SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________________
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
______________________
Commission File Number 0-8636
AMERICAN INDEMNITY FINANCIAL CORPORATION
________________________________________
(Exact name of registrant as specified in its charter)
Delaware 510119643
________ _________
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
One American Indemnity Plaza, Galveston, Texas 77550
______________________________________________ _____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (409) 766-4600
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 [ ]
As of November 8, 1995, 1,947,110 shares of registrant's common stock,
$3.33 1/3 par value, were outstanding.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the
Three Months Ended September 30, 1995 and 1994
Unaudited
1995 1994
__________ __________
PREMIUMS AND OTHER INCOME:
Premiums earned $17,243,770 $16,817,922
Net investment income (net of investment
expenses of $94,433 in 1995 and $92,740
in 1994) 968,835 1,159,816
Realized investment gains (losses) 88,098 (74,565)
Interest on premium bills receivable and
other income 185,342 174,055
__________ __________
TOTAL 18,486,045 18,077,228
EXPENSES:
Losses and loss adjustment expenses 12,490,046 10,883,735
Policy acquisition costs 6,310,921 6,468,829
Retrospective premium adjustments on
workers' compensation policies 375,568 (232,120)
__________ __________
TOTAL 19,176,535 17,120,444
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (690,490) 956,784
PROVISION (CREDIT) FOR FEDERAL INCOME TAX:
Current (13,088) 36,071
Deferred
__________ __________
TOTAL (13,088) 36,071
NET INCOME (LOSS) $ (677,402) $ 920,713
AVERAGE SHARES OUTSTANDING 1,946,843 1,946,710
EARNINGS PER SHARE:
NET INCOME (LOSS) $ (.34) $ .47
DIVIDENDS DECLARED PER SHARE $ .075 $ .06
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1995 and 1994
Unaudited
1995 1994
__________ __________
PREMIUMS AND OTHER INCOME:
Premiums earned $51,158,487 $48,919,803
Net investment income (net of investment
expenses of $290,622 in 1995 and $272,079
in 1994) 2,965,137 3,710,722
Realized investment gains (losses) 7,212 (82,336)
Interest on premium bills receivable and
other income 549,530 519,365
__________ __________
TOTAL 54,680,366 53,067,554
EXPENSES:
Losses and loss adjustment expenses 38,544,783 32,679,264
Policy acquisition costs 18,939,513 17,209,943
Retrospective premium adjustments on
workers' compensation policies 955,030 78,065
__________ __________
TOTAL 58,439,326 49,967,272
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (3,758,960) 3,100,282
PROVISION (CREDIT) FOR FEDERAL INCOME TAX:
Current (13,088) 35,392
Deferred
__________ __________
TOTAL (13,088) 35,392
NET INCOME (LOSS) $ (3,745,872) $ 3,064,890
AVERAGE SHARES OUTSTANDING 1,946,754 1,946,677
EARNINGS PER SHARE:
NET INCOME (LOSS) $ (1.92) $ 1.57
DIVIDENDS DECLARED PER SHARE $ .21 $ .15
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
Unaudited
1995 1994
___________ ___________
ASSETS
______
Investments:
Fixed maturities - bonds:
Available for sale $ 71,207,953 $ 62,569,334
Preferred stocks 2,258,337 2,268,012
Common stocks 11,541,286 14,475,261
Mortgage loans on real estate 25,753 29,034
Short-term investments 60,000 60,000
___________ ___________
Total Investments 85,093,329 79,401,641
Cash and Cash Equivalents 3,767,901 4,937,544
Accrued Investment Income 790,678 736,466
Premiums in Course of Collection 7,012,945 5,962,784
Direct Premium Bills Receivable 9,034,019 7,908,893
Reinsurance Balances Receivable 11,901,307 10,788,671
Prepaid Reinsurance Premiums 756,628 1,327,484
Property and Equipment - Less accumulated
depreciation of $4,697,505 in 1995 and
$4,411,800 in 1994 4,111,162 3,791,245
Deferred Policy Acquisition Costs 9,480,969 9,097,464
Deferred income taxes 4,430,000 4,430,000
Other Assets 3,025,362 2,819,299
___________ ___________
TOTAL $139,404,300 $131,201,491
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Losses and Loss Adjustment Expenses $ 52,530,100 $ 50,916,776
Unearned Premiums 36,762,210 34,922,255
Reinsurance Balances Held or Payable 3,115,788 3,777,547
Accounts Payable and Other Accrued Liabilities 9,468,175 8,146,547
___________ ___________
Total Liabilities 101,876,273 97,763,125
Stockholders' Equity:
Preferred stock, authorized 2,000,000
shares; none outstanding
Common stock, $3.33 1/3 par value; authorized
2,500,000 shares; outstanding shares
1,947,110 in 1995 and 1,946,710 in 1994 6,490,351 6,489,018
Paid-in surplus 13,047,085 13,045,866
Unrealized decline in market value of
investments (2,110,548) (10,352,340)
Retained earnings 20,101,139 24,255,822
___________ ___________
Total Stockholders' Equity 37,528,027 33,438,366
___________ ___________
TOTAL $139,404,300 $131,201,491
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994
Unaudited
1995 1994
__________ __________
OPERATING ACTIVITIES:
Net income (loss) $ (3,745,872) $ 3,064,890
Adjustments to reconcile net income to
net cash flow from operating activities:
Decrease (Increase) in:
Premiums in course of collection (1,050,161) (1,279,137)
Direct premium bills receivable (1,125,126) (495,078)
Reinsurance balances receivable (1,112,636) 1,041,674
Prepaid reinsurance premiums 570,856 329,585
Deferred policy acquisition costs (383,505) (1,023,331)
Other assets (206,063) (1,416,697)
Increase (Decrease) in:
Unpaid losses and loss adjustment expenses 1,613,324 (2,062,521)
Unearned premiums 1,839,955 659,064
Reinsurance balances held or payable (661,759) 1,179,253
Accounts payable and other accrued
liabilities 1,321,628 2,197,564
Realized investment (gains) losses (7,212) 82,336
Depreciation 285,705 227,162
Other (23,894) 381,324
__________ __________
Net cash flow from operating activities (2,684,760) 2,886,088
INVESTING ACTIVITIES:
Sale of bonds 5,166,266 21,217,761
Maturity of bonds 3,263,596 5,019,820
