<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 0-10071
NOBEL INSURANCE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ISLANDS OF BERMUDA 98-0076395
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FALCONER HOUSE NONE
GROUND LEVEL (Zip Code)
108 PITTS BAY ROAD HM 08
HAMILTON, BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (441) 292-7104.
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
the filing requirements for the past 90 days.
YES /X/ NO / /
Number of Common Shares, $1.00 Par Value, outstanding at November 10, 1997
4,503,856
---------
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Trading portfolio, at fair value:
Fixed maturity securities (amortized cost: $336 at September 30,
1997 and $487 at December 31, 1996) . . . . . . . . . . . . . . . . . . . $ 338 $ 502
Equity securities (cost: $6,672 at September 30, 1997 and $2,611
at December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 6,842 4,057
Other investments (cost: $198 at September 30, 1997 and $722 at
December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 835
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost: $93,716 at September 30,
1997 and $100,340 at December 31,1996) . . . . . . . . . . . . . . . . . 95,055 100,970
Equity securities (cost $1,000 at September 30, 1997 and
$2,045 at December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . 1,646 2,293
Short-term investments, at cost, which approximates fair value . . . . . . 18,601 12,880
-------- --------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,709 121,537
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 1,905
Funds held by reinsurance companies . . . . . . . . . . . . . . . . . . . . . 1,591 1,702
Premiums and other receivables less allowance for doubtful
accounts ($251 at September 30, 1997 and $298 at December 31, 1996) . . . . 23,868 30,693
Accrued interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,310 1,484
Reinsurance recoverable on paid and unpaid claims . . . . . . . . . . . . . . 38,252 26,361
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . 17,897 27,316
Property and equipment less accumulated depreciation ($2,147 at
September 30, 1997 and $2,119 at December 31, 1996) . . . . . . . . . . . . 3,503 4,045
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . 2,959 700
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,131 4,774
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,989 2,261
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $217,209 $222,778
-------- --------
-------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
1
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES
Reserve for claims and claims expenses . . . . . . . . . . . . . . . $ 83,138 $ 88,397
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . 37,134 40,389
Accounts payable and accrued liabilities . . . . . . . . . . . . . . 11,396 13,180
Reinsurance premiums payable . . . . . . . . . . . . . . . . . . . . 22,482 22,733
Cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,007 ---
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 4,559 4,892
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 160,716 169,591
-------- --------
SHAREHOLDERS' EQUITY
Capital shares (Authorized 20,000,000 shares; $1 par value; issued
7,806,628 shares at September 30, 1997 and 7,743,458 shares at
December 1996; outstanding 4,503,856 shares at September 30,
1997 and 4,471,106 shares at December 31, 1996) . . . . . . . . . . 7,807 7,743
Contributed surplus . . . . . . . . . . . . . . . . . . . . . . . . . 44,828 44,499
Unrealized gain (loss) on investments . . . . . . . . . . . . . . . . 1,319 551
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 32,502 29,996
Treasury stock, at cost (3,302,772 shares at September 30, 1997 and
3,272,352 shares at December 31, 1996) . . . . . . . . . . . . . (29,963) (29,602)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 56,493 53,187
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . $217,209 $222,778
-------- --------
-------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
2
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Premiums written . . . . . . . . . . . . . . . . $19,597 $21,697 $58,872 $64,329
Reinsurance purchased . . . . . . . . . . . . . . (7,035) (3,230) (25,475) (14,465)
------- ------- ------- -------
Net premiums written . . . . . . . . . . . . . . $12,562 $18,467 $33,397 $49,864
------- ------- ------- -------
------- ------- ------- -------
Premiums earned . . . . . . . . . . . . . . . . . $20,362 $20,665 $62,126 $60,472
Premiums ceded . . . . . . . . . . . . . . . . . (10,213) (2,847) (34,893) (15,144)
------- ------- ------- -------
Net premiums earned . . . . . . . . . . . . . . . 10,149 17,818 27,233 45,328
Interest income, net of investment expense
and interest expense of $988 at September 30,
1997 and $741 at September 30, 1996,
respectively . . . . . . . . . . . . . . . . . . 1,497 1,517 4,414 4,709
