<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 June 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 August 12, 1997
4,498,856
---------
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
JUNE 30, DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Trading portfolio, at fair value:
Fixed maturity securities (amortized cost: $488 June 30, 1997
and $487 at December 31, 1996) .................................. $ 508 $ 502
Equity securities (cost: $6,630 at June 30, 1997 and $2,611
at December 31, 1996) ........................................... 8,482 4,057
Other investments (cost: $492 at June 30, 1997 and $722 at
December 31, 1996)............................................... 556 835
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost: $100,176 at
June 30, 1997 and $100,340 at December 31, 1996)................. 100,578 100,970
Equity securities (cost: $1,000 at June 30, 1997 and $2,045
at December 31, 1996) ........................................... 1,440 2,293
Short-term investments, at cost, which approximates fair value .... 9,181 12,880
-------- --------
Total investments............................................. 120,745 121,537
Cash ................................................................. --- 1,905
Funds held by reinsurance companies................................... 1,629 1,702
Premiums and other receivables less allowance for doubtful
accounts ($278 at June 30, 1997 and $298 at December 31, 1996) ..... 25,766 30,693
Accrued interest income............................................... 1,324 1,484
Reinsurance recoverable on paid and unpaid claims..................... 33,798 26,361
Prepaid reinsurance premiums ......................................... 21,076 27,316
Property and equipment less accumulated depreciation ($1,950 at
June 30, 1997 and $2,119 at December 31, 1996) ..................... 3,704 4,045
Deferred policy acquisition costs..................................... 2,284 700
Net deferred tax asset ............................................... 4,097 4,774
Other assets ......................................................... 2,236 2,261
-------- --------
Total assets ................................................. $216,659 $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>
JUNE 30, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES
Reserve for claims and claims expenses ............................ $ 82,925 $ 88,397
Unearned premiums.................................................. 37,900 40,389
Accounts payable and accrued liabilities .......................... 10,866 13,180
Reinsurance premiums payable ...................................... 24,988 22,733
Cash overdraft .................................................... 985 ---
Other liabilities.................................................. 4,661 4,892
-------- --------
Total liabilities............................................ 162,325 169,591
-------- --------
SHAREHOLDERS' EQUITY
Capital shares (Authorized 20,000,000 shares; $1 par value;
issued 7,801,628 shares at June 30, 1997; 7,743,458 shares
at December 31, 1996; outstanding 4,498,856 shares at June 30,
1997 and 4,471,106 shares at December 31, 1996).................. 7,802 7,743
Contributed surplus................................................ 44,806 44,499
Unrealized gain on investments .................................... 536 551
Retained earnings.................................................. 31,153 29,996
Treasury stock, at cost (3,302,772 shares at June 30, 1997
and 3,272,352 shares at December 31, 1996)....................... (29,963) (29,602)
-------- --------
Total shareholders' equity ........................................ 54,334 53,187
-------- --------
Total liabilities and shareholders' equity ........................ $216,659 $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>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Premiums written.............................. $ 19,542 $23,931 $ 39,275 $ 42,632
Reinsurance purchased ........................ (9,994) (6,921) (18,440) (11,235)
-------- ------- -------- --------
Net premiums written.......................... $ 9,548 $17,010 $ 20,835 $ 31,397
-------- ------- -------- --------
-------- ------- -------- --------
Premiums earned .............................. $ 20,347 $20,752 $ 41,764 $ 39,807
Premiums ceded................................ (11,901) (6,558) (24,680) (12,297)
-------- ------- -------- --------
Net premiums earned .......................... 8,446 14,194 17,084 27,510
Interest income, net of investment expenses
of $681 at June 30, 1997 and $472 at
June 30, 1996, respectively................. 1,588 1,514 2,917 3,192
Net investment gains.......................... 412 188 543 400
Claim adjusting fees earned .................. 1,596 2,189 2,956 5,746
-------- ------- -------- --------
Total revenues ................................. 12,042 18,085 23,500 36,848
-------- ------- -------- --------
EXPENSES:
Claims and claims expenses.................... 14,599 7,763 25,757 22,927
Reinsurance recoveries........................ (8,563) 1,445 (15,559) (4,219)
-------- ------- -------- --------
Net claim and claim expenses.................. 6,036 9,208 10,198 18,708
Service fees and commissions.................. 1,595 2,043 2,831 5,985
General and administrative expenses .......... 3,919 4,684 8,121 8,477
-------- ------- -------- --------
Total expenses................................ 11,550 15,935 21,150 33,170
