<PAGE> 1
U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from..........to........
Commission File Number 1-8069
Investors Insurance Group, Inc.
(Exact name of small business issuer
as specified in its charter)
Florida 13-2574130
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No)
7200 W. Camino Real
Boca Raton, Florida 33433
(Address of principal executive office) (Zip Code)
(407) 391-5043
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No
[X]
As of August 1, 1997, 2,836,482 shares of the issuer's common stock were
outstanding.
<PAGE> 2
Investors Insurance Group, Inc
FORM 10-QSB
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1: Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 3
Item 1: Consolidated Statements of Operations - six months
ended June 30, 1997 and 1996 5
Item 1: Consolidated Statements of Operations - three months
ended June 30, 1997 and 1996 6
Item 1: Consolidated Statements of Cash Flows - year to date
periods ended June 30, 1997 and 1996 7
Item 1: Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis 14
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 19
Item 3: Default Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
ASSETS 1997 1996
-------- --------
(unaudited)
Investments:
Fixed maturities held to maturity, at
amortized cost (market $8,610 in 1997
and $8,731 in 1996) $ 8,199 $ 8,200
Securities available for sale:
Fixed maturities, at market (amortized
cost $56,674 in 1997 and $57,309 in 1996) 56,239 57,075
Equity securities, at market (cost $11 in 1996) - 22
Short-term investments 265 305
Mortgage loans on real estate 343 365
Policy loans 526 522
------- -------
Total 65,609 66,489
Cash and cash equivalents 6,658 6,801
Investment in common stock of affiliate,
at market (cost $850 in 1997 and $992 in 1996) 472 638
Accrued investment income 534 451
Deferred acquisition costs 42,936 46,760
Reinsurance benefits receivable 1,726 -
Investment contract benefits recoverable 428,496 483,378
Reinsurance benefits recoverable 5,118 4,740
Cost in excess of net assets of businesses
acquired (less accumulated amortization
of $1,435 in 1997 and $1,291 in 1996) 3,351 3,389
Income tax recoverable 63 765
Other assets 318 303
------- -------
Total Assets $ 555,415 $ 613,714
======= =======
See accompanying notes to consolidated financial statements.
<PAGE> 4
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
-------- --------
(unaudited)
Liabilities:
Future policy benefits and claims:
Investment contracts $ 494,943 $ 547,184
Life insurance reserves 10,135 9,666
Accident & health claim reserves 31 29
Unearned ceding commission (including
deferred gross profits of $8,190 in
1997 and $9,154 in 1996) 45,400 50,210
Note payable 8,000 8,000
Amounts due to coinsurer 47 1,173
Accrued expenses 1,046 875
Other liabilities 1,318 2,411
------- -------
Total Liabilities 560,920 619,548
------- -------
Commitments & Contingencies
Shareholders' Equity:
Preferred Stock, no par,
authorized 20,000,000 shares, none issued - -
Common Stock, $.50 par value; authorized
30,000,000 shares; issued 2,840,482 in
1997 and 2,840,082 in 1996; outstanding
2,836,482 in 1997 and 2,836,082 in 1996 1,420 1,420
Additional paid-in capital 3,656 3,656
Net unrealized investment gains (losses) (675) (586)
Accumulated deficit (9,898) (10,316)
Treasury stock, at cost (4,000 shares in
1997 and 1996) (8) (8)
------- -------
(5,505) (5,834)
------- -------
Total Liabilities and Shareholders' Equity $ 555,415 $ 613,714
======= =======
See accompanying notes to consolidated financial statements.
