<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 June 30, 1999 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 June 30, 1999
- ------------------------------- ----------------------------
Common stock, without par value 6,135,179
<PAGE> 2
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income for the three months and
six months ended June 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Comprehensive Income for the
three months and six months ended June 30, 1999 and
1998 (unaudited) 6
Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds Not Applicable
Item 3. Default Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
<TABLE>
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
Assets 1999 1998
- ------ ----------- ------------
(Unaudited)
<S> <C> <C>
Investments:
Held to maturity:
Fixed maturities, at amortized cost (fair value
$4,829,436 in 1999 and $4,841,414 in 1998) $ 4,780,314 $ 4,702,163
Available for sale:
Fixed maturities, at fair value (amortized cost
$13,882,505 in 1999 and $10,763,962 in 1998) 13,880,272 11,170,469
Equity securities, at fair value (cost $4,269,812 in
1999 and $3,434,573 in 1998) 4,915,923 4,024,800
Short-term investments, at cost which approximates fair value 5,199,616 5,824,464
Securities purchased under agreements to resell 1,511,635 1,260,857
----------- -----------
Total investments 30,287,760 26,982,753
----------- -----------
Cash 3,745,440 4,582,168
Premiums receivable 2,779,959 1,783,719
Accounts receivable, net of allowance for doubtful accounts 360,633 286,242
Reinsurance receivable 11,376 2,750
Prepaid reinsurance premiums 51,657 28,400
Deferred policy acquisition costs 540,793 152,678
Loans to affiliates 795,620 578,621
Note receivable -- 6,031
Furniture, fixtures and leasehold improvements, net 283,590 171,764
Excess of investment over net assets of subsidiaries, net 956,501 964,453
Prepaid federal income taxes 67,145 --
Accrued investment income 329,467 269,690
Other assets 330,666 139,398
----------- -----------
Total assets $40,540,607 $35,948,667
=========== ===========
</TABLE>
(Continued)
3
<PAGE> 4
<TABLE>
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
<CAPTION>
June 30, December 31,
Liabilities and Shareholders' Equity 1999 1998
- ------------------------------------ ----------- ------------
(Unaudited)
<S> <C> <C>
Reserve for unpaid losses and loss adjustment expenses $ 3,907,944 $ 3,177,845
Unearned premiums 2,710,175 718,795
Return premiums payable 754,944 33,671
Contract funds on deposit 3,085,676 2,917,868
Reinsurance premiums payable 4,727 5,430
Note payable to bank 4,000,000 4,250,000
Note payable 22,412 28,076
Taxes, licenses, and fees payable 129,814 373,679
Deferred federal income taxes 144,495 290,846
Federal income taxes payable -- 44,191
Commissions payable 464,330 438,175
Other 981,184 1,165,609
----------- -----------
Total liabilities 16,205,701 13,444,185
----------- -----------
Commitments 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; 6,170,341 shares issued at June 30, 1999 and
5,878,277 shares at December 31, 1998 1,794,141 315,567
Additional paid-in capital 1,495,387 1,495,387
Accumulated other comprehensive income 424,959 657,844
Retained earnings 20,720,933 20,136,198
----------- -----------
24,435,420 22,604,996
Less: Treasury stock, at cost (35,162 common shares at June
30, 1999 and December 31, 1998) (100,514) (100,514)
----------- -----------
Total shareholders' equity 24,334,906 22,504,482
----------- -----------
Total liabilities and shareholders' equity $40,540,607 $35,948,667
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
<TABLE>
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Premiums written $5,794,094 $4,626,795 $14,329,206 $10,677,967
(Increase) decrease in
unearned premiums 809,391 764,813 (1,991,380) (1,404,483)
---------- ---------- ----------- -----------
Premiums earned 6,603,485 5,391,608 12,337,826 9,273,484
Premiums ceded (28,618) (26,123) (58,781) (41,518)
---------- ---------- ----------- -----------
Net premiums earned 6,574,867 5,365,485 12,279,045 9,231,966
Investment income (net of
expenses of $54,292 and
$30,237, respectively) 361,468 349,679 695,753 693,655
Net realized gain on
investments 36,599 48,061 113,444 50,993
Claims administration fees 123,591 145,696 261,223 291,764
Title and appraisal fees 639,277 491,878 1,161,660 969,705
Management fees 318,334 237,315 579,198 461,207
Other income 31,041 16,876 50,856 27,008
---------- ---------- ----------- -----------
Total revenue 8,085,177 6,654,990 15,141,179 11,726,298
---------- ---------- ----------- -----------
Losses and operating expenses:
Losses and loss adjustment
expenses 3,591,085 3,521,126 7,313,701 5,943,154
Commission expense 1,025,940 590,041 1,878,641 984,981
Other insurance operating
expenses 664,331 574,047 1,092,570 964,114
General and administrative
expenses 1,085,291 577,621 1,847,513 1,414,547
Interest expense 41,840 82,996 82,697 156,968
---------- ---------- ----------- -----------
Total expenses 6,408,487 5,345,831 12,215,122 9,463,764
---------- ---------- ----------- -----------
