<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 March 31, 1998 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.)
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 13, 1998
4,544,192
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Trading portfolio, at fair value:
Fixed maturity securities (amortized cost: $69 at
March 31, 1998 and December 31, 1997) $ 69 $ 75
Equity securities (cost: $3,747 at March 31, 1998
and $2,830 at December 31, 1997) 3,916 2,858
Other investments (cost: $37 at March 31, 1998 and
December 31, 1997) 27 27
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost: $79,142
at March 31, 1998 and $94,519 at December 31, 1997) 79,985 95,725
Equity securities (cost $1,000 at March 31, 1998 and
December 31, 1997) 1,872 1,806
Short-term investments, at cost, which approximates
fair value 27,395 18,892
-------- --------
Total investments 113,264 119,383
Funds held by reinsurance companies 775 1,640
Premiums and other receivables less allowance for
doubtful accounts ($263 at March 31, 1998 and $249 at
December 31, 1997) 20,509 23,003
Accrued interest income 1,190 1,228
Reinsurance recoverable on paid and unpaid claims 50,124 42,962
Prepaid reinsurance premiums 10,369 15,141
Property and equipment less accumulated depreciation
($2,344 at March 31, 1998 and $2,174 at December 31, 1997) 3,139 3,309
Deferred policy acquisition costs 5,000 4,445
Net deferred tax asset 4,348 3,702
Other assets 1,565 1,945
-------- --------
Total assets $210,283 $216,758
-------- --------
-------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
1
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
(CONTINUED)
<TABLE>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES
Reserve for claims and claims expenses $ 81,254 $ 82,948
Unearned premiums 31,142 34,834
Accounts payable and accrued liabilities 9,738 12,558
Reinsurance premiums payable 25,626 24,997
Cash overdraft 2,753 1,034
Other liabilities 4,685 4,770
-------- --------
Total liabilities 155,198 161,141
-------- --------
SHAREHOLDERS' EQUITY
Capital shares (Authorized 20,000,000 shares; $1 par value;
issued 7,846,964 shares at March 31, 1998; 7,808,928
shares at December 31, 1997; outstanding 4,544,192 shares
at March 31, 1998 and 4,506,156 shares at December 31, 1997) 7,847 7,809
Contributed surplus 45,053 44,841
Unrealized gain on investments 1,187 1,379
Retained earnings 30,961 31,551
Treasury stock, at cost (3,302,772 shares at March 31, 1998
and December 31, 1997) (29,963) (29,963)
-------- --------
Total shareholders' equity 55,085 55,617
-------- --------
Total liabilities and shareholders' equity $210,283 $216,758
-------- --------
-------- --------
</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
MARCH 31,
1998 1997
(In thousands, except per share data)
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Premiums written $ 17,800 $ 19,733
Reinsurance purchased (8,592) (8,446)
-------- --------
Net premiums written $ 9,208 $ 11,287
-------- --------
-------- --------
Premiums earned $ 21,492 $ 21,417
Premiums ceded (13,364) (12,779)
-------- --------
Net premiums earned 8,128 8,638
Interest income, net of investment expenses of $264
at March 31, 1998 and $383 at March 31, 1997,
respectively 1,267 1,329
Net investment gains 647 131
Claim adjusting fees earned 1,485 1,360
-------- --------
Total revenues 11,527 11,458
-------- --------
EXPENSES:
Claims and claims expenses 16,431 11,158
Reinsurance recoveries (10,187) (6,996)
-------- --------
Net claim and claim expenses 6,244 4,162
Service fees and commissions 2,466 1,236
General and administrative expenses 3,947 4,202
-------- --------
Total expenses 12,657 9,600
-------- --------
Net income (loss) before income taxes (1,130) 1,858
Income tax expense (benefit):
Current --- 248
Deferred (540) 400
-------- --------
Income tax expense (benefit) (540) 648
