<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- --------------------------------------------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------------------
Commission File Number 33-94670-01
-------------------------------------
FARMERS GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
95-0725935
(IRS Employer Identification No.)
4680 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010
(Address of principal executive offices)(Zip Code)
(323) 932-3200
(Registrants telephone number, including area code)
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 / /
Registrant's Common Stock outstanding on March 31, 2000 was 1,000 shares.
<PAGE> 2
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 3
FARMERS GROUP, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. Financial Statements
Consolidated Balance Sheets - Assets
March 31, 2000 and December 31, 1999 4
Consolidated Balance Sheets - Liabilities and Stockholders'
Equity March 31, 2000 and December 31, 1999 5
Consolidated Statements of Income
Three Month Periods ended March 31, 2000 and
March 31, 1999 6
Consolidated Statements of Comprehensive Income
Three Month Periods ended March 31, 2000 and
March 31, 1999 7
Consolidated Statement of Stockholders' Equity
Three Month Period ended March 31, 2000 8
Consolidated Statement of Stockholders' Equity
Three Month Period ended March 31, 1999 9
Consolidated Statements of Cash Flows
Three Month Periods ended March 31, 2000 and
March 31, 1999 10
Notes to Interim Financial Statements 11
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks 19
PART II. OTHER INFORMATION 20
SIGNATURES 21
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Current assets, excluding Insurance Subsidiaries:
Cash and cash equivalents $ 182,529 $ 217,466
Marketable securities, at market value 36,543 66,558
Accrued interest 18,417 30,825
Accounts receivable, principally from the P&C Group 89,018 44,021
Notes receivable - affiliate 25,000 200,000
Deferred taxes 38,139 36,895
Prepaid expenses and other 19,848 21,950
------------- ------------
Total current assets 409,494 617,715
------------- ------------
Investments, excluding Insurance Subsidiaries:
Fixed maturities available-for-sale, at market value
(cost: $381,672 and $516,001) 375,838 511,708
Mortgage loans on real estate 133 146
Common stocks available-for-sale, at market value
(cost: $318,246 and $299,251) 343,391 334,212
Certificates of contribution and surplus notes of the
P&C Group 368,330 23,330
Real estate, at cost (net of accumulated depreciation:
$24,048 and $23,505) 71,213 49,459
Joint ventures, at equity 3,341 840
------------- ------------
1,162,246 919,695
------------- ------------
Other assets, excluding Insurance Subsidiaries:
Notes receivable - affiliates 1,107,000 1,107,000
Goodwill (net of accumulated amortization:
$675,495 and $660,484) 1,726,260 1,741,271
Attorney-in-fact contracts (net of accumulated amortization:
$480,667 and $469,986) 1,228,376 1,239,057
Securities lending collateral 0 4,150
Other assets 241,199 244,088
------------- ------------
4,302,835 4,335,566
------------- ------------
Properties, plant and equipment, at cost: (net of accumulated
depreciation: $333,382 and $324,902) 425,737 422,311
------------- ------------
Investments of Insurance Subsidiaries:
Fixed maturities available-for-sale, at market value
(cost: $4,430,177 and $4,514,104) 4,300,245 4,376,320
Mortgage loans on real estate 34,760 35,834
Non-redeemable preferred stocks available-for-sale, at market
value (cost: $1,153 and $1,153) 1,103 1,158
Common stocks available-for-sale, at market value
(cost: $216,299 and $188,851) 237,620 212,274
Certificate of contribution and surplus note of the
P&C Group 319,000 119,000
Policy loans 206,323 201,687
Real estate, at cost (net of accumulated depreciation:
$27,973 and $27,292) 66,163 66,672
Joint ventures, at equity 6,585 6,662
S&P 500 call options, at fair value (cost: $22,611 and $19,521) 36,378 32,718
Other investments 1,000 0
------------- ------------
5,209,177 5,052,325
------------- ------------
Other assets of Insurance Subsidiaries:
Cash and cash equivalents 82,270 96,034
Reinsurance premiums receivable - P&C Group 49,504 86,245
Accrued investment income 68,300 61,040
Deferred policy acquisition costs and value of life business
acquired 870,945 879,625
Securities lending collateral 328,204 303,379
Other assets 29,156 22,350
------------- ------------
1,428,379 1,448,673
------------- ------------
Total assets $ 12,937,868 $ 12,796,285
============= ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 5
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current liabilities, excluding Insurance Subsidiaries:
Notes and accounts payable:
P&C Group $ 879 $ 303
Other 36,880 55,730
Accrued liabilities:
Profit sharing 16,422 51,621
Income taxes 156,567 77,173
Other 125,138 10,109
------------ -------------
Total current liabilities 335,886 194,936
------------ -------------
Other liabilities, excluding Insurance Subsidiaries:
Real estate mortgages payable 21 21
Non-current deferred taxes 571,691 579,902
Securities lending liability 0 4,150
Other 137,832 136,487
------------ -------------
709,544 720,560
------------ -------------
Liabilities of Insurance Subsidiaries:
Policy liabilities:
Future policy benefits 3,446,494 3,412,452
Claims 31,897 28,396
Policyholder dividends 2 1
Other policyholders funds 92,362 83,478
Provision for non-life losses and loss adjustment expenses 189,225 106,444
Income taxes (including deferred taxes: $90,811 and $88,723) 118,469 98,880
Unearned investment income 972 936
Reinsurance payable - P&C Group 81,628 166,716
Securities lending liability 328,204 303,379
Other liabilities 78,410 80,868
------------ -------------
4,367,663 4,281,550
------------ -------------
Total liabilities 5,413,093 5,197,046
------------ -------------
Commitments and contingencies
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debentures 500,000 500,000
------------ -------------
Stockholders' Equity:
Class A common stock, $1 par value per share; authorized, issued
and outstanding: as of March 31, 2000 and
December 31, 1999 - 500 shares 0.5 0.5
Class B common stock, $1 par value per share; authorized, issued
and outstanding: as of March 31, 2000 and
December 31, 1999 - 500 shares 0.5 0.5
Additional capital 5,212,618 5,212,618
Accumulated other comprehensive loss (net of deferred
taxes: ($21,105) and ($18,307)) (39,195) (33,999)
Retained earnings 1,851,351 1,920,619
------------ -------------
Total stockholders' equity 7,024,775 7,099,239
------------ -------------
Total liabilities and stockholders' equity $ 12,937,868 $ 12,796,285
