<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission File Number 0-8738
-------------------- -------------------------------------
BANCINSURANCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0790882
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 East Broad Street, Columbus, Ohio 43215
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (614) 228-2800
----------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 twelve 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 issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at March 31, 1997
- ------------------------------- -------------------------------
Common stock, without par value 5,775,615
<PAGE> 2
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
PART I - FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 (unaudited) and December 31, 1996 3
Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996 (unaudited) 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 14
Item 2. Changes in Securities Not Applicable
Item 3. Default Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
- ------ ----------- -------------
(Unaudited)
<S> <C> <C>
Investments:
Held to maturity:
Fixed maturities, at amortized cost (fair value
$4,287,455 in 1997 and $4,086,856 in 1996) $ 4,244,769 $ 4,004,550
Available for sale:
Fixed maturities, at fair value (amortized cost
$12,754,552 in 1997 and $11,271,525 in 1996) 12,847,329 11,502,186
Equity securities, at fair value (cost $2,321,267
in 1997 and $2,602,891 in 1996) 2,630,203 3,031,014
Short-term investments, at cost which
approximates fair value 5,910,673 5,730,923
Securities purchased under agreements to resell 1,183,965 1,091,630
----------- -----------
Total investments 26,816,939 25,360,303
----------- -----------
Cash 603,888 681,286
Premiums receivable 716,346 494,322
Reinsurance receivable 5,438 15,150
Reinsurance recoverable on paid losses - 25,143
Prepaid premium taxes 45,072 -
Prepaid commissions 323,505 -
Loans to affiliates 334,463 434,463
Furniture, fixtures and leasehold improvements, net 91,738 86,435
Excess of investment over net assets of subsidiaries 753,738 753,738
Prepaid federal income taxes 50,784 29,633
Accrued investment income 341,635 308,646
Other assets 90,349 85,833
----------- -----------
Total assets $30,173,895 $28,274,952
=========== ===========
(Continued)
</TABLE>
3
<PAGE> 4
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Shareholders' Equity 1997 1996
- ------------------------------------ ----------- -----------
(Unaudited)
<S> <C> <C>
Reserve for unpaid losses and loss adjustment
expenses $ 1,413,908 $ 1,359,775
Unearned premiums 2,354,339 745,787
Contract funds on deposit 3,143,026 2,950,108
Reinsurance premiums payable 503,806 503,806
Note payable to bank 5,800,000 5,600,000
Taxes, licenses, and fees payable 99,568 93,566
Deferred federal income taxes 124,914 194,755
Commissions payable 259,573 342,258
Other 243,060 578,080
------------ ------------
Total liabilities 13,942,194 12,368,135
------------ ------------
Commitment and contingent liabilities
Shareholders' equity:
Non-voting preferred stock:
Class A Serial Preference shares without par value;
authorized 100,000 shares; no shares issued or
outstanding - -
Class B Serial Preference shares without par value;
authorized 98,646 shares; no shares issued or
outstanding - -
Common stock without par value; authorized
20,000,000 shares; 5,878,277 shares issued 315,567 315,567
Additional paid-in capital 1,409,435 1,433,329
Net unrealized gain on investments, net of tax 265,131 434,797
Retained earnings 14,535,036 14,040,484
------------ ------------
16,525,169 16,224,177
Less: Treasury stock, at cost (102,662 common
shares at March 31, 1997 and 111,020
at December 31, 1996) (293,468) (317,360)
------------ ------------
Total shareholders' equity 16,231,701 15,906,817
------------ ------------
Total liabilities and shareholders' equity $ 30,173,895 $ 28,274,952
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------- ----------
<S> <C> <C>
Income:
Premiums written $ 3,725,624 $ 3,603,751
Increase in unearned premiums (1,608,552) (257,432)
----------- -----------
Premiums earned 2,117,072 3,346,319
Premiums ceded - (450,970)
----------- -----------
Net premiums earned 2,117,072 2,895,349
Investment income (net of expenses of $14,897 and
$20,177, respectively) 307,407 339,427
Net realized gain on investments 30,693 3,189
Claims administration fees 179,731 132,883
Other income 8,293 116,979
----------- -----------
Total revenue 2,643,196 3,487,827
----------- -----------
Losses and operating expenses:
Losses and loss adjustment expenses 1,138,943 1,976,889
Reinsurance recoveries - (420,018)