<PAGE> 5
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE SIX MONTHS ENDED June 30, 1997 AND 1996
(Dollars in thousands, except per share data)
1997 1996
-------- --------
Revenue:
Net investment income $ 2,453 $ 3,651
Realized investment gains (losses) 11 4,029
Premium and policy fees 627 669
Commission and other income 1,690 614
------- -------
Total revenue 4,781 6,963
------- -------
Benefits and Expenses:
Current and future insurance benefits 304 308
Interest on investment contracts 1,597 2,731
Underwriting, acquisition and insurance expenses 2,211 4,733
Other expenses 300 460
------- -------
Total benefits and expenses 4,412 8,232
------- -------
Income before income tax expense (benefit) 369 731
Income tax expense (benefit) (48) (259)
------- -------
Net income $ 417 $ 990
======= =======
Net Income per share of common stock $ 0.15 $ 0.35
======= =======
Weighted average number of shares outstanding 2,836,368 2,848,258
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 6
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED June 30, 1997 AND 1996
(Dollars in thousands, except per share data)
1997 1996
-------- --------
Revenue:
Net investment income $ 1,223 $ 2,430
Realized investment gains (losses) 13 150
Premium and policy fees 247 324
Commission and other income 614 350
------- -------
Total revenue 2,079 2,254
------- -------
Benefits and Expenses:
Current and future insurance benefits 91 60
Interest on investment contracts 766 931
Underwriting, acquisition and insurance expenses 954 1,221
Other expenses 70 230
------- -------
Total benefits and expenses 1,881 2,442
------- -------
Income before income tax expense (benefit) 216 188
Income tax expense (benefit) (15) (264)
------- -------
Net income $ 231 $ 76
======= =======
Net Income per share of common stock $ 0.08 $ 0.03
======= =======
Weighted average number of shares outstanding 2,836,482 2,867,022
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 7
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE YEAR TO DATE PERIODS ENDED June 30, 1997 AND 1996
(Dollars in thousands)
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 418 $ 990
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Net accretion of fixed maturities (121) (167)
Realized investment loss (gains) (9) (4,007)
Amortization of costs in excess of net assets
of businesses acquired 140 154
Amortization of deferred acquisition costs 769 2,645
Amortization of unearned ceding commissions (975) (271)
Ceding commission recognized upon assumption (400) -
Deferral of unearned ceding commission 1,301 8,339
Deferral of acquisition costs (1,687) (3,552)
Change in assets and liabilities:
Increase in investment contract
benefits recoverable (13,730) (95,470)
Increase in insurance reserves and
interest on investment contracts 15,427 16,087
Increase in other assets, net 284 (1,850)
Decrease in other liabilities, net (3,773) (5,323)
------- -------
Net cash used in
operating activities (2,356) (82,425)
------- -------
Cash flows from investing activities:
Investment repayments:
Mortgage loans 22 177
Policy loans, net (41) 15
Investments sold:
Fixed maturities, available for sale 2,088 88,588
Equity Securities, available for sale 22 328
Short-term investments, net 40 32
Investments in:
Fixed maturities, available for sale (1,333) (6,828)
------- -------
Net cash provided by investing activities 798 82,312
------- -------
See accompanying notes to consolidated financial statements.
<PAGE> 8
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
FOR THE YEAR TO DATE PERIODS ENDED June 30, 1997 AND 1996
(Dollars in thousands)
1997 1996
-------- --------
Cash flows from financing activities:
Investment contract deposits $ 18,529 $ 35,705
Investment contract withdrawals (36,743) (29,101)
Reinsurance contract deposits (12,101) (35,166)
Withdrawals recovered from reinsurance 31,730 22,929
Common stock issued - 37
------- -------
Net cash provided by (used in)
financing activities 1,415 (5,546)
------- -------
Net increase (decrease) in cash
and cash equivalents (143) (5,659)
Cash and cash equivalents, beginning of year 6,801 11,372
------- -------
Cash and cash equivalents, end of year $ 6,658 $ 5,713
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest - -
Income taxes $ (750) $ 1,000
see accompanying notes to consolidated financial statements.