============ =============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 6
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three month period
ended March 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Consolidated operating revenues $ 825,132 $ 802,153
=========== ===========
Management services to property and casualty
insurance companies; and other:
Operating revenues $ 375,332 $ 365,778
----------- ----------
Operating expenses 206,621 196,761
Merger related expenses 0 244
----------- ----------
Total expenses 206,621 197,005
----------- ----------
Operating income 168,711 168,773
Net investment income 33,950 28,762
Net realized gains/(losses) 17,765 (233)
Dividends on preferred securities of subsidiary trusts (10,518) (10,518)
----------- ----------
Income before provision for taxes 209,908 186,784
Provision for income taxes 86,039 76,778
----------- ----------
Management services income 123,869 110,006
----------- ----------
Insurance Subsidiaries:
Life and annuity premiums 51,927 47,810
Non-life reinsurance premiums 250,000 250,000
Life policy charges 53,739 52,056
Net investment income 85,817 81,241
Net realized gains 8,317 5,268
----------- -----------
Total revenues 449,800 436,375
----------- -----------
Non-life losses and loss adjustment expenses 164,426 167,916
Life policyholders' benefits and charges 89,778 86,233
Non-life reinsurance commissions 79,341 75,843
General operating expenses 42,951 38,991
----------- -----------
Total operating expenses 376,496 368,983
----------- -----------
Income before provision for taxes 73,304 67,392
Provision for income taxes 25,091 22,353
----------- -----------
Insurance Subsidiaries income 48,213 45,039
----------- -----------
Consolidated net income $ 172,082 $ 155,045
=========== ===========
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 7
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three month period
ended March 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Consolidated net income $ 172,082 $ 155,045
----------- -----------
Other comprehensive loss, net of tax:
Net unrealized holding losses on securities,
net of tax of ($1,819) and ($31,916) (3,378) (59,350)
Change in effect of unrealized gains/(losses) on other
insurance accounts, net of tax of ($979) and
$8,145 (1,818) 15,127
----------- -----------
Other comprehensive loss (5,196) (44,223)
----------- -----------
Comprehensive income $ 166,886 $ 110,822
=========== ===========
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 8
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three month period ended March 31, 2000
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Other Total
Common Additional Comprehensive Retained Stockholders'
Stock Capital Loss Earnings Equity
-------- ----------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 1 $ 5,212,618 $ (33,999) $1,920,619 $ 7,099,239
Net income 172,082 172,082
Net unrealized holding losses
on securities, net of tax
of ($1,819) (3,378) (3,378)
Change in effect of unrealized
losses on other insurance
accounts, net of tax of ($979) (1,818) (1,818)
Cash dividends declared and/or
paid (241,350) (241,350)
-------- ----------- ---------------- ---------- ------------
Balance, March 31, 2000 $ 1 $ 5,212,618 $ (39,195) $1,851,351 $ 7,024,775
======== =========== ================ ========== ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 9
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three month period ended March 31, 1999
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Other Total
Common Additional Comprehensive Retained Stockholders'
Stock Capital Income Earnings Equity
-------- ----------- ----------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 1 $ 5,212,618 $ 144,742 $1,677,046 $ 7,034,407
Net income 155,045 155,045
Net unrealized holding losses
on securities, net of tax
of ($31,916) (59,350) (59,350)
Change in effect of unrealized
gains on other insurance
accounts, net of tax of $8,145 15,127 15,127
Cash dividends paid (98,500) (98,500)
-------- ------------ --------------- ---------- ------------
Balance, March 31, 1999 $ 1 $ 5,212,618 $ 100,519 $1,733,591 $ 7,046,729
======== ============ =============== ========== ============
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 10
FARMERS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three month period
ended March 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Consolidated net income $ 172,082 $ 155,045
Non-cash and operating activities adjustments:
Depreciation and amortization 40,683 39,900
Amortization of deferred policy acquisition costs and
value of life business acquired 29,674 23,731
Policy acquisition costs deferred (23,791) (22,876)
Life insurance policy liabilities 26,545 15,883
Provision for non-life losses and loss adjustment expenses 82,781 (10,519)
Universal life type contracts:
Deposits received 76,380 75,279
Withdrawals (67,616) (61,821)
Interest credited 18,425 17,690
Equity in earnings of joint ventures 3,163 (2,210)
Gains on sales of assets (26,173) (4,922)
Changes in assets and liabilities:
Current assets and liabilities (49,990) 99,466
Non-current assets and liabilities (12,279) (12,356)
Other, net (3,978) (5,832)
---------- -----------
Net cash provided by operating activities 265,906 306,458
---------- -----------
Cash Flows from Investing Activities:
Purchases of investments available-for-sale (279,009) (471,084)
Purchases of properties (34,719) (7,403)
Purchase of surplus notes of the P&C Group (175,000) 0
Purchase of certificates of contribution of the P&C Group (370,000) 0
Proceeds from sales and maturities of investments
available-for-sale 500,604 311,893
Proceeds from sales of properties 1,015 2,664
Proceeds from redemption of notes receivable - affiliate 175,000 0
Mortgage loan collections 1,086 9,032
Increase in policy loans (4,636) (3,923)
Other, net (969) (170)
---------- -----------
Net cash used in investing activities (186,628) (158,991)
---------- -----------
Cash Flows from Financing Activities:
Dividends paid to stockholders (120,675) (98,500)
Annuity contracts:
Deposits received 38,528 36,783
Withdrawals (66,688) (45,819)
Interest credited 20,856 21,891
--------- -----------
Net cash used in financing activities (127,979) (85,645)
--------- -----------
Increase/(decrease) in cash and cash equivalents (48,701) 61,822
Cash and cash equivalents - at beginning of year 313,500 327,552
---------- -----------
Cash and cash equivalents - at end of period $ 264,799 $ 389,374
========== ===========
The accompanying notes are an integral part of these interim financial statements.