Commission expense 300,537 518,670
Other insurance operating expenses 268,494 402,341
General and administrative expenses 256,860 187,960
Interest expense 22,398 108,637
----------- -----------
Total expenses 1,987,232 2,774,479
----------- -----------
Income before federal income taxes 655,964 713,348
Federal income tax expense 161,412 171,926
----------- -----------
Net income $ 494,552 $ 541,422
=========== ===========
Net income per common share $ .09 $ .09
=========== ===========
Weighted average number of common shares and
equivalents outstanding 5,826,441 5,860,264
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 494,552 $ 541,422
Adjustments to reconcile net income to net cash
provided by operating activities:
Net realized gain on investments (30,693) (3,189)
Net realized loss on disposal of equipment - 601
Depreciation 9,025 15,257
Amortization of bond premium 7,792 2,491
Deferred federal income tax (benefit) expense 17,563 (25,128)
Increase in premiums receivable (222,024) (265,565)
Decrease in reinsurance receivable 9,712 245,145
Decrease in reinsurance recoverable
on paid losses 25,143 166,797
Decrease in prepaid reinsurance premiums - 469,662
(Increase) decrease in premium taxes receivable (45,072) 10,273
Increase in prepaid commissions (323,505) (347,597)
Decrease in loans to affiliates 100,000 -
(Increase) decrease in prepaid federal
income taxes (21,151) 197,053
Increase in accrued investment income (32,989) (52,332)
(Increase) decrease in other assets (4,516) 32,676
Increase (decrease) in reserve for unpaid losses
and loss adjustment expenses 54,133 (365,255)
Increase in unearned premiums 1,608,552 257,431
Increase (decrease) in contract funds on deposit 192,918 (234,119)
Increase in reinsurance premiums payable - 108,447
(Increase) decrease in taxes, licenses and fees
payable 6,002 (1,261)
Decrease in commissions payable (82,685) (30,596)
Decrease in other liabilities (335,020) (11,900)
----------- -----------
Net cash provided by operating activities 1,427,737 710,313
----------- -----------
Cash flows from investing activities:
Proceeds from held to maturity: fixed maturities
due to redemption or maturity 306,000 301,779
Proceeds from available for sale: fixed maturities
sold, redeemed and matured 399,871 146,400
Proceeds from available for sale: equity securities
sold 852,024 80,027
Cost of investments purchased:
Held to maturity: fixed maturities (842,762) (102,906)
Available for sale: fixed maturities (1,889,863) (402,086)
Equity securities (243,990) (295,150)
Decrease in amount due to stock brokers - (143,038)
Net (increase) decrease in short-term investments (179,750) 486,399
Net increase in securities purchased under agreements
to resell (92,335) (96,901)
Purchase of furniture, fixtures and leasehold
improvements (14,328) (4,209)
----------- -----------
Net cash used in investing activities (1,705,133) (29,685)
----------- -----------
(Continued)
</TABLE>
6
<PAGE> 7
Bancinsurance Corporation
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from note payable to bank $ 5,100,000 $ 700,000
Repayments from note payable to bank (4,900,000) (600,000)
Proceeds from stock option exercised 29,063 -
Acquisition of treasury stock (29,065) (65,437)
----------- -----------
Net cash provided by financing activities 199,998 34,563
----------- -----------
Net increase (decrease) in cash (77,398) 715,191
----------- -----------
Cash at December 31 681,286 482,405
----------- -----------
Cash at March 31 $ 603,888 $ 1,197,596
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 29,386 $ 108,637
Income taxes 165,000 -
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited)
1. The Consolidated Balance Sheet as of March 31, 1997, the Consolidated
Statements of Income for the three months ended March 31, 1997 and 1996, and the
Consolidated Statements of Cash Flows for the three months then ended have been
prepared by Bancinsurance Corporation (the "Company") without an audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flow at March 31, 1997 and for all periods presented have
been made.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these unaudited Consolidated Financial
Statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1996. The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the results of operations for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. On April 2, 1997, Title Research Corporation, a newly formed, wholly-owned
subsidiary of Bancinsurance Corporation, purchased substantially all of the net
assets of Title Research Agency, an Ohio corporation, for 62,500 shares of
Bancinsurance Corporation common stock, with a value of approximately $276,000.
