SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1995 Commission File number 2-67099
Momed Holding Company
(Exact name of registrant as specified in its charter)
MISSOURI 43-1473496
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8630 Delmar Blvd., Suite 100, St. Louis MO 63124
Registrant's telephone number, including area code: 314-872-8000
*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 and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant 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 share outstanding of each of the insurer's
classes of common stock, as of the close of the period covered by this
report.
Class C Non-Voting Common Stock 24,185 Class A Common Stock 246,528
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Part I Financial Information Financial Statements
Momed Holding Company
Unaudited Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
<S> <C> <C>
Assets 1995 1994
Investments (Note 1) $69,482,870 $65,379,445
Cash 420,918 343,624
Accrued investment income 1,108,816 1,067,151
Premiums receivable 268,177 391,217
Reinsurance recoverable on paid and
unpaid losses net of $10,776,819
in 1995 and $11,479,344 in 1994 of
reinsurance premiums attributed
to unpaid losses recoverable 3,026,566 4,849,475
Prepaid reinsurance premiums 645,909 659,036
Prepaid taxes 910,928 1,140,235
Deferred policy acquisition cost 163,002 146,503
Building, furniture and equipment at
cost less accumulated depreciation
of $428,843 in 1995 and $378,924
in 1994 856,350 889,744
Other assets 133,132 147,715
Deferred income taxes 1,504,577 2,509,782
Total assets $78,521,245 $77,523,927
Liability and Stockholder's Equity
Loss & loss adjustment
expenses (Note 2) $56,656,386 $58,764,316
Unearned premiums 6,665,490 6,343,858
Accounts payable & accrued expenses 489,380 723,662
Reinsurance premiums payable 494,515 354,183
Mortgage payable 706,348 799,640
Accrued Federal income tax --- 99,592
Total liabilities $65,012,119 $67,085,251
Class C, Non-voting Common Stock
$1.00 par value, authorized 24,185
shares, issued and outstanding
shares 24,185 (Note 6) 600,000 600,000
Stockholder's Equity:
Class A Common Stock, $1.00 par
value, authorized 500,000 shares
issued and outstanding 246,528
shares in 1995 and 1994 246,528 246,528
Additional Paid-In Capital 1,345,560 1,345,560
Unrealized appreciation (depreciation)
of fixed maturity investment and
equity securities, net 946,883 (1,281,104)
Retained earnings 10,420,445 9,577,982
12,959,416 9,888,966
Less Cost of 22,510 shares of
Class A common held in
Treasury in 1995 and 1994 (50,290) (50,290)
Total stockholders' equity 12,909,126 9,838,678
Total liabilities and
stockholders equity $78,521,245 $77,523,927
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Momed Holding Company
Unaudited Consolidated Statements of Operations
For the Nine Months Ended
September 30, 1995 and September 30, 1994
September 30, 1995 September 30, 1994
Three Nine Three Nine
Months Months Months Months
Revenues:
<S> <C> <C> <C> <C>
Net premiums earned $2,987,882 $8,551,087 $2,856,643 $ 7,932,367
Net investment income 1,077,211 3,145,513 946,357 2,889,815
Realized gains on
investments 151,380 512,738 (1,520) 349,721
Other 23,235 77,881 17,221 61,577
Total Revenues 4,239,708 12,287,219 3,818,701 11,233,480
Expenses:
Losses and loss
adjustment expenses 2,905,767 9,168,911 2,382,863 7,749,326
Policy acquisition cost 168,623 503,646 163,736 480,026
Other underwriting
expenses 486,765 1,461,665 463,145 1,424,124
Interest expense 14,331 45,534 14,735 47,745
Total Expenses 3,575,486 11,179,756 3,024,479 9,701,221
Earnings (loss) before
income taxes 664,222 1,107,463 794,222 1,532,259
Provision for income taxes
Current 104,000 114,000 177,500 189,000
Deferred 110,560 151,000 0 0
214,560 265,000 177,500 189,000
Net earnings $ 449,662 $ 842,463 $ 613,722 $ 1,343,259
Earnings per data:
Earnings per share $ 2.01 $ 3.76 $ 2.74 $ 6.00
Earnings per share based on average
