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AMERICAN COUNTRY HOLDINGS INC
10-Q, 2000-11-14
FIRE, MARINE & CASUALTY INSURANCE

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

/x/	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarterly period ended September 30, 2000
OR
/ /	Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from                to

Commission File Number 0-22922

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AMERICAN COUNTRY HOLDINGS INC.
(Exact Name of Registrant as specified in its charter)

Registrant's telephone number, including area code:
(312) 456-2000

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    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 / /

    The aggregate number of shares of the Registrant's Common Stock, $.01 par value, outstanding November 7, 2000 was 8,063,099.

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AMERICAN COUNTRY HOLDINGS INC.

				PAGE
INDEX
PART I—FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements
		Consolidated Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999		3
		Consolidated Statements of Income (Unaudited) for the Nine Months and Three Months Ended September 30, 2000 and 1999		4
		Consolidated Statements of Comprehensive Income (Unaudited) at September 30, 2000 and 1999		5
		Consolidated Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2000 and 1999		6
		Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		12
PART II—OTHER INFORMATION
Item 1.		Legal Proceedings		17
Item 2.		Changes in Securities		17
Item 3.		Defaults upon Senior Securities		17
Item 4.		Submission of Matters to a Vote of Security Holders		17
Item 5.		Other Information		17
Item 6.		Exhibits and Reports on Form 8-K		17
Signature				18

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AMERICAN COUNTRY HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

				September 30, 2000			December 31, 1999
				(Unaudited)
ASSETS
Investments:
Available-for-sale
	Fixed maturities—At fair value (amortized cost: 2000—$131,206; 1999—$129,526)			$	130,105		$	126,297
	Equity securities—At fair value (cost: 2000—$1,636; 1999—$353)				1,636			367
Collateral loans (at amortized cost, which approximate fair value)					2,177			2,721
Total investments					133,918			129,385
Cash and cash equivalents					4,649			4,973
Premiums receivable (net of allowance: 2000—$378; 1999—$348)					17,925			13,048
Reinsurance recoverable					17,416			15,233
Deferred income taxes					5,890			6,535
Deferred policy acquisition cost					5,387			3,251
Accrued investment income					1,907			1,772
Property and equipment					706			832
Income Taxes recoverable					706			334
Other assets					1,141			929
Total assets				$	189,645		$	176,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Unpaid losses and loss adjustment expense			$	106,788		$	104,493
	Unearned premiums				29,677			18,728
	Note payable				10,750			11,150
	Accrued expenses				3,936			3,188
	Other Liabilities				0			2,023
Total liabilities					151,151			139,582
Stockholders' equity:
	Common stock—$.01 par value: Authorized—60,000,000 shares
	Issued and outstanding—shares: 2000—8,059,738; 1999—8,011,303				81			80
Preferred stock:
	Authorized—2,000,000 shares; issued and outstanding—0 shares				—			—
	Additional paid-in capital				37,563			37,104
Accumulated other comprehensive income					(389	)		(1,784	)
Retained earnings					1,239			1,310
Total stockholders' equity					38,494			36,710
Total liabilities and stockholders' equity				$	189,645		$	176,292

See Notes to the Consolidated Financial Statements.

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AMERICAN COUNTRY HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

				Nine Months Ended September 30,						Three Months Ended September 30,
				2000			1999			2000			1999
REVENUES:
	Premiums earned			$	57,828		$	50,017		$	19,778		$	17,707
	Net investment income				6,240			5,585			2,141			1,918
	Net realized gains (losses)on investments				(319	)		(42	)		(79	)		(236	)
	Other income (expense)				222			197			(586	)		65
	Total revenues				63,971			55,757			21,254			19,454
LOSSES AND EXPENSES:
	Losses and loss adjustment expenses				51,914			44,095			18,446			15,410
	Amortization of deferred policy acquisition costs				8,976			7,511			2,956			2,020
	Administrative and general expenses				2,733			2,443			901			1,415
	Total losses and expenses				63,623			54,049			22,303			18,845
	Operating Income				348			1,708			(1,049	)		609
	Interest Expense				617			426			207			153
	Income (loss) before income taxes				(269	)		1,282			(1,256	)		456
	Provision for income tax				(198	)		218			(376	)		275
	Net income (loss)			$	(71	)	$	1,064		$	(880	)	$	181
	Basic and dilutive earnings per share			$	.(01	)	$	.04		$	.(11	)	$	.01

