UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File No. 2-57299
FARM FAMILY MUTUAL INSURANCE COMPANY
A New York Corporation IRS No. 14-1415410
344 Route 9W, Glenmont, New York 12077-2910
Registrant's telephone number: (518) 431-5000
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
<PAGE>
FARM FAMILY MUTUAL INSURANCE COMPANY
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996
Consolidated Statements of Income -
Three months ended March 31, 1995 and 1996
Consolidated Statements of Cash Flow -
Three months ended March 31, 1995 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
FARM FAMILY MUTUAL INSURANCE COMPANY
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited)
For the Period Ended
12/31/95 03/31/96
---------- ----------
<S> <C> <C>
ASSETS
Investments
Fixed Maturities
Available for sale, at fair value (Amortized
cost: $171,694 in 1995 and $177,632 in 1996) $181,189 $181,476
Held to maturity, at amortized cos (Fair
value: $13,100 in 1995 and $12,349 in 1996) 12,386 12,204
Equity securities Available for sale, at fair
value (Cost: $334 in 1995 and 1996) 4,746 5,147
Mortgage loans 1,822 1,803
Other invested assets 1,246 1,027
Short-term investments 6,532 638
-------- --------
Total investments 207,921 202,295
Cash 2,410 3,794
Insurance receivables:
Reinsurance receivables 13,773 12,708
Premiums receivable 21,791 22,948
Deferred acquisition costs 10,527 10,551
Accrued investment income 4,260 4,017
Federal income taxes recoverable 448 220
Deferred income tax asset, net - 1,430
Prepaid reinsurance premiums 1,864 1,993
Receivable from affiliates, net 13,860 14,940
Other assets 1,434 1,823
-------- --------
Total Assets $278,288 $276,719
======== ========
LIABILITIES AND POLICYHOLDERS' EQUITY
12/31/95 03/31/96
-------- --------
Liabilities:
Reserves for losses and loss adjustment expenses 137,978 140,319
Unearned premium reserve 52,799 53,999
Reinsurance premiums payable 2,635 1,076
Accrued expenses and other liabilities 7,788 7,532
Debt 2,707 2,698
Deferred income tax liability, net 217 -
-------- --------
Total liabilities 204,124 205,624
Commitments and contingencies
Policyholders' equity:
Retained earnings 65,284 65,586
Net unrealized investment gains (losses) 8,998 5,627
Minimum pension liability adjustment (118) (118)
-------- --------
Total policyholder's equity 74,164 71,095
-------- --------
Total Liabilities and Policyholders' Equity $278,288 $276,719
======== ========
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FARM FAMILY MUTUAL INSURANCE COMPANY
Consolidated Statements of Income
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Month Period
Ended March 31,
1995 1996
----------- ----------
<S> <C> <C>
Revenues:
Premiums $27,852 $31,676
Net investment income 3,504 3,858
Realized investment gains, net 61 63
Other income 168 213
--------- ---------
Total revenues 31,585 35,810
Losses and Expenses:
Losses and loss adjustment expenses 19,157 25,722
Underwriting expenses 8,212 8,787
Interest expense 54 54
Dividends to policyholders 47 27
--------- ---------
Total losses and expenses 27,470 34,590
--------- ---------
Income before federal income tax expense and
extraordinary item 4,115 1,220
Federal income tax expense 1,193 397
--------- ---------
Income before extraordinary item 2,922 823
Extraordinary item - demutualization expenses - 521
--------- ---------
Net income $2,922 $302
========= =========
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FARM FAMILY MUTUAL INSURANCE COMPANY
Consolidated Statements of Policyholders' Equity
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Month Period
Ended March 31,
1995 1996
---------- ------------
<S> <C> <C>
Retained earnings
Balance, beginning of period $55,678 $65,284
Net income 2,922 302
--------- ---------
Balance, end of period 58,600 65,586
Net unrealized appreciation (depreciation) of investments
Balance, beginning of period (2,701) 8,998
Change in unrealized appreciation
(depreciation), net 2,999 (3,371)
--------- ---------
Balance, end of period 298 5,627
Minimum pension liability adjustment
Balance, beginning of period - (118)
--------- ---------
Balance, end of period 0 (118)
--------- ---------