shares outstanding (Note 4 ) 224,018 224,018 224,018 224,018
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Momed Holding Company
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30, 1995 and September 30, 1994
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 842,463 $ 1,343,259
Adjustments to reconcile net income to net
cash provided from operating activities:
Changes in:
Accrued investment income (41,665) (80,265)
Premiums receivable 123,040 95,077
Reinsurance recoverable on paid and unpaid
losses 1,822,909 62,350
Reserve for losses and loss adjustment exp. (2,107,930) 633,131
Prepaid reinsurance premiums 13,127 (260,806)
Unearned premiums 321,632 570,138
Accounts payable and accrued expenses (234,282) (374,791)
Reinsurance premiums payable 140,332 (207,390)
Deferred policy acquisition costs (16,499) 6,956
Deferred income taxes (142,825) ---
Other assets 14,583 (43,203)
Prepaid taxes 229,307 122,793
Accrued Income taxes (99,592) ---
Depreciation of building, furniture
and equipment 56,896 57,329
Amortization of premiums on bonds 60,164 94,251
Net realized investment gains (512,738) (349,721)
Net cash provided (used) by operating activities 468,922 1,669,108
Cash flows from investing activities:
Cost of bonds and stocks sold or matured 9,849,597 6,028,490
Proceeds from sale of investment property 54,001 ---
Purchase of bonds and stocks (6,968,960) (7,689,228)
Purchase of property and equipment (17,201) (64,284)
Net cash (used) provided from investing
activities 2,917,437 (1,725,022)
Cash flows from financing activities:
Stock exchange expense --- (36,013)
Decrease in mortgage payable (93,292) (36,849)
Net cash (used) provided by financing activities 93,292) (72,862)
Net increase (decrease) in cash and short-term
investments 3,293,067 (128,776)
Cash and short-term investments at beginning
of period 1,738,752 3,354,990
Cash and short-term investments at end of
period $ 5,031,819 $ 3,226,214
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Momed Holding Company
Unaudited Consolidated Statements of Changes in Stockholders' Equity
For Nine Months Ended September 30, 1995 and September 30, 1994
Unrealized Total
Additional Appreciation Stock-
Common Stock Pain-in of Equity Retained Treasury holders'
Class A Class B Capital Securities Earnings Stock Equity
<S> <C> <C> <C> <S> <C> <C> <C>
Balance at 12/31/93 $ 222,343 $ 604,625 $1,200,450 $105,762 $8,065,526 $(50,290) $10,148,416
Net earnings 1,343,259 1,343,259
Unrealized
appreciation
(depreciation of:
Fixed maturity
investments (1,003,878) (1,003,878)
Equity Securities (34,618) (34,618)
Exchange of Class B
common stock (604,625) (604,625)
Issuance of 24,185
shares of Class A
common stock at
$7.00 per share 24,185 145,110 169,295
Retained earnings
capitalized in
connection with
exchange (164,670) (164,670)
Expenses capitalized (36,013) (36,013)
Balance at 9/30/94 $ 246,528 $ --- $1,345,560 $(932,734) $9,208,102 $(50,290) $ 9,817,166
Balance at 12/31/94 $ 246,528 $ --- $1,345,560 $(1,281,104) $9,577,982 $(50,290) $9,838,676
Net earnings 842,463 842,463
Unrealized
appreciation
(depreciation of:
Fixed maturity
investments 2,044,636 2,044,636
Equity Securities 183,351 183,351
Balance at 9/30/95 $ 246,528 $ --- $1,345,560 $ 946,883 $10,420,445 $(50,290) $12,909,126
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Momed Holding Company
Notes to Consolidated Financial Statements
Unaudited
September 30, 1995
1. Investments:
The following table summarizes the company's investments at September 30,
1995 and December 31, 1994. Fixed maturity investments are classified as
available for sale and reported in the financial statements at fair market
value, with the unrealized gains (losses) excluded form earnings and
reported as a separate component of stockholders equity pursuant to the
provision of FASB Statement 115 "Accounting for Certain Investments in
Debt and Equity Securities. Equity securities are carried at market value
for each period.