Income before federal
income taxes 1,676,690 1,309,159 2,926,057 2,262,534
Federal income tax expense 493,692 378,191 862,284 624,065
---------- ---------- ----------- -----------
Net income $1,182,998 $ 930,968 $ 2,063,773 $ 1,638,469
========== ========== =========== ===========
Net income per common share $ .19 $ .15 $ .33 $ .26
========== ========== =========== ===========
Net income per common share,
assuming dilution $ .19 $ .15 $ .33 $ .26
========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,182,998 $930,968 $2,063,773 $1,638,469
Other comprehensive income:
Unrealized holding losses arising
during period, net of income tax
benefit (89,519) (79,045) (232,886) (58,781)
---------- -------- ---------- ----------
Comprehensive income $1,093,479 $851,923 $1,830,887 $1,579,688
========== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
<TABLE>
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,063,773 $ 1,638,469
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized gain on investments (113,444) (50,993)
Net realized loss on disposal of equipment 437 --
Depreciation and amortization 95,153 77,603
Deferred federal income tax benefit (26,380) (10,504)
Increase in deferred policy acquisition costs, net (996,240) (835,568)
Increase in prepaid commissions (388,115) (280,088)
Increase in other assets (635,432) (34,841)
Increase in reserve for unpaid losses and loss adjustment expenses 730,099 529,238
Increase in unearned premiums 1,991,380 1,404,483
Increase (decrease) in contract funds on deposit 167,808 (336,162)
Increase (decrease) in federal income taxes payable (44,191) 154,569
Increase (decrease) in commissions payable 26,155 (225,802)
Increase (decrease) in other liabilities 286,616 (120,375)
----------- -----------
Net cash provided by operating activities 3,157,619 1,910,029
----------- -----------
Cash flows from investing activities:
Proceeds from held to maturity: fixed maturities due to redemption or maturity 115,000 340,000
Proceeds from available for sale: fixed maturities sold, redeemed and matured 2,259,646 770,000
Proceeds from available for sale: equity securities sold 1,943,885 1,113,486
Cost of investments purchased:
Held to maturity: fixed maturities (200,000) (411,469)
Available for sale: fixed maturities (5,378,331) --
Equity securities (2,692,375) (1,886,447)
Net (increase) decrease in short-term investments 624,848 (193,750)
Net increase in securities purchased under agreements to resell (250,778) (283,505)
Purchase of furniture, fixtures and leasehold improvements (165,878) (96,393)
Proceeds from disposal of equipment 100 --
----------- -----------
Net cash used in investing activities (3,743,883) (648,078)
----------- -----------
Cash flows from financing activities:
Proceeds from note payable to bank 4,000,000 3,950,000
Repayments of note payable to bank (4,250,000) (3,950,000)
Dividends paid (464) --
----------- -----------
Net cash used in financing activities (250,464) --
----------- -----------
Net increase (decrease) in cash (836,728) 1,261,951
----------- -----------
Cash at December 31 4,582,168 1,146,317
----------- -----------
Cash at June 30 $ 3,745,440 $ 2,408,268
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 82,697 $ 156,968
=========== ===========
Income taxes $ 1,000,000 $ 480,000
=========== ===========
</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 June 30, 1999, the Consolidated
Statements of Income for the six months ended June 30, 1999 and 1998, and the
Consolidated Statements of Comprehensive Income for the three and six months
ended June 30, 1999 and 1998, and the Consolidated Statements of Cash Flows for
the six months then ended have been prepared by Bancinsurance Corporation (the
"Company") without an audit. In the opinion of Company's management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flow at
June 30, 1999 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,
1998. The results of operations for the period ended June 30, 1999 are not
necessarily indicative of the results of operations for the full year.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which will replace
the current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting. The NAIC is now considering amendments to the
Codification guidance that would also be effective upon implementation. The
Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas. The Ohio
Insurance Department has adopted the Codification guidance, effective January 1,
2001. The Company has not estimated the potential effect of the Codification
guidance if adopted by the Department.
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. In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which is effective for periods beginning after June 15, 1999, establishes
accounting and reporting standards which require derivatives to be measured at
fair value and recognized as assets or liabilities in the balance sheet. The
Company's balance sheet and statements of earnings and cash flows will not be
materially impacted by this statement, upon adoption.
