FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7411
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 13-2530665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, New York 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)387-3000
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
such filing requirements for the past 90 days.
Yes[X] No[ ]
On November 8, 1996 there were 7,078,625 shares of Common Stock outstanding.
<PAGE>
ALLCITY INSURANCE COMPANY
INDEX
PAGE
PART I Financial Information
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1996 and December 31,
1995................................................................. 2
Consolidated Statements of Income - Nine months ended September
30, 1996 and September 30, 1995 and three months ended September 30,
1996 and September 30, 1995.......................................... 3-4
Consolidated Statements of Cash Flows - Nine months ended September
30, 1996 and September 30, 1995...................................... 5
Consolidated Statements of Changes in Shareholders' Equity - Nine
months ended September 30, 1996 and September 30, 1995............... 6
Notes to Interim Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 8-10
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
Signatures.............................................................. 12
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except par value amounts)
<CAPTION>
September 30 December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of
$274,928 in 1996 and $259,566 in 1995) $271,449 $261,473
Held to maturity (aggregate fair value
of $491 in 1996 and $503 in 1995) 476 478
Short term (at cost) 45 11,597
TOTAL INVESTMENTS 271,970 273,548
Cash 3,677 3,272
Agents' balances, less allowance for doubtful
accounts ($1,228 in 1996 and $1,093 in 1995) 22,620 21,155
Accrued investment income 3,990 3,720
Reinsurance balances receivable 270,815 257,615
Prepaid reinsurance premiums 80,645 79,285
Deferred policy acquisition costs 8,682 8,578
Deferred tax benefit 13 478 10,281
Other assets 3,456 3,366
TOTAL ASSETS $679,333 $660,820
LIABILITIES
Unpaid losses $362,572 $348,832
Unpaid loss adjustment expenses 53,945 51,047
Unearned premiums 128,672 125,942
Accounts payable and accrued liabilities 2,212 1,964
Drafts payable 5,457 4,844
Due to affiliates 15,211 17,865
Unearned service fee income 5,726 5,109
Reserve for servicing carrier claim expenses 8,243 6,910
Other postretirement benefits 3,729 3,537
Reinsurance balances payable 3,417 3,476
Other liabilities 1,911 1,834
Surplus note 13,969 13,524
TOTAL LIABILITIES 605,064 584,884
SHAREHOLDERS' EQUITY
Common stock, par value $1.00: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 1996 and 1995 7,079 7,079
Additional paid-in capital 9,331 9,331
Net unrealized gain (loss) on investments (2,260) 1,240
Retained earnings 60,119 58,286
TOTAL SHAREHOLDERS' EQUITY 74,269 75,936
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $679,333 $660,820
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
<CAPTION>
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
REVENUES
Premiums earned $73,317 $70,619
Net investment income less expenses of $289
in 1996 and $279 in 1995 12,188 11,446
Service fee income 5,266 5,919
Net securities gains and (losses) 910 (205)
Other income 517 633
92,198 88,412
LOSSES AND EXPENSES
Losses 57,677 56,230
Loss adjustment expenses 9,599 9,248
Other underwriting expenses less deferrals
of $12,427 in 1996 and $14,147 in 1995 9,335 6,576
Amortization of deferred policy acquisition
costs 12,323 13,452
Interest on surplus note 446 464
89,380 85,970
INCOME BEFORE FEDERAL INCOME TAXES 2,818 2,442
FEDERAL INCOME TAXES
Current 2,298 2,519
Deferred (benefit) (1,313) (1,664)
985 855
NET INCOME $ 1,833 $ 1,587
Per share data, based on 7,078,625 average
shares outstanding in 1996 and 1995:
NET INCOME PER SHARE $0.26 $0.22
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
<CAPTION>
Three Months Ended
September 30
1996 1995
<S> <C> <C>
REVENUES
Premiums earned $23,474 $23,890
Net investment income less expenses of $107
in 1996 and $81 in 1995 4,211 3,902
Service fee income 2,308 1,841
Net securities gains 446 72
Other income 161 216
30,600 29,921
LOSSES AND EXPENSES
Losses 19,986 19,371
Loss adjustment expenses 2,768 3,010
Other underwriting expenses less deferrals
of $2,237 in 1996 and $4,361 in 1995 3,583 2,374
Amortization of deferred policy acquisition
costs 2,916 4,552
Interest on surplus note 149 153
29,402 29,460
INCOME BEFORE FEDERAL INCOME TAXES 1,198 461
FEDERAL INCOME TAXES
Current 803 1,128
Deferred (benefit) (385) (966)
418 162
NET INCOME $ 780 $ 299
Per share data, based on 7,078,625 average
shares outstanding in 1996 and 1995:
NET INCOME PER SHARE $0.11 $0.04
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
<CAPTION>
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,833 $ 1,587