Amount
at which
Estimated shown in Gross Gross
Market the balance unrealized unrealized
Type of Investments Cost Value sheet gains losses
September 30, 1995:
<S> <C> <C> <C> <C> <C>
Fixed maturities $61,184,552 62,233,225 62,233,225 1,560,597 511,924
Equity securities 2,094,502 2,480,500 2,480,500 599,770 213,772
Investment Real Estate 158,244 158,244 158,244 --- ---
Short-term investments 4,610,901 4,610,901 4,610,901 --- ---
Total Investments $68,048,199 69,482,870 69,482,870 2,160,367 725,696
December 31, 1994:
Fixed maturities $63,565,035 61,515,774 61,515,774 649,597 2,698,858
Equity securities 2,144,046 2,252,240 2,252,240 284,965 176,771
Investment Real Estate 216,303 216,303 216,303 --- ---
Short-term investments 1,395,128 1,395,128 1,395,128 --- ---
Total Investments $67,320,512 65,379,445 65,379,445 934,562 2,875,629
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2. Losses and Loss Adjustment Expenses:
The Company retains the services of an independent actuary
to analyze the Company's reserves for losses and loss adjustment
expenses on a quarterly basis. Due to the inherent risk involved
in projecting ultimate cost for losses and loss adjustment expenses
for long tail lines of business, such as medical malpractice, the
Company would anticipate that the ultimate cost to settle claims
will vary from the amounts provided in the accompanying financial
statements.
3. Cash and Short-term Investments:
Cash and short-term investments, as reported in the
statement of cash flows represents cash and cash investments with
maturity dates of ninety days or less.
4. Average Shares Outstanding:
Average shares outstanding at September 30, 1995 and
September 30, 1994 represent the 246,528 Class A shares less 22,510
Class A Treasury Stock.
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5. The Class C non-voting common stock was issued to Missouri
State Medical Association (MSMA) in connection with the exchange of
Class B common stock for Class A common stock on August 16, 1994.
MSMA has an option to sell the Class C shares and the Company is
required to purchase such shares at a per share consideration of
$24.81, with the aggregate cash consideration not to exceed
$600,000.
Period No. of Shares Amount
August 16, 1994
to August 15, 1995 4,031 $100,009
August 16, 1995
to August 15, 1996 4,031 $100,009
August 16, 1996
to August 15, 1997 8,062 $200,018
August 16, 1997 and
after 8,061 $199,964
24,185 $600,000
In the opinion of management, the accompanying financial
statements reflect all adjustments necessary to a fair statement of
the results for the interim period presented.
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Management's Analysis of Consolidated Quarterly Income Statements
Liquidity and Capital Resources:
At September 30, 1995 and December 31, 1994, the Company had
invested assets of $69,482,870 and $65,379,445 which is 88.5
percent and 84.3 percent of total assets at each period end. On
January 1, 1994, the Company implemented the provision of FASB
Statement 115 "Accounting for Certain Investments in Debt and
Equity Securities" which requires that fixed maturity investments
be reported at fair value in the financial statements. The
Company's fixed maturity investments have been classified as
available for sale and reported at their fair value which is
$1,048,673 more than amortized cost. Market value of all invested
assets is $1,434,671 more than cost or amortized cost at September
30, 1995. The Company feels that it has sufficient invested assets
to meet both its short-term and long-term capital requirements. In
addition, the Company has entered into various reinsurance
agreements to protect itself against significant decreases in
invested assets. The reinsurance agreements generally limit the
Company's maximum liability to $400,000 per claim for policies
issued or renewed after July 1, 1991.
For claims against policies issued or renewed between July 1, 1987
and June 30, 1991, losses are subject to a 5% deductible based on
gross collected premiums and a retention of $250,000 per claim
after the deductible provision has been satisfied, indexed $25,000
per year. For policies issued or renewed between July 1, 1986 and
September 30, 1987 losses are subject to a 10% deductible based on
gross collected premiums and a retention of $300,000 per claim
after the deductible provision has been satisfied. On policies
issued prior to July 1, 1986 the Company's maximum lability is
$200,000 per insured and $231,500 per claim involving up to six
insureds. Rates charged for such protection were as follows:
Prior to June 30, 1986, 40% of collected premiums
July 1, 1986 to June 30, 1987, 30% of collected premiums
July 1, 1987 to June 30, 1988, 17.5% of collected premiums
July 1, 1988 to June 30, 1991, 15% of collected premiums
July 1, 1991 to June 30, 1996 12.5% of collected premiums
Payments to reinsurers under contracts effective July 1, 1988 and
subsequent have been by quarterly deposits as follows:
July 1, 1988 through June 30, 1990, $775,000
July 1, 1990 through June 30, 1991, $687,500
July 1, 1991 through June 30, 1994, $400,000
July 1, 1994 through June 30, 1995, $267,000 }for 6 qtrly
July 1, 1995 through June 30, 1996, $266,667 }payments
As of September 30, 1995, the Company had fixed maturity
investments at amortized cost in the amount of $61,184,552 with an
average date to maturity of approximately 3.67 years. All bonds
are "A" rated or higher, except for one bond with a book value of
$998,327 which is rated BBB+. Further, the Company has no
investment in high yield or non-investment grade securities.