Net investment gains . . . . . . . . . . . . . . 1,339 101 1,882 501
Claim adjusting fees earned . . . . . . . . . . . 1,599 2,980 4,555 8,726
------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . . . 14,584 22,416 38,084 59,264
------- ------- ------- -------
EXPENSES:
Claims and claims expenses . . . . . . . . . . . 17,633 10,115 43,390 33,042
Reinsurance recoveries . . . . . . . . . . . . . (11,253) 1,339 (26,812) (2,880)
------- ------- ------- -------
Net claim and claim expenses . . . . . . . . . . 6,380 11,454 16,578 30,162
Service fees and commissions . . . . . . . . . . 1,871 5,496 4,702 11,481
General and administrative expenses . . . . . . . 4,114 4,989 12,235 13,466
------- ------- ------- -------
Total expenses . . . . . . . . . . . . . . . . . 12,365 21,939 33,515 55,109
------- ------- ------- -------
Net income before income taxes . . . . . . . . . 2,219 477 4,569 4,155
Income tax expense (benefit):
Current . . . . . . . . . . . . . . . . . . . . . 38 (173) 83 208
Deferred . . . . . . . . . . . . . . . . . . . . 607 --- 1,305 (70)
------- ------- ------- -------
Income tax expense (benefit) . . . . . . . . . . 645 (173) 1,388 138
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . 1,574 650 3,181 4,017
Retained earnings at beginning of period . . . . 31,153 29,522 29,996 26,612
Dividends paid on capital shares . . . . . . . . (225) (224) (675) (681)
------- ------- ------- -------
Retained earnings at end of period . . . . . . . $32,502 $29,948 $32,502 $29,948
------- ------- ------- -------
------- ------- ------- -------
EARNINGS PER CAPITAL SHARE:
Net income per capital share . . . . . . . . . . $.34 $.14 $.69 $.86
------- ------- ------- -------
------- ------- ------- -------
Average number of capital shares . . . . . . . . 4,634 4,598 4,614 4,690
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
3
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
- ------------------------------------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 3,181 $ 4,017
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,228 877
Change in deferred acquisition costs . . . . . . . . . . (2,259) (1,677)
Deferred tax expense (benefit) . . . . . . . . . . . . . 1,305 (70)
Increase (decrease) in reserve for claims and claims
expenses . . . . . . . . . . . . . . . . . . . . . . . . (5,259) 2,252
Increase (decrease) in unearned premiums . . . . . . . . (3,255) 3,856
Increase (decrease) in accounts payable and accrued
liabilities . . . . . . . . . . . . . . . . . . . . . . (1,784) 4,847
Increase (decrease) in deferred service fee income . . . (235) 90
(Increase) decrease in premiums receivable . . . . . . . 6,574 (8,369)
(Increase) decrease in accrued interest income . . . . . 174 (209)
(Increase) decrease in reinsurance recoverables . . . . . (11,891) 2,278
Decrease in prepaid reinsurance premiums . . . . . . . . 9,419 679
Decrease in other assets . . . . . . . . . . . . . . . . 196 183
Decrease in funds held by reinsurance companies . . . . . 111 1,353
Net dispositions from trading portfolio investments . . . 3,047 3,351
Net realized investment gains . . . . . . . . . . . . . . (1,882) (501)
(Gains) losses on disposal of other assets . . . . . . . (4) 15
------- -------
Net cash provided from (used by) operating activities . (1,334) 12,972
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Fixed maturities, available for sale . . . . . . . . . . 74,262 29,059
Equity securities, available for sale . . . . . . . . . . 573 ---
Purchase of investments:
Fixed maturities, available for sale . . . . . . . . . . (67,356) (28,003)
Equity securities, available for sale . . . . . . . . . . (3,021) (363)
Payments on acquisitions . . . . . . . . . . . . . . . . . (6) (3)
Purchase of software, property and equipment . . . . . . . (573) (1,820)
------- -------
Net cash provided from (used by) investing activities . . 3,879 (1,130)
------- -------
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
- -------------------------------------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable . . . . . . . . . . . . . . . --- 6,142
Proceeds from issuance of capital shares . . . . . . . . 393 491
Repayment of notes payable and capital lease obligation . (93) (2,862)
Purchase of treasury stock . . . . . . . . . . . . . . . (361) (14,030)
Dividends paid to shareholders . . . . . . . . . . . . . (675) (681)
------- -------
Net cash used by financing activities . . . . . . . . . (736) (10,940)
------- -------
Net increase in cash and cash equivalents . . . . . . . . 1,809 902
Cash and cash equivalents at beginning of year . . . . . 14,785 15,305
------- -------
Cash and cash equivalents at end of year . . . . . . . . $16,594 $16,207
------- -------
------- -------
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
NOBEL INSURANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheets at September 30, 1997, and Consolidated
