants and determined that additional reserve
strengthening was required. Recording the additional reserves
resulted in an adjusted statutory capital and surplus deficiency.
As adjusted, the December 31, 1994 statutory capital and surplus
of SCIC is approximately $1.6 million negative.
In order to meet and maintain the minimum statutory
capital and surplus requirement of approximately $3 million,
the following actions have been or will be taken:
1. On January 31, 1995, an additional capital contribution of
$5
million was made to one of the insurance subsidiaries as a
result
of the stock rights offering completed by the parent company.
2. On April 13, 1995, one of the insurance subsidiaries received
an
additional $2 million capital contribution.
3. The Company instituted a plan to non-renew all property
business
effective no later than July 1, 1995. This elimination
of
property exposures will enable SCIC to renegotiate the
catastrophe
reinsurance contract that currently costs the Company $1.3
million
per year.
4. Effective March 15, 1995, all auto liability business written
in
North Carolina will be ceded to the Reinsurance Facility.
5. On April 13, 1995, the Company voluntarily agreed to
temporarily
suspend all new and renewal activity where the Company
retained
net underwriting risk.
6. During 1994, the Company incurred an operating loss for the
first
full year of serving as an MGA for commercial lines business.
The
Company anticipates replacing the underwriter and negotiating
a
new contract so that an operating profit can be achieved.
The first two actions above have subsequently raised the
statutory surplus above the minimum requirement in South Carolina.
Required Participation in State Residual Market Plans and
Insurance Guaranty Funds
Most states in which the Company's property and casualty
insurance group writes business have collective pools,
underwriting associations, reinsurance facilities, assigned risk
plans or other types of residual market plans ("plans"), by
which coverages not normally available in the voluntary
market are shared by all companies
writing that type of business in that state.
Participation is usually based on the ratio of the Company's
direct voluntary business to the total industry business of that
type in that state. As the Company's share of the voluntary
market in a given state changes, tentative participations are
assigned for each policy year
<PAGE>
and are updated as actual data becomes available. The
required participation by the Company in all such plans is
reflected in the results of the Company as soon as reported by
the plans. Estimates are maintained for unreported data, which
generally is limited to the most recent calendar quarter of
activity. Of particular significance are those plans
involving workers' compensation insurance, for which
underwriting results have normally been unfavorable. In
early 1993, the Company withdrew from the workers' compensation
market in all states. During 1994, the Company settled all
obligations to the Workers' Compensation National Reinsurance
Pool.
Most states have enacted insurance guaranty fund laws.
Typically,
these laws provide that when an insurance company is
declared insolvent, the other companies writing the
insurance in that jurisdiction are assessed to pay covered
claims of the insolvent company. The
amount a company is assessed is generally determined
by the amount of premiums written in that state, subject to
a maximum annual assessment ranging from 1% to 2% of direct
written premiums. During 1994, the Company paid $303,000
in such assessments.
Competition and Other Factors
All of the areas of business in which the Company engages are
highly competitive. The principal methods of competing are
pricing and service. Many
competing property and casualty companies have been
in business longer than the Company's property and
casualty
insurance group, have available more diversified lines of
insurance, and have substantially greater financial resources.
The Company responds to this competitive environment by
constantly updating its policy offerings, improving operating
procedures and constantly reviewing expenses. In addition,
effective October 1, 1994, the Company received a smaller book
of business from the South Carolina Reinsurance Facility due to a
competitive bidding process.
Employees
At December 31, 1994, the Company and its subsidiaries employed
a total of 407 employees, which includes 13 part-time
employees. Management's actions during 1994 reduced the number of
employees by 16. Additional reductions have occurred during the
first quarter of 1995, bringing the total number of employees
(including part-time) to 360 at March 31, 1995.
Item 2. Properties
The Columbia, South Carolina home office, containing
approximately 148,000 square feet of occupied space, is owned by
the Company and used primarily by its property and casualty
insurance operations. Some additional premises are leased by the
Company in locations in which they operate.
Management believes that these facilities are adequate for
the current level of operations.
Item 3.Legal Proceedings
The Company has filed suit against the American States
Insurance Company and Lincoln National Corporation for damages
resulting from their unilateral cancellation on August 25, 1992
of its Agreement and Plan of Merger. The Company has reached
a favorable tentative settlement on all issues and expects the
suit to be settled and dismissed during the second quarter of
1995.
Due to the nature of their business, certain subsidiaries
are parties to various other legal proceedings which are
considered routine litigation incidental to the insurance
business.
Item 4.Submission of Matters to a Vote of Security Holders
None/Not Applicable.
<PAGE>
Executive Officers
Name Age Position
John C. West 73 Chairman of the Board
since
September, 1994. Director of
the Company since May,
1994.
Currently, of counsel with the
law firm of Bethea, Jordan and
Griffin in Hilton Head Island,
SC and
professor at the University
of
South Carolina. Former Governor
of South Carolina (1971-75) and
former Ambassador to the Kingdom
of Saudi Arabia (1977-81).
F. Michael Klopp 47 Senior Vice President
since
1992; Vice President
of
Underwriting of Seibels, Bruce
& Company from July, 1986 to
January, 1992; Officer and
Director of certain Company
subsidiaries.
Michael A. Culbertson 46 Vice President of Claims
since
June, 1993; Officer of
certain Company subsidiaries.
Employee of the
Company in various claims
capacities since December, 1974.
Mary M. Gardner 30 Vice President and
Controller
since July, 1994; Officer
and
Director of certain
Company
subsidiaries. From 1989 to
1994,
Assistant Controller of
Mercury
Insurance Group, a group
of
property and casualty
insurance
companies.
Priscilla C. Brooks 43 Corporate Secretary
since
February, 1995;
Assistant Corporate Secretary
since 1982.
Employed with the Company
since
1973.
<PAGE>
PART II
Item 5. Market for the Registrant's
Common
Stock and Related Security Holder Matters
(a) Market Information
The Company's common stock is quoted and traded on The
NASDAQ National Market, trading symbol "SBIG". The
following table sets forth the reported high and low
closing sales prices for such shares for each quarter
during the two fiscal years ended December 31, 1994.
<TABLE>
<CAPTION>
High Low
<S> <C>
<C>
1993
First Quarter $ 2-1/4 $ 1
Second Quarter 1-3/8
13/16
Third Quarter 7/8 3/8
Fourth Quarter 1-3/4
7/16
1994
First Quarter $ 2-1/16 $ 1-
1/4
Second Quarter 2
1-
7/16
Third Quarter 3-1/8 1-
3/4
Fourth Quarter 3 2-
1/4
(b)Holders. As of March 31, 1995, there were
approximately 2,626 holders of record of the
Company's 16,717,686 outstanding shares of common
stock, $1.00 par value.
(c)Dividends. There were no dividends on the
Company's common stock for 1994, 1993 or 1992. See Note
7 of Notes to Financial Statements included under
Item 8 for a description of restrictions on the
Company's present and future ability to pay dividends.
</TABLE>
<PAGE>
Item 6. Selected Financial Data
The following selected financial data for each of the five
years ended December 31, 1994 is derived from the audited
consolidated financial statements of the Company. The selected
data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
accompanying notes included elsewhere herein.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
<C>
1994 1993 1992 1991
1990
(thousands of dollars,
except per share amounts)
FINANCIAL CONDITION
Total investments $ 61,868$118,467 $156,934 $180,096
$20
7,247
Total assets * $ 255,935$324,695 $461,136 $473,235
$48
2,195
Long-term debt $ -$ 1,694 $ 24,934
$
8,853 $ 32,054
Shareholders' equity $ 650$ 13,902 $ 14,219 $
46,669
$ 65,949
Per share .04 1.85 1.90 6.23
8.83
RESULTS OF OPERATIONS
Revenues
Insurance
Property and casualty premiums $ 14,718 $ 55,331 $117,172
$124 ,487 $164,398
Credit life premiums 1,801 3,207 4,247 4,898
4,836
Commission and service income26,593 18,877 16,300 16,052
14,195 Net investment income 6,226 7,090 12,960 17,445
20,095
Realized gains (losses) on investments(6,327)1,969 7,040
3,938 2,697
Other income 2,673 4,697 4,019
5,144
4,870
Total revenues $ 45,684 $ 91,171 $161,738 $171,964
$2
11,091
Loss from continuing operations$
(19,074)$(10,249)$(32,666)$(16,843
) $ (3,605)
Per share (1.72) (1.37) (4.36) (2.25)
(.48)
Income from discontinued operation$ - $ -
$
- - $ - $ 13,925
Per share - - - -
1.87
Income (loss) before extraordinary item$
(19,074)$(10,249)$(32,666)
$(16,843) $ 10,320
Per share (1.72) (1.37) (4.36) (2.25)
1.39
Extraordinary item - benefit of utilization of tax loss carry
forward against income from discontinued operation$ -
$
- - $ - $ - $ 3,433
Per share - - - -
.46
Extraordinary item - gain from extinguishment
of debt, net of income taxes$ - $ 9,235 $
- -
$ - $ -
Per share - 1.23 - - -
Net income (loss) $ (19,074)$ (1,014)$(32,666)$(16,843)$
13,754
Per share (1.72) (0.14) (4.36) (2.25)
1.85
Cash dividends $ - $ - $ -
$
2,696 $ 5,132
Per share - - - .36
.69
PROPERTY AND CASUALTY STATUTORY
UNDERWRITING RATIOS
Losses and loss adjustment expenses
to premiums earned 227.0% 105.3% 107.1% 93.9%
80.9%
Ratio of net premiums written to
ending policyholders' surplus ** 1.06 5.95 2.30 2.13
<PAGE>
(See Item 7 and Notes to Financial Statements included under
Item 8.)
* 1992 and prior year amounts have been reclassified pursuant
to
SFAS 113.
** 1994 ratio is not available.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
The selected financial data and consolidated financial
statements and the related notes thereto should be read in
conjunction with the following discussion as they contain
important information for evaluation of the Company's
financial condition and operating results.
OVERVIEW
The Company has incurred a loss from continuing operations in
each of the last five years. As the first step of a
recapitalization plan, the Company enjoyed an extraordinary gain
during 1993 from the extinguishment of debt, net of income taxes,
in the amount of $9.2 million. In the
next step of the recapitalization plan, the note
payable of $10.0 million was cancelled in June of 1994 and
exchanged for 7 million newly issued shares of the Company's
common stock.
In the nine months following, the Chief Executive Officer,
Chief Operating Officer, and Chief Financial Officer of the
Company each resigned from their respective positions, and the
new 48.3% (as of December 31, 1994) owner obtained
representation on the Board of Directors. The new management
is developing strategic plans to focus on the Company's core
operations, which have been defined to be fee income producing
activities, while reducing the amount of underwriting risk to
which the Company has historically been exposed. Certain
operations that were not considered to be an
integral part of the operations have been sold. These included
the credit life and accident and health operations in 1993, the
premium financing operations in 1994, and a travel agency in
the first quarter of 1995. Each of these operations were sold at
a profit.
During 1994, the Company elected to commute its workers
compensation loss reserves associated with participation in the
National Council on Compensation Insurance. In addition, a long
standing dispute regarding the 1985 sale of American Star
Insurance Company was settled during the year. These two
transactions resulted in an increase in earnings of $3.3
million. However, the transactions also generated a cash
outflow of $25.4 million and necessitated the unplanned sale of
securities at a loss of $2.6 million.
The new management team also engaged additional
actuarial
consultants at the conclusion of the year. Based upon
this actuarial input, loss and adjusting expense reserves were
increased significantly during the fourth quarter. Largely as a
consequence of this reserve strengthening, the Company incurred
a net loss of $19.1 million for the 1994 year. The portion of
incurred losses and loss adjusting expenses that relates to
claims occurring in prior years amounts to $17.0 million.
Absent this development on prior year reserves and the realized
capital losses of $6.3 million, the Company would have been
profitable for the 1994 year.
The significant reserve strengthening recorded during the
fourth quarter of 1994 resulted in a statutory deficit for one
of the insurance company subsidiaries. During the first quarter
of 1995, a
common stock rights offering was successfully completed, and
$5 million of additional capital was contributed to the
insurance subsidiary. In addition, proceeds from a $2 million
promissory note were received by the Company on April 13, 1995.
The $2 million was contributed to the capital of SCIC.
RESULTS OF OPERATIONS
The net loss for 1994 was $19.1 million ($1.72 per share).