See Notes to the Consolidated Financial Statements

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AMERICAN COUNTRY HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)

				Nine Months Ended September 30,
				2000			1999
Net Income				$	(71	)	$	1,064
Other comprehensive income:
	Unrealized gain (loss) on investments—net of reclassification adjustments				2,114			(5,709	)
	Deferred income tax benefit (expense) on changes				(719	)		1,941
Other comprehensive income					1,395			(3,768	)
Comprehensive income				$	1,324		$	(2,704	)

See Notes to the Consolidated Financial Statements

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AMERICAN COUNTRY HOLDINGS INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)

				Nine Months Ended September 30,
				2000			1999
				(in thousands)
Net cash provided by operating activities				$	2,998		$	3,215
INVESTING ACTIVITIES
Fixed maturities—available-for-sale:
	Purchases				(77,264	)		(122,600	)
	Sales				66,486			103,533
	Maturities, calls, and prepayments				8,709			10,608
Equity securities—available-for-sale:
	Purchases				(1,283	)		—
	Maturities, calls and prepayments				—			—
Sale or maturity of other investments					544			302
Property, equipment and other					(125	)		(1,997	)
Net cash provided (used) by investing activities					(2,933	)		(10,154	)
FINANCING ACTIVITIES
Proceeds from note payable					—			1,850
Payment on note payable					(400	)		—
Issuance of common stock					11			—
Net cash provided (used) by financing activities					(389	)		1,850
Net increase (decrease) in cash					(324	)		(5,089	)
Cash at beginning of period				$	4,973		$	10,353
Cash at end of period				$	4,649		$	5,264

See Notes to the Consolidated Financial Statements.

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AMERICAN COUNTRY HOLDINGS INC.

PART I
FINANCIAL INFORMATION
(See Financial Statements and Exhibits Attached)
Notes to the Consolidated Financial Statements
(Unaudited)

A. NATURE OF OPERATIONS

    American Country Holdings Inc. (the "Company") is an insurance holding company which operates through its direct subsidiaries American Country Insurance Company ("American Country"), American Country Financial Services Corp. ("Financial Services")and American Country Professional Services Corp. ("Professional Services"). American Country is an Illinois domestic property and casualty insurance company that specializes in the underwriting and marketing of commercial property and casualty insurance for a focused book of business. American Country concentrates on types of insurance in which it has expertise: transportation, hospitality and other commercial lines. American Country also wrote a nominal amount of personal lines, automobile and homeowners insurance, which it is currently running-off. Financial Services operates principally as a premium finance company. Professional Services operates principally as a finance company which provides secured loans for certain of American Country's insurance customers.

B. ACCOUNTING PRINCIPLES

    The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management's opinion, all adjustments necessary for a fair presentation are reflected in the interim periods presented. Those adjustments are of a normal, recuring nature. The accompanying financial statements should be read in conjunction with the consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K filed on March 30, 2000.

    Operating results for the nine-month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

    Earnings per share information is presented on the basis of weighted average shares outstanding for the period, restated for a one-for-four reverse stock split effective at the close of business on May 8, 2000.

C. CAPITAL STOCK

    No dividends have been declared or paid by the Company during the periods presented in the accompanying financial statements. On May 8, 2000, the Company effected a one-for-four reverse stock split. No fractional shares were issued as a result of the reverse stock split. Issued and outstanding common stock after the reverse stock split represents approximately 13.37% of the total authorized number of shares. The number of common shares issued and outstanding have been restated for all periods presented. At September 30, 2000, the Company had 2,019,424 warrants outstanding. The warrants allow the warrant holder to purchase .5475 shares of Common Stock at a price of $7.32 per share through August 31, 2002.