-------- --------
Net income (loss) (590) 1,210
Retained earnings at beginning of period 31,551 29,996
-------- --------
Retained earnings at end of period $ 30,961 $ 31,206
-------- --------
-------- --------
PER SHARE DATA:
Earnings (loss) per share:
Basic: $ (.13) $ .27
-------- --------
-------- --------
Diluted $ (.13) $ .26
-------- --------
-------- --------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
3
<PAGE>
NOBEL INSURANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
THREE MONTHS ENDED
MARCH 31
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (IN THOUSANDS)
Net income (loss) $ (590) $ 1,210
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 475 378
Change in deferred policy acquisition costs (555) (1,109)
Deferred tax expense (benefit) (540) 400
Decrease in reserve for claims and claims expenses (1,694) (4,689)
Decrease in unearned premiums (3,692) (1,684)
Decrease in accounts payable and accrued liabilities (2,820) (1,466)
Decrease in deferred service fee income (65) (68)
Decrease in net premiums receivable 3,131 4,844
Decrease in accrued interest income 38 3
Increase in reinsurance recoverables (7,162) (2,025)
Decrease in prepaid reinsurance premiums 4,772 4,334
Decrease in other assets 148 97
(Increase) Decrease in funds held by reinsurance
companies 865 (96)
Net (additions to) dispositions from trading portfolio
investments (781) (626)
Net realized investment gains (647) (131)
(Gains) losses on disposal of other assets --- (4)
-------- --------
Net cash (used by) operating activities (9,117) (632)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Fixed maturities, available for sale 30,500 34,684
Equity securities, available for sale --- 199
Purchase of investments:
Fixed maturities, available for sale (14,829) (32,579)
Equity securities, available for sale --- (1,780)
Payments on acquisitions (1) (6)
Purchase of software, property and equipment --- (241)
-------- --------
Net cash provided from investing activities 15,670 277
-------- --------
</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>
THREE MONTHS ENDED
MARCH 31,
1998 1997
- ---------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital shares 250 331
Repayment of notes payable and capital lease obligation (19) (54)
Purchase of treasury stock --- (361)
------- -------
Net cash provided from (used by) financing activities 231 (84)
------- -------
Net increase (decrease) in cash and cash equivalents 6,784 (439)
------- -------
Cash and cash equivalents at beginning of year 17,858 14,785
------- -------
Cash and cash equivalents at end of year $24,642 $14,346
------- -------
------- -------
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
NOBEL INSURANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheets at March 31, 1998, and Consolidated
Statements of Income and Retained Earnings for the three months ended March
31, 1998 and Consolidated Statements of Cash Flows for the three months ended
March 31, 1998, 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.
Statement of Financial Accounting Standards ("FAS") 115 "Disclosures About
Fair Value of Financial Instruments" was adopted and impact, the Company's
financial statements as follows:
1) Net unrealized gains (losses) of $136,200 and $(208,000) from trading
portfolio investments were included in first quarter earnings for 1998 and
1997 respectively.
2) Net unrealized gains of $1,187,000 and $1,379,000 from portfolio
investments classified as available for sale were included in shareholders'
equity at March 31, 1998 and December 31, 1997, 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, 1997, the U.S. Group had
consolidated net operating (losses) of approximately $8,160,000 which may be
carried forward for U.S. Federal income tax purposes. Such loss
carryforwards expire beginning in 2004.
