SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1501 Lady Street (PO Box 1), Columbia, SC 29201(2)
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(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:
Name of each exchange
Title of each class on which registered
--------------------------------------- ---------------------
Common stock, par value $1.00 per share None (OTC)
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 the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 13, 1995
-------------------------- ------------------------------
Common stock, $1 par value 16,752,686
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<C> <S> <S>
June 30, December 31,
ASSETS 1995 1994
-------- ------------
Investments: (Unaudited)
Fixed maturities, at market (cost of $34,794,863
at 1995 and $41,321,214 at 1994) $34,123,671 $38,940,939
Equity securities available-for-sale, at market
(cost of $221,561 at 1995 and $540,655 at 1994) 333,060 458,492
Short-term investments, including temporary cash
investments of $20,616,269 ($20,243,331 at 1994) 20,851,252 20,457,513
Mortgage loan on real estate, at estimated
realizable value (cost of $2,049,080 at 1994) - 1,965,000
Other long-term investments 45,342 46,092
---------- ----------
Total investments 55,353,325 61,868,036
Cash, other than invested cash 3,531,160 -
Accrued investment income 709,282 808,774
Premiums and agents' balances receivable, net 7,327,197 13,027,605
Premium notes receivable 32,217 93,162
Reinsurance recoverable on paid losses and loss
adjustment expenses 30,793,463 30,277,569
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 86,723,339 88,730,898
Property and equipment, net 5,810,377 6,270,334
Prepaid reinsurance premiums - ceded business 47,165,601 48,482,673
Deferred policy acquisition costs 791,162 899,053
Other assets 3,547,339 5,476,468
------------ ------------
Total assets $241,784,462 $255,934,572
============ ============
LIABILITIES
Losses and claims:
Reported and estimated losses and claims - retained business $54,475,626 $64,220,902
- ceded business 74,308,897 74,140,671
Adjustment expenses - retained business 15,231,725 14,893,169
- ceded business 12,414,442 14,590,227
Unearned premiums:
Property and casualty - retained business 5,783,216 6,945,280
- ceded business 47,165,601 48,482,673
Credit life 1,128,667 1,570,468
Balances due other insurance companies 16,215,825 17,264,627
Notes payable 2,476,496 439,167
Current income taxes payable 13,399 148,966
Other liabilities and deferred items 6,453,588 12,588,570
----------- -----------
Total liabilities 235,667,482 255,284,720
----------- ------------
COMMITMENTS AND CONTINGENCIES
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 & outstanding 16,717,686 shares (14,500,534 at 1994) 16,717,686 14,500,534
Additional paid-in capital 34,087,608 30,983,592
Unrealized loss on securities (710,220) (2,615,004)
Retained deficit (43,978,094) (42,219,270)
------------ ------------
Total shareholders' equity 6,116,980 649,852
------------ ------------
Total liabilities and shareholders' equity $241,784,462 $255,934,572
============ ============
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30, Second Quarter
------------------------ ------------------------
1995 1994 1995 1994
Premiums: ---------- ---------- --------- ------------
<C> <S> <S> <S> <S>
Property and casualty:
Net premiums written $5,057,530 $7,392,038 $914,519 $3,347,054
Change in unearned premiums 455,238 1,022,118 1,291,400 (160,781)
---------- ---------- --------- ----------
Premiums earned 5,512,768 8,414,156 2,205,919 3,186,273
Credit life premiums earned 112,155 1,021,746 (80,163) 465,970
Commission and service income 11,084,930 13,564,997 5,288,913 7,527,122
Net investment income 1,577,121 3,195,508 810,529 1,644,366
Other interest income 773,810 422,814 366,154 217,385
Realized gains (losses) on investments 35,075 1,230,179 (29,428) (611,722)
Other income 806,879 1,930,647 709,828 570,573
---------- ---------- --------- ----------
Total revenue 19,902,738 29,780,047 9,271,752 12,999,967
---------- ---------- --------- ----------
Expenses:
Property and casualty:
Losses and loss adjustment expenses 7,163,538 14,576,767 2,095,548 4,824,455
Policy acquisition costs 2,113,305 2,546,836 905,814 1,219,218
Credit life benefits 266,165 367,764 128,142 148,040
Interest expense 102,965 251,685 72,868 187,755
Other operating costs and expenses 12,004,029 11,149,163 5,819,181 6,085,985