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D. STOCK OPTION PLAN

    The Company has established a Stock Option Plan (the "Plan"), as amended, under which options to purchase up to a total of 1,601,181 shares of common stock may be granted to officers and other key employees. Stock options granted under this Plan, which may be either incentive stock options or nonqualified stock options for federal income tax purposes, expire up to ten years after date of grant and become exercisable over a three year period. Employees who have left the Company have 90 days to exercise their options. In April 2000, additional stock options were granted to employees of the Company. These additional options have a seven-year term and vest at 33 1/3% per year and become fully exercisable three years after the date of grant. In August 2000, additional stock options were granted to employees of the company. Some of these options are immediately exercisable and others vest at 33 1/3% per year and become fully exercisable four years after the date of grant. Regardless of the vesting provisions, these options have a ten-year term. At September 30, 2000, the Company had 827,973 options outstanding with exercise prices ranging from $2.40 per share to $15.00 per share.

    The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options rather than the alternative fair value accounting provided for under Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation." Under APB 25, because the exercise price of the Company's employee stock options is greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized.

E. EMPLOYEE STOCK PURCHASE PLAN

    The Company has established an Employee Stock Purchase Plan (the "Stock Purchase Plan"), under which active employees working more than 20 hours per week may contribute, on an after-tax basis, between 2%-15% of their eligible compensation to the Stock Purchase Plan. The purchase price for each share of common stock purchased under the Stock Purchase Plan is the lesser of (1) the offering price, which is defined as 85% of the fair market value of the common stock on the first day of each purchase period or (2) 85% of the fair market value of the common stock on the last day of each purchase period, each adjusted to the nearest cent. Fair market value of a share is defined as the average closing price of the common stock on the 20 business days preceding the purchase date.

F. REINSURANCE

    American Country reinsures a portion of its exposure by ceding to reinsurers a portion of the premiums received on the policies that are reinsured. Insurance is ceded primarily to reduce the net liability on individual risks and to protect against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of coverage, it does make the assuming reinsurer liable to the insurer to the extent of the losses reinsured. American Country seeks to maintain its risk exposure at appropriate levels by setting maximum coverage limits by class and type of business. These agreements also provide American Country with increased capacity to write larger risk and maintain its exposure to loss within its capital resources. American Country remains contingently obligated for amounts reinsured in the event that reinsurers do not meet their obligations.

    Effective January 1, 2000, American Country amended its excess of loss treaty to include a ceding commission. The ceding commission is meant to offset some of American Country's underwriting expenses associated with the premium covered under the treaty.

    Effective April 1, 2000, American Country entered into a quota share reinsurance agreement with General Reinsurance Corporation. Under the terms of the agreement, American Country ceded approximately 30% of its non-transportation premium written in the second quarter of 2000 in exchange for General Reinsurance Corporation paying approximately 30% of the losses, excluding loss adjustment

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expenses, incurred on the policies reinsured. Effective July 1, 2000, the quota share agreement was amended to cede approximately 50% of American Country's non-transportation business to General Reinsurance Corporation. American Country also receives a ceding commission under this agreement, which is calculated retrospectively based on the pure loss ratio for the business subject to the agreement.

    The components of the net reinsurance recoverable balances in the accompanying balance sheets were as follows:

    The components of the reinsurance ceded relating to the accompanying statements of income were as follows:

    The effect of reinsurance on premiums written and earned for the nine months ended September 30, 2000, and 1999 was as follows:

G. BUSINESS SEGMENTS

    The Company through American Country is engaged primarily as a property and casualty insurance carrier, providing commercial lines coverage including commercial auto, commercial multiple peril and workers' compensation to three key niche markets: transportation, hospitality and artisan contractors. In addition, the Company through its other subsidiaries provides premium and other financing services through secured loans to certain larger customers. All revenues are derived from markets in the United States.

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    Segment revenues for the Nine Months ended September 30, were (in thousands):

				2000			1999
SEGMENT REVENUES
Transportation				$	43,432		$	34,822
Hospitality					7,078			5,595
Other Commercial					12,067			13,925
Personal Lines					11			186
Other					854			959
	Total Segment Revenues				63,442			55,487
Other reconciling items:
Investment and other income not attributable to segments					529			270
Total revenues					63,971			55,757

    Segment operating profit for the Nine Months ended September 30, were (in thousands):

				2000			1999
SEGMENT OPERATING PROFIT
Transportation				$	6,120			5,179
Hospitality					(1,230	)		(150	)
Other Commercial					(5,046	)		(3,233	)
Personal Lines					(233	)		(627	)
Other					854			959
	Total segment operating profit				465			2,128
Other reconciling items:
Investment and other income not attributable to segments					529			270
General corporate expenses					(646	)		(558	)
Other expenses, net					(0	)		(132	)
Total adjustments					(117	)		(420	)
	Total operating profit			$	348		$	1,708

