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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 March 31, 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)
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 May 9, 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 and operating expenses.
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 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withdrawn from the trust account.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 March 31, 1997 is $14,693,000.
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
March 31, 1997, the collateral consisted of short-term bank deposits and
AAA-rated fixed income securities which require a 5% margin. At March 31,
1997, the Company had cash and investments of $121,145,000 of which
$20,586,000 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. Year to date as of March 31, 1997,
the Company sold $779,000 of trading portfolio investments with $107,000 gain
realized. The Company classified its fixed income security investments,
principally bonds, as available for sale, and accordingly, carries these
investments at market value. The Company's investment guidelines prescribe a
portfolio structure of maturities to provide adequate liquidity to settle
claims liabilities. The portfolio continues to be conservatively invested in
high quality securities.
Net cash (used) from operating activities for the first three months of
1997 was
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$(632,000) compared to net cash provided of $4,427,000 for the first three
months of 1996, the difference was due to payment of the Petro Energy claim
for $5,320,000. Net cash provided by investing activities was $277,000 for
the first three months of 1997, as opposed to cash (used) of $(1,158,000)
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. Also included repayment of $54,000 in notes payable less $331,000
received from exercise of stock options to produce net financing cash (used)
of $(84,000), compared to net financing cash (used) of $(9,976,000) for the
first three 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
THREE MONTHS ENDED MARCH 31, 1997 VERSUS
THREE MONTHS MARCH 31, 1996
<TABLE>
THREE MONTHS ENDED
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MARCH 31,
1997 1996 CHANGE
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<S> <C> <C> <C>
(Dollars in thousands)
UNDERWRITING OPERATIONS
Premiums written . . . . . . . . . . . . . . . . . . . . . . $19,733 $18,701 $1,032
Reinsurance purchased. . . . . . . . . . . . . . . . . . . . (8,446) (4,314) (4,132)
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Net premiums written . . . . . . . . . . . . . . . . . . . . $11,287 $14,387 $(3,100)
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------- ------- -------
Net premiums earned . . . . . . . . . . . . . . . . . . . . $8,638 $13,316 $(4,678)
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Net claims and claims expenses . . . . . . . . . . . . . . . (4,162) (9,112) 4,950
Service fees and commissions . . . . . . . . . . . . . . . . (554) (1,963) 1,409
General and administrative expenses. . . . . . . . . . . . . (3,239) (3,066) (173)
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Net loss on underwriting operations . . . . . . . . . . 683 (825) 1,508
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CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned . . . . . . . . . . . . . . . . 1,360 3,557 (2,197)
CLAIMS ADJUSTING EXPENSES
Service fees and commissions . . . . . . . . . . . . . . . (682) (1,980) 1,298
General and administrative expenses. . . . . . . . . . . . (963) (1,114) 151
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(1,645) (3,094) 1,449
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Net income (loss) on claims adjusting operations. . . . (285) 463 (748)
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Net investment income and gains. . . . . . . . . . . . . . . 1,460 1,890 (430)
Federal income tax (expense) benefit . . . . . . . . . . . . (648) (122) (526)
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . $1,210 $1,406 $(196)
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</TABLE>
PREMIUMS WRITTEN. Premium written increased by $1,032,000 or 6% due to the
following. Commercial Casualty experienced increases in the explosive and
propane lines of $1,093,000 and $1,941,000 respectively, due to increased
marketing efforts, while the Haulers line reduced writings by $2,178,000 due
to increased competition and restrictive underwriting criteria. The Specialty
lines decreased by $17,000 due to increased competition in the
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contract surety area. Personal lines had an increase in premiums written of
$193,000, from program growth in North and South Carolina reduced by
increases in policy deductibles in coastal tiers 1 and 2.
REINSURANCE PURCHASED. The Company purchases reinsurance to reduce risks,
limit maximum loss exposure and minimize large loss exposure. During the
first quarter of 1997 the Company increased the purchase of reinsurance by
$4,132,000 or 95%. The primary cause of the increase was the purchase of
facultative reinsurance for business written by twelve of the Commercial
Autos largest agents, resulting in an increase in reinsurance purchased for
the commercial casualty area of $2,488,000. Personal lines increased
reinsurance purchased in 1997 over 1996 by $1,948,000, due to the quota share
increase in retention of 25% on December 31,1996. Such change resulted in a
recapture of unearned premium reserves from 1995 in 1996. The Specialty lines
decreased ceded reinsurance by $304,000 due to prior years experience rate
credits $291,000 and slight volume decrease.