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
MARCH 31
1998 1997
- -------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Net income before income taxes - consolidated $(1,130) $1,858
Foreign - not subject to tax 241 (325)
------- ------
U.S. - subject to tax $(1,371) $2,183
------- ------
------- ------
Computed "expected" tax expense (benefit) @ 34% $ (466) $ 742
Reduction for tax exempt interest (90) (84)
Other items, net 16 (10)
------- ------
Tax expense (benefit) $ (540) $ 648
------- ------
------- ------
</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 March 31,
1998 and December 31, 1997 are presented below:
<TABLE>
MARCH 31, DECEMBER 31,
1998 1997
- -----------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 34 $ 34
Claims reserves, principally due to discounting
for tax 1,839 1,839
Unearned premium adjustment 1,339 1,339
Net operating loss carryforwards 3,181 2,774
Other 754 754
------- -------
Total deferred tax assets 7,147 6,740
------- -------
Deferred tax liabilities:
Deferred policy acquisition costs (1,700) (1,511)
Unrealized gains bonds available for sale (528) (634)
Other (571) (893)
------- -------
Total gross deferred tax liabilities (2,799) (3,038)
------- -------
Net deferred tax balance $ 4,348 $ 3,702
------- -------
------- -------
</TABLE>
Basic earnings (loss) per capital share were determined by dividing net
income (loss) by the average capital shares outstanding. Diluted earnings
(loss) per capital share was determined by dividing net income (loss) by
diluted shares outstanding which, included capital and capital equivalent
shares outstanding attributable to outstanding stock options as follows:
<TABLE>
THREE MONTHS ENDED
MARCH 31,
1998 1997
- --------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Basis average capital shares outstanding 4,531 4,481
Shares applicable to common
stock equivalents 93 102
----- -----
Diluted capital shares outstanding 4,624 4,583
----- -----
----- -----
</TABLE>
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 March 31, 1998 and December 31, 1997, 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):
<TABLE>
RESERVE BALANCE INCOME EFFECT
--------------- -------------
PERIOD ENDING GROSS NET GROSS NET
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At March 31, 1998 $30,932 $11,338
Three months ended March 31, 1998 $ (381) $(2,940)
At December 31, 1997 $31,313 $14,278
At March 31, 1997 $29,255 $15,828
Three months ended March 31, 1997 $(6,611) $(4,847)
</TABLE>
An allowance for doubtful receivables is established when it becomes
evident collection is doubtful. An allowance of $263,000 was established as
of March 31, 1998 and $249,000 as of December 31, 1997, 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):
<TABLE>
STATUTORY STATUTORY
SHAREHOLDERS' NET
PERIOD EQUITY INCOME (LOSS)
- -----------------------------------------------------------------------------------
<S> <C> <C>
At March 31, 1998 $33,488
Three months ended March 31, 1998 $(1,900)
At December 31, 1997 $34,987
At March 31, 1997 $36,915
Three months ended March 31, 1997 $ 1,602
</TABLE>
TOTAL COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income". FAS 130 requires that an entity include in total comprehensive
income certain amounts which were previously recorded directly to
stockholders' equity. For the three months ended March 31, 1998 and 1997 the
other comprehensive income amounts included in total comprehensive income
consisted of unrealized gains (losses) on investments in debt and equity
securities of $(192,000) and ($2,061,000) respectively. Total comprehensive
income (loss) for the three months ended March 31, 1998 and 1997 was
$(782,000) and ($851,000) respectively.
8
<PAGE>
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 satisfied by trust balances. The settlement of all claims and claims
expenses is being withdrawn from the trust account. The market value of trust
assets at March 31, 1998 is $9,426,000.