The transaction will be accounted for as a purchase and will result in
approximately $161,000 of goodwill. Title Research Corporation is engaged in
title, appraisal and related services which support documentation needs for
first and second mortgage lending requirements.
8
<PAGE> 9
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
OVERVIEW
Bancinsurance Corporation (NASDAQ:BCIS) is a specialty property insurance
holding company engaged, through its property/casualty insurance subsidiary,
Ohio Indemnity Company, in underwriting niche insurance. Among its products are
"Ultimate Loss Insurance, " which protects banks and other lenders against risk
arising from theft or damage to certain loan collateral where the borrower has
failed to secure and maintain adequate insurance coverage. The Company also
provides a surety bond program for national administrative firms that perform
certain services for non-profit entities and operates a third party
administrator specializing in certain workers' compensation programs.
The Company's principal sources of revenue are premiums paid by insureds for
insurance policies issued by the Company. The premiums written become premiums
earned for financial statement purposes as the premium is earned incrementally
over the term of each insurance policy and after deducting the amount of premium
ceded to reinsurers pursuant to reinsurance treaties or agreements. The
Company's principal costs are losses and loss adjustment expenses. The principal
factor in determining the level of the Company's profit is the difference
between these premiums earned and losses and loss adjustment expenses incurred.
Loss and loss adjustment expense reserves are estimates of what an insurer
expects to pay on behalf of claimants. The Company is required to maintain
reserves for payment of estimated losses and loss adjustment expenses for both
reported claims and incurred but not reported ("IBNR") claims. The ultimate
liability incurred by the Company may be different from current reserve
estimates.
Loss and loss adjustment expense reserves for IBNR claims are estimated
based on many variables including historical and statistical information,
inflation, legal developments, economic conditions, general trends in claim
severity and frequency and other factors that could affect the adequacy of loss
reserves. The Company reviews case and IBNR reserves monthly and makes
appropriate adjustments.
SUMMARY RESULTS
The following table sets forth period to period changes in selected
financial data:
<TABLE>
<CAPTION>
---------------------------------------------
Period to Period Increase (Decrease)
Three Months Ended March 31,
---------------------------------------------
1996-97
---------------------------------------------
<S> <C>
Premiums written $ 121,873
Net premiums earned (778,277)
Net investment income (4,516)
Loss and loss adjustment expense,
net of reinsurance recoveries (417,928)
Operating expense (283,080)
Interest expense (79,251)
Operating income (57,384)
Net income $ (46,870)
</TABLE>
9
<PAGE> 10
The combined ratio, which is the sum of the loss ratio and expense ratio, is the
traditional measure of underwriting experience for insurance companies. The
following table reflects the loss, expense and combined ratios of Ohio Indemnity
on both a statutory and GAAP basis for the three months ended March 31:
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Statutory:
Loss ratio 53.8% 53.8%
Expense ratio 17.2% 31.9%
------ -----
Combined ratio 71.0% 85.7%
====== =====
GAAP:
Loss ratio 53.8% 53.8%
Expense ratio 17.2% 22.3%
------ -----
Combined ratio 71.0% 76.1%
====== =====
</TABLE>
Investments of Ohio Indemnity's assets are restricted to certain investments
permitted by Ohio insurance laws. The Company's overall investment policy is
determined by the Company's Board of Directors and is reviewed periodically. The
Company principally invests in investment-grade obligations of states,
municipalities and political subdivisions because the majority of the interest
income from such investments is tax-exempt and such investments have generally
resulted in favorable net yields. The Company has the ability and intent to hold
its held to maturity fixed income securities to maturity or put date, and as a
result carries its held to maturity fixed income securities at amortized cost
for GAAP purposes. As the Company's fixed income securities mature, there can be
no assurance that the Company will be able to reinvest in securities with
comparable yields.
RESULTS OF OPERATIONS
MARCH 31, 1997 AS COMPARED TO MARCH 31, 1996
Premiums Written; Net Premiums Earned. Premiums written increased from
$3,603,751 at March 31, 1996 to $3,725,624 at March 31, 1997, while net premiums
earned decreased from $2,895,349 at March 31, 1996 to $2,117,072 at March 31,
1997. Increases in premiums written were primarily associated with the Bonded
Service program along with reductions in return premiums associated with the
discontinuance of the Automobile Physical Damage program. Premiums earned
decreased due to the change in unearned premiums associated with the run-off of
the automobile program in addition to reductions in unearned premium associated
with an Ultimate Loss Insurance canceled policy.