Adjustments to reconcile net income to net
cash provided by operations:
Provision for deferred tax benefits (1,313) (1,664)
Amortization 12,700 13,258
Provision for doubtful accounts 135 98
Net securities (gains) losses (910) 205
Policy acquisition costs incurred and deferred (12,427) (14,147)
Net change in:
Agents' balances (1,600) (3,889)
Reinsurance balances receivable (13,200) (25,937)
Prepaid reinsurance premiums (1,360) (7,147)
Unpaid losses and loss adjustment expenses 16,638 40,593
Unearned premiums 2,730 12,031
Drafts payable 613 634
Due to affiliates (2,654) (4,650)
Unearned services fees 617 1,302
Reserve for servicing carrier claim expense 1,333 933
Reinsurance balances payable (59) 617
Other 609 853
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,685 14,677
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale:
Acquisition of investments (149,240) (49,202)
Proceeds from sale of investments 112,887 48,405
Proceeds from maturities of investments 21,521 16,997
Net change in short-term investments 11,552 (27,910)
NET CASH (USED FOR) INVESTING ACTIVITIES (3,280) (11,710)
NET INCREASE IN CASH 405 2,967
Cash at beginning of period 3,272 3,943
Cash at the end of period $ 3,677 $ 6,910
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS' EQUITY (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
<CAPTION>
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-In (Loss) on Retained
Value Capital Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $7,079 $9,331 $(10,869) $57,723 $63,264
Net change in unrealized
gain (loss) on
investments 10,237 10,237
Net income 1,587 1,587
Balance, September 30, 1995 $7,079 $9,331 $ (632) $59,310 $75,088
Balance, January 1, 1996 $7,079 $9,331 $ 1,240 $58,286 $75,936
Net change in unrealized
gain (loss) on
investments (3,500) (3,500)
Net income 1,833 1,833
Balance, September 30, 1996 $7,079 $9,331 $ (2,260) $60,119 $74,269
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
ALLCITY INSURANCE COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect
all adjustments (consisting only of normal recurring items) that management
believes necessary to present fairly results of interim operations, should be
read in conjunction with the Notes to Consolidated Financial Statements
(including the Summary of Significant Accounting Policies) included in the
Company's audited consolidated financial statements for the year ended
December 31, 1995, which are included in the Company's Annual Report filed on
Form 10-K for such year (the "1995 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 1995 was extracted from the audited
annual financial statements and does not include all disclosures required by
generally accepted accounting principles for annual financial statements.
2. Certain amounts for prior periods have been reclassified to conform with
the 1996 presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Interim Operations
The following should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the 1995 10-K.
LIQUIDITY AND CAPITAL RESOURCES
During each of the nine month periods ended September 30, 1996 and 1995
the Company operated profitably and net cash was provided from operations.
During 1996, the Company sold certain "Available for Sale" securities and
invested the proceeds in securities with longer duration. As more fully
described in the 1995 10-K, securities classified as "Available for Sale" are
carried at fair value with unrealized gains and losses reflected as a separate
component of shareholders' equity, net of taxes. Principally as a result of
increases in market interest rates during 1996, the unrealized gain on
investments at the end of 1995 decreased to an unrealized loss of $2,260,000
as of September 30, 1996. While this has resulted in a decrease in
shareholders' equity and book value per share it had no effect on results of
operations or cash flows.
RESULTS OF OPERATIONS--NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues for the nine and three months ended September 30, 1996 increased
by $3,786,000 and $679,000, respectively, compared to the nine and three
months ended September 30, 1995. The increase in premiums earned in the nine
months ended September 30, 1996 was due to higher premium rates charged on
certain lines of business, particularly related to increased minimum
automobile liability coverage required by New York State in 1996, partially
<PAGE>
offset by a decrease in the number of policies in force. The decrease in
earned premiums in the three months ended September 30, 1996 was primarily the
result of a decrease in the number of policies in force. The Company is
continuing its program, which began in the fourth quarter of 1995, of raising
prices to cover increased loss costs in certain lines of business and reducing
volume in business lines that have not been profitable.