<PAGE> 9
Investors Insurance Group, Inc. and Subsidiaries
Notes to consolidated Financial Statements
(unaudited)
1. Management Representation
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
items) necessary to present fairly the consolidated financial position
of Investors Insurance Group, Inc. ("Company") and its subsidiaries,
IIC, Inc., Investors Insurance Corporation ("Investors") and Investors
Marketing Group, Inc. ("IMG"), as of June 30, 1997, and the results of
operations for the six and three month periods ended June 30, 1997 and
1996, and the cash flows for the year to date periods ended June 30,
1997 and 1996.
2. Reporting Standards
The Company files its financial statements in compliance with Regulation
S-B of the Securities and Exchange Commission.
3. Regulatory Issues
The Arizona Department of Insurance ("Arizona") has raised questions
about Investors' continuing ability to write new business. Through June
30, 1997, 41% of Investors' new business was written in Arizona. As a
result of its on-going discussion with Arizona, the Investors has agreed
to amended its quota share reinsurance contract with Republic Vanguard
Life Insurance Company ("RVL") to cede all its current and future
Arizona business to RVL. Under the terms of this amendment, which is to
be effective August 1, 1997, Investors will transfer approximately $8.5
million of statutory reserves. The impact of this transaction on
Investors' statutory capital and surplus and on the Company's GAAP basis
financial statements has not been determined at this time.
As part of its agreement with Arizona, Investors has further agreed to
reinsure either (a) all its current and prospective business on a quota
share basis or (b) all its Arizona business on a full assumption basis
upon the earliest of the following events:
1. Investors' statutory capital and surplus falls
below $4.5 million, or
2. Investors' Risk Based Capital falls to less
than 225% of its Authorized Control Level, or
3. Investors' ratio of policyholder liabilities
to statutory capital and surplus exceeds 16:1, or
4. Investors' statutory capital and surplus is
less than $10 million on December 15, 1997.
To meet these conditions, the Company is currently seeking a
buyer for Investors.
<PAGE> 10
4. Reinsurance
Under the provisions of the reinsurance agreement with New Era Life
Insurance Company ("NEL"), NEL began to assume sole liability for the
policies that were ceded to it earlier. As sole liability is assumed by
NEL, the Company removes its liability for Investment contracts, its
related assets (Investment contract benefits recoverable and Deferred
acquisition costs) and its Unearned ceding commissions from its balance
sheet and recognizes the related profit portion of the Unearned ceding
commission as Commission income and other income. During the three
months ended March 31, 1997, NEL assumed sole liability for investment
contract liabilities of $48,983,003. This assumption reduced both the
Company's liability for Investment contracts and its receivable for
Reinsurance benefits recoverable by $48,983,003. Further, it reduced
its Deferred acquisition costs and Unearned ceding commissions by
$1,766,767 and $2,167,060 respectively and recognized Commission and
other income of $400,293. The impact of this transaction was to
increase 1997 income by $400,293. NEL has not assumed any additional
business since March 31, 1997.
The NEL agreement significantly reduced Investors ratio of statutory
liabilities to statutory capital and surplus. In recognition of its
improved statutory financial position, effective January 1, 1997,
Investors reduced its ceding rate under its quota share agreement from
100% to 60% (see prospective changes discussed in Note 3 above).
5. Stock Options
The Agent's Stock Option Plan was not renewed by the Board in 1997 and
no new options have been granted. If unexercised, the outstanding
options expire two years after issue. During the six month period ended
June 30, 1997, 56,900 share options expired. There are currently
96,100 share options outstanding under the Agent's Stock Option Plan.
In 1989, IIG issued warrants to purchase 1,000,000 shares of its common
stock at $2.00 per share. These warrants have not been exercised and
expired under their terms on March 31, 1997.
6. Note Payable
In connection with its acquisition of IIC Inc., which owns all the
outstanding shares of Investors, IIG issued an $8,000,000 secured
subordinated note payable which was due March 31, 1997, with interest at
8% payable quarterly (IIG Note).