    Segment revenues for the three months ended September 30, were (in thousands):

				2000			1999
SEGMENT REVENUES
Transportation				$	15,068		$	12,473
Hospitality					2,255			2,017
Other Commercial					3,607			4,518
Personal Lines					5			59
Other					194			277
	Total Segment Revenues				21,129			19,344
Other reconciling items:
Investment and other income not attributable to segments					125			110
Total revenues					21,254			19,454

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    Segment operating profit for the three months ended September 30, were (in thousands):

				2000			1999
SEGMENT OPERATING PROFIT
Transportation				$	1,098		$	1,165
Hospitality					(476	)		(366	)
Other Commercial					(1,734	)		(252	)
Personal Lines					(79	)		(164	)
Other					194			277
	Total Segment operating profit				(997	)		660
Other reconciling items:
Investment and other income not attributable to segments					125			110
General corporate expenses					(271	)		(159	)
Other expenses, net					94			(2	)
Total adjustments					(52	)		(51	)
	Total operating profit			$	(1,049	)	$	609

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

    The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.

Overview

    American Country Holdings Inc. (the "Company") is an insurance holding company which operates through its direct subsidiaries American Country Insurance Company ("American Country"), American Country Financial Services Corp. ("Financial Services") and American Country Professional Services Corp. ("Professional Services").

    American Country is an Illinois domestic property and casualty insurance company that specializes in the underwriting and marketing of commercial property and casualty insurance for a focused book of business. American Country concentrates on types of insurance in which it has expertise: transportation, hospitality and other commercial lines. American Country also wrote a nominal amount of personal lines, automobile and homeowners insurance, which it is currently running-off. Financial Services operates principally as a premium finance company. Professional Services operates principally as a finance company, providing secured loans to certain of American Country's larger customers.

Three Months Ended September 30, 2000 compared to Three months Ended September 30, 1999

    Overall premium revenues increased 11.7% in the third quarter of 2000 to $19.8 million from $17.7 million in the comparable period in 1999, due to continued geographic expansion of the transportation lines. In the quarter, American Country posted a one time reinsurance return premium, which increased revenue by $930,000, and was based on a profit-sharing agreement.

    The following table sets forth the net premiums earned by the principal lines of insurance underwritten by American Country for the periods indicated and the dollar amount and percentage of change therein from period to period:

				Three Months Ended September 30,						Increase (Decrease) 2000 from 1999
				2000			1999			Amount			Percent
				(in thousands)
Net Premiums Earned
Transportation lines				$	13,289		$	10,759		$	2,530		23.5	%
Hospitality lines					2,293			1,885			408		21.6
Commercial lines					4,191			5,037			(846	)	(16.8	)
Personal lines					5			26			(21	)	(80.8	)
	Totals			$	19,778		$	17,707		$	2,071		11.7	%

    Premium revenues for transportation lines, which consist of taxicab and limousine liability and physical damage programs, increased in the third quarter of 2000 by 23.5% to $13.3 million, compared with $10.8 million in 1999. The major contributor to this increase was the geographic expansion of American Country's taxicab product outside of the Chicago metropolitan area into the states of New York and Connecticut. Premium revenue also increased for American Country's traditional market, the Chicago metropolitan area.

    Premium revenues for hospitality lines increased 21.6% to approximately $2.3 million, as compared to $1.9 million for 1999. This increase is attributable to rate increases on existing business and growth in the number of policies written for multiple peril package, workers' compensation and other liability products. This increase is offset by a quota share reinsurance agreement entered into on April 1, 2000 with General

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Reinsurance Corporation. Under the treaty, as amended on July 1, 2000, 50% of the hospitality lines premium for the third quarter was ceded to General Reinsurance Corporation.

    Premium revenues for commercial lines experienced a decrease of 16.8% to $4.2 million in the third quarter of 2000, as a result of strict re-underwriting of these lines, which resulted in approximately 31% of expiring policies being non-renewed. This was partly offset by significant pricing increases on retained business. In addition, a portion of this decrease is attributable to a quota share reinsurance agreement entered into on April 1, 2000 with General Reinsurance Corporation. Under the treaty, as amended on July 1, 2000, 50% of the commercial lines premium for the third quarter was ceded to General Reinsurance Corporation.