Net investment income increased in 1996 compared to 1995 reflecting
growth in invested assets and higher investment yields. The decrease in
service fee income for the nine months ended September 30, 1996 was
principally the result of a reduction in the estimate of fees earned as a
servicing carrier for the New York Public Automobile Pool and assigned risk
business. The increase in service fee income in the three months ended
September 30, 1996 was principally due to a favorable true-up adjustment to
the 1995 assigned risk business service fees and an increase in New York
Public Automobile Pool income due to a lower allocation of fees to the reserve
for servicing carrier claim expenses.
During the nine and three month periods ending September 30, 1996 and
1995, the Company strengthened loss reserves. Losses for the nine month
period ended September 30, 1996 were higher than in 1995 due to catastrophe
losses of approximately $300,000, less favorable claims experience due to
severe winter storms and an unusually high assessment from the New York State
workers' compensation fund.
Loss adjustment expenses for the nine months ended September 30, 1996
were higher than those of 1995 due largely to increased payments for claims
audits and outside counsel for litigated claims and increased operating costs
(primarily pension and severance benefits for certain employees), a portion of
which is allocated to loss adjustment expense. The decrease in loss adjustment
<PAGE>
expenses for the three months ended September 30, 1996 was due to higher
expense reserves established in the 1995 period.
Other underwriting expenses for the nine and three month periods ended
September 30, 1996 were higher than in 1995 primarily as a result of
higher operating costs, primarily relating to pension and severance benefits
for certain employees. The deferral of policy acquistion costs, net of
amortization, decreased in the nine and three month periods ended September
30, 1996 in comparison to the corresponding 1995 periods primarily due to a
reduction in premiums written.
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on Monday,
October 21, 1996. Of the 7,078,625 common shares issued and outstanding and
eligible to vote at the annual meeting, holders of record of 6,976,089
common shares were represented in person or by proxy and entitled to vote at
the meeting.
The shareholders were asked to elect one Class I Director to serve for a
two-year term expiring in 1998 and five Class III Directors to serve for a
three-year term expiring in 1999. The following table sets forth the
respective vote totals of each Director elected at the meeting:
<TABLE>
<CAPTION>
Director Class Vote for Votes Withheld
<S> <S> <C> <C>
Larry A. Frakes I 6,967,002 9087
Francis M. Colalucci III 6,966,997 9092
Oliver L. Patrell III 6,966,981 9108
Richard G. Petitt III 6,966,997 9092
Harry H. Wise III 6,966,986 9103
Henry H. Wulsin III 6,967,002 9087
</TABLE>
Continuing as Directors after the meeting were Class I Directors, Ian M.
Cumming, Thomas E. Mara, Joseph S. Steinberg and Daniel G. Stewart and Class
II Directors, Martin A. Bernstein, Louis V. Siracusano, Lucius Theus and Helen
W. Vogel.
Subsequent to the election of Directors, Larry A. Frakes resigned as both
officer and Director of the Company effective November 13, 1996. Accordingly,
a vacancy exists for a Class I Director.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended September 30, 1996.
<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 duly authorized.
ALLCITY INSURANCE COMPANY
Registrant
Date: November 13, 1996 By FRANCIS M. COLALUCCI
Francis M. Colalucci
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting
Officer)
<PAGE>
November 13, 1996
FEDERAL EXPRESS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Attention: Filing Desk, Stop 10-4
Re: Form 10-Q - Allcity Insurance Company
Gentlemen:
We enclose herewith one (1) manually signed copy and seven (7) additional
copies of the captioned form for the period ending September 30, 1996.
Very truly yours,
BO:ma
Enclosures
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 271449
<DEBT-CARRYING-VALUE> 271970
<DEBT-MARKET-VALUE> 271985
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 271970
<CASH> 3677
<RECOVER-REINSURE> 351460
<DEFERRED-ACQUISITION> 8682
<TOTAL-ASSETS> 679333
<POLICY-LOSSES> 416517
<UNEARNED-PREMIUMS> 128672
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 7079
<OTHER-SE> 67190
<TOTAL-LIABILITY-AND-EQUITY> 679333
73317
<INVESTMENT-INCOME> 12188
<INVESTMENT-GAINS> 910
<OTHER-INCOME> 5783
<BENEFITS> 67276
<UNDERWRITING-AMORTIZATION> 12323
<UNDERWRITING-OTHER> 9335
<INCOME-PRETAX> 2818
<INCOME-TAX> 985
<INCOME-CONTINUING> 1833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1833
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