</TABLE>
<PAGE> 11
FARMERS GROUP, INC.
AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
A. Basis of presentation and summary of significant accounting policies
The accompanying consolidated balance sheet of Farmers Group, Inc. ("FGI")
and its subsidiaries (together, the "Company") as of March 31, 2000, the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the three month periods ended March 31, 2000 and
March 31, 1999, have been prepared in accordance with generally accepted
accounting principles ("GAAP") for interim periods and are unaudited.
However, in management's opinion, the consolidated financial statements
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of results for such interim periods. These
statements do not include all of the information and footnotes required by
GAAP for complete financial statements and should be read in conjunction with
the consolidated balance sheets of the Company as of December 31, 1999 and
1998, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999.
Interim results are not necessarily indicative of results for the full
year. All material inter-company transactions have been eliminated. Certain
amounts applicable to prior years have been reclassified to conform to the
2000 presentation.
The preparation of the Company's financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The Company is attorney-in-fact ("AIF") for three inter-insurance
exchanges: Farmers Insurance Exchange, Fire Insurance Exchange and Truck
Insurance Exchange (collectively the "Exchanges"), which operate in the
property and casualty insurance industry. As AIF, FGI, or its subsidiaries,
as applicable, provides certain management services to the Exchanges, their
respective subsidiaries and Farmers Texas County Mutual Insurance Company
(collectively the "P&C Group") and receives compensation based on a percentage
of gross premiums earned. The P&C Group is owned by the policyholders of the
Exchanges and Farmers Texas County Mutual Insurance Company. Accordingly, the
Company has no ownership interest in the P&C Group.
Farmers New World Life Insurance Company ("Farmers Life"), a Washington
based insurance company, is a wholly owned subsidiary of the Company. Farmers
Life markets a broad line of individual life insurance products, including
universal life, term life and whole life insurance and structured settlement
and annuity products, predominately flexible premium deferred annuities.
Additionally, in March 2000, Farmers Life entered the variable universal life
and annuities market. These products and services are sold directly by the
P&C Group's agents.
Farmers Reinsurance Company ("Farmers Re"), a wholly owned subsidiary of
the Company, reinsures a percentage of the auto physical damage business
written by the P&C Group. Under a quota share reinsurance treaty, Farmers Re
assumes monthly premiums of $83,333,000 and a quota share percentage of
ultimate net losses sustained by the P&C Group in its auto physical damage
lines of business. This treaty, which will remain in effect until terminated
by either party, also provides for the P&C Group to receive a provisional
ceding commission of 20% of premiums with additional experience commissions
that depend on loss experience. This experience commission arrangement limits
Farmers Re's potential underwriting gain on the assumed business to 2.5% of
premiums assumed.
On March 31, 2000, Farmers Re and the P&C Group commuted $106,444,000 of
losses and loss adjustment expenses associated with the 1999 accident year.
As a result, in May 2000, Farmers Re will pay the P&C Group $106,444,000 of
losses and loss adjustment expenses and $8,975,000 of accrued interest in
settlement of this commutation.
<PAGE> 12
References to the "Insurance Subsidiaries" within the consolidated
financial statements are to Farmers Life and Farmers Re.
In December 1988, B.A.T Industries p.l.c. ("B.A.T"), acquired 100%
ownership of the Company through its wholly owned subsidiary BATUS
Financial Services. Immediately thereafter, BATUS Financial Services was
merged into Farmers Group, Inc.. The acquisition was accounted for as a
purchase and, accordingly, the acquired assets and liabilities were recorded
in the Company's consolidated balance sheets based on their estimated fair
values at December 31, 1988.
In September 1998, B.A.T's Financial Services Businesses, which included
the Company, were merged with Zurich Insurance Company ("ZIC"). The businesses
of ZIC and B.A.T's Financial Services Businesses were transferred to Zurich
Financial Services ("Zurich"), a new Swiss company with headquarters in Zurich.
As a result, each two shares of the Company's prior outstanding stock were
recapitalized into one share of Class A Common Stock, par value $1.00 per share
("Ordinary Shares"), and one share of Class B Common Stock, par value $1.00 per
share ("Income Shares"). Under the merger agreement, all Ordinary Shares
became wholly owned by Zurich and all Income Shares became wholly owned by
Allied Zurich Holdings Limited, an affiliated company created during the
restructuring of B.A.T. This merger was accounted for by Zurich as a pooling
of interests and, therefore, no purchase accounting adjustments were made to
the Company's assets and liabilities.
In June 1999, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 137, "Deferral of the
Effective Date of FASB Statement No. 133", which defers the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. In 1998, the
FASB released SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement establishes accounting and reporting standards for
derivative instruments (including certain derivative instruments embedded in
other contracts) and for hedging activities. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at market value.