    The decrease of 80.8% in premiums earned from personal lines is due to American Country's exit from its personal lines insurance business.

    Net investment income increased 11.6%, to $2.1 million in the third quarter of 2000, as compared to $1.9 million in the comparable period in 1999. Realized losses amounted to $79,000 in the third quarter of 2000, compared to $236,000 in the comparable period in 1999.

    Other expense increased $651,000 in the third quarter of 2000, as compared to income of $65,000 in the third quarter of 1999. This is attributable to reclassification of a ceding commission received in 2000 on American Country's reinsurance program.

    Losses and loss adjustment expenses (LAE) increased 19.7% or $3 million in the third quarter of 2000, to $18.4 million in the third quarter of 2000, from $15.4 million in the third quarter of 1999, resulting in a loss ratio of 93.3% in the third quarter of 2000 compared to 87% in the comparable period in 1999. This increase is largely due to property losses incurred in the hospitality lines.

    Losses and LAE for transportation lines increased $1.6 million in the third quarter of 2000, or 18.5% over the comparable period in 1999. However, the loss ratio for this line decreased to 76.0% as compared with 79.2% for the same period in 1999. This decline in the loss ratio was primarily due to a decrease in loss severity and frequency of claims as well as increased revenues due to the geographic expansion of the transportation line.

    The loss ratio for hospitality lines increased to 107.9% compared to 101.6% in the same period in 1999, as a result of substantial property losses in the third quarter of 2000.

    Commercial lines experienced a $1.1 million increase in losses and LAE that resulted in a loss ratio of 138.2% in the third quarter of 2000 as compared to 94.1% in the comparable period in 1999. The increase was due primarily to continued adverse development on prior years' loss and LAE reserves for the workers' compensation line.

    Amortization of deferred policy acquisition costs increased approximately $936,000 in the third quarter of 2000 due to increased commissions primarily due to geographic expansion and overall premium growth.

    Administrative and general expenses decreased $514,000 or 36.3% in the third quarter of 2000, due to decreased expenses associated with the declining number of inforce commercial policies.

    Interest expense increased $54,000 or 35.3% in the third quarter of 2000.

Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30, 1999

    Overall premium revenues increased 15.6% in the nine months ended September 30, 2000 to $57.8 million from $50 million in the comparable period in 1999, due to the geographic expansion of American Country's transportation and hospitality lines.

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    The following table sets forth the net premiums earned by the principal lines of insurance underwritten by American Country for the periods indicated and the dollar amount and percentage of change therein from period to period:

				Nine Months Ended September 30,						Increase (Decrease) 2000 from 1999
				2000			1999			Amount			Percent
				(in thousands)
Net Premiums Earned
Transportation lines				$	37,406		$	29,274		$	8,132		27.8	%
Hospitality lines					6,735			5,154			1,581		30.7	%
Commercial lines					13,676			15,512			(1,836	)	(11.8	)%
Personal lines					11			77			(66	)	(85.7	)%
	Totals			$	57,828		$	50,017		$	7,811		15.6	%

    Premium revenues for transportation lines, which consist of taxicab and limousine liability and physical damage programs, expanded in the nine months ended September 30, 2000 by 27.8% to $37.4 million over the comparable period in 1999. Nearly all the transportation programs offered by American Country generated premium revenue increases, especially those products representing American Country's expansion outside its traditional market, the Chicago metropolitan area. This geographical expansion was accomplished primarily by increasing writings in the state of New York and Connecticut.

    Premium revenues for hospitality lines increased 30.7% to approximately $6.7 million as compared to $5.2 million for 1999. This increase is attributable to rate increases and growth in the number of policies written for multiple peril package, workers' compensation and other liability products, partly offset by a quota share reinsurance agreement entered into on April 1, 2000. Under the reinsurance agreement, 30% of the hospitality premiums written in the second quarter and 50% of the hospitality premiums written in the third quarter, are ceded to General Reinsurance Corporation.