As a result of material misrepresentations by the seller, IIG has
several significant claims which, if sustained, should reduce the
principal amount of the IIG Note and result in a refund of previously
paid interest. However, these issues have not been settled. Until
recently, ownership of the IIG Note has been in dispute. Since the
ownership issues were resolved, negotiations have been deferred while
creditor solicits valuation advice from outside sources. The ultimate
settlement of the claims against the IIG Note will not result in any
additional liability for IIG and, based on the terms of the IIG Note,
<PAGE> 11
IIG has recognized interest expense through March 31, 1997. However, in
recognition of its claims against the IIG Note, IIG has withheld payment
of interest since 1995.
Payment of the IIG Note principal was due on March 31, 1997 and is
currently in default. The creditor has filed a lawsuit seeking
foreclosure (The Honorable Donna Lee Williams, Insurance Commissioner of
the State of Delaware as Receiver of National Heritage Life Insurance
Company v. Investors Insurance Group, Inc.; U.S.D.C., M.D. Fla 97-773-
CV-ORI-19) and the Company has filed a Motion to Dismiss this action.
The Company's management believes it has valid defenses and counter
claims to block any foreclosure attempt, however, the ultimate outcome
of this case cannot be determined at this time.
7. Condensed Financial Information of the Parent Company
As presented in the Parent company's financial statements below, the
Parent has depleted its liquid assets. Further, as discussed in the
1996 Form 10KSB, it is unable to obtain additional funds from its
subsidiaries. While the Company is continuing to try to arrange financing
for its on-going expenses, there can be no assurance it will be able to do
so.
<PAGE> 12
CONDENSED BALANCE SHEETS PARENT COMPANY
As of June 30, 1997
(in thousands)
ASSETS
Cash and cash equivalents $ -
Equity securities, at market 22
Investments in affiliate and wholly-owned subsidiary 3,597
Other assets 19
------
Total assets $3,616
======
LIABILITIES AND CAPITAL DEFICIT
Liabilities:
Note payable $ 8,000
Accrued interest on note payable 960
Due to affiliates 90
Other liabilities 70
------
Total liabilities 9,120
------
Capital Deficit:
Common stock 1,420
Additional paid-in capital 3,656
Net unrealized investment losses (675)
Accumulated deficit (9,898)
Treasury stock (8)
------
Total Capital Deficit (5,505)
------
Total Liabilities and Capital Deficit $ 3,615
======
<PAGE> 13
CONDENSED STATEMENTS OF OPERATIONS
PARENT COMPANY
For the Year to Date Period Ending June 30, 1997
(in thousands)
Revenue $ 198
------
Expenses:
General and administrative expenses 283
Interest expense 119
------
Total expenses 402
------
Loss before equity in net income
of subsidiaries and income taxes (204)
Equity in net income of subsidiaries 621
------
Loss before income taxes 417
Income tax expense -
------
Net Income $ 417
======
CONDENSED STATEMENTS OF CASH FLOWS
PARENT COMPANY
For the Year to Date Period Ending June 30, 1997
(in thousands)
Cash flows from operating activities:
Net income $ 417
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of subsidiaries (621)
Change in accrued interest (11)
Change in other assets and
other liabilities, net 121
-------
Net cash used in operating activities (94)
Cash from the sales of equity securities 22
-------
Net decrease in cash and cash equivalents (72)
Cash and cash equivalents, beginning of year 72
-------
Cash and cash equivalents as of June 30, 1997 $ -
=======
<PAGE> 14
Item 2: Management Discussion and Analysis
General
The following discussion and analysis for Investors Insurance Group,
Inc. ("Company") and its wholly-owned subsidiaries, primarily Investors
Insurance Corporation ("Investors"), updates the discussion and analysis
contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996 and should be read in conjunction with that
report and the Notes to the June 30, 1997 financial statements presented
under Item 1.
Results of Operations
Management believes the current year decline in written premium to $17
million from $32 million in 1996 is a reflection of the current low
interest rate environment and the marketing difficulty resulting from
the issues surrounding the IIG Note (see Note 6 to the financial
statements). Despite these marketing problems, the Company's operating
results were positive. This was primarily due to an increase in
reinsurance ceding commission income and a reduction in operating
expenses.