The Company does not expect the adoption of these Statements to have a material
impact on its consolidated financial statements.
B. Material contingencies
The Company is a party to numerous lawsuits arising from its normal
business activities. These actions are in various stages of discovery and
development, and some seek punitive as well as compensatory damages. In the
opinion of management, the Company has not engaged in any conduct which should
warrant the award of any material punitive or compensatory damages. The
Company intends to vigorously defend its position in each case, and management
believes that, while it is not possible to predict the outcome of such matters
with absolute certainty, ultimate disposition of these proceedings should not
have a material adverse effect on the Company's consolidated results of
operations or financial position.
C. Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Debentures
In 1995, Farmers Group Capital and Farmers Group Capital II (the
"Subsidiary Trusts"), consolidated wholly owned subsidiaries of Farmers Group,
Inc., issued $410 million of 8.45% Cumulative Quarterly Income Preferred
Securities ("QUIPS"), Series A and $90 million of 8.25% QUIPS, Series B,
respectively. In connection with the Subsidiary Trusts' issuance of the QUIPS
and the related purchase by Farmers Group, Inc. of all of the Subsidiary
Trusts' Common Securities ("Common Securities"), Farmers Group, Inc. issued to
Farmers Group Capital $422,680,399 principal amount of its 8.45% Junior
Subordinated Debentures, Series A due on December 31, 2025, (the "Junior
Subordinated Debentures, Series A") and issued to Farmers Group Capital II
$92,783,505 principal amount of its 8.25% Junior Subordinated Debentures,
Series B due on December 31, 2025 (the "Junior Subordinated Debentures,
Series B" and, together with the Junior Subordinated Debentures,
Series A, the "Junior Subordinated Debentures"). The sole assets of Farmers
Group Capital are the Junior Subordinated Debentures, Series A. The sole
assets of Farmers Group Capital II are the Junior Subordinated Debentures,
Series B. In addition, these arrangements are governed by various agreements
between Farmers Group, Inc. and the Subsidiary Trusts (the Guarantee
Agreements, the Trust Agreements, the Expense Agreements, the Indentures and
the Junior Subordinated
<PAGE> 13
Debentures) which considered together constitute a full and unconditional
guarantee by Farmers Group, Inc. of the Subsidiary Trusts' obligations under
the Preferred Securities.
Under certain circumstances, the Junior Subordinated Debentures may be
distributed to holders of the QUIPS and holders of the Common Securities in
liquidation of the Subsidiary Trusts. The QUIPS are subject to mandatory
redemption upon repayment of the Junior Subordinated Debentures at maturity,
or upon their earlier redemption, at a redemption price of $25 per Preferred
Security, plus accrued and unpaid distributions thereon to the date fixed for
redemption. Farmers Group, Inc. will have the option at any time on or after
September 27, 2000 to redeem, in whole or part, the Junior Subordinated
Debentures.
As of March 31, 2000 and 1999, a total of 20,000,000 shares of QUIPS
were outstanding.
D. Management fees
As AIF, the Company, or its subsidiaries, as applicable, provides
management services to the P&C Group and receives management fees for the
services rendered. As a result, the Company received management fees from
the P&C Group of $352,392,000 and $343,617,000 for the three month periods
ended March 31, 2000 and March 31, 1999, respectively.
E. Related parties
As of March 31, 2000, the Company held a $250,000,000 note receivable from
Old Stone (Delaware) Holdings Limited ("OSDH"), a subsidiary of Zurich. The
Company loaned $250,000,000 to OSDH on December 15, 1999 and, in return,
received a medium-term note with a 7.50% fixed interest rate that matures on
December 15, 2004. Interest on this note is paid semi-annually and, through
March 31, 2000, income earned on this note totaled $4,688,000.
In addition, as of March 31, 2000, the Company held $882,000,000 of notes
receivable from British American Financial Services (UK and International),
Ltd. ("BAFS"), a subsidiary of Zurich. The Company purchased $1,057,000,000
of notes from BAFS on September 3, 1998. Subsequently, on March 1, 2000, Eagle
Star Life Assurance Company Limited ("Eagle Star"), also an affiliate of
Zurich, assigned $175,000,000 of matured surplus notes of the P&C Group to the
Company and, in return, the Company reduced the outstanding balance of the
notes receivable from BAFS by $175,000,000. The remaining notes receivable
from BAFS are fixed rate medium-term notes with maturity dates as follows:
$25,000,000 in September 2000, $207,000,000 in September 2001, $200,000,000 in
September 2002, $200,000,000 in September 2003 and $250,000,000 in September
2004. Interest on these notes is paid semi-annually at coupon rates of 5.44%,
5.48%, 5.67%, 5.71% and 5.78%, respectively. Income earned on these notes
through March 31, 2000 and March 31, 1999 was $14,065,000 and $14,858,000,
respectively.
F. Certificates of contribution and surplus notes of the P&C Group
On March 7, 2000, to help fund the Exchanges' acquisition of Foremost
Corporation of America ("Foremost"), the Company purchased $370,000,000 of
certificates of contribution of the P&C Group bearing interest at 7.85%
annually. As of March 31, 2000, the Company continued to hold $142,330,000 of
miscellaneous other certificates of contribution of the P&C Group, which bear
interest at various rates, and a surplus note of the P&C Group, which bears
interest at 6.10% annually.
Additionally, on March 1, 2000, in connection with the assignment of the
$175,000,000 of matured surplus notes of the P&C Group from Eagle Star
(see Note E), the P&C Group issued new surplus notes of $175,000,000 to the
Company. These notes bear interest at 8.50% annually and mature in March 2005.
