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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
AMENDMENT NO 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
DORCHESTER HOUSE NONE
GROUND FLOOR (Zip Code)
7 CHURCH STREET WEST HM 11
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
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PART I
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
reinsurance.
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
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settle claims liabilities. The portfolio continues to be conservatively
invested in high quality securities.
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 ENDED JUNE 30, 1997 VERSUS
SIX MONTHS JUNE 30, 1996
<TABLE>
SIX MONTHS ENDED
JUNE 30
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1997 1996 CHANGE
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(Dollars in thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written......................... $ 39,275 $ 42,632 $ (3,357)
Reinsurance purchased.................... (18,440) (11,235) (7,205)
-------- -------- --------
Net premiums written..................... $ 20,835 $ 31,397 $(10,562)
-------- -------- --------
-------- -------- --------
Net premiums earned...................... $ 17,084 $ 27,510 $(10,426)
-------- -------- --------
Net claims and claims expenses........... (10,198) (18,708) 8,510
Service fees and commissions............. (1,314) (2,903) 1,589
General and administrative expenses...... (6,354) (6,022) (332)
-------- -------- --------
Net loss on underwriting
operations......................... (782) (123) (659)
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CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned............. 2,956 5,746 (2,790)
CLAIMS ADJUSTING EXPENSES
Service fees and commissions........... (1,517) (3,082) 1,565
General and administrative
expenses............................. (1,767) (2,455) 688
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(3,284) (5,537) 2,253
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Net income (loss) on claims
adjusting operations............... (328) 209 (537)
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Net investment income and gains.......... 3,460 3,592 (132)
Federal income tax (expense) benefit..... (743) (311) (432)
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Net income............................... $ 1,607 $ 3,367 $ (1,760)
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PREMIUMS WRITTEN. Written premiums decreased by $3,358,000 as a result of
the following. Commercial Casualty experienced reduced written premium of
$4,035,000 due to haulers
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reduction of $8,892,000 from tighten underwriting and increased prices. The
explosives and propane lines increased by $2,852,000 and 2,005,000
respectively. Specialty lines increased $450,000, due to increased Bail Bond
writings of $938,000 while contract surety decreased $488,000. Personal lines
increased $229,000 due to planned expansion.
REINSURANCE PURCHASED. The Company purchases reinsurance to limit maximum
loss, diversity risk and to minimize exposure on large or hazardous risks.
For the first six months of 1997 the Company purchased $7,205,000 more
reinsurance. The by line changes are as follows. Commercial casualty had
planned reinsurance purchases of $5,412,000 from changes to certain of its
reinsurance treaties. Specialty lines decreased ceded reinsurance by $164,000
due to increased writings and prior year's credit of $291,000 for its excess
treaty. Personal lines increase ceded premiums by $1,959,000 due to the 1996
change in quota share retention from 25% to 50%. Such change resulted in the
recapture of unearned premium reserves from 1995 to 1996.
NET PREMIUMS EARNED. Premiums are earned on a pro rata basis over the
policy period, usually one year. For the first six months of 1997 the
Company earned $10,426,000 less than the same period for the prior year due
to reduced direct written and increased ceded premiums. Commercial casualty
reduced by $13,275,000 as a result of less written and the increased purchase
of reinsurance. Specialty lines increased earned premium by $2,369,000 due
to prior increased written. Personal lines increased $477,000 due to
increased volume and retention.
NET CLAIMS AND CLAIMS EXPENSES. For all lines the Company recorded a
claims expense reduction of $8,510,000 or 58% as a result of the following:
(i) Reduced earned premium volume thus lowering exposure by $7,402,000 (ii)
Prior period reserve redundancy change of $1,479,000 and (iii) Increased
incurred claims of $371,000. The incurred claim and claim expense decreased
by line as follows. Commercial casualty decreased by $8,737,000 due to
reduced volume and exposures, $10,949,000, rate increase of $3,268,000, and
prior year deficiency change of $1,056,000. The specialty lines experienced
a claim increase of $1,028,000 due to volume or exposure increase of $900,000
and rate increase of $128,000. The personal lines reduced by $379,000 due to
an increase in volume of $266,000 and a decrease in loss and expense rate of
$645,000. The run off of prior business recorded a redundancy of $423,000.
ACQUISITION COST, NET OF AMORTIZATION (UNDERWRITING OPERATIONS).