The
principal factors influencing the loss were the increase
in
estimated losses and adjusting expenses for claims occurring
in prior years of $20.3 million, the settlement of a long
standing dispute at an additional cost of $2.8 million, realized
losses on security sales of $6.3 million, and an offset in part
by commuting outstanding liabilities with the National Council
of Compensation Insurance in an amount that was $6.1
million less than the outstanding reserves. The operating loss
for 1993 was $10.2 million ($1.37 per share). An extraordinary
gain from the extinguishment of debt in the amount of $9.2 million
($1.23 per share) reduced the net loss for the year to $1.0
million ($.14 per share). The net loss for 1992 was $32.7
million ($4.36 per share) when operating results were dominated
by losses from Hurricane Andrew. The total loss from Hurricane
Andrew was $105.5 million before reinsurance and $35.4 million
after reinsurance.
<PAGE>
Service Activities
Service activities are predominantly related to acting as
a servicing carrier for the South Carolina and North
Carolina automobile reinsurance facilities, and for the WYO
National Flood Insurance Program. The Company bears no
underwriting risk for the business processed and administered as
a servicing carrier.
The Company began in 1993 to produce business in its MGA
capacity for an unaffiliated insurance carrier. The Company
receives a commission for producing, underwriting, and servicing
such business. In addition, the Company began in 1994 to act as a
servicing carrier for the Kentucky Assigned Risk Plan.
The following table reflects the major components of commission
and service revenue and pre-tax operating profit for 1994,
1993, and 1992:
<TABLE>
<CAPTION>
<S> <C>
<C>
<C>
1994 1993
1992 Commission and service revenue:
(thousands of
dollars)
Servicing carrier $ 23,433 $ 16,196 $
15,430 MGA 2,792 1,958 -
Other 368 723
870
Total $ 26,593 $ 18,877 $
16,300
<PAGE>
Pre-tax operating profit $ 15,109 $ 4,321 $
7,085 </TABLE>
The commission and service revenue shown above has been reduced
for certain expenses related to servicing the business. The
significant increase in servicing carrier revenue is primarily
attributable to two factors: 1) a reduction in allocated loss
adjustment expenses associated with the South Carolina
Reinsurance Facility (the "Facility"), which are netted
against the revenue for adjusting claims, and 2) an increase
in the component of the Facility fee
based upon claim payments, which rose substantially during
1994. The increase in MGA commissions is attributable to having
twelve months of operations in 1994, compared to eight months in
1993. The increase in pre-tax operating profit in 1994 is
due to these increased revenues, decreased direct expenses
related to servicing the business and the Company's more
specific identification of expenses by operating segment.
1993 commission and service revenue was reduced $1.4 million due
to a refinement of its estimate of loss adjusting fees
accrued on claims in process but not yet paid, for which the
facility allowance will be received when the claim is paid.
With respect to the Company's servicing carrier activities for
the South Carolina Reinsurance Facility, the South Carolina
legislature passed a joint resolution in 1993 requiring that
servicing carrier contracts, which previously had been awarded
based on application, be put out for bid. The Company,
through this bid process, was selected as one of three servicing
carriers for the facility for a new five year contract period
from October 1, 1994 to September 30, 1999. In response to the
competitive aspect of this bid, the Company had to reduce its
commission rates. While the Company did not retain the
ongoing block of business that it was servicing, which was the
largest of the three blocks, it was awarded the next largest.
The premium volume on the previously held block was $82 million;
the volume of the new block is estimated to be $64 million. This
lower premium volume, in combination with lower servicing
rates, resulted in approximately $2 million less commission
earned in the fourth quarter of 1994 than in the preceding three
quarters.
The Company serviced $29.5 million of flood insurance
premiums through the WYO program in 1994 ($32.7 million in
1993). It is among the ten largest companies acting in
that capacity. The
Independent Insurance Agents of America (the national
association) sponsors the Company country-wide as a WYO company of
preference to provide flood coverage to their members through
special marketing programs of their associations. Approximately
51% of the Company's volume in this program comes from Florida.
Since the Company left Florida's voluntary marketplace in 1993,
the percentage of premium volume generated in that state 1994
has been reduced approximately 7% due to competition from other
WYO companies.
Property and Casualty Underwriting
In 1993, the Company took actions to significantly reduce
premium writings, due to the impact of Hurricane Andrew.
Voluntary
underwriting activities are now being conducted only in the
five states of South Carolina, North Carolina, Georgia,
Kentucky, and Tennessee. The Company's commercial business in
the five states, which had been produced for its
<PAGE>
own account, is now being produced under an MGA arrangement for
the account of an unaffiliated insurance carrier. The Company
also withdrew from the workers' compensation market in all states.
Effective in March, 1995, all automobile liability business
written in North Carolina is being fully ceded to the reinsurance
facility. Additionally, the Company has instituted a plan
to non-renew property business in all states no later
than July, 1995. Consequently, the Company expects to
significantly reduce the current $1.3 million cost of its
catastrophe reinsurance program for the year beginning July 1,
1995.
A.M. Best, the industry's leading rating authority, last
assigned the Company a group rating of NA-5 ("Not Assigned-
Significant Change") because of the significant recapitalization
in 1993. A.M.
Best is an independent company which rates insurance companies
based on their judgement of factors related to the ability
to meet policyholder and other contractual obligations. The
rating is not directed toward the protection of investors. A low
rating would not directly affect the Company's servicing carrier
or MGA operations. The Company believes such a rating would not
have a material impact on its personal lines business as this
business can be maintained because of the quality of its agency
relationships and because these lines are generally not quite so
sensitive to the rating of the insuring company. This rating
is currently under the normal annual review by A.M. Best. The
Company anticipates a rating of NA-9 ("Not Assigned - Company
Request") after review.
Underwriting Results
The Company ceased to underwrite commercial lines in 1993 and
has withdrawn from retaining any underwriting risk in all but
five Southeastern states. The following table presents net
premiums earned and loss ratios for the last three years:
<TABLE>
<CAPTION>
1994
1993
1992
Premiums Loss Premiums Loss Premiums Loss
Earned Ratio Earned Ratio Earned
Ratio
(thousands
of
dollars)
<S> <C> <C> <C> <C>
<C>
<C>
Automobile lines$ 12,655119.3% $ 22,33671.1%$ 45,628 78.5%
All other lines 2,063 887.4 32,995 128.5
71,544
125.3
Totals $ 14,718 227.0% $ 55,331 105.3%$117,172
107
.1%
</TABLE>
Several key ratios are used in the industry to measure
underwriting results. The pure loss ratio is the ratio of
losses incurred to premiums earned. The loss adjustment expense
ratio is the ratio of loss adjustment expenses incurred to
premiums earned. The sum of these two ratios is called the loss
ratio.
In 1993, $9.6 million of premiums written were assumed
as
reinsurance or pool participations ($12.0 million in
1992), substantially all resulting from various residual market
pools. The 1994 amount of $2.2 million was not significant due
to withdrawing from the NCCI pool. Of $131.5 million of ceded
premiums ($145.2 million in 1993 and $152.5 million in 1992),
$116.1 million ($120.1 million in 1993 and $117.5 million in
1992) was related to designated carrier and flood servicing
carrier business.
The following is a breakdown of percentages of net premiums
written in each of the Company's principal states for 1994, 1993,
and 1992:
<TABLE>
<CAPTION>
% of Total Net Premiums Written
<S> <C>
<C>
<C>
1994 1993 1992
Alabama 0.1% 0.0% 4.1%
California 0.4 0.3 0.3
<PAGE>
Florida 2.2 (14.9) 24.5
Georgia 1.6 11.0 9.4
Kentucky 1.9 6.4 9.4
Louisiana 0.0 0.4 1.3
North Carolina 53.4 52.8 22.0
South Carolina 38.6 34.0 17.0
Tennessee 1.6 6.9 5.2
Virginia 0.9 0.9 2.5
All other (0.7) 2.2 4.3
Total 100.0% 100.0% 100.0%
</TABLE>
The percentage of all other states in 1994 is negative due to
the company's withdrawal from various
states during 1993, resulting in
return premium volume during 1994. The percentage for Florida
in 1993 is negative because the Company withdrew from that
state by doing mid-term cancellations of policies in force,
resulting in negative premiums written for the year.
Reserve deficiencies from prior years adversely affected 1994
by $17.0 million, 1993 by $10.5 million, and 1992 by $7.5 million.
Such adverse reserve development is fully discussed following the
tabular ten-year period analysis presented later in the reserves
section.
Results for 1993 were impacted by losses of $4.2 million from
the first quarter "Winter Storm of the Century", as well as a $1
million reduction due to a rate rollback in
the state of North Carolina.
The North Carolina Rate Bureau and Commissioner of Insurance
of North Carolina settled litigation for private passenger
auto insurance rate cases for 1987, 1988,
1989 and 1991. The resulting
consent order agreed to leave the rates as filed by the Rate
Bureau for 1987, 1988 and 1991. However, the settlement for
1989 cases provided the rates approved by the Commissioner
(which were lower than the rates filed by the Rate Bureau) be
upheld, and that member companies issue refunds of premiums
and interest to policyholders
affected by the rates previously implemented by the Rate
Bureau, thus resulting in the rate rollback. This consent order
settled the rate cases for the years stated, and there is no
other litigation pending or anticipated.
Hurricane Andrew dominated 1992 results. Excluding Andrew, both
the by-line and overall loss ratios would have been
significantly decreased.
Beginning in 1993, the Company decided, for risk
management
purposes, to continue to write personal automobile business only
in the states of North Carolina, South Carolina, and Tennessee.
In 1993 the Company began its withdrawal from the
workers'
compensation market in all states. The workers'
compensation business had already been substantially downsized.
As a result of participation in the National Workers
Compensation Reinsurance Pool, the Company had recorded
substantial losses for its allocable share of the business placed
in this residual market. The total loss to the Company
relative to this residual market was $2.8 million in 1993 and
$3.4 million in 1992. During 1994, this residual market
generated a profit of $4.9 million, largely due to a
favorable
impact of $6.1 million upon the commutation of outstanding losses.
In 1993, the Company commuted its $43 million casualty
aggregate
excess of loss reinsurance agreement which it had entered into
in 1989. The Company reduced its reinsurance recoverable on
ceded losses and loss adjustment expenses by $43 million, and
received
$42.9 million in U.S. Treasury Strips. The commutation had
no material effect on underwriting results, or on net income.
Through various types of reinsurance, the Company reduces its
net liability on individual risks. A significant portion of
the
Company's covered risks are located in areas that are vulnerable
to major windstorms. These risks are mitigated in part by
using selective underwriting procedures and purchasing
catastrophe property reinsurance protection to contain major
losses. Although this protection was inadequate with regard to
Hurricane Andrew, the substantial downsizing in premiums, risk
areas, and lines of business should more adequately protect the
Company in the event of a catastrophic event.
Reserves
Loss reserves are estimates at a given point in time of the
amount the insurer expects to pay claimants plus
investigation and litigation costs, based on facts and
circumstances then known. It
can be expected that the ultimate liability in each case will
differ
<PAGE>
from such estimates. During the loss settlement period,
additional facts regarding individual claims may become
known and, consequently, it becomes necessary to refine and
adjust the
estimates of liability.
The liability for losses on direct business is determined using
casebasis evaluations and statistical projections. The
liabilities determined under these procedures are reduced, for GAAP
purposes, by estimated amounts to be received through salvage and
subrogation. The resulting liabilities represent the Company's
estimate of the ultimate net cost of all unpaid losses and LAE
incurred through December 31 of each year. These estimates
are subject to the effects of changing trends in future
claims frequency and/or severity. These estimates are
continually reviewed and, as
experience develops and new information becomes known, the
liability is adjusted as necessary.
The anticipated effect of inflation is implicitly considered
when estimating liabilities for losses and LAE. While anticipated
price increases due to inflation are considered, an increase in
average severity of claims may be caused by a number of factors
that vary with the individual type of policy written. Future
average severity is projected based on historical trends adjusted
for changes in underwriting standards, policy provisions, and
general economic trends. These anticipated trends are monitored
based on actual developments and are modified as necessary. The
Company does not discount its loss and LAE reserves.
In 1993, the Company adopted FASB Statement No. 113,
which significantly redefines reinsurance accounting rules and
provides stringent requirements with respect to risk transfer and
recognition of gains. In addition, the Statement requires
ceded claims liabilities and ceded unearned premiums be
reported as ceded reinsurance assets, rather than as a reduction
to the respective liability. For SAP purposes, the ceded
reinsurance reserves are still used to reduce the liability.
There were no changes in the recognition of net losses incurred
as a result of adopting FASB Statement No. 113. The only effect
on the Company's GAAP financial statements was the reflection of
the gross liability rather than the net liability for reserves.