Premiums written for Ultimate Loss Insurance decreased from $1,365,177 in
the first quarter of 1996 to $1,109,805 in the first quarter of 1997. Net
premiums earned from Ultimate Loss Insurance decreased from $1,666,229 in the
first quarter of 1996 to $1,273,596 in the first quarter of 1997. Premiums
written and net premiums earned decreased as the result of reductions in the
number of loans made by existing policy holders. Additionally, net premiums
earned decreased as a result of reductions in unearned premium associated with a
canceled policy.
Premiums written for the Bonded Service program increased from $2,290,579 in
the first quarter of 1996 to $2,589,245 in the first quarter of 1997, while net
premiums earned from the Bonded Service program increased from $706,247 in the
first quarter of 1996 to $806,476 in the first quarter of 1997. The increases in
premiums written and net premiums earned on the Bonded Service program were
primarily attributable to marginal increases in premium rates.
Automobile Physical Damage Insurance accounted for $53,346 of premium
cancellations, and $502,343 of net premiums earned for the first quarter in
1996. There were no premiums written or net premiums earned during the first
quarter of 1997. On July 28, 1995, Ohio Indemnity Company entered into an
agreement with the California Department of Insurance to discontinue sales and
renewals of private passenger personal lines in automobile physical damage
insurance in California.
Net Investment Income. Net investment income decreased 1.3% from $342,616 in
the first quarter of 1996 to $338,100 in the first quarter of 1997 as a result
of a shortened maturities on the bond portfolio and the sale of income producing
preferred stocks.
10
<PAGE> 11
Claims Administration. Claims administration income generated by BCIS
Services, Inc. ("BCIS Services"), a wholly-owned subsidiary of the Company,
accounted for $132,883 of the revenues for the first quarter of 1996 and
$177,447 in the first quarter of 1997. BCIS Services commenced business
operations in California during 1993.
Other Income. Other income decreased from $116,979 in the first
quarter of 1996 to $8,293 in the first quarter of 1997. The decrease in other
income was primarily due to earnings in the first quarter of 1996 of $13,963
attributed to fee income earned and $87,605 attributed to recognition of
favorable results from a closed year of operations of the Bonded Service
program. The Company expects other income to vary from year to year depending on
claims experience of the Bonded Service program.
Losses and Loss Adjustment Expenses, Net of Reinsurance Recoveries. Losses
and loss adjustment expenses totaled $1,138,943, or 53.8% of net premiums earned
during the first quarter of 1997 versus $1,556,871, or 53.8% of net premiums
earned during the first quarter of 1996. Losses and loss adjustment expenses, as
a percentage of net premiums earned, remained constant for the same period
because net premiums earned decreased at approximately the same percentage rate
as the percentage rate decrease in losses and loss adjustment expenses.
The absolute decrease in losses and loss adjustment expenses was primarily
attributable to initial claims from the Automobile Physical Damage Insurance
business written in the first quarter of 1996 which totalled $395,685 compared
with $14,349 of net recoveries during the first quarter of 1997. This decrease
of 104.0% was due to the discontinuance of the Automobile Physical Damage
Program. The losses and loss adjustment expenses for Ultimate Loss Insurance
decreased 3.0% to $914,572 in the first quarter of 1997 from $942,427 in the
first quarter of 1996 due to decreases in loss and loss adjustment expense
payments. Losses and loss adjustment expenses for the Bonded Service program
increased from $103,455 in 1996 to $135,263 in 1997 primarily due to deficiency
development on prior year reserves.
Operating Expense. Operating expense consists of commission expense, other
insurance operating expense, amortization of deferred policy acquisition costs
and general and administrative expenses. Operating expense decreased 25.5% from
$1,108,971 in the first quarter of 1996 to $825,891 in the first quarter of
1997. The decrease in operating expense was primarily attributable to a 42.1%
decrease in non-deferred commission expense primarily associated with an
Ultimate Loss Insurance customer and the discontinuance of the automobile
program. Other insurance operating expense decreased as a result of reductions
in legal, auditing and equipment rental expenses.