---------- ---------- --------- ----------
Total expenses 21,650,002 28,892,215 9,021,553 12,465,453
Income (loss) from operations,
before taxes (1,747,264) 887,832 250,199 534,514
0
Provision for taxes (benefit) 11,560 107,393 440 (26,817)
---------- --------- -------- -------- 0
Net income (loss) ($1,758,824) $780,439 $249,759 $561,331
=========== ========= ======== ========
Per share:
Net income (loss) ($0.11) $0.10 $0.01 $0.07
Average number of shares outstanding 16,360,713 7,577,880 16,717,686 7,654,376
Change in value of marketable equity
securities (charged) directly to
equity $1,904,784 ($9,394,101) $1,345,896 ($2,192,137)
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Temporary Cash Investments
(Unaudited)
Six Months Ended
June 30,
--------------------------
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1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) ($1,758,824) $780,439
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 397,601 139,205
(Gains) on investments (35,075) (1,230,179)
Net change in assets and liabilities affecting
cash flows from operating activities (8,995,544) (16,950,037)
------------ ------------
Net cash used in operating activities (10,391,842) (17,260,572)
------------ ------------
Cash flows from investing activities:
Proceeds from investments sold 8,041,931 93,955,337
Proceeds from investments matured 2,030,000 97,350
Cost of investments acquired (3,182,131) (80,741,197)
Net change in short-term investments (20,801) 696,925
Proceeds from property and equipment sold 105,449 326,161
Purchases of property and equipment (37,005) (1,903,056)
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Net cash provided by investing activities 6,937,443 12,431,520
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Cash flows from financing activities:
Proceeds from stock rights offering 5,321,168 -
Increase in notes payable 2,037,329 439,167
Repayment of notes payable - (1,746,283)
--------- -----------
Net cash provided by (used in) financing activities 7,358,497 (1,307,116)
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Net increase (decrease) in cash and temporary
cash investments 3,904,098 (6,136,168)
Cash and temporary cash investments, January 1 20,243,331 12,218,893
----------- -----------
Cash and temporary cash investments, June 30 $24,147,429 $6,082,725
=========== ===========
Supplemental cash flow information:
Cash paid for - interest - $159,394
- income taxes paid $147,127 606,805
Non-cash financing activities:
Notes payable exchanged for common stock - $10,000,000
</TABLE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The interim financial statements in Item 1 are unaudited, but in the opinion
of management, reflect all adjustments necessary for fair presentation of
results for such periods. All such adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto contained
in the Company's annual report Form 10-K for the year ended December 31, 1994.
The following table indicates the more significant financial comparisons with
the applicable prior periods (dollars shown in thousands, except per share
amounts):
<TABLE>
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June 30, December 31,
FINANCIAL CONDITION 1995 1994
Total investments $ 55,353 $ 61,868
Total assets 251,015 255,935
Total liabilities 244,899 255,284
Shareholders' equity 6,117 650
Per Share 0.36 0.05
</TABLE>
<TABLE>
Six Months Ended
June 30, Second Quarter
<C> <S> <S> <S> <S>
RESULTS OF OPERATIONS 1995 1994 1995 1994
Operating revenues
Insurance
Commission and service income $ 11,085 $ 13,565 $ 5,289 $ 7,527
Premiums earned 5,625 9,436 2,126 3,652
Net investment and other interest income 2,351 3,618 1,177 1,862
Realized gains (losses) on investments 35 1,230 (30) (612)
Other income 807 1,931 710 571
Total operating revenues $ 19,903 $ 29,780 $ 9,272 $ 13,000
Net income (loss) $ (1,759) $ 780 $ 250 $ 561
Per share $ (0.11) $ 0.10 $ 0.01 $ 0.07
</TABLE>
Overview
The Company had net income during the second quarter of 1995 of $250,000,
compared to $561,000 for the second quarter of 1994. The six months ended
June 30, 1995 reflect a net loss of $1.8 million compared to net income of
$780,000 in 1994. Since December 31, 1994, shareholders' equity has increased
$5.5 million to $6.1 million at June 30, 1995. These increases are due to
direct contributions to equity from the rights offering in the first quarter
and the appreciation in the Company's market value of its investments in both
quarters.