The Company does not have surplus relief reinsurance
arrangements, multiple-year retrospectively-rated reinsurance, or
assumption reinsurance transfers.
The following table presents, on a GAAP basis, a three-year
analysis of losses and LAE, net of ceded reinsurance recoverable,
with the net liability reconciled to the gross liability per
the balance sheet:
<TABLE>
<CAPTION>
1994 1993 1992
(thousands
of dollars)
<S> <C>
<C>
<C>
Liability for losses and LAE at beginning of year:
Gross liability per balance sheet$ 194,682 $ 257,603 $
22 8,967
Ceded reinsurance recoverable
reclassified as an asset (76,221)
(140,969) (120,388)
Net liability 118,461 116,634
108,579
Provision for losses and LAE for
claims occurring in the current year16,451 47,776
117,997 Increase in estimated losses and LAE
for claims occurring in prior years 16,957
10,509
7,454
33,408 58,285
125,451
Losses and LAE payments for claims occurring during:
Current year 10,291 26,499
54,645
Prior years 62,464 29,959
62,751
72,755 56,458
117,396
Liability for losses and LAE at end of year:
Net liability 79,114 118,461
116,634
Ceded reinsurance recoverable
reclassified as an asset 88,731 76,221
140,969
Gross liability per balance sheet$ 167,845 $ 194,682 $
25 7,603
</TABLE>
As reflected in the preceding table, each year was affected
by reserves from prior years having been deficient in
those earlier
periods. The impact of this adverse development was $17.0
million
in 1994, $10.5 million in 1993, and $7.5 million in 1992.
Adverse
reserve development will be fully discussed following the
tabular ten-year period analysis presented later in this section.
Reserve deficiencies are caused primarily by the
difficulties inherent in estimating the
liability for claims on the casualty
lines of business, where the full extent of the damages can often
be sizable, but not accurately determinable at the
date of estimation.
This situation is further complicated by the fact that the
existence of a claim may not be reported to the Company for a
number of years. <PAGE>
The difference between the year-end net liability for losses and
LAE reported in the accompanying
consolidated financial statements in
accordance with GAAP and that in accordance with SAP was as
follows: <TABLE>
<CAPTION>
December 31,
1994 1993
(thousands
of dollars)
<S>
<C>
<C>
Net liability on a SAP basis, as filed in annual
statement$ 70,854 $ 119,536
Additional reserve strengthening 9,000
- -
Adjusted net liability on a SAP basis 79,854
119,536
Additional GAAP reserve -
890
Estimated salvage and subrogation recoveries recorded on
a cash-basis for SAP and on an accrual basis for GAAP
(740) (1,965)
Net liability on a GAAP basis, at year-end79,114
118,461
Ceded reinsurance recoverable 88,731
76,221
Gross liability reported on a GAAP basis, at year-end$
167, 845 $ 194,682
</TABLE>
The following table reflects the loss and LAE development for
1994 and 1993 on a GAAP basis:
<TABLE>
<CAPTION>
Unpaid Losses Re-estimated as
Cumulative and LAE of one year later
(deficienc
y)
(thousands of dollars)
<S> <C>
<C>
<C>
1994:
Gross liability $167,845
Less: Reinsurance recoverable 88,731
Net liability $ 79,114
1993:
Gross liability $194,682 $220,925
$(26,243)
Less: Reinsurance recoverable 76,221 84,998
(8,777) Net liability $118,461 $135,927
$(17,466)
</TABLE>
The following analysis reflects loss and LAE development on a
SAP basis, net of ceded reinsurance recoverable, for a ten-year
period for retained business only:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December
31,
19841985198619871988198919901991199219931994
(millions of
dollars)
Liability for unpaid losses
and LAE (SAP) 157 169 162 145 129 122 116 112 118 120 80
<PAGE>
Cumulative liability paid through:
One year later 90 101 94 82 104 78 77 63 30 63
Two years later 142 158 142 150 141 121 116 50 84
Three years later 181 193 194 173 166 145 93 91
Four years later 205 235 211 191 183 115
125
Five years later 237 247 224 203 151 139
Six years later 245 257 233 174 170
Seven years later 253 264 208 191
Eight years later 259 241 223
Nine years later 239 255
Ten years later 252
Liability re-estimated as of:
One year later 192 198 181 158 174 135 136 119 129
137
Two years later 207 218 192 197 177 150 147 124 139
Three years later 221 226 229 200 188 156 151 133
Four years later 230 263 233 210 185 159
161
Five years later 258 266 240 204 185 168
Six years later 260 270 235 204 195
Seven years later 263 266 235 213
Eight years later 260 265 243
Nine years later 260 274
<PAGE>
Ten years later 268
Cumulative (deficiency)(111)(105)(81)(68)(66)(46)(45)(21)(21)(17)
</TABLE>
The preceding table presents the development of balance
sheet liabilities on a SAP basis for 1984 through 1993. The top
line of the preceding table shows the initial estimated
liability on a SAP basis. This liability represents the
estimated amount of losses and LAE for claims arising in years
that are unpaid at the balance sheet date, including losses that
have been incurred but not yet reported.
The next portion of the preceding table reflects the
cumulative payments made for each of the indicated years as they
have developed through time. This table has been adjusted for a
modification made to 1994 paid losses on a GAAP basis, not
recorded for statutory net losses incurred. On a statutory
basis, the modification is a reclassification only and has no
effect on income. Additionally, a ceded reinsurance commutation
during 1993 for $43 million reduced the gross asset for
reinsurance recoverable on losses and loss adjustment
expenses. Since investments were increased $42.9 million,
total assets were basically unchanged. Under the gross method
of reporting the liability for losses and LAE,
the
commutation had no effect on liabilities. The 1993 expense
for losses and LAE was also unaffected, because the reduction
in the asset for reinsurance recoverable served to increase the
expense, while the securities received served to decrease the
expense. For
these same reasons, the re-estimated liability shown on the ten-
year development table was also not affected. The 1993 impact
on the cumulative liability paid on the ten-year development
table, which was reduced by the value of the securities
received, was as follows (in millions of dollars):
<TABLE>
<CAPTION>
Cumulative Add
Back
Cumulative
Liability
Commutation Liability
Paid As Reduction
Paid
As
Reported To
Paid
Adjusted
<S> <C> <C>
<C>
1983: 10 years later 185 17
202
1984: 9 years later 239 24
263
1985: 8 years later 241 28
269
1986: 7 years later 208 31
239
1987: 6 years later 174 35
209
1988: 5 years later 151 40
191
1989: 4 years later 115 43
158
1990: 3 years later 93 43
136
<PAGE>
1991: 2 years later 50 43
93
1992: 1 year later 30 43
73
</TABLE>
The next portion of the table shows the re-estimated amount of
the liability based on experience as of the end of each succeeding
year. The estimate is increased or decreased as more information
becomes known about the claims for the year being reported.
The "cumulative (deficiency)" represents the aggregate change in
the estimates over all subsequent years. The effects on income
of the past three years of changes in estimates of the
liabilities for losses and LAE on a GAAP basis are shown in
the reconciliation table.
In evaluating this information, it should be noted each
amount includes the effects of all changes in amounts for prior
periods. This table does not present accident or policy year
development data, which readers may be more accustomed to
analyzing. Conditions and trends that have affected development
of the liability in the past may not necessarily occur in the
future. Accordingly, it may not
be appropriate to extrapolate future redundancies
or
deficiencies based on this table.
After the Company experienced adverse loss reserve development
in 1990 and 1991 on its southeastern business, it was
determined a significant reserve addition was necessary to
bring current and prior year reserves to a level to avoid or
minimize recurrence of adverse development. Accordingly, in the
fourth quarter of 1991 the Company added $18.4 million to its
reserves. The addition was determined through a comprehensive
actuarial review of the Company's direct and net business.
The adverse loss reserve development in 1994, 1993 and 1992
is primarily attributable to business other than the Company's
core southeastern business. Business the Company is required to
accept through various mandated pools and associations
contributed $2.9 million in 1993 ($1.7 million in 1992).
This business relates primarily to the National Workers'
Compensation Reinsurance Pool. The
Company started limiting the burden from this pool
by
restricting direct workers' compensation premiums beginning in
<PAGE>
1990, and in late 1992 made the decision to discontinue writing
any new or
renewal workers' compensation business. During 1994,
liabilities associated with this Pool were commuted,
eliminating exposure to further development for the Pool, and
producing a $6.1 million reduction in the adverse development
for 1994.
The majority of the adverse reserve development in 1989 was
related to accident years 1982-1985 and the business produced by
the former West Coast operation. The Company purchased that
operation in 1981. The problem West Coast lines were primarily
commercial automobile liability and other liability, including
a substantial amount of contractors' and subcontractors'
liability coverages. These claims turned out to have greater
severity and much longer development periods than the Company
had previously experienced. It was not until 1989 that the
full extent of the problems started to become clear. The
Company added $30 million to its reserves for that business in
1989, and until 1992 had no further adverse development. As of
December 31, 1994, the Company has $21.5 million of reserves
established for this business.
A part of the Company's reserve for losses and LAE is set aside
for environmental, pollution and toxic tort claims. The
majority of these claims relate to business written by the West
Coast operation prior to 1986. At December 31, 1993, the
reserves on these claims was $23.4 million. On June 7, 1994,
the Company settled a dispute relative to approximately 400 of
these claims. Any future liability on them is limited to 50%
of the loss and reimbursement of the Company's 50% does not
begin until the other company pays out
subsequent to June 7, 1994 a total of $20 million in losses.
The settlement also has policyholder surplus safeguards to the
benefit of the Company built in to it. Future obligations, if
any, are not likely to become payable for several years.
Of the remaining environmental, pollution and toxic tort claims,
the following activity took place during 1994:
<TABLE>
<CAPTION>
<S> <C>
Pending, December 31, 1993 112
New claims received 24
Claims settled 47
Pending, December 31, 1994 89
<PAGE>
The policies corresponding to these claims were written on a
direct basis. The Company has 100% excess of loss reinsurance
through 1980 of $100,000, and $500,000 after that date. The
claims are reserved as follows ($ in thousands):
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Case reserves $ 2,160
IBNR reserves
9,950
LAE reserves
3,718
Total
$15,828
</TABLE>
The above claims involve 11 Superfund sites, 5 asbestos or
toxic tort claims, 11 underground storage tanks and 62
miscellaneous cleanup sites.
For this direct business there are usually several
different insurers participating in the defense and settlement of
claims made against the insured. Costs and settlements are pro-
rated by either time on the risk or policy limits.
The Company has consistently strived for reserve adequacy. Prior
to 1992, thorough actuarial reviews were performed only at year-
end. In 1992, an interim review was done. Additionally, the
Company refined its estimate of the IBNR component of loss reserves
to help ensure the timely recognition of current year losses
and the adequacy of the IBNR for prior years' losses. At the end
of 1994, the new management engaged an additional consultant to
review the adequacy of loss reserves. Management believes the
reserves, which approximate the amount determined by independent
actuarial reviews, are sufficient to prevent future years'
losses from adversely affecting future periods; however,
establishing reserves is an estimation process and adverse
developments in future years may occur and would be recorded in
the year so determined.
Investments and Realized Gains
The following table shows net investment income, realized gains,
and the amount of the investment portfolio at the end of the year
for 1994, 1993, and 1992:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(thousands of
dollars) Net investment income$ 5,322 $ 5,456
$ 9,973 Realized gains (losses)(6,327) 1,969
7,040 Total investments 61,868 118,467
156,934
</TABLE>
At December 31, 1994, 33.0% of total investments were committed
to short term investments, compared to 9.4% at the end of
1993. Investments in U.S. Government bonds were 87% of the
fixed maturities at the end of 1994, and 96% at the end of
1993. The Company has no "junk bonds" in its portfolio.
In May 1993, FASB issued Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Statement
No. 115 classified securities into three categories: held-to-
maturity, trading, and available-for-sale. The Company's
securities are
currently classified as, and will continue to be classified
as, available-for-sale. Statement No. 115 requires available-for-
sale securities to be reported at estimated market value
and the unrealized gains and losses be reported in a separate
component of shareholders' equity. The Company adopted
Statement No. 115
effective January 1, 1994.
Given the negative cash flow of operations, all fixed maturities
are considered available-for-sale. Accordingly, they are
carried at market value as of December 31, 1994 (lower of
amortized cost or market value at December 31, 1993). The market
values of the fixed maturity investments were $2.4 million below
book value at the end of 1994 compared to $.8 million greater
than the book value at the end of 1993. The weighted average
yield of the fixed maturity investments was 6.0% at the end of
1994 and 4.4% at the end of 1993.