In 1997, NEL began to assume sole liability for the policies that were
ceded to it in 1996. As sole liability is assumed by NEL, the Company
removes its liability for Investment contracts, its related assets
(Investment contract benefits recoverable and Deferred acquisition
costs) and Unearned ceding commissions from its balance sheet and
recognizes the related profit portion of the Unearned ceding commission
as Commission income and other income. During the three months ended
March 31, 1997, NEL assumed sole liability for investment contract
liabilities of $48,983,003. This assumption reduced both the Company's
liability for Investment contracts and its receivable for Reinsurance
benefits recoverable by $48,983,003. Further, it reduced its Deferred
acquisition costs and Unearned ceding commissions by $1,766,767 and
$2,167,060 respectively and recognized Commission and other income of
$400,293.
The amortization of ceding commission included in Commission and other
income increased to approximately $975,000 in 1997 from $270,000 in
1996. This accelerated amortization results from a significant increase
in the withdrawal and surrender rates during 1997.
The reduction in Underwriting, acquisition and insurance expenses is
primarily the result of the 1996 reinsurance transaction with New Era
Life Insurance Company ("NEL") discussed below. In addition, management
has attempted to reduce its current operating expenses and defer certain
promotional expenses until the issues surrounding the IIG Note are
resolved. Further, based on the change in prospective market interest
rates, the valuation allowance for the recoverability of the NEL
reinsurance allowances has been reduced by approximately $100,000.
The IIG Note was due on March 31, 1997. Since the IIG Note does not
provide for interest after maturity, no further interest has been
recognized. The reduction in Other expenses reflects this change.
<PAGE> 15
The 1996 NEL reinsurance agreement significantly reduced Investors'
ratio of statutory liabilities to statutory capital and surplus. In
recognition of its improved statutory financial position, effective
January 1, 1997, Investors reduced its ceding rate under its quota share
agreement from 100% to 60%. As a result of the lower ceding rate and
the lower volume of new business, Investors now receives more from its
reinsurer for reimbursement of benefits than it pays on new premium.
The new asset line Reinsurance benefits receivable accompanies the
reduction in the liability Amounts due to reinsurer.
The Arizona Department of Insurance ("Arizona") has raised questions
about Investors' continuing ability to write new business. Through June
30, 1997, 41% of Investors' new business was written in Arizona. As a
result of its on-going discussion with Arizona, the Investors has agreed
to amended its quota share reinsurance contract with RVL to cede all its
current and future Arizona business to RVL. Under the terms of this
amendment, which is to be effective August 1, 1997, Investors will
transfer statutory reserves of approximately $8.5 million. The impact
of this transaction on Investors' statutory capital and surplus and on
the Company's GAAP basis financial statements has not been determined at
this time.
As part of its agreement with Arizona, Investors has further agreed to
reinsure either (a) all its current and prospective business on a quota
share basis or (b) all its current and prospective Arizona business on a
full assumption basis upon the earliest of the following events:
1. Investors' statutory capital and surplus falls
below $4.5 million, or
2. Investors' Risk Based Capital falls to less
than 225% of its Authorized Control Level, or
3. Investors' ratio of policyholder liabilities
to statutory capital and surplus exceeds 16:1, or
4. Investors' statutory capital and surplus is
less than $10 million on December 15, 1997.
To meet these conditions, the Company is currently seeking a buyer for
Investors.
As described in the Company's prior financial statements, Investors
closed a large reinsurance agreement with NEL in 1996. This transaction
substantially accounts for the changes in the composition of the
Company's Consolidated Statements of Operations. Specifically, the 1996
Realized investment gains (losses) is substantially due to the disposal
of the investments supporting the ceded policies. Realization of
investment gains and losses changes the pattern of expected future
profits which forms the basis for the amortization of deferred
acquisition costs. As a result of this 1996 gain, the amortization of
deferred acquisition costs increased by approximately $2,254,000 and
this increase substantially accounts for the change in Underwriting,
acquisition and insurance expenses between 1997 and 1996. Since the
assets related to the reinsurance agreement were transferred to NEL on
March 1, 1996, both the related income (Net investment income) and
expense (Interest on investment contracts) have declined from the levels
reflected in 1996.