4. Supplemental Disclosure For Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,182,998 $ 930,968 $2,063,773 $1,638,469
---------- ---------- ---------- ----------
Income available to common stockholders,
assuming dilution $1,182,998 $ 930,968 $2,063,773 $1,638,469
---------- ---------- ---------- ----------
Weighted average common shares outstanding 6,135,179 6,135,179 6,135,179 6,135,179
Adjustments for dilutive securities:
Dilutive effect of outstanding options 82,744 101,429 87,140 101,429
---------- ---------- ---------- ----------
Diluted common shares 6,217,923 6,236,608 6,222,319 6 ,236,608
========== ========== ========== ==========
Net income per common share $ .19 $ .15 $ .33 $ .26
Net income per common share, assuming dilution $ .19 $ .15 $ .33 $ .26
</TABLE>
8
<PAGE> 9
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited) (Continued)
On May 5, 1999, the Company declared a 5% common stock dividend to shareholders
of record on May 25, 1999. Accordingly, all common stock share data have been
adjusted to include the effect of the stock dividend.
5. During 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued. This SFAS was adopted by the Company as of
January 1, 1998. SFAS No. 131 requires disclosure of revenues and other
information based on the way management organizes the segments of the business
for making operating decisions and assessing performance.
The Company operates primarily in the property/casualty insurance industry.
There are intersegment management fees but not intersegment sales. The
allocations of certain general expenses within segments are based on a number of
assumptions, and the reported operating results would change if different
methods were applied. Depreciation and capital expenditures are not considered
material.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------------------------------------
WORKERS
PROPERTY/CASUALTY TITLE COMPENSATION ALL CONSOLIDATED
INSURANCE AGENCY ADMINISTRATION OTHER TOTALS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers..... $13,070,834 $1,161,460 $261,223 $ 609 $14,494,126
Intersegment revenues................ 4,740 -- -- 5,220 9,960
Interest revenue..................... 645,538 -- -- 11,475 657,013
Interest expense..................... 2,300 1,402 29 78,966 82,697
Depreciation and amortization........ 33,685 30,657 2,356 28,455 95,153
Segment profit (loss)................ 3,426,340 28,225 (38,793) (479,755) 2,936,017
Income tax expense (benefit)......... 1,030,420 11,028 -- (179,164) 862,284
Segment assets....................... $37,475,794 $ 924,405 $189,983 $3,483,838 $42,074,020
<CAPTION>
JUNE 30, 1998
-----------------------------------------------------------------------------
WORKERS
PROPERTY/CASUALTY TITLE COMPENSATION ALL CONSOLIDATED
INSURANCE AGENCY ADMINISTRATION OTHER TOTALS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers..... $ 9,783,910 $ 982,415 $291,765 $ 756 $11,058,846
Intersegment revenues................ 4,740 -- -- 5,220 9,960
Interest revenue..................... 668,552 -- -- 8,860 677,412
Interest expense..................... 485 -- 129 156,354 156,968
Depreciation and amortization........ 28,493 16,265 1,926 30,919 77,603
Segment profit (loss)................ 2,575,487 (34,918) 9,536 (277,611) 2,272,494
Income tax expense (benefit)...... 729,357 -- 3,376 (108,668) 624,065
Segment assets....................... $33,355,348 $ 528,216 $ 47,332 $2,765,849 $36,696,745
</TABLE>
9
<PAGE> 10
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited) (Continued)
<TABLE>
<CAPTION>
---------------------------
JUNE 30 JUNE 30
1999 1998
---------------------------
<S> <C> <C>
REVENUES
--------
Total revenues for reportable segments.................. $14,494,126 $11,058,846
Interest revenue........................................ 657,013 677,412
Elimination of intersegment revenues.................... (9,960) (9,960)
----------- -----------
Total consolidated revenues............................. $15,141,179 $11,726,298
=========== ===========
PROFIT
------
Total profit for reportable segments.................... $ 3,415,772 $ 2,550,105
Other loss ............................................. (479,755) (277,611)
Elimination of intersegment profits..................... (9,960) (9,960)
----------- -----------
Income before income taxes.............................. $ 2,926,057 $ 2,262,534
=========== ===========
ASSETS
------
Total assets for reportable segments.................... $38,590,182 $33,930,896
Other assets............................................ 3,483,838 2,765,849
Elimination of intersegment receivables................. (1,533,413) (748,078)
----------- -----------
Consolidated assets..................................... $40,540,607 $35,948,667
=========== ===========
</TABLE>
6. Subsequent Events. On July 19, 1999, the Company entered into an Agreement
and Plan of Merger with Westford Group, Inc., an Ohio corporation ("Westford"),
and Bancinsurance Acquisitions, Inc., an Ohio corporation and a wholly-owned
subsidiary of the Company ("Acquisitions"), whereby Westford will be merged with
and into Acquisitions, with Acquisitions being the surviving entity as a
wholly-owned subsidiary of the Company under the name Westford Group, Inc. (the
"Merger"). If the Merger is consummated the Company will pay the Westford
shareholders cash in the amount of $.70 per share for each share of Westford
common stock, without par value. The total amount of the merger consideration
payable by the Company is anticipated to be $958,094 (the "Merger
Consideration"). The Company anticipates paying the Merger Consideration from
existing cash reserves.