During 1994, the Company was forced to sell bonds to meet
cash requirements while interest rates were rising. This action
resulted in significant realized losses. A declining
interest rate environment in 1993 and 1992 resulted in realized
gains related to fixed maturity and equity investments. The 1993
and 1992 gains were taken primarily in the bond portfolio to
shorten maturities, maximize liquidity, and increase surplus.
<PAGE>
In December 1993, the Company entered into an Investment
Management Client Agreement with Prudential Securities
Incorporated. Prudential Securities serves as the Company's
investment advisor on all portfolio investments.
Other Operations
Investors National Life Insurance Company of South Carolina
was formed in 1993 to assume the run-off of the business written
through Investors National Life Insurance Company, which, prior to
its sale late in 1993, had provided credit life and credit
accident and health insurance through banks, savings and loan
institutions and automobile dealers. The pre-tax (loss) income of
Investors National was $(677,000), $44,000 and $179,000 in
1994, 1993 and 1992, respectively. The loss in 1994 is due
primarily to realized investment losses, compared to gains in
prior years.
In February 1994, Policy Finance Company was formed to handle
the administration of the assets retained in the sale of Premium
Service Corporation. Pre-tax income of PFC was $538,000 in 1994.
PSC's pretax income in 1993 was $470,000 and $262,000 in 1992.
The Company has no plans to continue its own premium financing
activity.
Effective January 1, 1995, Forest Lake Travel Service, a
subsidiary travel agency, was sold. FLT's 1994 pre-tax income
was $95,000, $420,000 in 1993 and $443,000 in 1992. The sale
generated an insignificant gain in the first quarter of 1995.
All of the above operations were sold because of
management's emphasis on restructuring the Company's core business.
All of these sales were made at a gain. Future years'
operations are not
anticipated to be significantly impacted by these sales.
Income Taxes
In 1993, the Company adopted FASB 109, "Accounting for
Income Taxes", which requires the use of the liability method in
accounting for income taxes. Deferred taxes are determined
based on the estimated future tax effects of differences
between the financial statement and tax bases of assets
and liabilities given the provision of the enacted tax laws.
The adoption had no material effect on the financial statements.
Prior to the implementation of FASB 109, the Company accounted
for income taxes using APB Opinion No. 11.
The 1994 provision for income taxes on operations of
$28,820 resulted from certain life insurance taxable income and
state income taxes that cannot be offset by tax operating losses.
The provision also included a benefit from an overaccrual of
expense in prior years.
In 1993, the Company recognized an income tax benefit
from operations of $4.8 million and a $5.6 million income tax
expense on the extraordinary gain from debt extinguishment.
The net tax expense of $797,000 includes the tax effect
of certain life insurance taxable income and state income tax
expense that cannot be offset by tax loss carryovers. The 1992
provision for income taxes of $58,000 resulted from state taxes
on subsidiary operations.
As of December 31, 1994, the Company has a $87.7 million tax
net operating loss carryforward and a $6.6 million capital
loss carryforward. Management anticipates incurring income tax in
future years only to the extent that the carryforwards cannot
fully offset the alternative minimum tax, certain life insurance
taxable income, or state income taxes, or until the carryforward
is fully utilized or limited. The unused loss carryforwards are
generally subject to limitations with respect to changes in
ownership, as defined by the Internal Revenue Code.
Subsequent to year-end, the Company completed a right's offering
and there has been a stock purchase by investors. The
possibility exists that a change in ownership, as defined by
the Internal Revenue Code, may have occurred, although an
actual determination with respect thereto has not been
definitely made. If a change in ownership has occurred or does
occur, the unused loss carryforwards will be subject to certain
limitations.
Based on its recent earning history, the Company has determined
that an asset valuation allowance of $46.0 million should be
established against deferred taxes at December 31, 1994.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity relates to the Company's ability to produce
sufficient cash to fulfill contractual obligations, primarily to
policyholders. Sources of liquidity include premium
collections, service fee income, investment income and sales and
maturities of investments.
<PAGE>
As the Company deliberately downsizes its exposure to
underwriting risk, premium collections decline at a much faster
pace than the decline in claim payments. Consequently,
operations have used net cash in operating activities of $44.6
million in 1994, $43.6 million in 1993, and $22.3 million in 1992.
During 1994, cash disbursements included $25.4 million for the
non-recurring commutation of NCCI
liabilities and a dispute settlement regarding American Star.
The
1993 cash used in operating activities would have been $43
million greater than the actual cash drain had it not been
for a nonrecurring commutation of reinsurance ceded which
produced a cash receipt in the amount of the reinsurance
recoverable. The 1992 cash flow from operations would have been
positive had it not been for $35.4 million in Hurricane Andrew
losses.
The 1994 cash used in operating activities necessitated
unplanned liquidation of long term bonds. Because this
occurred during a period of declining bond values, the Company
incurred $6.3 million of realized losses on the sale of
these securities. While additional cash drain from operations
is anticipated for 1995, the expected amount is less than the
$20.4 million of cash and temporary investments held at December
31, 1994. Hence, no unplanned sales of securities are anticipated
during 1995.
There have been no shareholder dividends declared during the
last three years, and there is not a likelihood that any
will be considered during 1995. Long-term debt outstanding has
been reduced to an insignificant amount as a consequence of the
debt forgiveness during 1993, and the exchange of debt for common
shares during 1994.
The volume of premiums that the property and casualty
insurance subsidiaries may prudently write is based in part on the
amount of statutory net worth as determined in accordance
with applicable insurance regulations. The National
Association of Insurance Commissioners has adopted risk
based capital requirements for property and casualty insurance
companies to evaluate the adequacy of statutory capital and
surplus in relation to investments and insurance risks such as
asset quality, asset and liability matching, loss reserve
adequacy, and other business factors. The RBC formula will be
used by state insurance regulators as an early warning tool to
identify, for the purpose of initiating regulatory action,
insurance companies that are potentially inadequately
capitalized. Compliance is determined by ratio of the companies'
regulatory total adjusted capital to its authorized control level
RBC (as defined by the NAIC). Three
insurance subsidiaries of the Company have
December 31, 1994 ratios of total adjusted capital to RBC that
are comfortably in excess of the level which would prompt
regulatory action.
One of the Company's insurance subsidiaries fell below the
minimum required statutory surplus at December 31, 1994. During
the first quarter of 1995, the Company completed a stock rights
offering and contributed $5 million of additional capital to the
subsidiary. In
addition, an investor has provided $2 million additional capital
in exchange for a promissory note during April, 1995 to strengthen
the statutory surplus for the subsidiary. These capital infusions
will allow the subsidiary to meet the minimum capital
requirements, but will leave little margin for additional
operating losses without further capital infusions. The
subsidiary has submitted a plan to the regulators which includes
further reductions in the level of direct written premiums.
Item 8. Financial Statements and Supplementary Data
(continued on following page)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
The Seibels Bruce Group, Inc.:
We have audited the accompanying consolidated balance sheets of
The Seibels Bruce Group, Inc. (a South Carolina corporation) (the
Parent Company) and its subsidiaries (collectively the Company
), as of December 31, 1994 and 1993, and the related
consolidated statements of operations, changes in shareholders
equity and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements and
the schedules referred to below are the responsibility of the
Company s management. Our responsibility is to report on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
report.
As more fully discussed in Note 1, the Company has
sustained significant operating losses during each of the past
three years. Further, as of December 31, 1994, the Company s
primary insurance subsidiary, South Carolina Insurance Company (
SCIC ), reported an adjusted consolidated statutory capital and
surplus deficiency of approximately $1.6 million, which is
substantially below the minimum required by the State of South
Carolina, Department of Insurance ( DOI ). Failure
to meet statutory capital minimums exposes the
parent company and such subsidiary insurance companies to
regulatory actions and or agreements with the DOI. The
regulators have the authority to take control of the subsidiary
insurance companies if sufficient capital levels are ultimately
not achieved. In the event the DOI should take control of the
subsidiary insurance companies, the shareholders would lose
their respective ownership interests, therein.
Subsequent to year end and as discussed in Note 13, $7
million of additional statutory capital was contributed directly
to SCIC and its subsidiaries. Although results of operations for
the period subsequent to December 31, 1994 have not been
quantified, management believes that SCIC currently meets the
minimum statutory capital and surplus requirements of the DOI.
The Company is being closely monitored by the DOI as it
formulates its future operating plans which include
restructuring of its business to minimize operating losses
and restore future profitable operations, controlling the
significant operating cash outflows and raising additional
capital. There can be no assurance that the Company will be
successful in consummating and executing such a plan or in
raising additional capital. If the Company is unable to
achieve such an operating plan or raise additional capital,
continuing operating losses could further deplete statutory
capital to a level which would prompt regulatory action,
including taking control of SCIC. SCIC owns substantially all
assets of the Company and all subsidiaries with operations.
Because of the erosion of the Company s capital base and the
inability to limit losses from claims, many of which occurred
years ago, it is unlikely that the Company can continue
to operate indefinitely in the absence of raising
additional capital.
Significant losses and uncertainties existed in prior years and
our reports on the
1993 and 1992 financial statements expressed
substantial doubt about the ability of the Company to continue as
a going concern. The continuing nature of these matters during
1994 again raise substantial doubt about the ability of the
Company to continue as a going concern. The ability of the
Company to continue
as a going concern is dependent on many factors including
regulatory action and third-party reactions to the minimal
statutory capital and continuing operations. The consolidated
financial statements have been prepared based on the company
continuing as a going concern, generally
reflecting the historical cost basis
of
accounting. Accordingly, the consolidated balance sheet does
not
include the fair value or liquidation value of all assets
and liabilities. In addition, the consolidated financial
statements do not include any adjustments that might result from
the Company not continuing as a going concern, regulatory
actions or third-party reactions to the minimal statutory
capital and surplus levels and continuing operating losses.
Because of the significance of the matters discussed in
the preceding paragraph, we are unable to express, and we
do not express, an opinion on the 1994 financial statements
referred to above. However, in our opinion, the 1993 and
1992 financial statements referred to above present fairly,
in all material respects, the consolidated financial position
of The Seibels Bruce Group, Inc. and subsidiaries, as of
December 31, 1993 and the consolidated results of their
operations and their cash flows for each of the two years in
the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
<PAGE>
As explained in Note 3 to the financial statements,
effective January 1, 1994, the Company changed its method of
accounting for investments in debt securities.