Acquisition cost, net of amortization attributable to underwriting operations
(which is included in "service fees and commission" on the Company's
Statement of Income) consisted of service fees and commissions expense of
$8,767,000 (a decrease of $2,000), reinsurance ceding commissions income of
$5,869,000 (a increase of $1,703,000) and deferred policy acquisition cost
income of $1,584,000 (a decrease of $116,000) for a net expense decrease of
$1,589,000. Commercial casualty had expense reductions of $1,529,000 from
changes from the following areas: commission and fees expense increased by
$172,000 due to shifts in to higher commission business; reinsurance
commissions and fees credits increased by $264,000 due to the purchase of
additional reinsurance; and the deferred policy acquisition credit increased,
reducing expenses by $1,437,000 as the American Re 80% quota share's ceded
unearned premium reserve reduced. Specialty lines had a expense increase of
$220,000 from the following: commission and fees expense reduced by $207,000
due to a decrease in contractors surety premiums for the first six months of
1997; reinsurance ceded commission credits increased by $278,000 due to
increase ceded commission rate being received by the Company; and the
deferred policy acquisition credit decreased, increasing the expense by
$705,000 due to decrease in the change in the unearned premium reserve. The
personal lines had a reduction of $280,000 from the following: commission
expense increased by $33,000; reinsurance ceded commission income increased
by $1,161,000 due to 1996 change in retention rates; and deferred policy
acquisition credits decreased by $848,000 over the first six months of 1996.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS). General
and Administrative
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expenses attributable to underwriting operations increased by $332,000 for
the following reasons. Commercial casualty decreased by $698,000, the direct
expenses reduced by $1,119,000 due to head count reductions and associated
expense savings, while the overhead service expenses increased by $421,000
due to revised allocation procedure for corporate overhead and increased
services. The Specialty area had increased direct expenses of $214,000 due
to increased head count and associated expenses and increased consulting
fees, the overhead expenses increased $181,000 due to growth in the area and
changed allocation procedure, for a total increase of $395,000. The personal
lines recorded an increase of $139,000 in direct expenses in salaries and
associated expenses and an increase in overhead of $300,000 due to MIS costs
associated with new system installation. Corporate overhead increased by
$196,000 due to corporate expenses associated with the sale of the company.
CLAIMS ADJUSTING OPERATIONS. Claims adjusting fees earned decreased by
$2,790,000 due to reduced storm activity during the first six months of 1997
compared to the same period of 1996. The service fees and commissions
expenses decreased by $1,565,000 in proportion to the fee income decrease.
The General and Administrative expenses decreased by $688,000 due to head
count reductions and associated expense savings.
NET INVESTMENT INCOME AND GAINS. Net investment gains increased $143,000
in the first six months of 1997 due to favorable market conditions. Interest
and dividend income decreased by $275,000 due to decreasing yield rates in
the long and short term debt markets and the company recorded investment
expense $539,000 on reinsurance and corporate debt not recorded in 1996 to
produce a total reduction of $132,000.
FEDERAL INCOME TAXES. Federal income tax expense increased by $432,000 as
incurred Federal income taxes of the company increased. The primary cause is
the 1996 credit taken in the change in deferred tax valuation allowance area
not available in 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
VERSUS THREE MONTHS ENDED JUNE 30, 1996
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THREE MONTHS ENDED
JUNE 30
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1997 1996 CHANGE
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(Dollars in thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written............................................ $19,542 $23,931 $(4,389)
Reinsurance purchased....................................... (9,994) (6,921) (3,073)
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Net premiums written........................................ $ 9,548 $17,010 $(7,462)
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Net premiums earned......................................... $ 8,446 $14,194 $(5,748)
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Net claims and claims expenses.............................. (6,036) (9,208) 3,172
Service fees and commissions................................ (760) (941) 181
General and administrative expenses......................... (3,116) (3,342) 226
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Net loss on underwriting operations...................... (1,466) 703 (2,169)
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CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned................................ 1,596 2,189 (593)
CLAIMS ADJUSTING EXPENSES
Service fees and commissions............................. (835) (1,102) 267
General and administrative expenses...................... (803) (1,342) 539
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(1,638) (2,444) 806
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Net income (loss) on claims adjusting operations....... (42) (255) (213)
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Net investment income and gains............................. 2,000 1,702 298
Federal income tax (expense) benefit........................ (95) (189) 94
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Net income.................................................. $ 397 $ 1,961 $(1,564)
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PREMIUMS WRITTEN. Premium written decreased by $4,388,000 as result of
the following. Commercial Casualty experienced reduced written premium of
$4,891,000, due to a reduction in haulers of $6,714,000 due to tighter
underwriting and increased prices. The explosives, and propane lines
increased by $1,759,000 and $64,000, respectively. Specialty lines increased
$467,000, due to increased Bail Bond writings of $485,000 while contract
surety had a $18,000 decrease. Personal lines increased $36,000, in planned
expansion.
REINSURANCE PURCHASED. The Company purchases reinsurance to limit maximum
loss, diversify risk and to minimize exposure on large or hazardous risks.
For the three months ended June 30, 1997 the Company purchased $3,073,000
more reinsurance, due to planned changes in certain of the Company's
reinsurance programs. For Commercial casualty the Company purchased
facultative reinsurance for business written by twelve of the commercial auto
largest agents. Also the company purchased 75% quota share reinsurance for
four of its largest auto liability agents, causing ceded premiums to increase
by $2,924,000, Specialty lines increased ceded reinsurance by $140,000 due
increased writings and prior years credit of $291,000 for Excess. Personal
lines increase ceded premiums by $11,000 due to the slight increase in
written premiums.
