U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 12b-25
NOTIFICATION OF LATE FILING
(Check One):
[ ] Form 10-K and Form 10-KSB [ ] Form 20-F [ ] Form 11-K
[X] Form 10-Q and Form 10-QSB [ ] Form N-SAR
For Period Ended: September 30, 1997
[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-Q
[ ] Transition Report on Form N-SAR
For the Transition Period Ended: . . . . . . . . . . . . . .
Nothing in this form shall be construed to imply that the
Commission has verified any information contained herein.
If the notification relates to a portion of the filing checked
above, identify the Item(s) to which the notification relates:
Items 1 and 2 of Part I of Form 10-QSB;
Exhibit 27 to Item 6 of Part II of Form 10-QSB
PART I - REGISTRANT INFORMATION
Full Name of Registrant: North East Insurance Company
Former Name if Applicable:
Address of Principal Executive Office: 482 Payne Road,
Scarborough, Maine 04074
PART II - RULES 12b-25(b) AND (c)
The identified portion of the subject report cannot be filed without
unreasonable effort or expense, and relief is sought pursuant to Rule
12b-25(b). The reasons for the delay are described in reasonable detail
in Part III of this form. The identified portion of the subject report
will be filed on or before November 21, 1997.
PART III - NARRATIVE
SUMMARY. For the reasons stated below, North East Insurance Company
("NEIC" or the "Registrant") is presently unable to compute its net
income for the quarter ended September 30, 1997. As a result, the
Registrant is unable to complete Items 1 and 2 of Part I of its Form 10-
QSB report for the fiscal quarter ended September 30, 1997. The
Registrant has initiated various actions to resolve this uncertainty,
and undertakes to file these Items by November 21, 1997.
DISCUSSION. As previously disclosed in the Form 10-QSB report for its
fiscal quarter ended March 31, 1997, NEIC renegotiated its reinsurance
arrangements during the first quarter of 1997. The renegotiations
involved (i) a change in the level of its "excess of loss" reinsurance
coverage and (ii) a termination of its quota share reinsurance on a run-
off basis, both effective as of January 1, 1997. These arrangements are
reflected in two reinsurance contracts between NEIC and MIC Re, its
reinsurer.
The parties to this arrangement agreed on a payment formula under which
expenses associated with the run-off of the quota are determined as the
sum of the covered losses and unearned commissions for the quarter,
subject to a designated limit. The intended result of such formula was
to charge off the quota share reinsurance in such a way as to amortize
the expense in a predictable manner.
Approximately six weeks ago, it was determined that the payment formula
might, by its terms, result in a charge far exceeding projections.
Subsequent investigations by NEIC and its reinsurance consulting firm
determined that this result was not caused by a computational error.
Both NEIC and MIC Re are now in agreement that this outcome is
inconsistent with the intent of the revised arrangements, and reveals a
flaw in the design of the original payment formula. Representatives of
the two companies will be meeting on November 19, 1997 to work out the
appropriate application of the payment formula.
Exhibit 1 to this report contains a copy of the reinsurer's letter,
confirming this meeting on November 19, 1997.
If the payment formula were applied without regard to the underlying
intention of the parties, the Registrant's ceded premiums and
reinsurance recoveries for the third quarter would be approximately
$920,000 and $468,000, respectively, resulting in a net loss of
approximately ($390,000) for the quarter. While the exact amount of
adjustment in the payment formula remains to be agreed upon, the parties
have agreed that the adjustment may be as high as several hundred
thousand dollars, thereby fundamentally affecting the quarterly
presentation of earnings of NEIC.
Due to the complexity of these issues and the late date of their
discovery, the Registrant has been unable to resolve these issues in a
manner sufficient to calculate NEIC's earnings for the quarter, but in
any event will be in a position to prepare and file its financial
statements (and the related Management's Discussion and Analysis section
and Financial Data Schedule) by November 21, 1997.
PART IV - OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to this
notification: Gregory S. Fryer, Esq., Verrill & Dana, 207-774-4000.
(2) Have all other periodic reports required under Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months
been filed? [x] Yes [ ] No
(3) Is it anticipated that any significant change in results of
operations from the corresponding period for the last fiscal year will
be reflected by the earnings statements to be included in the subject
report? [x] Yes [ ] No
For the reasons described in Part III above, net income (loss) cannot
presently be computed for the third fiscal quarter of 1997. Depending
on the outcome of certain discussions with the Registrant's reinsurer
concerning the application of a certain payment formula, net income
(loss) for the quarter could range from a high of approximately $200,000
to a low of approximately ($390,000). For the corresponding quarter
of 1996, the Registrant reported net income of $330,133. The
discussions with the reinsurer are expected to affect "premiums ceded"
and "reinsurance recoveries, net of salvage." For the corresponding
quarter of 1996, the Registrant reported $1,234,411 and $(848,788) for
these items, respectively.
North East Insurance Company has caused this notification to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: November 14, 1997 By: /s/ Robert G. Schatz
-------------------------------
Robert G. Schatz, President
and Chief Executive Officer
EXHIBIT 1
MIC Re Corporation
6000 Midlantic Drive, 7th Floor
P.O. Box 5041
Mt. Laurel, NJ 08054
(609) 778-3200 FAX (609) 778-8971
November 14, 1997
Mr. Ronald A. Libby
Chief Operating Officer
North East Insurance Company
Post Office Box 1418
Scarborough, Maine 04070-1418
Re: Policy #E-20902.95
North East Insurance Company
Dear Ron:
This will confirm that application of the Quota Share Run Off Formula
and First Excess Treaty Recoveries for the third quarter of 1997 gives
rise to concern related to loss recoveries and premiums cessions that
are inconsistent with the parties' original intentions in structuring
the reinsurance program.
We will be meeting on November 19, 1997, to agree upon the appropriate
application of the Quota Share Run Off Formula and First Excess Treaty
Recoveries. Subject to our ongoing analysis of this matter, and without
committing ourselves to a particular figure, we presently are in
agreement that the magnitude of such adjustment is likely to be
significant for purposes of calculating NEIC's earnings for a given
quarter.
You have stated that NEIC will be filing a statement with the Securities
and Exchange Commission regarding a delay in the filing of its quarterly
financial statement. We consent to the filing of this letter as an
exhibit to such statements.
We look forward to meeting with you next week Ron.
Sincerely,
/s/ James D. Erb, Are
Vice President - Treaty