-------- ------- -------- --------
Net income before income taxes................ 492 2,150 2,350 3,678
Income tax expense (benefit):
Current................................... (203) 206 45 381
Deferred ................................. 298 (17) 698 (70)
-------- ------- -------- --------
Income tax expense ....................... 95 189 743 311
-------- ------- -------- --------
Net income.................................... 397 1,961 1,607 3,367
Retained earnings at beginning of period...... 31,206 28,018 29,996 26,612
Dividends paid on capital shares.............. (450) (457) (450) (457)
-------- ------- -------- --------
Retained earnings at end of period............ $ 31,153 $29,522 $ 31,153 $ 29,522
-------- ------- -------- --------
-------- ------- -------- --------
EARNINGS PER CAPITAL SHARE:
Net income per capital share.................. $ .08 $ .42 $ .35 $ .71
-------- ------- -------- --------
Average number of capital shares.............. 4,697 4,696 4,603 4,734
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
3
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1997 1996
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 1,607 $3,367
Adjustments to reconcile net income to net cash from
operations activity:
Depreciation and amortization...................................... 788 392
Change in deferred acquisition costs............................... (1,584) (1,699)
Deferred tax benefit............................................... 698 (70)
Increase (decrease) in reserve for claims and claims expenses...... (5,472) 4,343
Increase (decrease) in unearned premiums........................... (2,489) 2,826
Increase (decrease) in accounts payable and accrued liabilities.... (2,314) 1
(Decrease) in deferred service fee income.......................... (161) (148)
(Increase) decrease in premiums receivable......................... 7,196 (3,715)
(Increase) decrease in accrued interest income..................... 160 (3)
(Increase) in reinsurance recoverables............................. (7,437) (996)
Decrease in prepaid reinsurance premiums........................... 6,240 1,062
Decrease in other assets........................................... 114 87
Decrease in funds held by reinsurance companies.................... 73 115
Net (additions to) dispositions from trading portfolio
investments....................................................... (139) 3,760
Net realized investment gains...................................... (543) (400)
(Gains) losses on disposal of other assets......................... (7) 14
-------- -------
Net cash provided from (used by) operating activities........... (3,270) 8,936
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Investments sold or matured:
Fixed maturities, available for sale............................... 53,749 20,986
Equity securities, available for sale.............................. 573 ---
Purchase of investments:
Fixed maturities, available for sale............................... (53,599) (20,115)
Equity securities, available for sale.............................. (3,021) ---
Payments on acquisitions.............................................. (6) ---
Purchase of software, property and equipment.......................... (497) (1,327)
-------- -------
Net cash (used by) investing activities............................ (2,801) (456)
-------- -------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1997 1996
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........................................... --- 2,500
Proceeds from issuance of capital shares.............................. 366 491
Repayment of notes payable and capital lease obligation............... (73) (178)
Purchase of treasury stock............................................ (361) (12,847)
Dividends paid shareholders........................................... (450) (457)
-------- -------
Net cash (used by) financing activities............................ (518) (10,491)
-------- -------
Net increase (decrease) in cash and cash equivalents.................. (6,589) (2,011)
Cash and cash equivalents at beginning of year........................ 14,785 15,305
-------- -------
Cash and cash equivalents at end of year.............................. $ 8,196 $13,294
-------- -------
-------- -------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
NOBEL INSURANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheets at June 30, 1997, and Consolidated
Statements of Income and Retained Earnings for the Six months ended June 30,
1997 and Consolidated Statements of Cash Flows for the Six months ended June 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. In conjunction with this transfer,
unrealized investment gains of $476,000, or $.10 per share, were reclassified,
from shareholders' equity into 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 $361,000 and $569,000 from trading
portfolio investments were included in 1997 six month and second quarter
earnings, respectively, compared to $(750,000) and $88,000 in the six
months and second quarter of 1996.
2) Net unrealized gains of $536,000 and $551,000 from portfolio investments
classified as available for sale were included in shareholders' equity at
June 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 may
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 $(4,452,000) which may be carried forward
for U.S. Federal income tax purposes. It is anticipated that these net operating
losses will be fully utilized during 1997.