Our audits were made for the purpose of rendering a report on
the basic financial statements taken as a whole. The Schedules I,
III, V, VI, VIII and X as of December 31, 1994 and for each of
the three years in the period ended December 31, 1994 are
presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the
auditing procedures applied in our audit of the basic
financial statements. For the reasons discussed in the
third and fourth paragraphs, we are unable to express, and we
do not express, an opinion on the 1994 information included in
the schedules referred to above. However, in our opinion,
the 1993 and 1992 information in the schedules referred to above
does fairly state in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
Columbia, South Carolina
April 14, 1995
<PAGE>
<TABLE>
<CAPTION>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1994
1993
<S>
<C>
<C>
ASSETS
Investments:
Fixed maturities, 1994 at market (cost of $41,321,214),
1993 at amortized cost, (market of $102,622,878)$38,940,939
$1 01,781,569
Equity securities available-for-sale, at market (cost of $540,655
at 1994 and $1,589,039 at 1993) 458,492 3,164,135
Short-term investments, including temporary cash
investments of $20,243,331 ($10,205,364 at 1993)20,457,513
11, 135,051
Mortgage loan on real estate, at estimated realizable value (cost
of
$2,949,080 at 1994 and $2,890,018 at 1993)1,965,000
2,277,478 Other long-term investments 46,092
108,4
85
Total investments 61,868,036 118,466,718
Cash, other than invested cash - 2,013,529
Accrued investment income 808,774 1,086,531
Premiums and agents' balances receivable, net13,027,605
13,717,594 Premium notes receivable
93,162 11,213,198
Reinsurance recoverable on paid losses and loss adjustment
expenses 30,277,569
33,844,870
Reinsurance recoverable on unpaid losses and loss
adjustment expenses
88,730,898 76,220,368
Property and equipment, net 6,270,334 5,329,019
Prepaid reinsurance premiums - ceded business48,482,673 54,926,144
Deferred policy acquisition cost 899,053
3,841,646
Other
assets
5,476,468 4,035,842
Total assets $255,934,572
$324,695,459
LIABILITIES
Losses and claims:
Reported and estimated losses and claims - retained business$64,
220,902 $97,884,221
ceded business 74,140,671
65,731,904
Adjustment expenses - retained business 14,893,169 20,577,200
ceded business
14,590,227 10,488,464
Unearned premiums:
Property and casualty - retained business 6,945,280 7,126,591
ceded business 48,482,673
54,926,144
Credit Life
1,570,468
3,664,488
Balances due other insurance companies 17,264,627
25,922,062
Notes
payable
439,167 11,933,511
Current income taxes payable 148,966
719,977
Other liabilities and deferred items 12,588,570
11,819,283
Total
liabilities
255,284,720 310,793,845
COMMITMENTS AND CONTINGENCIES (Notes 1, 10, 11 and 13)
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000 shares,
none issued and outstanding -
- -
Common stock, $1 par value, authorized 25,000,000 shares, issued
and outstanding 14,500,534 shares (7,500,534 shares at
1993)14,500
,534 7,500,534
Additional paid-in capital
30,983,592
27,983,592
Unrealized gain (loss) on securities (2,615,004)
1,562,557
Retained
deficit
(42,219,270) (23,145,069)
Total shareholders' equity 649,852
13,901,614
Total liabilities and shareholders' equity$255,934,572
$324,69 5,459
</TABLE>
<PAGE>
The accompanying notes are an integral part of these
consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE SEIBELS BRUCE GROUP, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS
<S> <C> <C> <C>
Year Ended December 31,
1994
1993 1992
Premiums:
Property and casualty premiums earned $ 14,718,248 $
55,331,227
$ 117,171,985
Credit life premiums earned 1,800,585
3,206,888
4,246,575
Commission and service income, net 26,592,731
18,877,138
16,299,858
Net investment income 5,321,528 5,455,518 9,973,406
Other interest income 904,898 1,634,822 2,986,798
Realized (losses) gains on investments
(6,327,250)1,968,663 7,039,904
Other income 2,673,178 4,697,093 4,019,239
Total revenue 45,683,918 91,171,349 161,737,765
Expenses:
Property and casualty:
Losses and loss adjustment expenses 33,407,690
58,285,055 125,450,865
Policy acquisition costs 5,538,067
17,627,677
35,709,144
Credit life benefits 769,664 1,374,318 1,538,383
Interest expense 321,365 2,526,753 1,853,248
Other operating costs and expenses 24,692,513
26,368,235
29,794,472
Total expenses 64,729,299 106,182,038 194,346,112
Loss before income taxes and extraordinary item
(19,045,381) (15,010,689) (32,608,347)
Provision (benefit) for income taxes 28,820 (
4,761,463)
58,105
Loss before extraordinary item
(19,074,201)(10,249,226)
(32,666,452)
Extraordinary item - gain from extinguishment
of debt, net of income taxes
- -
9,235,065 -
Net loss
$(19,074,201)
$ (1,014,161) $(32,666,452)
Per share:
Loss before extraordinary item $(1.72)
$(1.37)
$(4.36)
Extraordinary item - 1.23 -
Net loss $(1.72)
$(0.14)
$(4.36)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Year Ended December 31,
1994 1993
1992
Common stock outstanding:
Beginning of year $ 7,500,534 $ 7,500,534 $ 7,495,141
Stock issued under employee benefit
plans and dividend reinvestment plan - - 5,393
Stock issued in exchange for cancellation
of note payable 7,000,000 -
- -
End of year $ 14,500,534 $ 7,500,534 $ 7,500,534
Additional paid-in capital:
Beginning of year $ 27,983,592 $ 27,983,592$ 27,960,216
Stock issued under employee benefit
plans and dividend reinvestment plan - - 23,376
Stock issued in exchange for cancellation
of note payable 3,000,000
- -
- -
End of year $ 30,983,592 $ 27,983,592 $ 27,983,592
Unrealized gain (loss) on securities, net
of deferred income taxes:
Beginning of year $ 1,562,557 $ 865,445 $ 678,523
Cumulative effect of change in accounting -
adoption of FASB 115 841,309 - -
Change in unrealized gains on
securities (5,018,870) 697,112 186,922
End of year $ (2,615,004)$ 1,562,557
$
865,445
Retained (deficit) earnings:
Beginning of year $ (23,145,069)$ (22,130,908)$ 10,535,544
Net loss (19,074,201)
(1,014,161)
(32,666,452)
End of year $ (42,219,270)$ (23,145,069)$ (22,130,908)
Total shareholders' equity $ 649,852 $ 13,901,614 $ 14,218,663
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Increase
(Decrease) In Cash And Temporary Cash Investments
<S> <C>
<C>
<C>
Year Ended December 31,
1994
1993 1992
Cash flows from operating activities:
Net loss $ (19,074,201)$
(1,
014,161) $ (32,666,452)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 739,241 638,066 748,149
Realized losses (gains) on investments 6,327,250
(1,968,663)(7,03 9,904)
<PAGE>
Extraordinary gain from extinguishment of debt*- (14,793,62
7) -
Change in assets and liabilities:
Accrued investment income 277,757 353,546 916,415
Premium and agents' balances receivable, net 689,989
13,292,326 2,881,019
Premium notes receivable 11,120,036 (383,754) 390,966
Reinsurance recoverable on losses and
loss adjustment expenses (8,943,229)59,882,334
(17,147,3
96)
Prepaid reinsurance premiums - ceded business6,443,471
6,341,845 (1,682,915)
Deferred policy acquisition costs2,942,593 11,942,635
2,958,270 Unpaid losses and loss adjustment
expenses(26,836,820)(62,920,7
02) 28,635,352
Unearned premiums
(8,718,802)(46,070,771)(7,323,9
34)
Balances due other insurance companies(8,657,435)2,118,230
(1,0 07,134)
Current income taxes payable (571,011) 784,380 1,038
Funds held by reinsurers 96,668 1,556,457
(22,787)
Outstanding drafts and bank
overdraft(3,335,943)(10,338,384)8,5 13,654
Other - net 2,892,917 (3,007,022)
(42
0,118)
Total adjustments (25,533,318)(42,573,104)
10,400, 675
Net cash used in operating
activities(44,607,519)(43,587,265)(22,26
5,777)
Cash flows from investing activities:
Proceeds from investments sold 143,608,871 63,794,432
215,067,
928
Proceeds from investments matured 45,000 11,060,000 12,230,0
00
Costs of investments acquired
(88,041,144)(93,565,023)(165,44
4,304)
Change in short-term investments - net 715,505 589,038 328,630
Proceeds from property and equipment sold655,455 667,313 239,343
Purchases of property and equipment (2,418,219)
(42,145) (76,676)
Net cash provided by (used in) investing activities 54,565,468
(1 7,496,385) 62,344,921
Cash flows from financing activities:
Employee benefit plans and dividend reinvestment plan- -
28,769
Repayment of notes payable
(1,933,511)(219,319)(6,900,921)
Cash dividends paid -
- -
(674,562)
Net cash used in financing activities (1,933,511) (219,319)
( 7,546,714)
Net increase (decrease) in cash and temporary
cash investments 8,024,438
(61,302,969)32,532,
430
Cash and temporary cash investments, January 1 12,218,893
73,52
1,862 40,989,432
Cash and temporary cash investments, December 31$ 20,243,331 $
1 2,218,893 $ 73,521,862
Supplemental Cash Flow Information:
Cash paid for - Interest $ 210,409 $ 246,392 $
1,911,945
Income taxes 599,831 4,058 45,532
Noncash Investing Activities:
Net receivables for investments sold -$ 39,326 $
39,291
Noncash Financing Activities:
Notes payable exchanged for common stock$ 10,000,000 - -
Notes payable exchanged for accrued interest439,167 - -
Extinguishment of debt through cancellation of debt in exchange
for new debt - $
14,793,627
- -
* Gain before taxes, from purchase by new investors of previous
$23
million term loan, which was exchanged for a new $10 million
note. See Note 1 of Notes to Consolidated Financial
Statements for details.
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
The Seibels Bruce Group, Inc. ( SBIG and the Company )
has reported operating losses for each of the past three
years. For the years ended December 31, 1994, 1993 and
1992, losses before extraordinary items were $19,074,201,
$10,249,226 and $32,666,452, respectively; and net cash
used in operating activities was $44,607,519,
$43,587,265, and $22,265,777, respectively. These
results have impaired the underwriting operations of the
Company, including the ability to write and retain
business. The Company voluntarily curtailed premium
writing and has changed its core operations from a risk
taker to activities generating fee income to function as
a general agent for insurers. New management is
developing and implementing a responsive operating
plan. All of these activities are designed to
stabilize the financial condition of the Company. There
is, however, no certainty that the Company can or will
achieve its operating objectives.
As of February 28, 1995, regulatory filings by
the
subsidiary insurance companies indicated
consolidated statutory capital and surplus of
approximately $7.3 million at December 31, 1994,
which was in excess of required minimums. Subsequent
thereto, management obtained input from additional
actuarial consultants and determined that additional
reserve strengthening was required. Such
adjustments, if reflected retroactively in the
regulatory filings, would have resulted in a deficiency in
the December 31, 1994 consolidated statutory capital
and surplus of approximately $1.6 million, which is
substantially below the minimum required by the State of
South Carolina, Department of Insurance ("DOI").
Failure to meet statutory capital minimums exposes the
parent company and such subsidiary insurance companies
to regulatory actions and or agreements with the DOI.
The regulators have the authority to take
control of the subsidiary insurance companies if
sufficient capital levels are ultimately not achieved.
In the event the DOI should take control of the
subsidiary insurance companies, the shareholders would
lose their respective ownership interests, therein.
Subsequent to year-end, $7 million of additional
statutory capital was contributed directly and
indirectly to SCIC (See Note 13) as follows:
The Company raised approximately $5.1 million through
a rights offering, which was recorded in the equity
accounts in January, 1995, $5 million of which was
contributed as statutory surplus to SCIC. See Note 13.
Effective April 13, 1995, the Company executed a note
in favor of the new investors for $2 million, the
proceeds of which were contributed as statutory
surplus directly to SCICand its subsidiaries. See Note
13.
Although results of operations for the period subsequent
to December 31, 1994 have not been quantified,
management believes that SCIC currently meets the
minimum statutory capital and surplus requirements of the
DOI.
In December, 1993, the Company and new investors
implemented a recapitalization plan whereby the previous
$23 million loan and accrued interest was purchased
from the original holder by the new investors and
exchanged for a new $10 million note, at 8.5%, due June
30, 1994 and secured by 100% of the stock of South
Carolina Insurance Company. The new investors then
agreed to exchange the new $10 million note for
7,000,000 shares of the Company s common stock.
In
June, 1994, the note was returned to the Company, the
shares were delivered to the investors and an interest
note equal to the accrued interest was given to the new
investors. In 1993, the Company recognized an after tax
gain of $9,235,065 due to reducing the debt to $10
million. In June 1994, the Company recognized an
increase in shareholders equity
of
$10 million.
The Company is working closely with the regulators as
it formulates its future operating plans which
include restructuring of its business to minimize
operating losses and restore future profitable
operations, controlling the significant operating cash
outflows and raising additional capital. While the
Company has been successful in obtaining the necessary
financing to date, there can be no assurance that the
Company will be successful in consummating and
executing its operating plan or in raising
additional capital. If the
Company is unable to achieve such an
operating plan or raise additional capital,
continuing operating losses could further deplete
statutory capital to a level which would prompt
regulatory action, including taking control of SCIC
and/or its subsidiaries. Because of the reduction of
the Company s capital base, the Company could be
unable to operate indefinitely in the absence of raising
additional capital. These matters raise substantial doubt
about the ability of the Company to continue as a
going concern. The ability of the Company to continue as
a going concern is dependent on many factors
including regulatory action and third-party reactions to
the minimal statutory capital and continuing
operations. The consolidated financial statements
have been prepared based on the Company continuing as
a going concern, generally reflecting the historical
cost basis of accounting. Accordingly, the
consolidated financial statements do not include any
adjustments that might result from the Company
not continuing as a going concern, regulatory actions
or third-party reactions to the minimal statutory capital
and surplus levels and continuing operating losses.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is the parent company of SCIC. SCIC and
its property and casualty insurance subsidiaries
underwrite multi-line property and casualty
insurance, provide servicing carrier activities for
several large state and federal insurance facilities
and provide MGA services to another insurance company.
<PAGE>
Principles of Consolidation
The accompanying consolidated financial statements have
been prepared in conformity with generally accepted
accounting principles (GAAP) and include the accounts of
the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions
have been eliminated in consolidation.
Prior Year Reclassifications
Certain classifications previously presented in
the consolidated financial statements for prior periods
have been changed to conform to current classifications.