    Premium revenues for commercial lines experienced a decrease of 11.8% to $13.7 million in the nine months ended September 30, 2000, as compared to $15.5 million for the same period in 1999, the result of stricter underwriting, which resulted in an non-renewal rate of approximately 34%, and to a quota share reinsurance agreement entered into on April 1, 2000. Under the reinsurance agreement, 30% of the commercial lines premiums written in the second quarter and 50% of the commercial lines premiums written in the third quarter, are ceded to General Reinsurance Corporation.

    The decrease of 85.7% in Personal lines is the result of American Country's exit from its personal lines insurance business.

    Net investment income increased $655,000 or approximately 11.7%, to $6.2 million in the nine months ended September 30, 2000, as compared to $5.6 million in the same period in 1999. Realized losses amounted to $319,000 in the nine months ended September 30, 2000 compared to a loss of $42,000 in the same period in 1999. This is the result of the decline in the market value of fixed income securities in the first half of the year, as interest rates rose for the nine month period.

    Other income increased $25,000 in the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. This is due to an increase in premium collection fees, offset by a reclassification of a ceding commission received on American Country's reinsurance program in 2000.

    Losses and loss adjustment expenses (LAE) increased 17.7% or $7.8 million in the nine months ended September 30, 2000, to $51.9 million from $44.1 million in the comparable period in 1999, resulting in a loss ratio of 89.8% in the nine months ended September 30, 2000 compared to 88.2% in the comparable period in 1999. The increase in the loss ratio is primarily due to storm and other property losses in the hospitality and other commercial lines, partially offset by significant rate increases for hospitality and commercial lines. Additionally, workers compensation reserves for prior years continue to experience adverse development.

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    Losses and LAE for Transportation lines increased $5.2 million or 24.2% in the nine months ended September 30, 2000, over the comparable period in 1999, due to American Country's geographic expansion. Although the dollar amount of losses increased, the loss ratio for this line decreased in the first nine months of 2000. The loss ratio for this line in the nine months ended September 30, 2000 was 70.9% compared to 73% in the comparable period in 1999. This decrease is attributable to both a lower frequency and severity of claims for this line.

    The loss ratio for hospitality lines increased to 104.8% compared to 90.3% in the same period in 1999, which is primarily the result of storm and other property losses.

    Commercial lines experienced a significant increase in the loss ratio in the nine months ended September 30, 2000. The increase was most significant in the commercial multiple peril products. The loss ratio was 132.3% in the nine months ended September 30, 2000, compared to 111.3% in the comparable period in 1999. This increase is attributable to weather-related property losses in the first half of 2000. Additionally, the workers compensation line continues to experience adverse development on prior years' loss and LAE reserves.

    Amortization of deferred policy acquisition costs increased $1.5 million in the nine months ended September 30, 2000. This is a direct result of American Country's geographic expansion into new territories, which resulted in higher commission expense.

    Administrative and general expenses increased $290,000, in the nine months ended September 30, 2000. The increase is primarily attributable to increased costs associated with American Country's geographic expansion, offset by the reduction in expenses associated with the decreased commercial lines premium.

Liquidity and Capital Resources

    The Company is a holding company, receiving cash principally through fees and dividends from its subsidiaries and borrowings. American Country, the principal subsidiary of the Company, is the only subsidiary of the Company subject to restrictions and regulatory approval on fees and dividends. The ability of insurance and reinsurance companies to underwrite insurance and reinsurance is based on maintaining liquidity and capital resources sufficient to pay claims and expenses as they become due. The primary sources of liquidity for the Company's insurance subsidiary are funds generated from insurance premiums, investment income, commission and fee income, capital contributions from the Company and proceeds from sales and maturities of portfolio investments. The principal expenditures are for payment of losses and LAE, operating expenses and commissions.

    On October 5, 1999, the Board of Directors approved a loan agreement with The Northern Trust Company, wherein the Company's existing line of credit was converted to an $8.0 million four year term loan and a $7.0 million 364 day revolving line of credit. Under the term loan, the first installment of $2.0 million is due April 30, 2001. The Compnany intends to use dividends received from its non-insurance subsidiaries, as well as other financing, to service this debt. The interest rate on the term loan may be based on LIBOR+1%, the New York Federal Funds rate+1, or the prime rate minus one. The line of credit agreement contains various debt covenants including certain financial covenants and commitment fees, which are .25% per annum of the unused line of credit.