The terms of the Parent Company's agreement requires collateral in the trust
equal to outstanding liabilities plus a negotiated market value margin for
investments other than short-term investments. At March 31, 1998, the
collateral consisted of short-term bank deposits and AAA-rated fixed income
securities that require a 5% margin. At March 31, 1998, the Company had cash
and investments of $110,511,000 of which $15,599,000 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, 1998 the
Company sold $332,000 of trading portfolio investments with $136,200 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 by operating activities for the first three months of 1998 was
$(9,117,000) compared to net cash used of $(632,000) for the first three months
of 1997. The difference was due to payment of claims and claims expenses. Net
cash provided by
9
<PAGE>
investing activities was $15,670,000 for the first three months of 1998, as
opposed to cash provided of $277,000 for the same period of 1997. Cash
provided by financing activities includes proceeds from the issuance of 38,036
shares of capital stock for $250,000 or an average cost of $6.57. Cash
provided by financing activities also includes repayment of $19,000 in notes
payable to produce net financing cash provided of $231,000, compared to net
financing cash used of $(84,000) for the first three months of 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 VERSUS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
THREE MONTHS ENDED
MARCH 31,
1998 1997 CHANGE
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
UNDERWRITING OPERATIONS
Premiums written $17,800 $19,733 $(1,933)
Reinsurance purchased (8,592) (8,446) (146)
------- ------- -------
Net premiums written $ 9,208 $11,287 $(2,079)
------- ------- -------
------- ------- -------
Net premiums earned $ 8,128 $ 8,638 $ (510)
Net claims and claims expenses (6,244) (4,162) (2,082)
Service fees and commissions (1,714) (554) (1,160)
General and administrative expenses (3,191) (3,239) 48
------- ------- -------
Net loss on underwriting operations (3,021) 683 (3,704)
------- ------- -------
CLAIMS ADJUSTING OPERATIONS
Claims adjusting fees earned 1,485 1,360 125
CLAIMS ADJUSTING EXPENSES
Service fees and commissions (752) (682) (70)
General and administrative expenses (756) (963) 207
------- ------- -------
(1,508) (1,645) 137
------- ------- -------
Net income (loss) on claims adjusting operations (23) (285) 262
------- ------- -------
Net investment income and gains 1,914 1,460 454
Federal income tax (expense) benefit 540 (648) 1,188
------- ------- -------
Net income (loss) $ (590) $ 1,210 $(1,800)
------- ------- -------
------- ------- -------
</TABLE>
PREMIUMS WRITTEN Premiums written decreased by $1,933,000 or 10% due to the
following: Commercial casualty experienced decreases in the explosives and
propane lines of $54,000 and $2,731,000, respectively, due to marketing
conditions, while the haulers premium increased by $1,962,000 due to improved
evaluation procedures. The specialty lines premiums decreased by $1,496,000
due to increased competition in the contract surety area, while bail bonds
increased written premiums by $259,000 due to increased agency penetration in
all four of the national regions. Personal lines had an increase in premiums
written of $127,000, from program growth in North and South Carolina and
continued rate increases in all available areas.
REINSURANCE PURCHASED The Company purchases reinsurance to reduce risks, limit
maximum loss exposure and minimize large loss exposure. During the first
quarter of 1998 the Company increased the purchase of reinsurance by $146,000
or 2%. The primary cause of the increase was the commutation of the outstanding
reserves amounting to $3,558,000 for the run-off of the workers' compensation
and certain general liability lines of business. Personal lines decreased
first quarter reinsurance purchased by $3,178,000, as a result of
10
<PAGE>
increasing the quota share retention rate by 25% effective January 1, 1998.
Such increase in the retention resulted in the recapture of the related
unearned premium reserve. Commercial casualty lines decreased the amount of
reinsurance purchased by $416,000 due to the reduction in direct written
premiums. The specialty lines increased reinsurance purchased for the
contract surety line of business by $182,000.
NET PREMIUMS EARNED Premiums are earned on a pro rata basis over the policy
period, usually one year. For the first quarter of 1998 versus 1997, premiums
earned decreased by $510,000 or 6%. The acquisition of reinsurance for the
commutation of the workers' compensation and certain general liability lines
resulted in a reduction in earned premiums of $3,558,000. Earned premium in
the commercial casualty lines increased by $2,250,000 in the first quarter of
1998 due to the non-renewal of the 80% quota share reinsurance. The specialty
lines experienced a reduction in earnings of $440,000 due to lower written
premiums. Personal lines increased by $1,238,000 due to the 25% increase in the
quota share retention.