10
<PAGE> 11
BANCINSURANCE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
OVERVIEW
Bancinsurance Corporation is a specialty property insurance holding company. The
Company's principal sources of revenue are premiums paid by insureds for
insurance policies issued by the Company's wholly-owned subsidiary, Ohio
Indemnity Company ("Ohio Indemnity"). Premium volume principally is earned as
written due to the nature of the monthly policies issued by the Company. 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
Six Months Ended June 30,
--------------------------------
1998-99
--------------------------------
Amount % Change
---------- --------
<S> <C> <C>
Premiums written $3,651,239 34.2%
Net premiums earned 3,047,079 33.0%
Net investment income 64,549 8.7%
Total revenue 3,414,881 29.1%
Loss and loss adjustment expense,
net of reinsurance recoveries 1,370,547 23.1%
Operating expense 1,455,082 43.3%
Interest expense (74,271) (47.3)%
Operating income 663,523 29.3%
Net income $ 425,304 26.0%
</TABLE>
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
Company ("Ohio Indemnity), a consolidated subsidiary, on both a statutory and
GAAP basis for the six months ended June 30:
11
<PAGE> 12
<TABLE>
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
Statutory:
Loss ratio 59.6% 64.4%
Expense ratio 22.2% 22.0%
---- ----
Combined ratio 81.8% 86.4%
==== ====
GAAP:
Loss ratio 59.6% 64.4%
Expense ratio 19.8% 18.7%
---- ----
Combined ratio 79.4% 83.1%
==== ====
</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
JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998
- ------------------------------------------
Premiums Written; Net Premiums Earned. Premiums written for the six months
increased 34.2% from $10,677,967 at June 30, 1998 to $14,329,206 at June 30,
1999, and net premiums earned increased 33.0% from $9,231,966 at June 30, 1998
to $12,279,045 at June 30, 1999. Premiums written increased 25.2% from
$4,626,795 during the three months ended June 30, 1998 to $5,794,094 during the
three months ended June 30, 1999, while net premiums earned increased 22.5% from
$5,365,485 to $6,574,867 during the same period, respectively. Premiums
increased due to a strong performance in the Company's expanding core product
lines of business.
Premiums written for Ultimate Loss Insurance increased 42.2% from $7,033,780 in
the first six months of 1998 to $10,003,606 in the first six months of 1999. Net
premiums earned from Ultimate Loss Insurance increased 38.1% from $7,149,722 in
the first six months of 1998 to $9,872,611 in the first six months of 1999.
Premiums written for Ultimate Loss Insurance increased 28.3% from $4,331,814 in
the second quarter of 1998 to $5,559,226 in the second quarter of 1999. Net
premiums earned for Ultimate Loss Insurance increased 25.9% from $4,357,195 in
the second quarter of 1998 to $5,485,665 in the second quarter of 1999. The
increase in premiums written and premiums earned was primarily attributable to
five new major financial institution customers for Ultimate Loss Insurance added
after the second quarter of 1998. In addition, a creditor-placed mortgage
protection and collateral protection program recorded in the aggregate $64,379
and $390,752 of premiums written and $178,520 and $277,620 of premiums earned
during the six months ended June 30, 1998 and 1999, respectively.
Premiums written for the Bonded Service program increased 26.7% from $3,376,249
in the first six months of 1998 to $4,278,605 in the first six months of 1999,
while net premiums earned from the Bonded Service program increased 21.8% from
$1,941,193 in the first six months of 1998 to $2,365,166 in the first six months
of 1999 due to increases in premium rates. The increases in premiums written and
net premiums earned on the Bonded Service program were primarily attributable to
increases in employee enrollment among existing trust members resulting in
higher service fees. Premiums written for the Bonded Service program decreased
6.9% from $232,082 in the second quarter of 1998 to $216,007 in the second
quarter of 1999 due to fluctuations in the timing of billing issuances by the
Company's third party administrator, while net premiums earned increased 20.8%
from $937,182 in the second quarter of 1998 to $1,132,007 in the second quarter
of 1999 due to increases in enrollment among existing trust members.