Interest Expense. Interest expense decreased 79.4% from $108,637 in the
first quarter of 1996 to $22,398 in the first quarter of 1997. The decrease was
due to lower borrowing levels on the Company's revolving credit line and
decreases in the prime rate.
Federal Income Taxes. Federal income taxes decreased from $171,926 in the
first quarter of 1996 to $161,412 in the first quarter of 1997 due to increases
in taxable income primarily resulting from higher nondeductible unearned
premiums and lower tax exempt interest deductions.
Statutory Combined Ratios. The change in the statutory combined ratio from
85.7% at March 31, 1996 to 71.0% at March 31, 1997 was attributable to decreases
of other insurance operating expenses and lower loss and loss adjustment expense
experience.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an insurance holding company whose principal asset is the
stock of Ohio Indemnity. The Company is, and will continue to be, dependent on
dividends from Ohio Indemnity to meet its liquidity requirements, including debt
service obligations. The Company has a $10 million credit facility to fund
working capital requirements. Based on statutory limitations, the maximum amount
of dividends that the Company would be able to receive in 1997 from Ohio
Indemnity, absent regulatory consent, is $2,890,887.
11
<PAGE> 12
Ohio Indemnity derives its funds principally from net premiums written,
reinsurance recoveries, investment income and contributions of capital from the
Company. The principal use of these funds is for payment of losses and loss
adjustment expenses, commissions, operating expenses and income taxes. Net cash
provided by operating activities equalled $1,427,737 and $701,313 for the
quarter ended March 31, 1997 and 1996, respectively. Net cash provided by
financing activities was $199,998 for the quarter ended March 31, 1997 and
$34,563 for the quarter ended March 31, 1996. Net cash used in investing
activities of the Company was $(1,705,133) and $(29,685) for the quarter ended
March 31, 1997 and 1996, respectively.
BCIS Services derives funds principally from claims administration fees
which are sufficient to meet its operating obligations.
The Company maintains a level of cash and liquid short-term investments
which it believes will be adequate to meet anticipated payment obligations
without being required to liquidate intermediate-term and long-term investments
through the next twelve months. Due to the nature of the risks the Company
insures, losses and loss adjustment expenses emanating from its policies are
characterized by relatively short settlement periods and quick development of
ultimate losses compared to claims emanating from other types of insurance
products. Therefore, the Company believes that it can estimate its cash needs to
meet its loss and expense payment obligations through the next twelve months.
The Company's investments at March 31, 1997 consisted primarily of
investment-grade fixed income securities. Cash and short-term investments at
March 31, 1997 amounted to $7,698,526, or 28.1% of total cash and invested
assets. The fair values of the Company's held to maturity fixed income
securities are subject to market fluctuations but are carried on the balance
sheet at amortized cost because the Company has the ability and intent to hold
fixed income securities to maturity or put date. Available for sale fixed income
securities are reported at fair value with unrealized gains or losses, net of
applicable deferred taxes, reflected in shareholders' equity. The Company earned
net investment income of $342,616 and $338,100 for the quarter ended March 31,
1996 and 1997, respectively.
The Company's total shareholders' equity increased from $12,532,217 at March
31, 1995 to $14,179,119 at March 31, 1996 to $16,231,701 at March 31, 1997,
representing a 29.5% increase over the three-year period. The increase in total
shareholders' equity has strengthened the Company's capital position.
All material capital commitments and financial obligations of the Company
are reflected in the Company's financial statements, except the Company's risk
on surety bonds and state mandated performance bonds, written in connection with
the Bonded Service program. The financial statements include reserves for losses
on such programs for any claims filed and for an estimate of incurred but not
reported losses. Such loses were $331,500 and $458,436 at March 31 1997 and
December 31, 1996, respectively.
Under applicable insurance statutes and regulations, Ohio Indemnity is
required to maintain prescribed amounts of capital and surplus as well as
statutory deposits with the appropriate insurance authorities. Ohio Indemnity is
in compliance with all applicable statutory capital and surplus requirements.
Ohio Indemnity's investments consist only of permitted investments under Ohio
insurance laws.
FACTORS TO CONSIDER FORWARD LOOKING
The Company expects to continue expanding its direct sale force, which
should allow the Company to increase its market penetration. These activities
will be directed toward selected market niches where management believes the
Company will be able to provide customers with additional services.