Statements of Income and Retained Earnings for the nine months ended
September 30, 1997 and Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997, have not been examined by independent
accountants, but, in the opinion of Nobel Insurance Limited ("Company"), all
adjustments (consisting only of normal accruals) necessary for a fair
presentation of the financial position and results of operations for the
periods indicated have been included. At June 30, 1997 certain equity
securities were transferred from available for sale portfolio to the trading
portfolio. As a result of this transfer, as of September 30, 1997,
unrealized investment gains of $960,000 or $.21 per share were included in
current earnings.
Statement of Financial Accounting Standards ("FAS") 115 "Disclosures
About Fair Value of Financial Instruments" was adopted in 1994 and impacted
the Company's financial statements as follows:
1) Net unrealized gains (losses) of $626,000 and $265,000 from trading
portfolio investments were included in 1997 nine month and third quarter
earnings, respectively, compared to $(742,000) and $8,000 in the nine
months and third quarter of 1996.
2) Net unrealized gains of $1,319,000 and $551,000 from portfolio investments
classified as available for sale were included in shareholders' equity at
September 30, 1997 and December 31, 1996 respectively.
The Company is a foreign corporation not, in management's opinion,
engaged in a trade or business in any jurisdiction requiring the payment of
taxes on income except for its United States subsidiaries (the "U.S. Group")
who ultimately pay United States taxes on their income.
The U.S. Group is domiciled in the United States and is subject to
United States taxes on income. At December 31, 1996, the U.S. Group had
consolidated net operating (losses) of approximately $5,767,000 which may be
carried forward for U.S. Federal income tax purposes.
FAS 109, "Accounting for Income Taxes", was adopted by the Company in
1993 on a prospective basis. The effect of income taxes on operations is
presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income before income taxes - consolidated . $2,219 $ 477 $4,569 $4,155
Foreign - not subject to tax. . . . . . . . . . 177 2,099 178 2,202
------ ------- ------ ------
U.S. - subject to tax . . . . . . . . . . . . . $2,042 $(1,622) $4,391 $1,953
------ ------- ------ ------
------ ------- ------ ------
Computed "expected" tax expense at 34%. . . . . $ 693 $ (551) $1,492 $ 664
Reduction for tax-exempt interest . . . . . . . (59) (86) (113) (260)
Non-allowed meals and entertainment . . . . . . 19 9 28 26
Change in deferred tax valuation allowance. . . --- (227) --- (680)
Other items, net. . . . . . . . . . . . . . . . (8) 682 (19) 388
------ ------- ------ ------
Income tax expense (benefit). . . . . . . . . . $ 645 $ (173) $1,388 $ 138
------ ------- ------ ------
------ ------- ------ ------
</TABLE>
6
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1997 and December 31, 1996 are presented below:
SEPTEMBER 30, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts. . . . . . . . . . $ 49 $ 49
Claims reserves, principally due to discounting
for tax. . . . . . . . . . . . . . . . . . . . . . 1,746 2,887
Unearned premium adjustment . . . . . . . . . . . . 1,308 889
Net operating loss carryforwards. . . . . . . . . . 2,641 1,853
Other . . . . . . . . . . . . . . . . . . . . . . . 429 508
-------- --------
Total gross deferred tax assets . . . . . . . . . 6,173 6,186
Deferred tax liabilities:
Deferred policy acquisition costs . . . . . . . . . (1,006) (238)
Unrealized gains bonds available for sale . . . . . ( 665) (327)
Other . . . . . . . . . . . . . . . . . . . . . . . (1,371) (847)
-------- --------
Total gross deferred tax liabilities. . . . . . . (3,042) (1,412)
-------- --------
Net deferred tax balance. . . . . . . . . . . . $ 3,131 $ 4,774
-------- --------
-------- --------
Earnings per share was determined by dividing net income by average
primary shares outstanding, which includes common and common equivalent
shares outstanding attributable to outstanding stock options as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
Average common shares outstanding . . . . . 4,500 4,489 4,492 4,584
Shares applicable to common
stock equivalents. . . . . . . . . . . . . 134 109 122 106
----- ----- ----- -----
Average primary shares outstanding. . . . . 4,634 4,598 4,614 4,690
----- ----- ----- -----
----- ----- ----- -----
Insurance companies are required to provide reserves for the settlement
and expense of investigation of all reported and unreported claims. Such
provisions are necessarily based on estimates. The estimates, and the
methods used to arrive at them, are periodically reviewed by the Company in
consultation with professional actuaries and changes are reflected in current
operations for the period in which they are determined.