NET PREMIUMS EARNED. Premiums are earned on a pro rata basis over the
policy period, usually one year. For the first quarter of 1997 versus 1996
premiums earned decreased by $4,678,000 or 35%. The cause of the decrease was
the commercial casualty earnings on the 80% quota share treaty recorded in
late 1996, and the facultative treaties for twelve large agents from January
of 1997, resulting in the reduction of commercial casualty by $6,487,000.
Specialty lines increased by $1,530,000 due to growth in net written premium
in 1996. Personal Lines grew by $279,000 due to growth in written premium
over the period.
NET CLAIMS AND CLAIMS EXPENSES. For all lines the Company recorded a claims
expense decrease of $4,950,000 or 35%. The cause of the decrease is the
result of the following: (i) a decrease in earned premium caused a reduction
in exposure of $3,335,000. (ii) a reduction in reserves from prior periods
caused a reduction of $113,000; and (iii) an incurred claim ratio improvement
caused a reduction of $1,502,000. The claim and claim expense decrease by
line is as follows. Commercial casualty reduced $4,583,000 or 64%. Due to
reduced exposure, losses reduced by $5,222,000. Prior years redundancies
caused an overall reduction of $113,000, and increase in current years claim
ratio resulted in an addition to incurred losses of $752,000. The Specialty
lines net claims and claims expense increased by $119,000, due to the
following: increase in earned premium caused an increase of $539,000; and the
decrease in loss rates of 11% resulted in a reduction of $420,000. The
Personal lines claims and claim expense decreased by $373,000. The cause of
the decrease was loss ratio decreased by 31% resulting in a reduction of
$570,000. Earned premium volume increased by $279,000 which increased the
incurred losses by $197,000.
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
$4,520,000 (a increase of $307,000), reinsurance ceding commissions income of
$2,858,000 (a increase of $1,768,000) and deferred policy acquisition cost
income of $1,108,000 (a decrease of $52,000) for a net expense decrease of
$1,409,000. Commercial Casualty net expense decreased by $1,529,000 due
primarily to the earning of ceding commissions, associated with the American
Re 80% quota share premiums. Contributing to the decrease was other ceded
commissions associated with the big twelve-reinsurance treaty; less a slight
increase in service fees off set by the increase in deferred policy
acquisition cost due to higher volume and changes in deferral rate. The
personal lines produced a net expense decrease of $100,000 due to the ceded
commission increase because of the reduced loss ratio in 1997. The specialty
lines produced an increase in expenses of $220,000, due to a reduction in the
deferred policy acquisition cost associated with a reduction in written
premium.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS). General and
administrative expenses attributable to underwriting operations increased by
$173,000 in the first quarter of 1997 due to increased personal lines
expenses of $213,000 in connection with the expansion of the line and cost
associated with developing systems. The specialty program increased by
$172,000 due to increased head count and associated salary expense.
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Commercial casualty expenses decreased by $322,000. Direct expense reduction
of $449,000 due to head count reduction and associated reduced expenses. The
allocated overhead increased by $126,000 due to severance cost associated
with terminations, and the recording in 1996 of one-time credits, and bonus
accrual charge in first quarter of 1997. The Corporate overhead increased by
$110,000, due to severance and accrual adjustments.
CLAIMS ADJUSTING OPERATIONS. Fee income reduced by $2,197,000 as a result
of reduced storm activity in first quarter of 1997 versus 1996. The service
fee and commission reduced in connection with less revenue by $1,298,000.
The general and administrative expenses reduce by $151,000 as a result of
planned head count reduction, and branch closings.
NET INVESTMENT INCOME AND GAINS. Net investments income and gains decreased
by $430,000 for the first three months of 1997 due to $81,000 less in capital
transactions, and $349,000 less in investment income. The reduction in
income is due to declining interest rates and negative cash flow from
operations of $632,000 resulting from claim and claim expense payments.
FEDERAL INCOME TAXES. Federal income tax increased by $526,000 due to
larger portions of pre-tax earnings being derived from U.S. taxable
operations.
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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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