Total Policyholders' Equity $58,898 $71,095
========= =========
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FARM FAMILY MUTUAL INSURANCE COMPANY
Statements of Consolidated Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited)
For the Three Month Period
Ended March 31,
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,922 $302
Adjustments to reconcile net income
to net cash provided by operating activities:
Realized investment (gains) losses (61) (63)
Amortization of bond discount 17 32
Depreciation - -
Deferred income taxes (11) 169
Changes in:
Reinsurance receivables (193) 1,065
Premiums receivable (2,404) (1,157)
Deferred acquisition costs (883) (24)
Accrued investment income 504 243
Federal income taxes recoverable 899 228
Prepaid reinsurance premiums (229) (129)
Receivable from affiliates (1,142) (1,080)
Other assets 818 (389)
Reserves for losses and loss adjustment expenses 1,555 2,341
Unearned premium reserve 2,098 1,200
Reinsurance premiums payable (968) (1,559)
Accrued expenses and other liabilities 1,543 (256)
Income taxes payable 307 -
--------- ---------
Total adjustments 1,850 621
--------- ---------
Net cash provided by operating activities $4,772 $923
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales:
Fixed maturities available for sale 3,167 3,918
Equity securities - 151
Investment collections:
Fixed maturities available for sale 2,297 4,274
Fixed maturities held to maturity 214 172
Mortgage loans 16 19
Investment purchases:
Fixed maturities available for sale (11,109) (14,023)
Fixed maturities held to maturity
Change in short-term investments, net (10) 5,894
Change in other invested assets 157 65
--------- ---------
Net cash provided by (used in) investing
activities ($5,268) $470
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (15) (9)
Net cash used in financing activities ($15) ($9)
--------- ---------
Net increase (decrease) in cash (511) 1,384
========= =========
Cash, beginning of period 4,507 2,410
Cash, end of period $3,996 $3,794
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the
accounts of Farm Family Mutual Insurance Company ("Farm Family
Mutual") and its wholly owned subsidiaries, Rural Agency &
Brokerage, Inc. ("RAB") and Farm Family Holdings, Inc.
(the "Holding Company") (collectively referred to as the
"Company"). The Holding Company was incorporated under Delaware
Law on February 12, 1996 for the purpose of becoming the parent
holding company of Farm Family Mutual under a Plan of
Reorganization and Conversion, as amended, whereby Farm Family
Mutual will convert from a New York mutual property and casualty
insurance company to a New York stock property and casualty
insurance company.
The Holding Company has had no operations and the only cash
transaction has been the receipt of $1,000 for the issuance of
100 shares of common stock to Farm Family Mutual.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-Q. In the opinion of management, these statements contain
all adjustments including normal recurring accruals, which are
necessary for a fair presentation of the consolidated financial
position at March 31, 1996, and the consolidated results of
operations for the periods ended March 31, 1995 and 1996. The
results of the Company's operations for any interim period are
not necessarily indicative of the results of the Company's
operations for a full fiscal year.
2. Plan of Demutualization and Option Agreement for Life Company Purchase
On February 14, 1996 the Board of Directors of Farm Family Mutual
adopted a Plan of Reorganization and Conversion (the "Plan") whereby Farm
Family Mutual will convert from a mutual property casualty insurance
company to a stock property casualty insurance company and become a
wholly owned subsidiary of the Holding Company. The Plan was amended
on April 23, 1996 to effect certain minor modifications, primarily
of a technical and clarifying nature. On May 1, 1996, the Superintendent
of Insurance of the State of New York issued an Opinion and Decision
approving the Plan. A Special Meeting of Policyholders has been called
for June 17, 1996 for the purpose of voting upon a proposal to approve
the Plan.