The Company has taken the following steps that management believes will
continue to strengthen both shareholders' equity and statutory surplus. As a
result of the Company's focus on these items, management is cautiously
optimistic that the results for the third and fourth quarter will be break-
even, although a loss for the year is still expected.
The Company has voluntarily curtailed premium writings to the point that
the only business the Company is retaining is mandatory pools and
associations. The Company is no longer writing "risk" insurance and is
concentrating on the servicing of "non-risk" fee-generating insurance,
primarily the South and North Carolina Reinsurance Facilities, the
Federal "Write-Your-Own" Flood program and the Kentucky Fair Plan. The
Company is also continuing to write commercial lines business as managing
general agent for an unaffiliated company. Collectively, these programs
have historically provided the Company with profits.
At December 31, 1994, the Company increased loss and loss adjustment
expense ("LAE") reserves to a level that the Company believes should be
adequate to cover any future development. The first six months of 1995
have further supported this belief. While the Company remains cautiously
optimistic that future quarters will only reflect minimal losses on the
"risk" insurance that it is no longer writing, incurred losses and LAE
have decreased in 1995 when compared to 1994. Incurred losses and LAE
for the six months ended June 30, 1994 includes approximately $3 million
of non-recurring charges related to the second quarter settlement of a
dispute that was in arbitration. This non-recurring item was
reclassified in the December 31, 1994 10-K from other operating costs to
an increase in losses and LAE incurred.
Expense reductions have been implemented and continue to be implemented
that include reductions in staffing, salary levels, outsourcing costs,
and data processing costs. All other expenses that the Company incurs,
no matter how small, have been scrutinized. The Company is exploring
all means of reducing expenses and hopes to begin to see those reductions
positively affect the profits of the Company by the fourth quarter of
1995.
Results of Operations
The net income for the second quarter of 1995 was $250,000 ($0.01 per share),
compared to net income of $561,000 ($.07 per share) for the second quarter of
1994. The net loss for the six months ended June 30, 1995 was $1.8 million
($0.11 per share), compared to net income of $780,000 ($.10 per share) for the
corresponding period in 1994.
As discussed above, the Company is currently not writing any "risk" insurance
except mandatory pools and associations. The six months ended June 30, 1995
includes $5.9 million of losses and loss adjustment expenses ("LAE") on this
business the Company no longer retains. Premiums earned on this business for
the six months was $5.3 million. Premiums earned has been reduced by the
premiums the Company pays for catastrophe reinsurance. Effective July 1,
1995, the Company has renewed this coverage at a cost more consistent with
the fact that the Company is no longer writing high-risk property premiums.
This savings of approximately $400,000 will be recognized over the next four
quarters.
Management obtained a six month actuarial review of reserves at June 30, 1995.
This review concluded (as management had expected) that the reserves seem to
be adequate to cover any prior year losses. Second quarter results include
an adjustment to reserves to reflect this conclusion. The six month losses
and LAE incurred amount reflects only those losses that were incurred during
1995. Management remains cautiously optimistic that the reserves are more
adequate than in previous years and the risk to future quarters has been
minimized.
Although the trends for the past twelve months have indicated that the
reserves for the West Coast business, which the Company stopped writing in
1986, are redundant, management has allowed any losses or expense incurred on
these policies to flow through the income statement. LAE, primarily legal
expenses, has historically shown very poor results The related legal
expenses for the six months have been the lowest since the Company stopped
writing this business. Additionally, new claims reported on this business
have slowed and appear to be less severe than in the past. These trends
continue to improve into the third quarter. However, management will
continue to monitor this book of business on a going forward basis until such
time management can conclude that the trends warrant a reduction in reserves.
The second quarter of 1995 includes $5.3 million of commission and service
income on the Company's fee-generating business. This is a decrease of $2.2
million compared to the same period in 1994 primarily due to the previously
disclosed reduction in the Company's block of business with the South
Carolina Reinsurance Facility ("SCRF") that is being serviced in addition to
lower commission rates. The decrease in commission and service income for
the six month period was $2.5 million when compared to 1994.
Net investment income for the second quarter of 1995 was $1.2 million,
compared to $1.9 million for the same quarter in 1994. The six months ended
June 30, 1995 also reflects a decrease of $1.3 million when compared to 1994.
These decreases are related to the decrease in the investment portfolio as a
result of large bond sales in the third and fourth quarter of 1994.