Conditions governing repayment of these amounts are outlined in the
certificates of contribution and the surplus notes. Generally, repayment may
be made only when the surplus balance of the issuer reaches a certain
<PAGE> 14
specified level, and then only after approval is granted by the issuer's
governing Board and the appropriate state insurance regulatory department.
G. Supplemental cash flow information
For financial statement purposes, the Company considers all investments
with original maturities of 90 days or less as cash equivalents. Following is
a reconciliation of the balance sheet cash and cash equivalent totals to the
consolidated cash flow total:
<TABLE>
<CAPTION>
Excluding
Insurance Insurance
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C>
Cash and cash equivalents -- December 31, 1998 $ 253,828 $ 73,724 $ 327,552
Activity through March 1999 61,822
---------
Cash and cash equivalents -- March 31, 1999 315,718 73,656 $ 389,374
=========
Cash and cash equivalents -- December 31, 1999 $ 217,466 $ 96,034 $ 313,500
Activity through March 2000 (48,701)
---------
Cash and cash equivalents -- March 31, 2000 182,529 82,270 $ 264,799
=========
</TABLE>
Cash payments for interest were $1,671,000 and $1,415,000 for the three
month periods ended March 31, 2000 and March 31, 1999, respectively, while the
cash payment for dividends to the holders of the Company's QUIPS was
$10,518,000 for each of the three month periods ended March 31, 2000 and
March 31, 1999. Cash payments for income taxes were $18,809,000 and
$22,395,000 for the three month periods ended March 31, 2000 and March 31,
1999, respectively.
On March 7, 2000, the Company purchased $370,000,000 of certificates of
contribution of the P&C Group to help fund the Exchanges' acquisition of
Foremost (see Note F).
H. Operating segments
The Company's principal activities are the provision of management
services to the P&C Group and the ownership and operation of the life and
reinsurance subsidiaries. These activities are managed separately as each
offers a unique set of services. As a result, the Company is comprised of the
following three reportable operating segments as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information": the
management services segment, the life insurance segment and the reinsurance
segment.
As the Company is the exclusive AIF of the P&C Group, the management
services segment is primarily responsible for providing management services to
the P&C Group. Management fees earned from the P&C Group totaled $352,392,000
and $343,617,000 for the three month periods ended March 31, 2000 and
March 31, 1999, respectively. The life insurance segment provides individual
life insurance products, including universal life, term life and whole life
insurance and structured settlement and annuity products, as well as variable
universal life and annuity products. Finally, the reinsurance segment provides
reinsurance coverage to a percentage of the auto physical damage business
written by the P&C Group.
The basis of accounting used by the Company's management in evaluating
segment performance and determining how resources should be allocated is
referred to as the Company's GAAP historical basis, which excludes the effects
of the purchase accounting ("PGAAP") adjustments related to the acquisition of
the Company by B.A.T in December 1988 (see Note A). This differs from the
basis used in preparing the Company's financial statements included in the SEC
Form 10-K and 10-Q reports, which incorporates the effects of these
adjustments.
<PAGE> 15
The Company accounts for intersegment transactions as if they were to
third parties and, as such, records the transactions at current market
prices. There were no intersegment revenues among the Company's three
reportable operating segments for the three month periods ended March 31,
2000 and March 31, 1999.
Information regarding the Company's reportable operating segments follows:
<TABLE>
<CAPTION>
Three month period ended March 31, 2000
---------------------------------------------------------------------------------------------------------
GAAP historical basis PGAAP adjustments Consolidated
------------------------------------------------------ -------------------------------------
Management Life Management Life PGAAP
services insurance Reinsurance Total services insurance Total basis
------------------------------------------------------ ------------------------------------- -----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 375,332 $ 189,876 (a) $ 260,153 (a) $ 825,361 $ 0 $ (229) $ (229) $ 825,132
Investment
income 34,105 81,200 7,567 122,872 (155) (229) (384) 122,488
Investment
expenses 0 (2,721) 0 (2,721) 0 0 0 (2,721)
Net realized
gains 17,765 5,731 2,586 26,082 0 0 0 26,082
Dividends
on preferred
securities of
subsidiary
trusts (10,518) 0 0 (10,518) 0 0 0 (10,518)
Income before
provision for
taxes 236,880 59,139 16,330 312,349 (26,972) (2,165) (29,137) 283,212
Provision for
income taxes 90,623 20,959 5,063 116,645 (4,584) (931) (5,515) 111,130
Depreciation and
amortization 13,763 28,504 0 42,267 26,065 (b) 2,025 (c) 28,090 70,357
- -----------------------
</TABLE>
(a) Revenues for the insurance operating segments include net investment
income and net realized gains/(losses).
(b) Amount includes PGAAP adjustments associated with the amortization of the
AIF contracts ($10.7 million) and goodwill ($15.0 million).
(c) Amount includes PGAAP adjustments associated with the amortization of the
Value of Life Business Acquired ("VOLBA") asset and the reversal of
amortization associated with the pre-1988 DAC asset.