<PAGE> 16
As more fully described in the Company's 1996 Form 10KSB, the
calculation of income tax expense results in a deferred tax asset that
is fully reserved. As a result, the income tax expense reflected in the
Company's financial statements is its estimate of the amount it expects
to pay or recover for the current period.
Liquidity and Capital Resources
In connection with its acquisition of IIC Inc., which owns all the
outstanding shares of Investors, IIG issued an $8,000,000 secured
subordinated note payable which was due March 31, 1997, with interest at
8% payable quarterly (IIG Note).
As a result of material misrepresentations by the seller, IIG has
several significant claims which, if sustained, should reduce the
principal amount of the IIG Note and result in a refund of previously
paid interest. However, these issues have not been settled. Until
recently, ownership of the IIG Note has been in dispute. Since the
ownership issues were resolved, negotiations have been deferred while
creditor solicits valuation advice from outside sources. The ultimate
settlement of the claims against the IIG Note will not result in any
additional liability for IIG and, based on the terms of the IIG Note,
IIG has recognized interest expense through March 31, 1997. However, in
recognition of its claims against the IIG Note, IIG has withheld payment
of interest since 1995.
Payment of the IIG Note principal was due on March 31, 1997 and is
currently in default. The creditor has filed a lawsuit seeking
foreclosure (The Honorable Donna Lee Williams, Insurance Commissioner of
the State of Delaware as Receiver of National Heritage Life Insurance
Company v. Investors Insurance Group, Inc.; U.S.D.C., M.D. Fla 97-773-
CV-ORI-19) and the Company has filed a Motion to Dismiss this action.
The Company's management believes it has valid defenses and counter
claims to block any foreclosure attempt, however, the ultimate outcome
of this case cannot be determined at this time.
The Parent has depleted its liquid assets and, as discussed in the 1996
Form 10QSB, it is unable to obtain additional funds from its
subsidiaries. While it is attempting to arrange financing for its on-
going expenses, there can be no assurance it be able to do so.
Caution on Forward-Looking Statements
The 1995 Private Securities Litigation Reform Act provides issuers the
opportunity to make cautionary statements regarding forward-looking
statements. Accordingly, any forward-looking statement contained herein
or in any other oral or written statement by the Company or any of its
officers, director or employees is qualified by the fact that actual
results of the Company may differ materially from such statement due to
the following important factors, among other risks and uncertainties
inherent in the Company's business:
1. Prevailing interest rate levels, including any continuation
of the current relatively flat yield curve for short-term
<PAGE> 17
investments, which may affect the ability of the Company to
sell its products, the market value of the Company's
investments or the lapse rate of the Company's policies,
notwithstanding product design features intentioned to
enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations which
may affect the relative tax advantage of the Company's
products.
3. Changes in the regulation of financial services, including
bank sales of insurance products, which may affect the
competitive environment for the Company's products.
4. Regulatory requirements from any of the states in which
Investors is authorized to sell insurance.
5. The Parent Company's access to sufficient funds to pay its
obligations as they become due.
<PAGE> 18
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
There existed a dispute between the Pennsylvania Department of
Insurance, as statutory liquidator of Corporate Life Insurance Company
("Pennsylvania"), and the Delaware Department of Insurance, as
rehabilitator and liquidator of National Heritage Life Insurance Company
("Delaware") as to the ownership of the Secured Subordinated Debenture
("IIG Note") issued in 1989 by Gemco National, Inc. to Corporate Life
Insurance Company in connection with the purchase by Gemco of all of the
outstanding shares of stock of IIC, Inc., Investors Insurance
Corporation and Westchester Reinsurance, Ltd. To avoid being subject to
double liability, the Company filed a Complaint in Equity for
Interpleader with the Pennsylvania Commonwealth Court captioned
Investors Insurance Group, Inc. v. Insurance Commissioner of
Pennsylvania Department of Insurance and Insurance Commissioner of
Delaware Department of Insurance, (518 MD 1995, PA Cmwlth Ct. 1995). On
or about November 1, 1996, Company filed for an injunction restraining
Delaware from foreclosing on the stock of Investors Insurance
Corporation. In April 1997, Pennsylvania ceded its interest in the IIG
Note to Delaware for an undisclosed amount of consideration. The
Pennsylvania Commonwealth Court then dismissed the action without
prejudice.