Statutory Reporting
The Company's insurance subsidiaries' assets,
liabilities and results of operations have been reported
on the basis of GAAP, which varies from statutory
accounting practices ("SAP") prescribed or permitted
by insurance regulatory authorities. The principal
differences between SAP and
GAAP, are that under SAP: (i) certain assets that are
not admitted assets are eliminated from the balance sheet;
(ii) acquisition costs for policies are expensed as
incurred, while they are deferred and amortized over
the estimated life of the policies under GAAP; (iii)
no provision is made for deferred income taxes;
(iv) the timing of establishing certain reserves is
different than under GAAP; and (v) valuation
allowances are established against investments.
Each of the Company's insurance subsidiaries
must file with applicable state insurance
regulatory authorities an "Annual Statement" which
reports, among other items, net income (loss) and
shareholders' equity (called "surplus as regards
policyholders" in property and casualty reporting).
Net income and shareholders' equity of the credit
life insurance subsidiary as determined in accordance
with statutory accounting practices are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Year Ended December 31,
1994 1993
1992
Net income $ 749,526 $
466,912 $ 220,191
Shareholders' equity ("surplus as regards policyholders")$ 4,035,583 $
6,310,554 $ 3,991,410
</TABLE>
A reconciliation between GAAP net loss and statutory net
income (loss) of the property and casualty insurance
subsidiaries is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
1994 1993 1992
(thousands of
dollars)
GAAP loss before extraordinary item$ (19,074)$ (10,
249) $ (32,666)
Increase (decrease) due to:
Deferred policy acquisition costs2,943 11,942 2,958
Salvage/subrogation recoverable and reserves1,225 677
2,027
Deferred reinsurance benefits (155) (1,324) (2,169)
Timing difference on contingency accrual - 2,424
(2,424)
Parent Company GAAP-only items
(primarily interest expense and income taxes)181 1,377 1,302
Intercompany dividends from Investors National Life 2,500 -
- -
Adjustments to premium and loss reserves (1,833) - -
Other 606 (154) (344)
Adjusted statutory net income (loss)(13,607) 4,693 (31,316)
Additional reserve strengthening 9,000 - -
<PAGE>
Other adjustments 492 - -
Statutory net income (loss) - property/casualty, as
filed
in annual statement $ (4,115) $ 4,693 $(31,316)
</TABLE>
A reconciliation between GAAP shareholders' equity and
statutory capital and surplus is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Year Ended December 31,
1994 1993 1992
(thousands of
dollars)
GAAP shareholders' equity $ 650 $ 13,902 $ 14,219
Increase (decrease) due to:
Deferred policy acquisition costs (899) (3,842) (15,784)
Parent Company loan - 10,000 23,000
Adjustments to premiums and loss reserves (1,874) - -
Other 559
(2,708)
(2,995)
Adjusted statutory surplus - property/casualty(1,564) 17,352 18,440
Additional reserve strengthening 9,000 - -
Other adjustments (107) - -
Statutory surplus - property/casualty, as filed
in annual statement $ 7,329 $ 17,352 $ 18,440
</TABLE>
Policy Acquisition Costs
Policy acquisition costs attributable to property
and
casualty operations represent that portion of the cost
of writing business that varies with and is primarily
related to the production of business. Such costs are
deferred and charged against income as the premiums are
earned. The
deferral of policy acquisition costs is subject to
the application of recoverability tests to each primary
line or source of business based on past and
anticipated underwriting results. The deferred policy
acquisition costs that are not recoverable from future
policy revenues are expensed. The Company has considered
anticipated investment income in determining premium
deficiency which would reduce the recoverable policy
acquisition cost. Policy acquisition costs for
property and casualty operations are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1993
Deferred at beginning of year $ 1,299,542$ 11,990,142
Costs incurred and deferred during year:
Commissions and brokerage 2,541,823 4,916,439
Taxes, licenses and fees 544,070 608,153
Other 1,152,632 1,412,485
Total 4,238,525 6,937,077
Amortization charged to income during year(5,538,067)
(17 ,627,677)
Deferred at end of year $ - $
1,299,542 </TABLE>
Deferred policy acquisition costs attributable to the
credit life operation were $899,053 at December 31,
1994 and $2,542,104 at December 31, 1993. These costs
represent that portion of the cost of writing business
which is deferred and charged against income, through
other operating costs and expenses, as premiums are
earned.
<PAGE>
Property and Casualty Premiums
Property and casualty premiums are reflected in income
when earned as computed on a monthly pro-rata method.
Written premiums and earned premiums have been
reduced by reinsurance placed with other
companies, including substantial amounts related to
business produced as a servicing carrier. A
reconciliation of direct to net premiums, on both a
written and an earned basis is as follows (See Note
10):
<TABLE>
<CAPTION>
1994 1993
1992
(thousands of dollars)
Written Earned Written
Earned
Written Earned
<S> <C> <C> <C> <C> <C> <C>
Direct$ 140,683 $ 146,481 $ 153,073 $ 196,386 $ 250,147
$
254,378
Assumed 5,332 2,275 9,572 10,503
11,994
13,565
Ceded(131,478)(134,038) (145,216) (151,558) (152,454)
(150 ,771)
Net $ 14,537 $ 14,718 $ 17,429 $ 55,331 $ 109,687
$ 117,172
</TABLE>
The amounts of premiums pertaining to
catastrophe reinsurance that were ceded from earned
premiums during 1994, 1993 and 1992 were $1,693,752,
$4,409,596, and
$7,177,797 respectively.
Credit life premiums are reflected in income when earned
as computed on a monthly pro-rata method for level
term premiums and on a sum-of-the-digits method for
decreasing term premiums.
Property and Casualty Unpaid Loss and Loss
Adjustment Expense
The liability for property and casualty unpaid losses
and loss adjustment expenses includes:
(1) An accumulation of formula and case
estimates
for losses reported prior to the close of
the accounting period.
(2) Estimates of incurred-but-not-reported
losses
based upon past experience and
current
circumstances.
(3) Estimates of loss adjustment
expense
liabilities by applying percentage factors to
the unpaid loss reserves, with such factors
determined on a by-line basis from past results
of paid loss adjustment expenses to paid losses.
(4) The deduction of estimated amounts
recoverable
from salvage and subrogation.
(5) Estimated losses as reported by
ceding
reinsurers.
A part of the Company's reserve for losses and LAE is
set aside for environmental, pollution and toxic tort
claims. The majority of these claims relate to business
written by the West Coast operation prior to 1986. At
December 31, 1993 the reserves on these claims was
$23.4 million. On June 7, 1994 the Company settled a
dispute relative to approximately 400 of these claims,
and any future liability on them is limited to 50% of
the loss and reimbursement of the Company's 50% does
not begin until the other company pays out a post
June 7, 1994 total of $20 million. The
settlement also has policyholder surplus safeguards
inuring to the benefit of the Company built in to
it. Future obligations, if any, are not likely to
become payable for several years. (See Note 11)
The policies corresponding to these claims were written on
a direct basis. The Company has 100% excess of
loss reinsurance through 1980 of $100,000, and $500,000
after that date. At December 31, 1994, the claims are
reserved as follows ($ in thousands):
Case reserves $ 2,160
IBNR reserves 9,950
LAE reserves 3,718
Total $15,828
The above claims involve 11 Superfund sites, 5 asbestos
or toxic tort claims, 11 underground storage tanks
and 62 miscellaneous clean-up sites.
<PAGE>
For this direct business there are usually several
different insurers participating in the defense and
settlement of claims made against the insured. Costs and
settlements are pro-rated by either time on the risk or
policy limits.
For the direct retained and assumed reinsurance without
LAE claim limits, the Company is only one of a
group of insurers. Each member of the group
participates in the handling and monitoring of the
claim and the group selects one attorney to defend the
case. Legal fees are prorated among the group based on
each member's number of years of coverage. For assumed
reinsurance with LAE limits, claims represent upper
level excess policies assumed from the London market.
As such, the primary insurers handle claim settlements
and the Company pays its portion of the claim and LAE,
up to its retention amounts, based on the
settlement amounts determined by the primary insurers.
Management, in conjunction with the Company's
consulting actuaries, performs a complete review of
the above components of the Company's loss reserves to
determine the adequacy of such reserves.
Management believes the
reserves, which approximate the amount determined
by
independent actuarial reviews, are sufficient to
prevent prior years' losses from adversely affecting
future periods; however, establishing reserves is an
estimation process and adverse developments in future
years may occur and would be recorded in the year so
determined.
Losses are recognized as incurred and as estimated by
the procedure previously described. Losses and LAE
incurred have been reduced by recoveries made and to be
made from reinsurers, which also includes substantial
amounts related to business produced as a servicing
carrier, as follows: <TABLE>
<CAPTION>
<S> <C> <C> <C>
1994
1993
1992
Losses incurred
$145,930,161$147,306,704$20
0,369,214
Loss adjustment expenses 19,428,579
15,954,003
23,544,928
$165,358,740$163,260,707$22 3,914,142
</TABLE>
The following table summarizes net property and
casualty losses and LAE incurred:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994
1993
1992
Estimated losses and LAE incurred$202,052,840
$221,545,762 $349,365,007
Estimated reinsurance loss recoveries
on incurred losses (165,358,740)(163,260,707)(223,914
,142)
NCCI commutation (1) ( 6,138,217) - -
American Star commutation (2)
2,851,807
- - -
$ 33,407,690 $ 58,285,055 $
125,4 50,865
</TABLE>
(1) Until March 31, 1994, the Company participated in
the National Workers' Compensation Reinsurance Pool
("NCCI"), which is a national reinsurance fund for
policies allocated to insurers under various
states' workers' compensation
assigned risk laws for companies that cannot
otherwise obtain coverage. On September 30, 1994,
the Company satisfied its obligation with respect to all
outstanding and future claims associated with the
Company's participation for a cash payment of $16.2
million. The redundancy in the losses and claim reserves,
as a result of its settlement, of $6.1 million reduced
1994 loss and LAE incurred.
(2) In June, 1994, the Company made a cash payment in
the amount of $10.3 million for a settlement of
pending arbitration relating to indemnification of
American Star for certain loss and LAE reserves.
Recorded reserves amounted to $7.4 million
before the settlement. This transaction
increased loss and LAE incurred by $2.9 million.
Activity in the liability for unpaid losses and LAE
is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(thousands
of
dollars)
Liability for losses and LAE at beginning of year:
Gross liability per balance sheet$ 194,682 $ 257,603 $
228,967
<PAGE>
Ceded reinsurance recoverable(76,221)(140,969)(120,388)
Net liability 118,461 116,634 108,579
Provision for losses and LAE for
claims occurring in the current year 16,451 47,776
117,997
Increase in estimated losses and LAE
for claims occurring in prior years 16,957 10,509
7,454
33,408 58,285 125,451
Losses and LAE payments for claims occurring during:
Current year 10,291 26,499 54,645
Prior years 62,464 29,959 62,751
72,755 56,458 117,396
Liability for losses and LAE at end of year:
Net liability 79,114 118,461 116,634
Ceded reinsurance recoverable 88,731 76,221 140,969
Gross liability per balance sheet$ 167,845$ 194,682 $
2
57,603
</TABLE>
Commission and Service Income
Commission and service income is predominantly derived
from servicing carrier activities. The commission income
related to producing and underwriting
the business is recognized in
the period in which the business is written. Beginning
in
1993, a significant portion of commission income is
also derived from business produced by the Company as a
Managing General Agent. The Company receives
commissions for producing and underwriting the business
as well as servicing such business. These revenues are
recognized on an accrual basis as earned and are reduced
by certain direct expenses related to acquiring and
servicing the business.
Allowance for Uncollectible Accounts
Allowance for uncollectible accounts for agents'
balances receivable, other receivables, and premium notes
receivable were $69,992, $150,555, and $245,774 at
December 31, 1994 and $186,770, $151,015, and $418,123
at December 31, 1993, respectively. There are no
material credit concentrations related to premiums
receivable, agents' balances, and premium notes
receivable.
Property and Equipment
Property and equipment are stated at cost and, for
financial reporting purposes, depreciated on a straight-
line basis over the estimated useful lives of the
assets. For income tax purposes, accelerated
depreciation methods are used for certain equipment.
Property and equipment are as follows: <TABLE>
<CAPTION>
<S> <C> <C> <C>
Estimated December 31,
Description Life-years 1994 1993
Land - $ 1,153,395 $ 1,484,895
Buildings 10-40 4,584,555 5,231,360
Data processing equipment 3-7
4,134,570
2,043,355
Furniture and equipment 3-10
7,507,372
7,621,384
17,379,892 16,380,994
Accumulated depreciation
(11,109,558)
(11,051,975)
$6,270,334 $ 5,329,019
Depreciation expense charged to operations was $739,241
in 1994 ($638,066 in 1993 and $748,149 in 1992).