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>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income before income taxes - consolidated..... $ 492 $2,150 $2,350 $3,678
Foreign - not subject to tax...................... (326) 96 1 103
----- ------ ------ ------
U.S. - subject to tax............................. $ 166 $2,054 $2,349 $3,575
----- ------ ------ ------
----- ------ ------ ------
Computed "expected" tax expense @ 34%............. $ 57 $ 699 $ 799 $1,216
Reduction for tax-exempt interest................. 30 (110) (54) (174)
Non-allowed meals and entertainment............... 9 8 9 17
Change in deferred tax valuation allowance........ --- (340) --- (453)
Other items, net.................................. (1) (68) (11) (295)
----- ------ ------ ------
Income tax expense............................ $ 95 $ 189 $ 743 $ 311
----- ------ ------ ------
----- ------ ------ ------
</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 June 30,
1997 and December 31, 1996 are presented below:
JUNE 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........................ 2,297 2,887
Unearned premium adjustment.................. 1,144 889
Net operating loss carryforwards............. 2,190 1,853
Other........................................ 508 508
------- -------
Total gross deferred tax assets........... 6,188 6,186
------- -------
Less valuation allowance..................
Net deferred tax assets...................
Deferred tax liabilities:
Deferred policy acquisition costs............ (777) (238)
Unrealized gains bonds available for sale.... (305) (327)
Other.......................................... (1,009) (847)
------- -------
Total gross deferred tax liabilities...... (2,091) (1,412)
------- -------
Net deferred tax balance............. $ 4,097 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
Average common shares outstanding.... 4,496 4,565 4,489 4,632
Shares applicable to common
stock equivalents............... 201 131 114 102
----- ----- ----- -----
Average primary shares outstanding... 4,697 4,696 4,603 4,734
----- ----- ----- -----
----- ----- ----- -----
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 June 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
recoverable, were (in thousands):
RESERVE BALANCE INCOME EFFECT
PERIOD ENDING GROSS NET GROSS NET
--------------------------------------------------------------------------
At June 30, 1997................ $26,901 $13,193
Six months ended June 30, 1997....................... $(8,965) $(7,482)
At December 31, 1996............ $35,866 $20,675
At June 30, 1996................ $39,973 $24,579
Six months ended June 30, 1996....................... $ 3,946 $ 2,047
An allowance for doubtful receivables is established when it becomes
evident collection is doubtful. An allowance of $278,000 and $298,000 was
established as of June 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 June 30, 1997...................... $36,704
Six months ended June 30, 1997........................ $ 822
At December 31, 1996.................. $35,513
At June 30, 1996...................... $33,319
Six months ended June 30, 1996........................ $1,559
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, and the payment of shareholders dividends.
The Nobel U.S. Group's non-insurance operations incur substantially all
of the administrative expenses. The principal sources of cash 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 liquidity 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 June 30, 1997 is $14,626,000.
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
June 30, 1997, the collateral consisted of short-term bank deposits and
AAA-rated fixed income securities which require a 5% margin. At June 30,
1997, the Company had cash and investments of $119,760,000 of which
$20,751,000 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 the transfer unrealized gains of
$476,000, or $.10 per share, were reclassified from stockholders equity to
current earnings. Year to date as of June 30, 1997, the Company sold
$1,292,000 of trading portfolio investments with a $110,000 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 six months of 1997
was $(3,270,000) compared to net cash provided of $8,936,000 for the first
six months of 1996. Net cash used by investing activities was $(2,801,000)
for the first six months of 1997, as opposed to $(456,000) 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 $73,000 in notes payable, and dividends paid share holders
of $450,000 less $366,000 received from exercise of stock options to produce
net financing cash (used) of $(518,000), compared to net financing cash
(used) of $(10,491,000) for the first six 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 the additional business
opportunities planned in 1997.
RESULTS OF OPERATIONS
SIX MONTHS 1997 VERSUS SIX 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:
SIX MONTHS ENDED
JUNE 30,
1997 1996
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Underwriting operations . . . . . . . . . . $ 248 $ 710
Claim adjusting operations. . . . . . . . . (328) 209
Corporate operations. . . . . . . . . . . . (1,030) (833)
Investment and other income . . . . . . . . 3,460 3,592
Federal income tax. . . . . . . . . . . . . (743) (311)
-------- --------
Net after tax . . . . . . . . . . . . . . . $ 1,607 $ 3,367
-------- --------
-------- --------
INVESTMENT INCOME. Net interest and dividend income decreased by $275,000,
or 8.6% in the first six months of 1997 compared to the same period of 1996.