The Company estimates claims and claims expenses based on historical
experience and payment and reporting patterns for the type of risk involved.
The anticipated effect of inflation is implicitly considered when estimating
claims and claims expenses. The difference between the U.S. insurance
subsidiary's reserves on a statutory basis and on the basis of generally
accepted accounting principles is not material.
7
<PAGE>
Inherent in the estimates of ultimate claims are expected trends in
claim severity, frequency and other factors that may vary as claims are
settled. The amount of uncertainty in the estimates is affected by such
factors as the amount of historical claims experience relative to the
development period for the type of risk, knowledge of the actual facts and
circumstances, and the amount of insurance risk retained.
At September 30, 1997 and December 31, 1996, the Company recorded
reserves for incurred but not reported and development of known claims
("IBNR") which represented the Company's best estimate of the reserve for
claims and claims expense.
The outstanding balances for casualty and other coverages reserves for
incurred but not reported and development of known claims, net of reinsurance
recoverables, were (in thousands):
RESERVE BALANCE INCOME EFFECT
PERIOD ENDING GROSS NET GROSS NET
-------------------------------------------------------------------------------
At September 30, 1997 . . . . . . . . . . $29,082 $12,806
Nine months ended September 30, 1997. . . . . . . . . . . . $(6,784) $(7,869)
At December 31, 1996. . . . . . . . . . . $35,866 $20,675
At September 30, 1996 . . . . . . . . . . $32,568 $21,733
Nine months ended September 30, 1996. . . . . . . . . . . . $(3,459) $ (799)
An allowance for doubtful receivables is established when it becomes
evident collection is doubtful. Allowances of $251,000 and $298,000 were
established as of September 30, 1997 and December 31, 1996, respectively.
Net income and shareholder's equity of the U.S. insurance subsidiary, as
filed with regulatory authorities on the basis of statutory accounting
practices, were as follows (in thousands):
STATUTORY STATUTORY
SHAREHOLDERS' NET
PERIOD EQUITY INCOME (LOSS)
----------------------------------------------------------------------------
At September 30, 1997. . . . . . . . . . . . . . $38,798
Nine months ended September 30, 1997.. . . . . . . . . . . . . . .$1,879
At December 31, 1996 . . . . . . . . . . . . . . $35,513
At September 30, 1996. . . . . . . . . . . . . . $32,930
Nine months ended September 30, 1996 . . . . . . . . . . . . . . . . $56
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The principal cash requirements of the Company consist of claims
payments, operating expenses, payment of dividends, and the acquisition of
the companies treasury stock in the open market.
The Nobel U.S. Group's non-insurance operations incur substantially all
of the administrative expenses. The principal sources of funds to pay the
expenses for the non-insurance operations are claim adjusting fees, and
administrative service fees from the Domestic Company and the Parent Company.