</TABLE>
<PAGE>
Other Interest Income
Other interest income for 1993 and 1992 includes
$1.0 million and $1.9 million, respectively, on an excess
of loss reinsurance agreement which was commuted in
1993. Other
interest income also includes interest received
on reinsurance balances withheld, agents' balances
receivable, and balances due from the South
Carolina Reinsurance Facility.
Other Income
Other income for 1994 includes a $650,000 gain on the
sale of a subsidiary, and other income for 1993 includes
$687,031 from the sale of real estate.
Cash and Temporary Cash Investments
For purposes of the Statements of Cash Flows, the
Company considers both cash and temporary cash
investments within the caption "Cash and temporary cash
investments" to be those highly liquid investments
purchased with an initial maturity of three months or
less. At December 31, 1994, the Company had cash
overdrafts of $3.9 million which are classified "other
liabilities" in the accompanying balance sheet.
Fair Value of Financial Instruments
The fair value of fixed maturities, equity securities,
shortterm investments, mortgage loans on real estate, other
longterm investments, cash and accrued investment income
was $62,676,810 and $122,408,087 at December 31, 1994 and
1993, respectively. Fair values of cash and
short-term investments approximates carrying value because
of the short maturity of those instruments. Fixed
maturities and equity securities fair values were
determined in accordance with methods prescribed by the
National Association of Insurance Commissioners, which
do not differ materially from nationally quoted
market prices. The fair value of certain municipal bonds
is assumed to be equal to amortized cost where no
market quotations exist. The fair value of mortgage
loans on real estate is a net realizable value. Premium
and agents' balances receivable are carried at their
historical costs which approximate fair value as a result
of timely evaluation of recoverability and allowance
for
uncollectible amounts.
The fair value of debt was $439,167 and $11,933,511
at December 31, 1994 and 1993 respectively. The fair value
of debt is estimated to be its carrying value based on
the current rates offered for debt having the same or
similar terms, and remaining maturities.
NOTE 3INVESTMENTS
In May 1993, FASB issued Statement No. 115, "Accounting
for Certain Investments in Debt and Equity
Securities". Statement No. 115 classifies securities
into three categories: held-to-maturity, trading and
available-forsale. The Company's securities are classified
as availablefor-sale. Statement No. 115 requires
available-for-sale securities be reported at fair value
and the unrealized gains and losses be reported in a
separate component of shareholders' equity. The
Company adopted Statement No. 115 effective January 1,
1994. The market value of the fixed maturity
investments was approximately $2,380,000 less than the
amortized cost at the end of 1994.
(a) Investments in fixed maturities, notes and
redeemable preferred stocks are carried at market at
December 31, 1994 and at the lower of aggregate cost
or market value at December 31, 1993. Investments
in common stocks and
nonredeemable preferred stocks are carried at market
value. The mortgage loan on real estate is carried
at the estimated realizable value. Short-term
investments are carried at cost, which approximates market
value.
(b) Unrealized gains and losses on marketable
equity securities are credited or charged directly to
shareholders' equity. Realized gains and losses on
investments included in the results of operations are
determined using the "identified certificate" cost
method. Realized gains
(losses) and the change in unrealized gains (losses)
on investments are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fixed Equity
Maturities Securities
Other Total Realized
1994$(7,019,379)$ 930,416 $ (238,287) $(6,327,250)
19932,024,300 1,113 (56,750) 1,968,663
<PAGE>
19927,019,084 452,675 (431,855) 7,039,904
Change in unrealized
1994$(3,221,584)$(1,657,259)$ (140,027)$(5,018,870)
1993 (13,657) 724,690 (13,921) 697,112
1992 - 362,022 (78,806) 283,216
The change in unrealized gains for 1992 is before
income taxes of $96,294.
</TABLE>
Net amortization of bond discount and premium charged
to income for the years ended December 31, 1994, 1993 and
1992 are $153,602, $53,021 and $355,394, respectively.
Unrealized gains and losses reflected in equity are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994
1993
1992
Gross unrealized gains $ 136,025 $ 1,716,292 $
1,63
8,047
Gross unrealized losses (2,751,029) (153,735)
(154, 311)
Net unrealized gains (losses) before taxes(2,615,004)1,5
62,557 1,483,736
Applicable deferred income taxes
- -
- - (618,291)
Net unrealized gain (loss)$ (2,615,004)$ 1,562,557
$ 865,445
</TABLE>
At December 31, 1992, net unrealized gains included
in shareholders equity were $865,445 after charging
deferred taxes of $618,291. In 1993, the previously
recognized deferred taxes of $618,291 were reversed due to
the tax loss carryforward position of the Company.
Proceeds from sales of investments in fixed maturities
and related realized gains and losses were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Proceeds from sales $ 134,317,939 $ 63,669,007
$214,338, 560
Gross realized gains 497,952 2,038,451 7,032,526
Gross realized losses (7,517,331) (14,151) (13,442)
Proceeds from sales of investments in equity securities
and related realized gains and losses were as follows:
1994 1993 1992
Proceeds from sales $ 9,290,932 $ 125,425
$
729,368
Gross realized gains 1,555,773 1,162 452,675
Gross realized losses (625,357) (49) -
(c) Investments which exceed 10% of shareholders'
equity, excluding investments in U.S. Government and
government agencies and authorities, at December 31,
1994, are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Carrying Value
Municipal bonds:
Louisiana St., 7.0%, Due 08/01/2001$ 312,000
Lapeer Co., MI, 6.40%, Due 06/01/2001206,000
Knoxville, TN, 4.50%, Due 11/01/2000 105,000
<PAGE>
Vero Beach, FL, 6.50%, Due 12/01/2007101,000
Montgomery Co., NC, 5.50%, Due 05/01/1995100,000
Columbia Co., GA, 6.80%, Due 04/01/199978,000
Florida St., 6.75%, Due 01/01/1995 65,000
Corporate bonds:
Greyhound Lines Inc., 10.0%, Due
07/00/20011,227,000 IBM Credit Corp., 9.675%, Due
07/01/20081,175,000
Non-sinking fund preferred stocks:
Ohio Edison, 7.75% 147,000
Utilicorp United, Inc., $2.05 69,000
Common stock:
BB&T Financial Corp. 88,000
Catalytica Incorporated 87,000
Short-term investments:
Dominion Resources - commercial paper 14,900,000
Cash Accumulation Trust - National Money Market Fund
2,902,000
First Union Bank - sweep investment account1,320,000
NationsBank - sweep investment account 566,000
Liberty National Bank - repurchase agreement
fund
445,000
National Bank of South Carolina - certificate of deposit
75,000
Mortgage loan on real estate - commercial
property 1,965,000
There were no bonds which were non-income producing for
the twelve months ended December 31, 1994.
</TABLE>
Fixed maturity investments with an amortized cost
of $21,873,897 at December 31, 1994 ($21,393,010 at 1993)
are on deposit with regulatory authorities.
(d) The amortized cost and estimated market values
of investments in fixed maturities and equity
securities by categories of securities are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December
31, 1994
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized Market
Cost
Gains
Losses Value
U.S. Government and government
agencies and authorities$ 36,368,053 $ 1,808
$
(2,454,461) $ 33,915,400
States, municipalities and political
subdivisions 1,093,246 28,275 (371)1,121,150
All other corporate2,357,581 44,474 - 2,402,055
Mortgage-backed (government guaranteed)
securities 1,498,234 - - 1,498,234
Redeemable preferred stocks 4,100
- -
- - 4,100
Total fixed maturities 41,321,214 74,557
(
2,454,832) 38,940,939
Non-redeemable preferred stocks282,094 -
(66,031)
216,063
Common stocks 258,561 61,468
(77,600)
242,429
Total equity securities 540,655 61,468
(
143,631) 458,492
Other long-term investments 198,658
- -
(152,566) 46,092
Total $ 42,060,527 $ 136,025 $(2,751,029)$
39,
445,523
<PAGE>
December
31, 1993
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized Market
Cost
Gains
Losses Value
U.S. Government and government
agencies and authorities$ 97,934,599 $ 753,517
$
(9,505) $ 98,678,611
States, municipalities and political
subdivisions 1,741,112 99,427 (1,513)1,839,026
All other corporate499,659 38,466 - 538,125
Redeemable preferred stocks 1,606,199
12,205
(51,288) 1,567,116
Total fixed maturities 101,781,569
903,615
(62,306) 102,622,878
Non-redeemable preferred stocks25,622 -
(2,692)
22,930
Common stocks 1,563,417 1,577,888
(100)
3,141,205
Total equity securities 1,589,039
1,577,888
(2,792) 3,164,135
Other long-term investments 121,024
138,404
(150,943) 108,485
Total $ 103,491,632 $ 2,619,907 $
(216,041)$
105,895,498
</TABLE>
(e) Actual maturities may differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without
penalties. The amortized cost and estimated market
value of fixed maturities at December 31, 1994, by
contractual maturity, are as follows: <TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1994
Estimate
d
Amortiz
ed
Market
Cost Value
Due in one year or less $ 2,031,646$ 2,030,000
Due after one year through five years20,717,39119,743,150
Due after five years through ten years15,568,91114,167,442
Due after ten years 2,999,1662,996,247
Redeemable preferred stocks 4,100
4,100
Total $41,321,214$38,940,939
</TABLE>
(f) Investment income consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Fixed maturities $ 4,347,768 $ 4,323,593 $
8,04
2,946
Equity securities 266,688 96,221 101,032
Short-term investments 626,366 958,706 1,859,250
Mortgage loan 254,792 273,345
273,769
Total investment income 5,495,614 5,651,865 10,276,997
Investment expenses (174,086) (196,347)
(303,591)
<PAGE>
Net investment income $ 5,321,528 $ 5,455,518 $
9,97
3,406
</TABLE>
In December, 1993, the Company entered into an
Investment
Management Client Agreement with Prudential
Securities Incorporated. Prudential Securities serves as
the Company's investment advisor on all portfolio
investments.
NOTE 4NOTES PAYABLE
Notes payable at December 31, 1994 and 1993, are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Total
1994 1993
Real estate mortgage loans:
Interest at 8-3/4%, $30,946 principal and interest due
monthly to December, 1999 $ - $ 1,740,738
Interest at 9-3/4%, $2,473 principal and interest due
monthly to March, 2004 - 192,773
Note payable, principal and interest due June 30,
1994, interest at 8.5%
- - 10,000,000
Interest note payable, principal due when called,
interest at 8.5%, due
annually
439,167
- -
439,167 11,933,511
Less amount due in one year (439,167)(10,239,426)
Total long-term debt $ - $ 1,694,085
</TABLE>
Principal on the new interest note payable is not due
until called by the holders, and the interest is accrued
yearly, on the anniversary date of the transaction. If
the accrued interest is not paid by the anniversary date,
that accrued interest will be added to the principal
amount of the note.
In June 1994, the $10 million note payable was exchanged
for 7 million shares of common stock. This exchange
resulted in
$7 million of capital for Common Stock issued at a $1
par value and $3 million of additional paid in capital
based upon the Company's estimate that the $10
million note approximated the value of the stock issued.
The extraordinary gain from the extinguishment of
debt recognized in 1993 is as follows (000's omitted):
<TABLE>
<CAPTION>
<S> <C>
Gain before income taxes $ 14,794
Provision for income taxes 5,559
Net gain $ 9,235
</TABLE>
NOTE 5BENEFIT PLANS
(a) The Seibels Bruce & Company Employees' Profit
Sharing and Savings Plan contains both profit-sharing
and 401(k) plan elements.
The profit-sharing element of the plan covers all full-
time employees. There were no contributions to this
element of the plan during the last three years. The
profit-sharing account currently holds 214,587 shares of
SBIG stock.
Under the 401(k) element of the plan, employees may elect
to have a portion of their salary withheld on a pre-tax
basis for investment in the plan, subject to limitations
imposed by IRS regulations. Through December 31, 1992,
the employer matched 50% of an employee's contributions,
to the extent the match did not exceed a maximum 3%
of the employee's eligible compensation. The
<PAGE>
employer contribution was invested half in common stock
of the Company and half in accordance with the
investment option selected by the participant. From
January 1, 1993 through June 30, 1994, the employer
matched 25% of the employee contributions, limited to a
maximum of 1.5% of the
employee's eligible compensation. Effective July 1,
1994, the
employer began matching 50% of the employee
contributions, limited to a maximum of 3% of the
employee's eligible compensation. The employer matched
portion is invested in accordance with the investment
options selected by
the participant. The employer contribution to the plan
on behalf of participating employees was $270,233 in
1994
($81,850 in 1993 and $239,887 in 1992).