Net Investment Income. Net investment income increased 8.7% from $744,648 in
the first six months of 1998 to $809,197 in the first six months of 1999 and net
investment income remained relatively constant from $397,740 in the second
quarter of 1998 to $398,067 in the second quarter of 1999. Net realized gains on
investments increased $62,451 from $50,993 in the first six months of 1998 to
$113,444 in the first six months of 1999 and decreased $11,462 from $48,061 in
the second quarter of 1998 to $36,599 in the second quarter of 1999 due to
changes in investment mix resulting from the application of the Company's
12
<PAGE> 13
investment strategy in the current market environment. In 1999, the Company
intends to seek growth in investment income by increasing the average size of
the investment portfolio. As new funds become available, they will be invested
in accordance with the Company's strategy of emphasizing after tax return, which
predominantly includes municipal tax-free securities. The Company strives to
maintain a high quality investment portfolio.
Claims Administration Fees. Claims administration fees generated by BCIS
Services, Inc. ("BCIS Services"), a consolidated subsidiary, accounted for
$291,764 of the revenues for the first six months of 1998 and $261,223 in the
first six months of 1999 and decreased from $145,696 in the second quarter of
1998 to $123,591 in the second quarter of 1999. This decrease of 10.5% and
15.2%, respectively, was primarily attributable to a decline in claims
processing and servicing responsibilities in 1999.
Title and Appraisal Fees. Title services and appraisal fees generated by Custom
Title Services, Inc. ("Custom Title"), a consolidated subsidiary, accounted for
$969,705 of the revenues for the first six months of 1998 versus $1,161,660 for
the first six months of 1999 and $491,878 for the three months ended June 30,
1998 versus $639,277 for the three months ended June 30, 1999. This increase of
19.8% and 30.0%, respectively, was primarily attributable to an increase in the
loan-closing segment of the business.
Management Fees. Management fees were $579,198 for the six months ended June 30,
1999 and $318,334 for the three months ended June 30, 1999. Management fees were
$461,207 for the six months ended June 30, 1998 and $237,315 for the three
months ended June 30, 1998. This increase of 25.6% and 34.1%, respectively, was
attributable to recognition of favorable results from a closed year of
operations of the Bonded Service program. The Company expects management fees to
vary from year to year depending on claims experience in the Bonded Service
program.
Losses and Loss Adjustment Expenses, Net of Reinsurance Recoveries. Losses and
loss adjustment expenses totaled $5,943,154, or 64.4% of net premiums earned
during the first six months of 1998 versus $7,313,701, or 59.6% of net premiums
earned during the first six months of 1999. Losses and loss adjustment expenses
totaled $3,591,085 or 54.6% of net premiums earned during the second quarter of
1999 versus $3,521,126, or 65.6% of net premiums earned during the second
quarter of 1998. The decrease in losses and loss adjustment expenses, as a
percentage of net premiums earned, were reflective of continued favorable loss
experience in the Company's core lines and favorable development on prior year
reserves.
The absolute increase in losses and loss adjustment expenses was attributable to
initial claims from the Ultimate Loss Insurance business which increased 24.2%
from $5,579,251 during the six months ended June 30, 1998 to $6,933,495 during
the six months ended June 30, 1999 and totaled $3,429,813 during the second
quarter of 1998 compared with $3,526,619 during the second quarter of 1999. Loss
and loss adjustment expenses for Ultimate Loss Insurance business increased
primarily due to the addition of financial institution customers. Losses and
loss adjusting expenses for the Bonded Service program marginally decreased from
$102,842 in the first six months of 1998 to $102,639 in the first six months of
1999 and decreased from $11,118 for the second quarter of 1998 compared with
$(83,216) for the second quarter of 1999 due to redundancy 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 increased 43.3% from
$3,363,642 for the first six months of 1998 to $4,818,724 in the first six
months of 1999 and increased from $1,744,709 for the second quarter of 1998
compared with $2,775,562 during the second quarter of 1999. Commission expense
increased 90.7% from $948,981 in the first six months of 1998 to $1,878,641 in
the first six months of 1999 and increased from $590,041 to $1,025,940 in the
second quarter, primarily due to both higher direct and contingent commissions
associated with the increase in premiums written in the Ultimate Loss Insurance
and Bonded Service programs. Other insurance operating expenses increased 13.3%
from $964,114 in the first six months of 1998 to $1,092,570 in the first six
months of 1999 and increased 15.1% from $577,047 to $664,331 during the three
months ended June 30, 1998 and 1999, respectively, primarily due to increases in
allocable salaries and related benefits, legal, consulting and appraisal, travel
and office supplies. General and administrative expenses increased 30.6% from
$1,414,547 in the first six months of 1998 to $1,847,513 in the first six months
of 1999 and increased 87.9% from $577,621 to $1,085,291 in the second quarter of
1998 versus 1999, respectively, primarily due to increases in salaries, dues and
subscriptions, outside computer services and legal. BCIS Services operating
expenses increased 6.3% from $282,183 in the first six months of 1998 compared
with $300,016 during the first six months of 1999 and increased 3.4% from
$142,722 during the second quarter of 1998 to $147,506 during the second quarter
of 1999. Custom Title's operating expenses increased 11.4% from $1,017,333 in
the first six months of 1998 compared with $1,133,235 in the first six months of
1999 and increased 9.7% from $534,218 during the second quarter of 1998 to
$585,825 during the second quarter of 1999, principally due to increases in
subcontract search and filing fees and depreciation and amortization.