The source of cash for claims payments consists of net premiums, after
deduction for expenses, plus investment income received on the balances of
such premiums prior to their use to pay claims. These invested balances are
also used for collateral to secure certain ceding insurers' reinsurance
reserves. United States insurance regulations require the ceding insurers to
maintain approved collateral for reinsurance balances, including reserves for
unearned premiums and unpaid claims and claims expenses ceded to non-admitted
reinsurers.
The collateral requirements for reinsurance ceded to the Parent Company
by INA is being satisfied by a combination of letters of credit and trust
balances. The settlement of all claims and claims expenses is being withdrawn
from the trust account. The combined amount of letters of credit and market
value of trust assets at September 30, 1997 is $14,452,000.
The terms of the Parent Company's letter of credit facility requires
collateral equal to the amount of letters of credit issued plus a negotiated
market value margin for investments other than short-term investments. At
September 30, 1997, the collateral consisted of short-term bank deposits and
AAA-rated fixed income securities which require a 5% margin. At September
30, 1997, the Company had cash and investments of $120,702,000 of which
$20,237,000 was collateralized or pledged to secure the U.S. insurers that
have ceded reinsurance to the Company, and to maintain security deposits in
the U.S. with various state insurance departments.
Effective January 1, 1994, the Company adopted Financial Accounting
Standard 115. The Company carries its investments designated as trading
portfolio investments at market value. Effective June 30, 1997, certain
equity securities were transferred from available for sale portfolio to the
trading portfolio. In conjunction with this transfer, as of September 30,
1997 unrealized investment gains of $960,000, or $.21 per share, were
included in current earnings. Year to date as of September 30, 1997, the
Company sold $4,715,000 of trading portfolio investments with a $881,000 gain
realized. The Company classified its fixed income security investments,
principally bonds, as available for sale, and accordingly, carries these
investments at market value. The Company's investment guidelines prescribe a
portfolio structure of maturities to provide adequate liquidity to settle
claims liabilities. The portfolio continues to be conservatively invested in
high quality securities.
9
<PAGE>
Net cash used by operating activities for the first nine months of 1997
was $(1,334,000) compared to net cash provided of $12,972,000 for the first
nine months of 1996. Net cash provided from investing activities was
$3,879,000 for the first nine months of 1997, as opposed to net cash (used)
$(1,130,000) for the same period of 1996. Cash used by financing activities
included the purchase of 30,420 shares of treasury stock for $361,000 or an
average cost of $11.875, plus repayment of $93,000 in notes payable and
dividends paid shareholders of $675,000, less proceeds received from exercise
of stock options of $393,000 to produce net financing cash (used) of
$(736,000), compared to cash (used) of $(10,940,000) for the first nine
months of 1996.
The insurance operations require capital to support premium writings.
The Company believes that its insurance subsidiary may need additional
capital to support planned business activities. Management has a term loan
facility available of $11,462,000 to meet additional business opportunities
in 1997.
RESULTS OF OPERATIONS
NINE MONTHS 1997 VERSUS NINE MONTHS 1996
- ----------------------------------------
The composition of the net income for 1997 as compared to the net income
for 1996 by type of operation is as follows:
DIFFERENCE IN
1997 1996 PROFITS (LOSSES)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Underwriting operations . . . . . . . . . . $ (367) $(3,012) $ 2,645
Claim adjusting operations. . . . . . . . . (372) 359 (731)
Corporate operations. . . . . . . . . . . . (988) 1,598 (2,586)
Investment and other income . . . . . . . . 6,296 5,210 1,086
Federal income tax. . . . . . . . . . . . . (1,388) (138) (1,250)
------- ------- --------
Net after tax . . . . . . . . . . . . . . . $ 3,181 $ 4,017 $ (836)
------- ------- --------
------- ------- --------
UNDERWRITING OPERATIONS. Net written and net earned decreased by $16,467 and
$18,095 respectively for the first nine months of 1997 compared to the same
period of 1996. The reason for the decline is the increased use of
reinsurance by the companies Commercial Casualty Division and the continued
implementation of greater underwriting and pricing discipline for the
specialty trucking business. Loss and Loss Expense decreased by $17,441
resulting from improved quality of net retained business. The Company wide
loss ratio dropped from 69.5% in September of 1996 to 60.9% in September
1997. Underwriting Expenses and Commissions decreased by $3,300 as the
corporate head count fell 51 employees and corporate cost savings programs
continued. Net underwriting improved by $2,645 for the first nine months
year over year as the result of these actions.