    At September 30, 2000, the Company's total assets of $189.6 million was comprised of the following: Cash and investments, 73.1%; premiums receivable, 9.5%; reinsurance recoverables, 9.2%; deferred expenses (policy acquisition costs and deferred taxes) 5.9%; fixed assets, 0.4%; and other assets, 1.9%.

    The Company's subsidiaries seek to maintain liquid operating positions and follow investment guidelines and state regulations for investments that are intended to provide for an acceptable return on investment while preserving capital, maintaining sufficient liquidity to meet its obligations and, as to the Company's insurance subsidiary, maintaining a sufficient margin of capital and surplus to ensure its unimpaired ability to write insurance and assume reinsurance.

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    The following table provides a profile of the Company's fixed maturities investment portfolio by rating at September 30, 2000:

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(1)

Ratings are assigned primarily by Standard & Poor's Corporation, with remaining ratings as assigned by Moody's Investers Service, Inc.

    Cash flow used by operations for the quarter ended September 30, 2000 was $1.1 million, as compared to cash provided of $1.7 million for the same period in 1999. Such amounts were adequate to meet all obligations during the periods. The decrease in cash flow provided for the quarter ended September 30, 2000, as compared to the same period in 1999 is attributable to increased claim payments in the current period, as compared to the comparable period in 1999.

Forward-Looking Statements

    The Company cautions readers regarding certain forward-looking statements contained in the foregoing and elsewhere and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical facts. In particular, statements using verbs such as "expect," "intend," "plan," "anticipate," "believe" or similar words generally involve forward- looking statements. Forward-looking statements also include but may not be limited to, statements relating to future plans, targets and objectives, financial results, cyclical industry conditions, government and regulatory policies, the uncertainties of the reserving process and the competitive environment in which the Company operates.

    Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control and subject to change. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates. Some of these events or developments may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to the Company specifically, such as credit, volatility and other risks associated with the Company's investment portfolio, and other factors. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC, including Exhibit 99 to the Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1999. The Company disclaims any obligation to update forward-looking information.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings

    There are no pending material legal proceedings to which the Company or its subsidiaries is a party or of which any of the properties of the Company or its subsidiaries is subject, except as noted below. The Company is subject to claims arising in the ordinary course of its business. Most of these proceedings involve claims under insurance policies issued by American Country. These lawsuits are considered by American Country in estimating the reserves for losses and loss adjustment expenses. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition of the Company.

    On May 20, 1999, Frontier Insurance Group, Inc. (which owns approximately 25% of the outstanding shares of the Company) filed a purported shareholder derivative action in Delaware Chancery Court against the Company's directors and the Company itself as a nominal defendant. The complaint seeks a declaration that certain amendments to the Company's Stock Option Plan, which were approved at the Company's Annual Meeting on May 18, 1999 are void or, alternatively, should be rescinded. The complaint further challenges the grant of options to purchase 1.1 million shares (approximately 3% of the Company's total shares outstanding) to certain of its officers and directors. The defendants believe that they have substantial defenses to the claims asserted by Frontier Insurance Group, Inc.

Item 2. Changes in Securities

    None

Item 3. Defaults upon Senior Securities

    None

Item 4. Submission of Matters to Vote of Security Holders

    None

Item 5. Other Information

    None

Item 6. Exhibits and Reports on Form 8-K

a.		Exhibits:
		(4.6)		Warrant Agreement Amendment No. 6 dated August 1, 2000 between the Company and American Stock Transfer & Trust Company, as Warrant Agent
		(27)		Financial Data Schedule
b.		Reports on Form 8-K:

    None.

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SIGNATURE

    Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    Date: November 14, 2000

		AMERICAN COUNTRY HOLDINGS INC. (Registrant)
		By:		/s/ KARLA M. VIOLETTO    Karla M. Violetto Vice President and Chief Financial Officer

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AMERICAN COUNTRY HOLDINGS INC.
AMERICAN COUNTRY HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AMERICAN COUNTRY HOLDINGS INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
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AMERICAN COUNTRY HOLDINGS INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
PART I FINANCIAL INFORMATION (See Financial Statements and Exhibits Attached) Notes to the Consolidated Financial Statements (Unaudited)
PART II OTHER INFORMATION
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