The Holding Company has entered into an Option Purchase
Agreement pursuant to which the Holding Company has the option
to acquire Farm Family Life Insurance Company ("Life Company"),
an affiliate, subject to certain conditions, including the
approval of the Holding Company's shareholders and applicable
regulatory authorities, for a two year period from the effective
date of the Option Purchase Agreement. Financial statements for
the Life Company are not being furnished because the Holding
Company has determined that the acquisition of the Life Company
is not "probable" within the meaning of Rule 3.05 of Regulation
S-X at this time. Although the Holding Company believes that
the acquisition of the Life Company would be desirable under
appropriate circumstances, the Holding Company is not in a
position at this time to predict with any certainty whether the
option to acquire the Life Company will in fact be exercised.
The Holding Company's decision to exercise the option will
depend, among other things, on the exercise price for the shares
of the Life Company, an evaluation of the financial statements
prepared in accordance with generally accepted accounting
principles and prospects of the Life Company, the outcome of a
vote by the Holding Company's shareholders and the receipt of
applicable regulatory approvals. The Life Company's financial
statements are prepared on the basis of statutory accounting
practices prescribed or permitted by insurance regulatory
authorities. Financial statements for the Life Company prepared
in accordance with generally accepted accounting principles do
not currently exist.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
The Three Month Period Ended March 31, 1996 Compared to the
Three Month Period Ended March 31, 1995
Premiums
Premium revenue increased $3.8 million or 13.7%, during the
three months ended March 31, 1996 to $31.7 million from $27.9
million for the same period in 1995. The increase in premium
revenue in 1996 resulted from an increase of $3.1 million in
earned premiums on additional business directly written by the
Company and an increase of $0.8 million in earned premiums
retained by the Company and not ceded to reinsurers, which were
partially offset by a decrease of $0.1 million in earned
premiums assumed. The $3.1 million increase in earned premiums
on additional business directly written by the Company was
primarily attributable to an increase of $2.2 million, or 8.8%,
in earned premiums from the Company's primary products (personal
and commercial automobile products other than assigned risk
business, the Special Farm Package, businessowners products,
homeowners products, and Special Home Package) and to an
increase of $0.4 million in earned premiums on assigned risk
business. The number of policies in force related to the
Company's primary products increased by 7.6% to approximately
106,000 as of March 31, 1996 from approximately 99,000 as of
March 31, 1995 and the average premium earned for each such
policy increased by 1.1% during the three months ended March 31,
1996 compared to the same period in 1995. The $0.8 million
increase in earned premiums retained by the Company was
primarily the result of a change in the terms of certain of the
Company's reinsurance agreements pursuant to which the amount of
earned premiums ceded by the Company were reduced without a
change in the terms of the coverages provided by such agreements.
Net Investment Income
Net investment income increased $0.4 million or 10.1% to $3.9
million for the three months ended March 31, 1996 from $3.5
million for the same period in 1995. The increase in net
investment income was primarily the result of an increase in
cash and invested assets (at amortized cost) of approximately
$13.4 million, or 7.3%. The return realized on the Company's
cash and invested assets was 7.8% for the three months ended
March 31, 1996 and 7.7% for the same period in 1995.
Net Realized Investment Gains
Net realized investment gains were $63,000 for the three months
ended March 31, 1996 and $61,000 for the same period in 1995.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses increased $6.6 million, or
34.3%, to $25.7 million for the three months ended March 31,
1996 from $19.1 million for the same period in 1995. Loss and
loss adjustment expenses were 81.2% of premium revenue for the
three months ended March 31, 1996 compared to 68.8% of premium
revenue for the same period in 1995. The increase in the loss
and loss adjustment expense ratio was primarily attributable to
the severity and frequency of weather related losses experienced
in the Northeastern United States during the three months ended
March 31, 1996. Losses and loss adjustment expenses believed to
be storm and weather related aggregated $6.9 million in three
months ended March 31, 1996 compared to $0.9 million for the
same period in 1995.