<TABLE>
<CAPTION>
Three month period ended March 31, 1999
---------------------------------------------------------------------------------------------------------
GAAP historical basis PGAAP adjustments Consolidated
------------------------------------------------------ -------------------------------------
Management Life Management Life PGAAP
services insurance Reinsurance Total services insurance Total basis
------------------------------------------------------ ------------------------------------- -----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 365,778 $ 179,219 (a) $ 257,402 (a) $ 802,399 $ 0 $ (246) $ (246) $ 802,153
Investment
income 29,123 77,880 6,528 113,531 (361) (246) (607) 112,924
Investment
expenses 0 (2,921) 0 (2,921) 0 0 0 (2,921)
Net realized
gains/(losses) (233) 4,394 874 5,035 0 0 0 5,035
Dividends
on preferred
securities of
subsidiary
trusts (10,518) 0 0 (10,518) 0 0 0 (10,518)
Income before
provision for
taxes 213,925 77,215 13,591 304,731 (27,141) (23,414) (50,555) 254,176
Provision for
income taxes 81,426 27,086 3,639 112,151 (4,648) (8,372) (13,020) 99,131
Depreciation and
amortization 12,748 1,314 (b) 0 14,062 26,295 (c) 23,274 (d) 49,569 63,631
- -----------------------
</TABLE>
(a) Revenues for the insurance operating segments include net investment
income and net realized gains/(losses).
(b) Amount includes the historical basis amortization associated with the DAC
asset which included a $23.3 million adjustment, reducing expense, due to
favorable persistency experience on the fixed universal life business.
(c) Amount includes PGAAP adjustments associated with the amortization of the
AIF contracts ($10.7 million) and goodwill ($15.0 million).
(d) Amount includes PGAAP adjustments associated with the amortization of the
VOLBA asset and the reversal of amortization associated with the pre-1988
DAC asset. Included in this amount are adjustments totaling $23.1
million, increasing expense, due to unfavorable persistency experience on
the pre-1988 business.
<PAGE> 16
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's principal activities are the provision of management
services to the P&C Group and the ownership and operation of the Insurance
Subsidiaries. Revenues and expenses relating to these principal business
activities are reflected in the Company's Consolidated Financial Statements
prepared in accordance with GAAP, which differs from statutory accounting
practices ("SAP"), which the Insurance Subsidiaries are required to use for
regulatory reporting purposes.
On March 7, 2000, the Exchanges acquired Foremost Corporation of America
("Foremost"). Foremost is the country's leading writer of manufactured homes
and a prominent insurer of recreational vehicles and other specialty lines.
The Company provides management services in respect of this business and
receives compensation based on a percentage of gross premiums earned.
Farmers Life, a wholly owned subsidiary of the Company, underwrites life
insurance, structured settlement and annuity products. Revenues attributable to
traditional life insurance products, such as whole life or term life contracts,
are classified as premiums as they become due. Future benefits are associated
with such premiums (through increases in liabilities for future policy
benefits), and prior period capitalized costs are amortized (through
amortization of DAC) so that profits are generally recognized over the same
period as revenue income. Revenues attributable to universal life products
consist of policy charges for the cost of insurance, policy administration
charges, surrender charges and investment income on assets allocated to support
policyholder account balances on deposit. Revenues for deferred annuity
products consist of surrender charges and investment income on assets allocated
to support policyholder account balances. Expenses on universal life and
annuity policies include interest credited to policyholders on policy balances
as well as benefit claims incurred in excess of policy account balances.
Revenues attributable to structured settlement products consist of investment
income on assets allocated to support the policyholder benefits schedule and
expenses consist of interest credited to policyholders on policy balances.
Farmers Re, a wholly owned subsidiary of the Company, reinsures a
percentage of the auto physical damage business written by the P&C Group.
Under a quota share reinsurance treaty, Farmers Re assumes monthly premiums of
$83.3 million and a quota share percentage of ultimate net losses sustained by
the P&C Group in its auto physical damage lines of business. This treaty,
which will remain in effect until terminated by either party, also
provides for the P&C Group to receive a provisional ceding commission of 20%
of premiums with additional experience commissions that depend on loss
experience. This experience commission arrangement limits Farmers Re's
potential underwriting gain on the assumed business to 2.5% of premiums
assumed.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Management Services to Property and Casualty Insurance Companies; and Other
Operating Revenues. Operating revenues increased from $365.8 million for
the three months ended March 31, 1999 to $375.3 million for the three months
ended March 31, 2000, an increase of $9.5 million, or 2.6%. Operating
revenues primarily consist of management fees paid to the Company as a
percentage of gross premiums earned by the P&C Group. Such premiums increased
from $2,678.5 million in the first quarter of 1999 to $2,734.6 million in the
first quarter of 2000 due primarily to growth within the Fire and
Commercial books of business coupled with $38.2 million of premiums earned as
a result of business assumed from Foremost.
Operating Expenses. Operating expenses as a percentage of operating
revenues increased from 53.8% in the first quarter of 1999 to 55.1% in the
first quarter of 2000, an increase of 1.3 percentage points due primarily to
expenses incurred in the first quarter of 2000 in connection with providing
management services to the business assumed from Foremost. Excluding this
item, operating expenses as a percentage of operating revenues decreased 0.6
percentage points between periods.
<PAGE> 17
Salaries and Employee Benefits. Salaries and employee benefits
increased from $89.9 million for the three months ended March 31, 1999 to
$96.9 million for the three months ended March 31, 2000, an increase of
$7.0 million, or 7.8%. This increase was primarily the result of $4.2
million of expenses incurred in the first quarter of 2000 in connection
with providing management services to the business assumed from Foremost.
Buildings and Equipment Expenses. Buildings and equipment expenses
decreased from $24.3 million for the three months ended March 31, 1999 to
$22.8 million for the three months ended March 31, 2000, a decrease of
$1.5 million, or 6.2%, due primarily to savings generated by renegotiated
lease contracts.
Amortization of Attorney-In-Fact Contracts and Goodwill. Purchase
accounting entries related to the acquisition of the Company by B.A.T in
December 1988 include goodwill (capitalized at $2.4 billion) and the value
of the AIF contracts of the P&C Group (capitalized at $1.7 billion).