NET PREMIUMS EARNED. Premiums are earned on a pro rata basis over the
life of the policy period, usually one year. For the three months ended June
30, 1997 the Company earned $5,748,000 less than the same period of 1996, due
to reduced direct written and increase ceded. Commercial Casualty reduced by
$6,785,000 as a result of less written and the increased purchase of
reinsurance. Specialty lines increased earned premium by $839,000 due to
prior period increased written. Personal lines increased $198,000 due to
increased volume and retention.
NET CLAIMS AND CLAIMS EXPENSES. In aggregate the Company recorded a
claims and claims expense reduction of $3,172,000 or 34% as a result of the
following: (i) Reduced earned premium volume thus lowering exposure by
$4,064,000. (ii) Prior period reserve redundancy release of $1,366,000 and;
(iii) incurred claim increase due to rate of $2,258,000. The incurred claim
and claim expense changed by lines is as follows: commercial casualty,
decreased by $3,766,000, caused by reduced claim exposure because of reduced
earnings $5,726,000, an incurred rate and expense rate increase of
$3,017,000, and prior year deficiency release $1,057,000. The specialty
lines experienced a claim increase of $911,000 due to volume or exposure
increase $338,000 and rate increase of $573,000. The personal lines reduced
by $8,000, due to an increase in volume of $84,000 and a decrease incurred
claim and expense rate of $92,000. The run off of prior business recorded a
redundancy release of $309,000.
ACQUISITION COST, NET OF AMORTIZATION (UNDERWRITING OPERATIONS).
Acquisition cost, net of amortization attributable to underwriting operations
(which is included in "service fees and commission" on the Company's
Statement of Income) consisted of service fees and commissions expense of
$4,247,000 (a decrease of $312,000), reinsurance ceding commissions income of
$3,011,000 (a decrease of $68,000) and deferred policy acquisition cost
income of $476,000 (a decrease of $63,000) for a net expense decrease of
$181,000. Commercial Casualty had a net expense decrease of $2,000 from the
following: commission and fees decreased by $192,000 due to reduce direct
premiums written; Reinsurance commissions fees credit decreased by $302,000
due to the purchase of additional reinsurance; the deferred policy
acquisition expense credit increased pushing the expense up by $112,000 due
to reduced unearned premium reserves. Specialty lines had a net expense
change of $ -0- from the following: commission and fees reduced by $25,000
due to a decrease in commission; ceded commission and fees credit increased
by $143,000 due to increase ceded commission rate being received by the
company; and the deferred policy acquisition costs credits decreased which
pushed up the expense by $168,000 due to decrease in the change in the
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unearned premium reserve. The personal lines had a reduction of $179,000
from the following: commission decreased by $95,000 because of mix changes;
reinsurance ceded commission increased by $91,000 because of contingent
commission accrual; deferred policy acquisition costs decreased by $7,000
because of stabilized growth in the second quarter.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS). General
and administrative expenses attributable to underwriting operations decreased
by $226,000 for the following reasons. Commercial casualty decreased by
$764,000. The direct expenses decreased by $1,060,000 due head count
reduction and associated expense savings. While the allocated service
expenses increased by $296,000 due to revised allocation procedure for
corporate overhead and increased services. The Specialty area had increased
direct expenses of $293,000 due to increased head count and associated
expenses and increased consulting fees. The allocated expenses decreased by
$69,000 due to cost savings in the area and changed allocation procedure for
a total increase of $224,000. The personal lines recorded an increase of
$101,000 in direct expenses, due to salaries and associated expenses and a
increase in allocated of $124,000 due to MIS costs associated with new system
installation. Corporate overhead increased by $87,000 due to corporate
expenses associated with the sale of the company.
CLAIMS ADJUSTING OPERATIONS. Claim adjusting fees earned decreased by
$593,000 due to reduced storms during the second quarter of 1997 compared to
the same period of 1996. The service fees and commissions expenses decreased
by $267,000 in the proportion the fee income decreased. The General and
Administrative expenses decreased by $539,000 due to head count reductions
and associated expense savings.
NET INVESTMENT INCOME AND GAINS. Investment gains increased $224,000 in
the second quarter of 1997 due to favorable market conditions. Interest and
dividend income increased by $74,000 due to positive cash flow reinvested
during the second quarter of 1997, to produce a total increase of $298,000,
which is net of corporate interest and reinsurance debt expense incurred in
the second quarter of 1997.
FEDERAL INCOME TAXES. Federal income tax decreased by $94,000 during the
second quarter as a result of decreased taxable income of the U.S. operation
during the second three months of 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1994, the
registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
April 22, 1998
NOBEL INSURANCE LIMITED
/s/ Thomas D. Nimmo
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Thomas D. Nimmo
Senior Vice President and
Treasurer
(principal financial officer)
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