13
<PAGE> 14
Interest Expense. Interest expense decreased 47.3% from $156,968 in the first
six months of 1998 to $82,697 in the first six months of 1999 and decreased
49.6% from $82,996 for the three months ended June 30, 1998 versus $41,840 for
the three months ended June 30, 1999 due to lower borrowing levels on the
Company's revolving credit line.
Federal Income Taxes. The difference between federal income taxes, $624,065 in
the first six months of 1998 and $862,284 in the first six months of 1999 and
$378,191 to $493,692 in the second quarter, respectively, resulted from higher
pre-tax income and lower permanent tax differences resulting in a higher
effective tax rate.
Statutory Combined Ratios. The change in the statutory combined ratio from 86.4%
at June 30, 1998 to 81.8% June 30, 1999 were reflective of significant premium
growth in core business lines, continued favorable loss experience, favorable
development on prior year reserves related to the bonded service program and
management's emphasis on expense control.
DISCONTINUED PRODUCTS
In November 1998, one of the Company's significant Ultimate Loss Insurance
program customers closed their auto finance division as part of an overall
strategy to focus on more profitable areas of lending. This customer represented
30.0% and 35.8% of the Company's premiums written and 34.3% and 31.0% of the
Company's premiums earned during the six months ended June 30, 1998 and three
months ended June 30, 1998, respectively.
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 1999 from Ohio
Indemnity, absent regulatory consent, is $3,718,691.
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 equaled $3,157,619 and $1,910,029 for the six
months ended June 30, 1999 and 1998, respectively. Net cash used in financing
activities was $250,464 for the six months ended June 30, 1999. Net cash used in
investing activities of the Company was $3,743,883 and $648,078 for the six
months ended June 30, 1999 and 1998, respectively.
BCIS Services derives its funds principally from claims administration fees and
Custom Title Services, Inc. derives its funds principally from title and
appraisal fees which are sufficient to meet their respective operating
obligations. Although it is impossible to estimate accurately the future cash
flows from the operations of Custom Title's business, management believes the
Company's effective capital costs may increase. Management is actively exploring
further avenues for preserving capital and improving liquidity.
The Company's balance sheet liquidity remains favorable as evidenced by invested
assets that significantly exceed liabilities. The liquidity position has been
enhanced by increased premiums, positive underwriting, favorable loss experience
and investment income.
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.
14
<PAGE> 15
The Company's investments at June 30, 1999 consisted primarily of
investment-grade fixed income securities. Cash and short-term investments at
June 30, 1999 amounted to $10,456,691 or 30.7% 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
these securities to their 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 accumulated other comprehensive income.
The Company earned net investment income of $809,197 and $744,648 for the six
months ended June 30, 1999 and 1998, respectively.
Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company mitigates this
risk by attempting to match the maturity schedule of its assets with the
expected payouts of its liabilities. To the extent that liabilities come due
more quickly than assets mature, an insurer would have to sell assets prior to
maturity and recognized a gain or loss.
The Company's total shareholders' equity increased $3,675,417 to $24,334,906 at
June 30, 1999 from $20,659,489 at June 30, 1998 representing a 17.8% increase
over the one-year period. Driven by profitable operating earnings, the increase
in total shareholders' equity has strengthened the Company's capital position to
support future business growth.
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 reserves were $226,250 and $396,000 at June 30, 1999 and
December 31, 1998, 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.
DISCLOSURE ABOUT MARKET RISK
The following discussion about the Company's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded. The Company's market risk sensitive instruments are entered into for
purposes other than trading.
The carrying value of the Company's investment portfolio as of June 30, 1999 was
$30,287,760, 62% of which is invested in fixed maturity securities. The primary
market risk to the investment portfolio is interest rate risk associated with
investments in fixed maturity securities as well as fixed-rate short-term
investments. The Company's exposure to equity risk is not significant. The
Company has no foreign exchange risk or direct commodity risk.