TRENDS
Management does not know of any trends, events or uncertainties that will have,
or that are reasonably likely to have, a material effect on the Company's
liquidity, capital resources or results of operations.
12
<PAGE> 13
The Company's results of operations have varied from quarter to quarter
principally because of fluctuations in underwriting results. The Company's
experience indicates that more loans for automobile purchases are financed
during summer months due to seasonal consumer buying habits.
SAFEHARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
this Form 10-Q includes forward-looking statements that involve risks and
uncertainties, including, but not limited to, quarterly fluctuations in results,
the management of growth, and other risks detailed from time to time in the
Company's Securities and Exchange Commission filing. Actual results may differ
materially from management expectations.
INFLATION
Although the cumulative effects of inflation on premium growth cannot be fully
determined, increases in the retail price of automobiles have generally resulted
in increased amounts being financed which constitutes one of the bases for
determining premiums on Ultimate Loss Insurance. Despite relatively low
inflation during the first quarter of 1997, the Company has experienced no
material adverse consequences with respect to its growth in premiums.
INSURANCE REGULATORY MATTERS
On August 9, 1994, the Ohio Department of Insurance issued its triennial
examination report on Ohio Indemnity as of December 31, 1993. The examiners
reported that the financial statements set forth in the report reflected the
financial condition of Ohio Indemnity. Management is not aware of any
recommendations by regulatory authorities which would have, or are reasonably
likely to have, a material effect on the Company's liquidity, capital resources
or results of operations.
The NAIC has developed a risk-based capital measurement formula to be applied to
all property/casualty insurance companies. This formula calculates a minimum
required statutory net worth, based on the underwriting, investment, credit,
loss reserve and other business risks inherent in an individual company's
operations. Under the current formula, any insurance company which does not meet
threshold risk-based capital measurement standards could be forced to reduce the
scope of its operations and ultimately could become subject to statutory
receivership proceedings. Based on the Company's analysis, it appears that the
Company's total adjusted capital is in excess of all required action levels and
that no corrective action will be necessary. The Risk Based Capital provisions
have been enacted into the Ohio Revised Code.
RESERVES
The amount of incurred losses and loss adjustment expenses is dependent upon a
number of factors, including claims frequency and severity, and the nature and
types of losses incurred and the number of policies written. These factors may
fluctuate from year to year, and do not necessarily bear any relationship to the
amount of premiums written or earned.
As claims are incurred, provisions are made for unpaid losses and loss
adjustment expenses by accumulating case reserve estimates for claims reported
prior to the close of the accounting period and by estimating IBNR claims based
upon past experience modified for current trends. Notwithstanding the
variability inherent in such estimates, management believes that the provisions
made for unpaid losses and loss adjustment expenses are adequate to meet claims
obligations of the Company. Such estimates are reviewed monthly by management
and annually by an independent consulting actuary and, as adjustments thereto
become necessary, such adjustments are reflected in the Company's results of
operations. The Company's independent consulting actuary has opined that loss
and loss adjustment expense reserve levels, as of December 31, 1996, were
reasonable.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is routinely a party to litigation incidental to its business, as
well as to other nonmaterial litigation. Management believes that no individual
item of litigation, or group of similar items of litigation, including the
matters referred to below, is likely to result in judgments that will have a
material adverse effect on the financial condition of the Company.
On November 2, 1994, the James L. Miniter Agency, Inc. (the "Agent") filed a
lawsuit against Ohio Indemnity in the Suffolk County Superior Court,
Massachusetts, alleging essentially that Ohio Indemnity had breached its
contractual obligations to the Agency policyholder. On December 2, 1994, Ohio
Indemnity removed the case to the United States District Court for the District
of Massachusetts. On June 7, 1996, a summary judgement was granted in favor of
Ohio Indemnity, however, an appeal of the judgement has been filed by the Agent.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Item 27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on form 8-K were filed by the Company during the
quarter ended March 31, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANCINSURANCE CORPORATION
-------------------------
(Company)
Date: May 2, 1997 By: Si Sokol
---------------------- -----------------------------------
Si Sokol
President and
Chairman of Board of Directors
(Principal Executive Officer)
Date: May 2, 1997 By: Sally Cress
---------------------- -----------------------------------
Sally Cress
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
15
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 12,847,329
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