Net realized investment losses of $29,000 were recognized in the second
quarter of 1995, compared to $612,000 of losses for the same period in 1994.
The 1994 losses are due to sales of bonds with a par value of $11 million in
order to settle the dispute in arbitration discussed above. The six months
ended June 30, 1995 and 1994 reflected net realized gains of $35,000 and $1.2
million, respectively.
Other income in 1995 includes a settlement received on litigation the Company
was involved in for several years. Also included in other income is a gain
on the sale of certain assets of Forest Lake Travel Service, Inc. This
subsidiary has been dissolved in the second quarter of 1995 as it is no longer
a part of the Company's operating plans. In addition to the revenues of
operations discontinued in 1995, other income in 1994 includes a $625,000
gain in connection with the sale of the assets of the Company's premium
financing subsidiary.
The 1995 provision for taxes on income from operations was less than $1,000
for the quarter and $12,000 the six month period. These charges resulted
from the tax limitations on offsetting the Company's net operating loss
carryforwards against state income taxes and certain life insurance taxable
income. The Company's tax net operating loss carryforward at June 30, 1995
is approximately $96.6 million.
Capital Resources and Liquidity
The investment portfolio at June 30, 1995 was $55.4 million, compared to
$61.9 million at the end of 1994. Shareholders' equity at June 30, 1995 was
$6.1 million ($0.36 per share), compared to $650,000 ($.05 per share) at
December 31, 1994. This increase is due to the previously mentioned proceeds
received from the rights offering and increases in the market value of the
Company's investment portfolio. The increase in the market value of the
Company's bond and stock portfolio resulted in an unrealized gain of $1.3
million in the second quarter and $1.9 million for the six months.
Cash used in operations during the first six months of 1995 was $10.4
million, compared to $17.3 million in 1994. The outflows in both periods
were due to reduced premium volume and the payment of claims for the three
months. While additional cash drain is anticipated in 1995, the expected
amount is less than the $24.4 million of cash and short-term investments held
at June 30, 1995. Hence, no unplanned sales of securities from the
investment portfolio are anticipated during 1995.
Cash provided from financing activities includes $2 million of debt incurred
by the Company in the form of a promissory note executed in the favor of the
investors currently holding approximately 49% of the Company's stock. The
proceeds of this note were contributed directly to the capital of South
Carolina Insurance Company.
PART I. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On May 25, 1995, Form 8-K was filed reporting that the Company had entered
into a consulting agreement with American Southern Insurance Companies.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE SEIBELS BRUCE GROUP, INC.
(Registrant)
Date: August 14, 1995 /s/Mary M. Gardner
---------------- -----------------------------------------
Mary M. Gardner
Controller (Principal Accounting Officer)
Date: August 14, 1995 /s/Ernst N. Csiszar
---------------- ------------------------------------------
Ernst N. Csiszar
President and Board of Directors
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 34,123,674
<DEBT-CARRYING-VALUE> 34,123,674
<DEBT-MARKET-VALUE> 34,123,674
<EQUITIES> 333,060
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 55,353,325
<CASH> 12,762,134
<RECOVER-REINSURE> 30,793,463
<DEFERRED-ACQUISITION> 791,162
<TOTAL-ASSETS> 251,015,436
<POLICY-LOSSES> 69,707,351
<UNEARNED-PREMIUMS> 6,911,883
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,476,496
<COMMON> 16,717,686
0
0
<OTHER-SE> (10,600,706)
<TOTAL-LIABILITY-AND-EQUITY> 251,015,436
5,624,924
<INVESTMENT-INCOME> 2,350,931
<INVESTMENT-GAINS> 35,075
<OTHER-INCOME> 11,891,809
<BENEFITS> 7,163,538
<UNDERWRITING-AMORTIZATION> 2,113,305
<UNDERWRITING-OTHER> 12,004,029
<INCOME-PRETAX> (1,747,264)
<INCOME-TAX> 11,560
<INCOME-CONTINUING> (1,758,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,758,824)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
<RESERVE-OPEN> 79,114,071
<PROVISION-CURRENT> 6,176,000
<PROVISION-PRIOR> 987,538
<PAYMENTS-CURRENT> 3,937,000
<PAYMENTS-PRIOR> 12,633,258
<RESERVE-CLOSE> 69,707,351
<CUMULATIVE-DEFICIENCY> (987,538)
</TABLE>