Underwriting Expenses
Underwriting expenses increased $0.6 million, or 7.0%, to $8.8
million for the three months ended March 31, 1996 from $8.2
million for the same period in 1995. For the three months ended
March 31, 1996, underwriting expenses were 27.7% of premium
revenue compared to 29.5% in 1995. The reduction in the
Company's underwriting expense ratio for the three months ended
March 31, 1996 was primarily attributable to a smaller relative
increase in overhead expenses than in premium revenue for the
period.
Federal Income Tax Expense
Federal income tax expense decreased $0.8 million to $0.4
million for the three months ended March 31, 1996 from $1.2
million for the same period in 1995. Federal income tax expense
was 32.5% of income before federal income tax expense for the
three months ended March 31, 1996 compared to 29.0% for the same
period in 1995. The increase in the Company's effective federal
income tax rate was primarily attributable to reductions in tax
exempt interest income and dividend income during the three
months ended March 31, 1996.
Net Income
Net income decreased $2.6 million to $0.3 million for the three
months ended March 31, 1996 from $2.9 million for the same
period in 1995 primarily as a result of the foregoing factors
and the impact of $0.5 million of expenses related to the Plan
of Reorganization and Conversion which the Company has
identified as an extraordinary item.
Liquidity and Capital Resources
Net cash provided by operating activities was $0.9 million and
$4.8 million during the three months ended March 31, 1996 and
1995, respectively. The decrease in net cash provided by
operating activities during the three months ended March 31,
1996 was primarily attributable to the decrease in net income
and an increase in payments for losses and loss adjustment
expenses and certain expenses related to the Reorganization.
Net cash provided by (used in) investing activities was $0.5
million and ($5.3) million during the three months ended March
31, 1996 and 1995, respectively. The increase in net cash
provided by investing activities in 1996 primarily resulted from
the net decrease in the Company's short-term investments during
the three months ended March 31, 1996.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A report on Form 8-K was filed on February 14, 1996 reporting
a press release issued on the Company's Plan of Reorganization
and Conversion. No financial statements were filed with the
Form 8-K.
<PAGE>
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.
FARM FAMILY MUTUAL INSURANCE COMPANY
(Registrant)
May 3, 1996 /s/ Philip P. Weber
(Date) Philip P. Weber, Executive Vice-President & C.E.O.
(Principal Administrative Officer)
May 3, 1996 /s/ Timothy A. Walsh
(Date) Timothy A. Walsh, Senior Vice President - Finance
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000277269
<NAME> FARM FAMILY MUTUAL INSURANCE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 181,476
<DEBT-CARRYING-VALUE> 12,204
<DEBT-MARKET-VALUE> 12,349
<EQUITIES> 5,147
<MORTGAGE> 1,803
<REAL-ESTATE> 0
<TOTAL-INVEST> 202,295
<CASH> 3,794
<RECOVER-REINSURE> 12,708
<DEFERRED-ACQUISITION> 10,551
<TOTAL-ASSETS> 276,719
<POLICY-LOSSES> 140,319
<UNEARNED-PREMIUMS> 53,999
<POLICY-OTHER> 7,532
<POLICY-HOLDER-FUNDS> 65,586
<NOTES-PAYABLE> 2,698
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 276,719
31,676
<INVESTMENT-INCOME> 3,858
<INVESTMENT-GAINS> 63
<OTHER-INCOME> 213
<BENEFITS> 25,722
<UNDERWRITING-AMORTIZATION> 8,787
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,220
<INCOME-TAX> 397
<INCOME-CONTINUING> 823
<DISCONTINUED> 0
<EXTRAORDINARY> 521
<CHANGES> 0
<NET-INCOME> 302
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 109,326
<PROVISION-CURRENT> 31,754
<PROVISION-PRIOR> (6,735)
<PAYMENTS-CURRENT> 6,985
<PAYMENTS-PRIOR> 15,476
<RESERVE-CLOSE> 111,884
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