(b) The Company has a plan under which SBIG stock
options
may be granted to officers and key employees of the
Company
and its subsidiaries. SBIG option activity for the
three
years ended December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Shares under options outstanding at beginning of year64
,175 150,950 232,725
Canceled or expired during year(13,025) (86,775) (81,775)
Shares under options outstanding at end of year 51,150
64,175 150,950
</TABLE>
The range of option prices per share for options
outstanding at
the end of 1994 is $10.63-$11.25, such option prices
being substantially greater than the current trading
price. At December 31, 1994, 948,850 shares of the
Company's common stock have been reserved for future
grant.
(c) The Company and its subsidiaries currently
provide
certain health care and life insurance benefits for
retired employees. Prior to 1993, the cost of these
benefits was recognized as claims and premiums were paid.
In 1993, the Company adopted FASB Statement No. 106,
which
requires that the projected future cost of
providing postretirement benefits, such as health
care and life insurance, be recognized as an expense as
employees render service instead of when the
benefits are paid.
The
cumulative effect of the accounting change is being
recorded as a charge against income on a prospective basis
as part of the future annual benefit cost.
The postretirement benefit expense was approximately
$91,300 in 1994, $90,764 in 1993, and $292,000 in 1992.
The following table presents the reconciliation of
the
funded status at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1993
Accumulated postretirement benefit obligation:
Active employees $ (80,171) $
( 70,078)
Current retirees
(633,740)(649,658) Total
(713,911)(719,736)
Fair value of assets
- -
- -
Accumulated postretirement benefit obligation in excess
of fair value of assets
(713,911)(719,736)
Unrecognized transition obligation (asset)
627,525
662,388
Accrued postretirement benefit cost $ (86,386) $ (5
7,348)
Net periodic postretirement benefit cost includes
the
following components for 1994 and 1993:
1994 1993
Service cost $ 4,742 $ 4,500
Interest cost 51,695 51,401
Amortization of transition obligation 34,863
34,863
Net periodic postretirement benefit $ 91,300 $
90,764 </TABLE>
<PAGE>
The weighted average annual assumed rate of increase in
the
per capita cost of covered benefits (i.e., health care
cost
trend rate) was 12% for 1994 and 1993 and is assumed
to decrease to a 7% ultimate trend with a duration to
ultimate trend of 9 years. The health care cost
trend rate
assumption has a significant effect on the amounts
reported. For example,
increasing the assumed health care cost trend
rates by one percentage point in each year would
increase the accumulated
postretirement benefit obligation as of
December 31, 1994 by $44,882.
The weighted-average discount rate used in determining
the
accumulated postretirement benefit obligation was 7.5%
at
December 31, 1994 and 1993.
NOTE 6INCOME TAXES
In 1993, the Company adopted FASB 109, "Accounting
for
Income Taxes", which requires the use of the
liability method in accounting for income taxes.
Deferred taxes are determined based on the estimated
future tax effects of differences between the financial
statement and tax bases of assets and liabilities given
the provisions of the enacted tax laws. The
adoption had no material effect on the
financial statements. Prior to the implementation of
FASB 109, the Company accounted for income taxes using
Accounting Principles Board Opinion No. 11.
The Company files a consolidated federal income tax
return
which includes all companies. A formal tax-
sharing agreement has been established by the Company
with its subsidiaries.
A reconciliation of the differences between income
taxes
(benefit) on loss before extraordinary items computed at
the federal statutory income tax rate and tax expense
(benefit) from operations is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994
1993
1992
(thousands
of
dollars)
Federal income tax (benefit), at statutory rates$
(6
,475) $ (5,104)$ (11,087)
Increase (decrease) in taxes due to:
Tax exempt interest (92) (49) (130)
Dividends received deduction (82) (19) (71)
"Fresh start" adjustment for loss reserve
discounting for tax purposes - (251) (292)
Changes in asset valuation allowance 6,695
777
- -
Limitation on recognition of loss benefits - -
11,607
Other (17) (116)
31
Tax expense (benefit) from operations$ 29
$ (4,762) $ 58
</TABLE>
The provision (benefit) for income taxes on loss
from
operations consists entirely of current income taxes.
The change in deferred amounts has been offset by the
valuation allowance.
Deferred tax liabilities and assets at December 31, 1994
and 1993, are comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1993
Tax Effect
Tax
Effect
(thousands
of dollars)
Deferred tax liabilities:
Deferred acquisition costs $ 302 $ 1,306
Property and equipment 99 51
Net unrealized investment gains - 535
Other 38
- -
<PAGE>
Total deferred tax liabilities 439 1,892
Deferred tax assets:
Net operating loss carryforwards (38,961) (30,603)
Insurance reserves (4,963) (8,762)
Net unrealized investment losses (837) -
Bad debts (718) (1,025)
Other (948) (795)
Total deferred tax assets (46,427) (41,185)
Asset valuation allowance 45,988 39,293
Net deferred tax liabilities $ - $
- -
</TABLE>
The Company has determined, based on its recent
earnings
history, that an asset valuation allowance of $46.0
million should be established against the deferred tax
asset at December 31, 1994. The Company's asset
valuation allowance changed by $6,695,000 during 1994,
due primarily to the increase in net operating loss
carryforwards.
As of December 31, 1994, the Company has unused tax
net
operating loss carryforwards and capital loss
carryforwards of $94.3 million
for income tax purposes. If not utilized
against taxable income in future years, the
tax
carryforwards will expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year of Expiration Net
Operating
Loss Capital Loss
1999 $ -
$6,600,000
2004 16,000,000 -
2006 20,400,000 -
2007 31,900,000 -
2009 19,400,000 -
$87,700,000
$6,600,000 </TABLE>
Subsequent to year-end, the Company completed a
rights offering and there has been a stock purchase by
investors (see Note 13). The possibility exists that a
change in ownership, as defined by the Internal Revenue
Code, may have occurred, although an actual
determination with respect thereto has not been
definitely made. If a change in ownership has
occurred or does occur, the unused loss carryforwards
will be subject to certain limitations.
NOTE 7SHAREHOLDERS' EQUITY AND DIVIDENDS
The ability of SBIG to declare and pay cash dividends,
as well as to pay any debt service, is dependent upon
the ability of SCIC to declare and pay dividends to SBIG.
SCIC is regulated as to its payment of dividends by the
South Carolina Insurance Holding Company Regulatory
Act (the "Act").
The Act provides that, without prior approval of the
South Carolina Insurance Commissioner, dividends within any
twelvemonth period may not exceed the greater of (i) 10% of
SCIC's surplus as regards policyholders as of December 31
of the prior year or (ii) SCIC's statutory net
income, not
including realized gains, for the prior calendar
year. Notwithstanding the foregoing, SCIC may not pay any
dividend without the prior approval of the Chief
Insurance Commissioner of the State of South Carolina.
The Company has 185,858 outstanding warrants at an
exercise price of $.01 per share.
NOTE 8LOSS PER SHARE
Loss per share is based on the weighted average number
of shares outstanding. Such weighted average
outstanding shares are 11,067,656 in 1994 (7,500,534
in 1993 and 7,500,461 in 1992). Outstanding stock
options and warrants are common stock equivalents but have
no dilutive effect on income per share.
<PAGE>
NOTE 9COMPANY'S OPERATIONS IN DIFFERENT BUSINESS SEGMENTS
The Company acts as a servicing carrier for certain
state and federal insurance facilities on a commission
basis. The Company is also engaged in the underwriting of
property and casualty insurance through its subsidiary
property and casualty insurance group.
Effective January 1, 1995, Forest Lake Travel Service,
a subsidiary travel agency, was sold. FLT's 1994 pre-
tax income was $95,000, $420,000 in 1993 and $443,000 in1
992.
In the third quarter of 1993, Investors National
Life Insurance Company, the Company's credit life and
credit accident and health insurance subsidiary,
transferred all of
its assets, other than bonds pledged to various
state insurance departments, and all of its
liabilities to
Investors National Life Insurance Company of South
Carolina. Immediately following, all of the
outstanding stock of Investors National Life Insurance
Company was sold. The runoff of the
business was assumed by Investors National
Life Insurance Company of South Carolina. The pretax
income (loss) of Investors
National was $(677,000), $44,000 and
$179,000 in 1994, 1993 and 1992, respectively.
Premium Service Corporation of Columbia ("PSC")
provides insurance premium financing services through
independent agents. Pretax income of
Premium Service was $470,000 in
1993, and $262,000 in 1992. In February,
1994,
substantially all of the assets of PSC were sold, and a
new company, Policy Finance Company, ("PFC") was
formed to handle the administration of the assets
retained. The pretax income of PFC was $538,000 in 1994.
The Company has no plans to continue its own premium
financing activity.
The following sets forth certain information with respect
to the Company's operations in different business
segments:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
1994
1993 1992
(thousands
of
dollars)
Revenue:
Property and casualty insurance segments:
Insurance underwriting segments:
Automobile $ 12,655 $ 22,336 $
45,628 All other lines of insurance 2,063
32,995 71
,544
Total for insurance underwriting
segments14,718 55,331 117,172
Commission and service activities segment26,593
18,877 16,300
Net investment income and other interest
income5,690 6,578 12,230
Realized gains (losses) on investments (5,793)
1,965 6,869
Total for property and casualty insurance
segments 41,208 82,751
152,571
Other business segments 4,476 8,420
9,167
Total revenue $ 45,684 $ 91,171
$161,738
Year Ended December 31,
1994
1993 1992
(thousands
of
dollars)
<PAGE>
Operating profit (loss):
Insurance underwriting segments:
Automobile $ (13,205)$
(1,234)$
(5,706)
All other lines of insurance (19,635) (23,190)
(48
,437)
Total for insurance underwriting
segments(32,840)(2 4,424) (54,143)
Commission and service activities segment 15,109 4,321
7,085
Net investment income 5,690 6,578 12,230
Realized gains (losses) on investments (5,793)
1,965 6,869
Subtotal
(17,834)(11,560)(27,959)
Other business segments 141 1,863
1,435
Operating loss (17,693)
(9,697)(26,524) General corporate expenses, net of
miscellaneous income and expense (1,031)
(2,787)(4,231)
Interest expense (321) (2,527)
(1,8 53)
Consolidated loss before income taxes$ (19,045)$
(15,011)$ (32,608)
</TABLE>
Operating loss represents revenue less operating
expenses. Net investment
income is that related to, but not
individually identifiable with, the various property
and casualty insurance underwriting and commission and
service activities business segments.
Identifiable assets by business segment or combined
segments represent assets directly identified with those
operations and an allocable share of jointly used assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
1994
1993 1992
(thousands
of dollars)
Identifiable Assets
Property and casualty insurance underwriting and
commission and service
activities segments, combined, including
related investment activities $ 245,389$
297,073$ 433, 151
Other business segments 8,449 26,250 25,515
General corporate assets 2,097 1,372
2,
470
Total assets $ 255,935$ 324,695$
461, 136
</TABLE>
In 1994, deprecia
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from The
Seibels Bruce Group, Inc.'s financial statements for the period ended
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 38,940,939
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 458,492
<MORTGAGE> 1,965,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 61,868,036
<CASH> 0
<RECOVER-REINSURE> 30,277,569
<DEFERRED-ACQUISITION> 899,053
<TOTAL-ASSETS> 255,934,572
<POLICY-LOSSES> 80,684,539
<UNEARNED-PREMIUMS> 6,945,280
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 439,167
<COMMON> 0
0
14,500,534
<OTHER-SE> (13,850,682)
<TOTAL-LIABILITY-AND-EQUITY> 255,934,572
16,518,833
<INVESTMENT-INCOME> 6,226,426
<INVESTMENT-GAINS> (6,327,250)
<OTHER-INCOME> 29,265,909
<BENEFITS> 34,177,354
<UNDERWRITING-AMORTIZATION> 5,538,067
<UNDERWRITING-OTHER> 24,692,513
<INCOME-PRETAX> (19,045,381)
<INCOME-TAX> 28,820
<INCOME-CONTINUING> (19,074,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,074,201)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
<RESERVE-OPEN> [BLANK]
<PROVISION-CURRENT> [BLANK]
<PROVISION-PRIOR> [BLANK]
<PAYMENTS-CURRENT> [BLANK]
<PAYMENTS-PRIOR> [BLANK]
<RESERVE-CLOSE> [BLANK]
<CUMULATIVE-DEFICIENCY> [BLANK]
</TABLE>