Amortization of these two items, which is being taken on a straight-line
basis over forty years, reduced pretax income by approximately $25.7
million in each of the three month periods ended March 31, 2000 and March
31, 1999.
General and Administrative Expenses. General and administrative
expenses increased from $56.9 million for the three months ended March 31,
1999 to $61.2 million for the three months ended March 31, 2000, an
increase of $4.3 million, or 7.6%. This increase was a result of a $4.7
million increase in expenses between periods related to a project to
implement a new financial accounting and reporting system for the Company
and the P&C Group coupled with an increase in expenses incurred in
connection with providing management services to the business assumed
from Foremost. Partially offsetting these increases in expense between
periods were $1.4 million of Year 2000 project expenses incurred in the
first quarter of 1999. No similar expenses were incurred through
March 2000.
Merger Related Expenses. Expenses incurred by the Company as a result of
the merger between B.A.T's Financial Services Businesses and ZIC amounted to
$0.2 million in the three month period ended March 31, 1999.
Net Investment Income. Net investment income increased from $28.8 million
for the three months ended March 31, 1999 to $33.9 million for the three months
ended March 31, 2000, an increase of $5.1 million, or 17.7%, due mainly to an
increase in investment yields together with an increase in the average invested
asset base.
Net Realized Gains/(Losses). Net realized gains/(losses) increased $18.0
million, from a $0.2 million loss for the three months ended March 31, 1999 to
a $17.8 million gain for the three months ended March 31, 2000, due primarily
to common stock gains realized within the context of FGI's overall equity
investment strategy.
Dividends on Preferred Securities of Subsidiary Trusts. Dividend expense
related to the $500.0 million of QUIPS issued in 1995 was $10.5 million for the
three months ended March 31, 2000 and March 31, 1999.
Provision for Income Taxes. Provision for income taxes increased from
$76.8 million for the three months ended March 31, 1999 to $86.0 million for
the three months ended March 31, 2000, an increase of $9.2 million, or 12.0%,
due mainly to an increase in pretax income between periods.
Management Services Income. As a result of the foregoing, management
services income increased from $110.0 million for the three months ended March
31, 1999 to $123.9 million for the three months ended March 31, 2000, an
increase of $13.9 million, or 12.6%.
Insurance Subsidiaries
Farmers Re
Under the quota share reinsurance treaty, Farmers Re assumed $250.0
million of premiums in both the three month periods ended March 31, 2000 and
March 31, 1999. Losses and loss adjustment expenses incurred under this
treaty were $164.4 million for the three months ended March 31, 2000 and
$167.9 million for the three months ended March 31, 1999 and non-life
reinsurance commissions were $79.3 million for the three months ended March
<PAGE> 18
31, 2000 and $75.8 million for the three months ended March 31, 1999. Income
before taxes increased $2.7 million from $13.6 million for the three months
ended March 31, 1999 to $16.3 million for the three months ended March 31, 2000
due primarily to increased investment income and realized capital gains. For
the three month periods ended March 31, 2000 and March 31, 1999, Farmers Re's
contribution to net income was $11.3 million and $9.9 million, respectively.
Farmers Life
Total Revenues. Total revenues increased from $179.0 million for the
three months ended March 31, 1999 to $189.6 million for the three months
ended March 31, 2000, an increase of $10.6 million, or 5.9%.
Life and Annuity Premiums. Life premiums increased $4.1 million for
the three months ended March 31, 2000, or 8.6%, over the three months
ended March 31, 1999. This increase was due to a 13.3% growth in the
volume of traditional life insurance in-force.
Life Policy Charges. Life policy charges increased $1.7 million for
the three months ended March 31, 2000, or 3.2%, over the three months
ended March 31, 1999, reflecting a 2.2% growth in universal life-type
insurance in-force.
Net Investment Income. Net investment income increased $3.5 million
for the three months ended March 31, 2000, or 4.7%, over the three months
ended March 31, 1999. The increase was due to higher bond interest income
resulting from a 9.8% growth in mean invested assets.
Net Realized Gains. Net realized gains increased by $1.3 million,
from $4.4 million for the three months ended March 31, 1999 to $5.7
million for the three months ended March 31, 2000. This increase was due
to higher gains realized on stock sales.
Total Operating Expenses. Total operating expenses increased $7.5 million
for the three months ended March 31, 2000, or 6.0%, over the three months ended
March 31, 1999.
Life Policyholders' Benefits and Charges. Life policyholders'
benefits expense and charges increased $3.5 million for the three months
ended March 31, 2000, or 4.1%, over three months ended March 31, 1999.
Policy Benefits. Policy benefits, which consist primarily of
death and surrender benefits on life products, decreased $2.9
million, or 7.6%, for the three months ended March 31, 2000, to $35.2
million, due to a decrease in death benefits per thousand of
insurance in-force.
Increase in Liability for Future Benefits. Increase in
liability for future benefits expense increased from $9.4 million
for the three months ended March 31, 1999 to $14.3 million for the
three months ended March 31, 2000. This increase was primarily
attributable to higher sales volumes related to structured
settlements and the 13.3% growth in the volume of traditional life
insurance in-force, particularly whole life.
Interest Credited to Policyholders. Interest credited to
policyholders, which represents the amount credited to policyholder
funds on deposit under universal life-type contracts and deferred
annuities, increased from $38.8 million for the three months ended
March 31, 1999 to $40.3 million for the three months ended
March 31, 2000, or 3.9%, reflecting growth in the universal life
and annuity fund balances.
General Operating Expenses. General operating expenses increased
from $38.9 million for the three months ended March 31, 1999 to $42.9
million for the three months ended March 31, 2000, an increase of $4.0
million, or 10.3%.