In connection with the above action, on March 14, 1996 the Delaware
filed a Petition for Declaratory Judgment, Specific Performance and
Injunctive Relief against the Company in the case entitled, In The
Matter of the Liquidation of National Heritage Life Insurance Company,
(CA. No. 13530. DE Ct, Chancery 1996). Delaware requested the Court to
enter a Declaratory Judgment that it (Delaware) is the owner of the IIG
Note and, as such, is entitled to receipt of interest payments being
held in escrow, and is entitled to have the IIG Note registered in its
(Delaware's) name. The action also requested the Court to declare that
the Company does not have any claims to offset the principal amount of
the IIG Note and further seeks indemnification from the Company. In
June of 1997, the Court dismissed the petition for lack of jurisdiction.
In June 1997, Delaware filed a Civil Action against the Company seeking
foreclosure (The Honorable Donna Lee Williams, Insurance Commissioner of
the State of Delaware as Receiver of National Heritage Life Insurance
Company v. Investors Insurance Group, Inc.; U.S.D.C., M.D.Fla 97-773-CV-
ORI-19). The Company has filed a Motion to Dismiss this action.
The Company's management believes it has valid defenses and counter
claims to block any foreclosure attempt, however, the ultimate outcome
of this case cannot be determined at this time.
<PAGE> 19
Item 2: Changes in Securities
No changes to report
Item 3: Defaults on Senior Securities
See discussion under Item 1 above
Item 4: Submissions of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
a). Exhibits
None
b). Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended June 30, 1997.
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Investors Insurance Group, Inc.
(Registrant)
Date: August 18, 1997 /s/ Melvin C. Parker
______________________________
Melvin C. Parker
President, Chief Executive
Officer and Chief Financial
Officer
<PAGE>
<PAGE> 1
AGREEMENT
Investors Insurance Corporation and the Arizona Department of
Insurance agree to certain minimum standards and conditions that
must be met and/or maintained, in consideration for which the
Arizona Department agrees to forbear from commencing a field
examination of Investors for the term hereof. These standards
and conditions are as follows:
1. Investors will cede to Republic-Vanguard Life, or some other
reinsurer acceptable to the Arizona Department of Insurance
within 10 business days from the date this agreement is signed
by the Arizona Department of Insurance, 100% of existing
retained business covering Arizona policyholders and cede all
new business written in Arizona, but in any event, the cession
to the selected reinsurer will occur no later than August 8,
1997.
2. Investors' RBC Ratio shall be computed as of the end of each
calendar quarter and shall not fill below 225%. The RBC Ratio
and supporting calculation shall be timely filed by Investors
with the Arizona Department of Insurance along with the
respective statutory Quarterly Statement or Annual Statement
filing. Investors' ratio of policyholder liability to capital
and surplus shall not at any time exceed 16 to 1. In no event
will Investors' Capital and Surplus be lower than $4.5 million.
Investors' Annual Statement, Quarterly Statement and RBC
computation, upon which these amounts and ratios are based,
shall continue to be subject to review and, as appropriate,
adjustments as necessary pursuant to Arizona statutes and rules
and related NAIC Accounting Practices and Procedures.