Short-term investments totaling $4,610,901 are expected to provide
sufficient liquidity for payment of losses and loss adjustment
expenses.
On December 6, 1993, the NAIC adopted a risk-based capital "RBC"
model for the property and casualty insurance industry, which will
be implemented in 1994. This model will be applied to virtually
all property and casualty insurance companies and will mandate
certain minimum capital requirements, based on the underwriting,
investment, and other business risks inherent in an individual
insurer's operations. Under the model law, any property and
casualty insurance company which does not exceed RBC action levels
will be subject to varying degrees of regulatory scrutiny and
ultimately would be subject to mandatory rehabilitation or
liquidation. The four RBC action levels are (i) Company Action
Level (2 x Authorized Control Level), (ii) Regulatory Action Level
(1.5 x Authorized Control Level), (iii) Authorized Control Level
(40.0% of calculated RBC), and (iv) Mandatory Control Level (70.0%
x Authorized Control Level). The first Company Action Level takes
place when a property and casualty insurance company's adjusted
actual statutory surplus is equal to 80.0% of it RBC requirement.
Under this event, the insurer's management is required to file and
obtain approval of a comprehensive financial plan for improving its
RBC. Based on the "RBC" model adopted on December 6, 1993, by the
NAIC the Company's statutory capital and surplus at December 31,
1993 exceeded all regulatory requirements.
The Company anticipates capital expenditure of approximately
$60,000 for furniture and data processing equipment during 1994.
Revenues:
Premium revenues increased approximately 11.6% over the second
quarter of 1995, due to the third quarter representing a
significant portion of the Company's inforce business and a
continuing decrease in accrued reinsurance premiums.
Premium revenues increased by 7.8% over the first nine months of
1994 due to the decrease in accrued reinsurance premiums and
changes in the physician specialties insured.
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Investment Income:
Net investment income for the third quarter of 1995 increased
approximately 3.8% over the second quarter of 1995. The increase
is attributed to short-term rates remaining steady during the third
quarter and additional investments in bonds in lieu of common
stocks. Net investment income increased 8.8% over the first nine
months of 1994 due to increases in investment rates and an increase
in invested assets between September 30, 1994 and September 30,
1995.
Expenses:
The Company's provision for loss and loss adjustment expenses as of
September 30, 1995 and September 30, 1994 is based upon MOMEDICO's
experience. The percentage of losses and loss adjustment expenses
to net earned premiums at September 30, 1995 is 107.2% compared to
97.7% at September 30, 1994. The percentage for the quarter ended
September 30, 1995 was 97.2% compared to 109.5 for the quarter
ended June 30, 1995. The percentage of losses and loss adjustment
expense to net earned premiums was 94.7% for the year 1994 compared
to 135.6% for the year 1993. The increases and decreases in the
percentage of losses and loss adjustment expenses for the nine
months ended September 30, 1995 compared to the nine months ended
September 30, 1994 and the quarter ended June 30, 1995, result
primarily from the fluctuation in the frequency of reported claims
during the various periods.
Policy acquisition costs as a percent of net premiums earned were
5.9% and 6.0% for the period ended September 30, 1995 and 1994,
respectively. The percentage for the quarter ended September 30,
1995 was 5.6%. The change in policy acquisition cost as a percent
of earned premiums results primarily from changes in underwriting
expenses and commission arrangements.
Other underwriting expenses decreased approximately 7.9% from the
quarter ended June 30, 1995. This decrease results primarily from
the utilization of outside consultants for policy development and
an evaluation of the Company's business and assets compared to its
book value during the second quarter of 1995. Other underwriting
expenses for the nine months ended September 30, 1995 increased by
2.6% over the nine months ended September 30, 1994. This increase
is attributed to inflation reflected in the cost of goods and
services acquired.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Securities Exchange Act of 1934-10Q:
None
(b) Reports on Form 8-K
There were no reports required to be filed on Form 8-K
during the third quarter of 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MOMED HOLDING COMPANY
DATE 11/14/95 Richard V. Bradley,MD
President
DATE 11/14/95 James M. Stokes, MD
Chief Accounting Officer