Underwriting Expense and Commissions consisting of commissions and general
and administrative expenses, were 31.3% and 28% of net written premiums for
the first nine months of 1997 and 1996, respectively. The following table
shows the components of these expenses.
10
<PAGE>
DECREASE
1997 1996 (INCREASE)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Commissions, fronting, and taxes expense. . . . $12,707 $13,073 $ 366
Ceding commission income. . . . . . . . . . . . (8,085) (4,639) 3,446
General and administrative. . . . . . . . . . . 8,118 7,024 (1,094)
Change in deferred acquisition costs. . . . . . (2,259) (1,677) 582
------- ------- -------
Underwriting Expense and Commissions. . . . . . $10,481 $13,781 $ 3,300
------- ------- -------
------- ------- -------
Commissions, fronting, and taxes expense was 37% of premiums written in
1997 compared to 26% in 1996. Ceding commission income was 32% of
reinsurance purchased for the first nine months of 1997 compared to 32% for
the same period of 1996. Due to the shift from Commercial Casualty to
Surety, and Personal Lines with higher commissions, and increased use of
Reinsurance.
General and administrative expenses charged to operations increased by
$1,094 or 15.5% and were 24% of premiums written for the first nine months of
1997 compared to 14% in the same period of 1996. Due to severance pay in
1997 and unusual credits taken in 1996.
CLAIM ADJUSTING OPERATIONS. Decreased claim adjusting fees of $4,171 and
claim adjusting commissions of $2,384 resulted primarily from decreased
catastrophe business activity, the general expense decreased by $1,057, which
resulted in a net reduction in contributions of $731 year over year.
INVESTMENT INCOME. For the first nine months of 1997 was $1,086 higher than
the same period of 1996 caused by the following; net interest and dividend
income were less at September of 1997 by $(48) due to lower yield rates and
lower cash flow. Investment expenses are $(247) or 33% higher in 1997 than
1996 due to the new reinsurance interest expense for American Re quota share
agreement. Capital gains were favorable by $1,381 due to classifying certain
equity investments as trading portfolio for $960; and the recording of more
realized capital gains in 1997, $421 or 79% over 1996 three quarters.
The effect of inflation on net income was not significant to the Company's
results during this period.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
Not applicable.
Item 2. CHANGES IN SECURITIES
---------------------
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
12
<PAGE>
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
NOBEL INSURANCE LIMITED
/s/Jeffry K. Amsbaugh /s/Thomas D. Nimmo
- ----------------------------------- -----------------------------------
Jeffry K. Amsbaugh Thomas D. Nimmo
Chief Executive Officer Senior Vice President and Treasurer
November 13, 1997
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 95,393
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,488
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 122,709
<CASH> 16,594
<RECOVER-REINSURE> 38,252
<DEFERRED-ACQUISITION> 2,959
<TOTAL-ASSETS> 217,209
<POLICY-LOSSES> 83,138
<UNEARNED-PREMIUMS> 37,134
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,512
0
0
<COMMON> 7,807
<OTHER-SE> 48,686
<TOTAL-LIABILITY-AND-EQUITY> 217,209
27,233
<INVESTMENT-INCOME> 4,414
<INVESTMENT-GAINS> 1,882
<OTHER-INCOME> 4,555
<BENEFITS> 16,578
<UNDERWRITING-AMORTIZATION> 4,702
<UNDERWRITING-OTHER> 12,235
<INCOME-PRETAX> 4,569
<INCOME-TAX> 1,388
<INCOME-CONTINUING> 3,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,181
<EPS-PRIMARY> .69
<EPS-DILUTED> 0
<RESERVE-OPEN> 88,397
<PROVISION-CURRENT> 14,945
<PROVISION-PRIOR> 1,633
<PAYMENTS-CURRENT> 5,246
<PAYMENTS-PRIOR> 28,228
<RESERVE-CLOSE> 83,138
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