For fixed maturity securities, the short-term liquidity needs and the potential
liquidity needs of the business are key factors in managing the portfolio. The
portfolio duration relative to the liabilities' duration is primarily managed
through cash market transactions. For additional information regarding the
Company's objectives and strategies pertaining to the investment portfolio, see
the Liquidity and Capital Resources section of this management's discussion and
analysis (MD&A).
For the Company's investment portfolio, there were no significant changes in the
Company's primary market risk exposures or in how these exposures are managed
compared to the year ended December 31, 1998. The Company does not anticipate
significant changes in the Company's primary market risk exposures or in how
those exposures are managed in future reporting periods based upon what is known
or expected to be in effect in future reporting periods.
The fair values of loans to affiliates and notes payable would not be materially
different as compared to their fair values at December 31, 1998 as interest
rates have remained relatively consistent.
15
<PAGE> 16
FACTORS TO CONSIDER FORWARD LOOKING
Going forward, management will consider underwriting, acquisition and investment
opportunities which fit the Company's strategy of penetrating niche and
short-tail risk markets. These decisions will be in areas where management feels
they have an understanding of the underwriting and inherent risks. Management is
intent on adding independent agents to expand its market presence. The Company
will further concentrate on penetrating larger financial institutions for
collateral protection insurance and expanding financial institution programs to
include mortgage collateral insurance. Opportunities will be considered for
underwriting additional non-profit organizations as they continue to consolidate
into national trusts and seek to retain and transfer their unemployment claim
exposure.
One of the Company's significant Ultimate Loss Insurance program customers
decided to close their auto finance division as part of an overall strategy to
focus on more profitable areas of lending. Management expects the discontinuance
of this policy will not have a material adverse effect on the Company's
operating results. See "Discontinued Products."
IMPACT OF THE YEAR 2000 ISSUE
State of Readiness. The Year 2000 issue relates to the way computer systems and
programs define calendar dates; they could fail or make miscalculations due to
interpreting a date including "00" to mean 1900, not 2000.
During fiscal 1997, the Company completed the installation and testing of its
internal financial systems and believes that such systems are Year 2000
compliant. The Company utilizes the latest version of Year 2000 compliant
Platinum SQL software for its internal financial system.
The Company began work on the Year 2000 Compliance issue for all remaining
internal software in fiscal 1997. The scope of the project includes: ensuring
the compliance of all applications, operating systems and hardware on network,
PC platforms and addressing the compliance of key business partners.
The most significant category of key business partners are financial
institutions. Their critical functions include safeguarding and management of
investment portfolios and processing of the Company's operating bank accounts.
Other partner categories include insurance agencies, communication services,
utilities, materials and supplies. Based on the importance of each relationship,
the Company is defining a strategy to determine compliance.
The target for completion of all phases is the third quarter of 1999. The
Company has completed the assessment and strategy phases for applications,
operating systems and hardware. Currently, approximately 60% of all policyholder
network systems are compliant.
The Company has a MCSE (Microsoft Certified Systems Engineer) on staff to review
the impact of its Year 2000 risks. Continuing evaluation by our MCSE in
developing contingency plans and to complete remediation work on separate
portions of the project are on going. Expected completion of all phases is
anticipated by third quarter end 1999.
Costs to Address the Company's Year 2000 Issues. Since the inception of the
project, the Company has incurred external costs of approximately $51,000.
Current estimates project a total expense for the project of $150,000. There has
not been a material adverse impact on the Company's operations or financial
condition as a result of projects being deferred due to resource constraints
caused by the Year 2000 project.
The Company's Contingency Plans. With respect to contingency plans for critical
policyholder systems, the Company recognizes that there is a viable alternative
if these systems are non-compliant. However, the Company has a targeted
completion of critical policyholder systems by third quarter end of 1999,
allowing for unanticipated delays. The Company will continue to reassess the
need for formal contingency plans, based on progress of Year 2000 efforts by the
Company and third parties.
Risks of the Company's Year 2000 Issues. Although the Company expects its
critical systems to be compliant by third quarter 1999 end, there is no
guarantee that these results will be achieved. Specific factors that give rise
to this uncertainty include a possible loss of technical resources to perform
the work, failure to identify all susceptible systems, non-compliance by third
parties whose systems and operations impact the Company, and other similar
uncertainties. A reasonable possible worst case scenario might include one or
more of the Company's significant policyholder systems being non-compliant, but
no loss of current data is anticipated. Such an event will not result in a
material disruption to the Company's operations. Specifically, if a
16
<PAGE> 17
third party system is not Year 2000 compliant, the Company could experience an
interruption to manage its invested assets and it's operating cash accounts.