The composition of the decrease was that gross interest and dividend income
decreased by $66,000 due to lower yields on reduced investment balances
caused by negative cash flow while investment expenses increased $209,000 due
primarily to interest expense on the term loan facility and interest paid on
reinsurance balances. Net realized investment gains increased by $143,000,
or 36% after adjusting for the positive $476,000 realized capital gains
resulting from the trading portfolio changes during the first six months of
1997 versus 1996.
UNDERWRITING OPERATIONS. For the first six months of 1997, direct written
premiums decreased by $3,357,000, or 8%, and net written premiums decreased
by $10,562,000, or 34% over the same period for 1996. Also, for the first
six months of 1997, net earned premiums decreased by $10,426,000, or 38% over
the same period for 1996. The primary reason for the decrease in net written
premiums and net earned premiums was the increased purchases of reinsurance
by the commercial casualty division. For the first six months of 1997, net
earned premiums for the commercial casualty division decreased to $5,758,000
compared to $19,030,000 for the first six months of 1996, a decrease of 70%.
Net earned
10
<PAGE>
premiums for the specialty surety division increased to $7,585,000 for the
first six months of 1997 compared to $5,216,000 for the same period for 1996,
an increase of 45%. Net earned premiums for the personal lines division
increased to $3,741,000 for the first six months of 1997 compared to
$3,264,000 for the same period for 1996, an increase of 15%.
Effective December 31, 1996, the commercial casualty division purchased
an 80% quota share treaty on 100% of its unearned premium reserve. Effective
January 21, 1997 the commercial casualty division also purchased a $500,000
excess of $500,000 facultative treaty for 12 of its largest trucking
accounts. Effective April 1, 1997, the commercial casualty division purchased
a 75% quota share for commercial auto liability policies written by its four
largest agents. The financial effect was increased premiums ceded accompanied
by increases in claims recoveries and ceding commissions and decreases in net
written premiums and net earned premiums. The commercial casualty division
also implemented significant rate increases, underwriting changes, expense
reductions and additional reinsurance protection to improve future
underwriting results.
The net loss ratio was 59.7% for the first six months of 1997 compared
to 71.0% in the same period of 1996. The decrease resulted primarily from a
shift in the mix of retained business to less commercial casualty and more
specialty and personal lines business which historically have lower loss
ratios. The commercial casualty segment continues to experience intense
competition and continued soft market conditions. Approximately $1,095,000
of net reserve strengthening for prior accident years was recorded in the
first half of 1997 to report the current actuarial indications of the
ultimate cost of future claims settlements. The consolidated 1997 accident
year loss ratio was 53.4% as of June 30, 1997.
SERVICE FEES, COMMISSIONS AND EXPENSES. Expenses, which consist of net service
fees and commissions and general and administrative expenses, excluding the
claim adjusting and corporate operations, were 38.9% and 26.4% of net earned
premiums for the first six months of 1997 and 1996, respectively. The
following table shows the components of net service fees and commissions and
general and administrative expenses as of June 30, 1997 and 1996 respectively:
1997 1996
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Commissions, fronting, and taxes expense. . $ 10,285 $ 11,853
Ceding commission income. . . . . . . . . . (5,870) (4,168)
Change in deferred acquisition costs. . . . (1,584) (1,700)
-------- --------
Net service fees and commissions. . . . . . 2,831 5,985
Underwriting general and administrative
expenses. . . . . . . . . . . . . . . . . 5,324 4,357
Claim adjusting operations expense. . . . . 1,767 3,287
Corporate general and administrative. . . . 1,030 833
-------- --------
Total service fees, commissions and
expenses. . . . . . . . . . . . . . . . . $ 10,952 $ 14,462
-------- --------
-------- --------
Commissions, fronting, and taxes expense was 42% of net premiums written
in 1997 compared to 27% in 1996. Ceding commission income was 32% of
reinsurance purchased for the first six months of 1997 compared to 37% for
the same period of 1996. Both changes were caused by the new reinsurance
acquired in the commercial casualty division.
11
<PAGE>
CLAIM ADJUSTING OPERATIONS. Decreased claim adjusting fees of $2,790,000 and
claim adjusting commissions and expenses of $2,253,000 resulted primarily
from decreased catastrophe business activity.
The effect of inflation on net income was not significant to the
Company's results during this period.
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
None
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
August 12, 1997
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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