3. Asset Allocation & Management Company (AAM), or another
qualified asset manager acceptable to the Arizona Department,
will continue to invest Investors' assets. Investors' investment
strategy shall not deviate from that currently employed and as
described in Investors' 1996 "Management Discussion and
Analysis" filed with the Arizona Department of Insurance,
including that Investor's current portfolio of securities
consists primarily of readily marketable bonds, matched with
anticipated insurance liabilities, and new funds from
policyholders are invested solely in securities guaranteed by
the U.S. Government, its agencies or sponsored enterprises.
4. Investors shall continue to submit all expenditures in excess
of $10,000 to the Delaware Department of Insurance for prior
consideration; provided however, if the Delaware Department at
any time no longer requires such expenditures to be submitted
for its consideration, Investors shall immediately so notify the
Arizona Department, at which time the Arizona Department will
revisit this requirement for the purpose of either removing the
requirement or requiring an alternate mechanism for the
protection of policyholders.
<PAGE> 2
5. Investors' capital and surplus shall be increased to not less
than $10 million by no later than December 15, 1997.
Alternatively, by December 15, 1997, there shall be in existence
a binding letter of intent for the sale of Investors between a
bona fide seller and a qualified buyer willing and able to
increase Investor's capital and surplus to not less than $10
million, which includes a scheduling deadline for a Form A
hearing with the Delaware Department of Insurance by no later
than January 30, 1998. The letter of intent shall not be
conditioned upon any unresolved issues to the ownership of
Investors.
6. Investors shall continue to timely reimburse the Arizona
Department of Insurance for desk audit fees and examination
related expenses.
7. Unless this stipulation is terminated as set forth in
paragraph 8 below or there is a binding letter of intent and/or
sale as set forth in paragraph 5 above, Investors shall cede and
Republic Vanguard Lift Insurance Company agrees to accept 100%
of Investors' remaining net retained policy liabilities on an
indemnity basis, or 100% of Arizona policy liabilities and
reserves on an assumption reinsurance basis. Such reinsurance
will occur at the earliest of (1) December 15, 1997, or (2)
within ten (10) business days after Investors becomes aware of
its failure to maintain or meet one or more of the above
standards and conditions and fails to make a correction to the
standard or condition within the ten (10) business day
framework; or (3) within ten (10) business days after Investors
is notified by the Arizona Department of Insurance of Investors'
failure to maintain or meet the above standards, and Investors
fails to remedy such standard or condition within ten (10)
business days after receipt of such notification.
8. This stipulation will terminate upon transfer of ownership to
another entity and upon the new owner contributing additional
surplus to Investors to meet the conditions set forth herein.
9. The Arizona Department of Insurance reserves any and all
power and authority prescribed by Arizona law to regulate the
transaction of insurance by Investors as actual circumstances
develop, including but not limited to circumstances relating to
Investors' financial condition and its ability to continue to
transact insurance in Arizona, it being the intent that
Investors' management and shareholder be given additional
opportunity to attract additional capital and surplus into the
Company, but the time allotted to accomplish this goal shall not
extend beyond December 15, 1997 or within a finite closing
period thereafter as set forth herein.
10 This agreement maybe signed in counterparts and must be
signed by all parties no later than July 31, 1997.
<PAGE> 3
ACCEPTED this 29 day of July, 1997.
INVESTORS INSURANCE CORPORATION
By: /s/ Melvin C. Parker
Title: President
ACCEPTED this 30 day of July, 1997.
ARIZONA DEPARTMENT OF INSURANCE
By: /s/ Gary A. Torticill, CFE, ALMI
Assistant Director/Chief Examiner
ACCEPTED only to paragraph 1 and to paragraph 7 only to the
issue that Republic-Vanguard Life agrees to assume, subject to
the parties entering into a reinsurance agreement, the remaining
net retained business covered under its existing treaties with
Investors this 30 day of July, 1997.
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
By: /s/ John M. Brill
Senior Vice President and Treasurer
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 7
<PAGE>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 56,239
<DEBT-CARRYING-VALUE> 8,199
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<POLICY-LOSSES> 494,943
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0
0
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627
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<PAGE>
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