Should the worst case scenario occur, it could, depending on its duration, have
a material impact on the Company's results of operations and financial position.
TRENDS
Management does not know of any trends, events or uncertainties that will have,
or that are reasonably likely to have, a material adverse effect on the
Company's liquidity, capital resources or results of operations.
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. Title and appraisal
fees are closely related to the level of real estate activity and the average
price of real estate sales. The availability of funds to finance purchases
directly affects real estate sales. Other factors include consumer confidence,
economic conditions, supply and demand, mortgage interest rates and family
income levels. Historically, the first quarter has had the least real estate
activity, while the remaining quarters have been more active. Fluctuations in
mortgage interest rates can cause shifts in real estate activity outside the
normal seasonal pattern.
FORWARD-LOOKING INFORMATION
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that indicate the Company's or management's
intentions, hopes, beliefs, expectations or predictions of the future are
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those projected in such forward-looking
statements. Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of the Company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Shareholders are cautioned not to put undue reliance on forward-looking
statements. In addition, the Company does not have an intention or obligation to
update forward-looking statements after the date hereof, even if new
information, future events, or other circumstances have made them incorrect or
misleading. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
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 1999, the Company has experienced no material adverse
consequences with respect to its growth in premiums.
INSURANCE REGULATORY MATTERS
On June 20, 1997, the Ohio Department of Insurance issued its triennial
examination report on Ohio Indemnity as of December 31, 1996. 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
17
<PAGE> 18
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, 1998, were
reasonable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The information required by this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Disclosure About Market Risk".
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On June 11, 1998, the Company filed an action in Franklin County Common Pleas
Court against Brian Delphia d/b/a Delphia Consulting, Inc., a computer
consulting firm, asserting claims for breach of contract relating to a software
development project. The computer consultant brought a counter-claim seeking
payment of $166,500 for outstanding billings. Mr. Delphia filed a second
counter-claim seeking $1,000,000 from the Company for malicious prosecution. A
settlement agreement and release was signed by both parties to the litigation
May 21, 1999 in which the Company dismissed its claims against Delphia
Consulting, Inc. and Brian Delphia and Delphia and Delphia Consulting, Inc.
dismissed their claims against the Company. Concurrent with the execution of the
settlement, Delphia Consulting, Inc. provided the Company the completed
components of, and work in process on, the developed software and the Company
paid Delphia Consulting, Inc. a nominal sum.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on June 1, 1999 for the
purpose of electing six directors to serve one year terms expiring in 2000.
The number of votes cast for or against each candidate is as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
John S. Sokol 5,287,974 13,360
Si Sokol 5,287,644 13,690
James R. Davis 5,288,644 12,690
Daniel D. Harkins 5,288,644 12,690
Milton O. Lustnauer 5,288,644 12,690
Saul Sokol 5,288,244 13,090
</TABLE>
18
<PAGE> 19
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 June 30, 1999.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BANCINSURANCE CORPORATION
-------------------------
(Company)
Date: August 5, 1999 By: John Sokol
-------------------- --------------------------------------------
John Sokol
President
(Principal Executive Officer)
Date: August 5, 1999 By: Sally Cress
-------------------- --------------------------------------------
Sally Cress
Treasurer and Secretary
(Principal Financial and Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 13,880,272
<DEBT-CARRYING-VALUE> 4,780,314
<DEBT-MARKET-VALUE> 4,829,436
<EQUITIES> 4,915,923
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 30,287,760
<CASH> 3,745,440
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 540,793
<TOTAL-ASSETS> 40,540,607
<POLICY-LOSSES> 3,907,944
<UNEARNED-PREMIUMS> 2,710,175
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,000,000
0
0
<COMMON> 1,794,141
<OTHER-SE> 22,540,765
<TOTAL-LIABILITY-AND-EQUITY> 40,540,607
12,279,045
<INVESTMENT-INCOME> 695,753
<INVESTMENT-GAINS> 113,444
<OTHER-INCOME> 2,052,937
<BENEFITS> 7,313,701
<UNDERWRITING-AMORTIZATION> 4,818,724
<UNDERWRITING-OTHER> 82,697
<INCOME-PRETAX> 2,926,057
<INCOME-TAX> 862,284
<INCOME-CONTINUING> 2,063,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,063,773
<EPS-BASIC> .33
<EPS-DILUTED> .33
<RESERVE-OPEN> 3,175,000
<PROVISION-CURRENT> 8,833,000
<PROVISION-PRIOR> (1,519,000)
<PAYMENTS-CURRENT> 4,932,000
<PAYMENTS-PRIOR> 1,660,000
<RESERVE-CLOSE> 3,897,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