NET CLAIMS AND CLAIMS EXPENSES The Company recorded a net increase in claims
and claims expense of $2,082,000, or 50%. The increase is the result of (i)
prior accident year reserve increases of $2,616,000, (ii) an incurred loss
ratio improvement in the current accident year, resulting in a decrease of
$359,000, and (iii) a decrease of $175,000 resulting from the decrease in
earned premium. The claims and claims expense changed by line follows:
Commercial casualty increased by $2,928,000, due to an increase in earned
premium volume, resulting in increased loss exposure of $2,005,000, along with
a strengthening of prior accident year reserves of $927,000, offset by a
decrease of $4,000 from an improvement in the current accident year loss ratio.
The specialty lines had an incurred loss increase of $1,974,000, due to prior
accident year reserve strengthening of $1,507,000, an increase in the current
accident year loss experience of $647,000, and a volume decrease of $180,000.
Personal lines experienced an increase in incurred losses of $655,000, due to
increased volume of $509,000, prior accident year reserve strengthening of
$119,000, and an increase of $27,000 from a deterioration in the current
accident year loss ratio. The commutation of the outstanding reserves for
workers' compensation and certain general liability lines resulted in a net
decrease of $3,475,000.
ACQUISITION COST, NET OF AMORTIZATION (UNDERWRITING OPERATIONS) Acquisition
cost, net of amortization, attributable to underwriting operations (which is
included in service fees and commissions on the statement of income) consisted
of service fees and commissions expense of $3,174,000 (a decrease of
$1,346,000), ceding commissions income of $904,000 (a decrease of $1,953,000)
and deferred policy acquisition cost income of $556,000 (a decrease of
$553,000) for a net expense decrease of $1,160,000. Commercial casualty net
expense increased by $1,072,000, due primarily to the decrease in written
premiums, resulting in a reduction of deferred policy acquisition costs, and a
decrease in ceding commissions, offset by a decrease in direct commissions.
The specialty lines had a net expense decrease of $34,000, due to the decrease
of direct commissions from reduced written premiums, offset by a smaller
decrease in deferred policy acquisition costs and a slight decrease in ceding
commissions. Personal lines produced an increase in expense of $484,000, due
to the increased retention of 25% and resulting recapture of a portion of the
unearned premium reserve producing less ceding commissions, somewhat offset by
the related increase in deferred acquisition costs. The commutation of the
workers' compensation and certain general liability reserves resulted in an
increase in ceding commissions, a reduction in expense, of $362,000.
GENERAL AND ADMINISTRATIVE EXPENSES (UNDERWRITING OPERATIONS) General and
administrative expenses attributable to underwriting operations decreased by
$48,000 in the first quarter of 1998 due to increased personal lines expenses
of $282,000 in connection with the growth of the line and costs associated with
developing systems. The specialty lines increased by $66,000, due to salary
and related expense increases in direct expenses, along with a slight increase
in allocated overhead. Commercial casualty expenses decreased by $275,000.
Direct expenses decreased by $180,000 due to head count reduction, and
allocated overhead
11
<PAGE>
decreased by $95,000 due to a reduction of volume. The corporate overhead
expenses decreased by $121,000 due to expense credits associated with the
reconciliation of Nobel Insurance Limited expense accounts.
CLAIMS ADJUSTING OPERATIONS Fee income increased by $125,000 as a result of
increased storm activity in the first quarter of 1998 versus 1997. Service
fees and commissions increased by $70,000 in connection with the higher
revenue. The general and administrative expenses decreased by $207,000 as a
result of planned head count reductions, and branch closings.
NET INVESTMENT INCOME AND GAINS Net investment income and gains increased by
$454,000 for the first three months of 1998 due to a $516,000 increase in
capital gains, and a decrease in investment income of $62,000. The reduction
in income is due to declining interest rates and negative cash flow from
operations of $9,117,000 resulting from claims and claims expense payments.
FEDERAL INCOME TAXES Federal income tax decreased by $1,188,000 due to the
U.S. losses generated by the prior accident year reserve adjustments in Nobel
Insurance Company.
12
<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. SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
13
<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
May 14, 1998
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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0
0
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8,128
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</TABLE>