<PAGE> 19
Amortization of DAC and Value of Life Business Acquired.
Amortization expense increased from $23.8 million for the three
months ended March 31, 1999 to $29.7 million for the three months
ended March 31, 2000, reflecting growth in business, as well as
differences in the mix of business.
Net Commissions. Net commissions expense decreased $3.1 million
from $4.6 million for the three months ended March 31, 1999 to $1.5
million for the three months ended March 31, 2000 due to higher
reinsurance activity.
General and Administrative Expenses. General and
administrative expenses increased from $10.5 million for the three
months ended March 31, 1999 to $11.7 million for the three months
ended March 31, 2000, an increase of $1.2 million, or 11.4%, due
primarily to higher premium taxes.
Provision for Income Taxes. Provision for income taxes increased from
$18.7 million for the three months ended March 31, 1999 to $20.0 million for
the three months ended March 31, 2000 due to higher pretax operating income.
Farmers Life Income. As a result of the foregoing, Farmers Life income
increased from $35.1 million for the three months ended March 31, 1999 to
$36.9 million for the three months ended March 31, 2000, an increase of $1.8
million, or 5.1%.
Consolidated Net Income
Consolidated net income of the Company increased from $155.0 million for
the three months ended March 31, 1999 to $172.1 million for the three months
ended March 31, 2000, an increase of $17.1 million, or 11.0%.
Liquidity and Capital Resources
As of March 31, 2000 and March 31, 1999, the Company held cash and cash
equivalents of $264.8 million and $389.4 million, respectively. In addition,
as of March 31, 2000, the Company had available revolving credit facilities
enabling it to borrow up to $500.0 million in the event such a need should
arise.
Net cash provided by operating activities decreased from $306.5 million
for the three months ended March 31, 1999 to $265.9 million for the three
months ended March 31, 2000, a decrease of $40.6 million, or 13.2%. This
decrease in cash was due to a $133.6 million decrease in current liabilities
between periods, $104.0 million of which resulted from a decrease in
reinsurance payables, and a $21.3 million increase in gains on sales of assets.
Partially offsetting these decreases in cash were a $93.3 million increase in
the provision for non-life losses and loss adjustment expenses between periods
coupled with a $17.0 million increase in consolidated net income between
periods.
Net cash used in investing activities increased from $159.0 million for
the three months ended March 31, 1999 to $186.6 million for the three months
ended March 31, 2000, a decrease in cash of $27.6 million, or 17.4%. This
decrease in cash is the result of the purchase of the $370.0 million of
certificates of contribution of the P&C Group (see Note F)and a $27.3 million
increase in purchases of properties. Partially offsetting these decreases in
cash was a $192.1 million decrease in purchases of investments
available-for-sale coupled with a $188.7 million increase in proceeds received
from sales and maturities of investments available-for-sale in 2000.
Net cash used in financing activities increased from $85.6 million for
the three months ended March 31, 1999 to $128.0 million for the three months
ended March 31, 2000, resulting in a decrease in cash of $42.4 million, or
49.5%. This decrease was primarily due to a $22.2 million increase in
dividends paid to stockholders coupled with lower cash flows from annuity
contracts.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
The market risks associated with the Company's investment portfolios have
not changed materially from those disclosed at year-end 1999.
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to numerous lawsuits arising from its
normal business activities. These actions are in various stages of
discovery and development, and some seek punitive as well as
compensatory damages. In the opinion of management, the Company
has not engaged in any conduct which should warrant the award of any
material punitive or compensatory damages. The Company intends to
vigorously defend its position in each case, and management believes
that, while it is not possible to predict the outcome of such matters
with absolute certainty, ultimate disposition of these proceedings
should not have a material adverse effect on the Company's
consolidated results of operations or financial position. In
addition, the Company is, from time to time, involved as a party to
various governmental and administrative proceedings.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
The shareholders of the Company held their annual meeting on
April 24, 2000. Martin D. Feinstein, Jason L. Katz, John H. Lynch and
Keitha T. Schofield were re-elected to the Board of Directors
(the "Board") of the Company. New directors elected to the Board
include Cecilia M. Claudio, Gerald E. Faulwell, Stephen J. Feely,
Leonard H. Gelfand, Paul N. Hopkins, Stephen J. Leaman, and C. Paul
Patsis. The election of each director was unanimous and uncontested.
No other matters were voted upon at this meeting.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
<PAGE> 21
FARMERS GROUP, INC.
AND SUBSIDIARIES
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.
Farmers Group, Inc.
(Registrant)
May 11, 2000 /s/ Martin D. Feinstein
---------------------------------------------
Date Martin D. Feinstein
Chairman of the Board,
President and Chief Executive Officer
May 11, 2000 /s/ Gerald E. Faulwell
---------------------------------------------
Date Gerald E. Faulwell
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Farmers Group, Inc. and subsidiaries as of
March 31, 2000 and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for the three
month period ended March 31, 2000 (unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 264,799
<SECURITIES> 36,543
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 609,568
<PP&E> 759,119
<DEPRECIATION> 333,382
<TOTAL-ASSETS> 12,937,868
<CURRENT-LIABILITIES> 607,711
<BONDS> 0
500,000
0
<COMMON> 1
<OTHER-SE> 7,024,775
<TOTAL-LIABILITY-AND-EQUITY> 12,937,868
<SALES> 0
<TOTAL-REVENUES> 825,132
<CGS> 0
<TOTAL-COSTS> 531,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,518
<INCOME-PRETAX> 283,212
<INCOME-TAX> 111,130
<INCOME-CONTINUING> 172,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,082
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