Sale of preferred stocks 49,338
Redemption of preferred stocks 170,018 27,625
Sale of common stocks 5,431,904 2,459,425
Purchase of bonds (11,308,905) (28,156,361)
Purchase of preferred stocks (175,000)
Purchase of common stocks (248,500) (1,080,825)
Purchase of property and equipment (605,622) (406,286)
Other 3,281 9,427
__________ _________
Net cash flow from investing activities 1,921,376 (1,084,414)
FINANCING ACTIVITIES:
Cash dividends paid to stockholders (408,811) (292,003)
Proceeds received from exercise of stock
options 2,552 638
__________ __________
Net cash flow from financing activities (406,259) (291,365)
__________ __________
Net Increase (Decrease) in Cash and
Cash Equivalents (1,169,643) 1,510,309
Cash and Cash Equivalents, January 1 4,937,544 2,628,681
__________ _________
Cash and Cash Equivalents, September 30 $ 3,767,901 $ 4,138,990
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(1)The financial information included herein is unaudited but, in the
opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. These interim consolidated financial statements should
be read in conjunction with the Company's report on Form 10-K for
the year ended December 31, 1994. The results of operations for
this interim period are not necessarily indicative of results for
the full year.
(2)Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss carryforwards. The tax
effects of significant items comprising the Company's net deferred
income taxes as of September 30, 1995 and December 31, 1994 are as
follows:
September 30, 1995 December 31, 1994
____________ ___________
Deferred tax liabilities:
Deferred policy acquisition costs $ (3,223,529) $ (3,093,138)
Difference between book and
tax basis of property (276,196) (293,041)
Other (733,055) (648,145)
____________ ___________
(4,232,780) (4,034,324)
Deferred tax assets:
Reserves not currently deductible 6,067,097 5,544,486
Unrealized investments losses 717,586 3,519,796
Operating loss carryforwards 11,876,683 10,266,792
____________ ___________
18,661,366 19,331,074
____________ ___________
Net Asset 14,428,586 15,296,750
Valuation allowance (9,998,586) (10,866,750)
____________ ___________
Net deferred tax assets $ 4,430,000 $ 4,430,000
The provision for federal income tax is related to taxes arising
under the alternative minimum tax system which is based on
reported income, adjusted for differences arising in revenue or
expense items, per applicable tax laws and regulations, between
reported income and taxable income. The credit for income tax for
the nine months ended September 30, 1995 was $13,088, all of which
was current tax credit. The Company did not pay any federal
income taxes during the first nine months of 1995, whereas the
Company paid $160,000 in federal income taxes during the first
nine months of 1994.
The Company has a net operating loss carryforward for tax purposes
of $34,931,421, which expires if not previously utilized, in 1998-
$3,163,998; 1999 - $7,384,546; 2000 - $5,712,421; 2001-$4,927,522;
2002-$2,271,256; 2003-$621,205; 2004-$4,596,950; 2005-$1,246,728;
2006-$118,137; 2007-$43,352; 2008-$13,450; 2009-$13,410; and 2010-
$4,818,446.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_____________________________________________
LIQUIDITY
The Company has consistently been able to generate adequate
amounts of cash to meet its needs and management is unaware of any
trends, demands, commitments, events or uncertainties which will or
are reasonably likely to have a material effect on the Company's
liquidity.
Operating Activities
The net cash flow from operating activities for the nine months
ended September 30, 1995 was negative primarily as a result of an
increase in the amount of funds required for the payment of claims, an
increase in policy acquisition costs and a decrease in net investment
income compared with the nine months ended September 30, 1994. The
negative effect on cash flow of these items was offset somewhat by a
7.3% increase in net premiums written for the same comparison period.
The amount of funds required for claim payments increased
approximately 10.2% for the nine months ended September 30, 1995
compared with the nine months ended September 30, 1994. This resulted
primarily from an increase in claim payments, due to increased weather-
related losses and the settlement of several large commercial
automobile liability claims in the first nine months of 1995 compared
with the first nine months of 1994.
Policy acquisition costs increased 10.0% in the first nine months
of 1995 compared with the first nine months of 1994. This increase
resulted from increases in amortization of deferred policy acquisition
costs, expenses related to commissions and overhead expenses during
the first nine months of 1995 compared with the first nine months of
1994. Expenses related to commissions increased as a result of the
cancellation of the 25% quote share reinsurance agreement and
increased bonus commission expense. Overhead expenses increased
primarily as a result of an increase in legal expense.
Net investment income decreased 20.1% in the first nine months of
1995 compared with the first nine months of 1994, primarily as a
result of reduced yields on the Company's derivative securities.
The net cash flow from operating activities for the nine months
ended September 30, 1994 was positive as a result of favorable
operating results.
Investing Activities
During the first nine months of 1995, management invested a
portion of available cash balances and the proceeds received from the
disposition of investments into investment grade bonds and common
stocks which provided favorable yields. The net cash flow from
investing activities was positive in the first nine months of 1995 as
total investment sales and maturities exceeded total investment
purchases.
During the first nine months of 1995, unrealized investment gains
increased stockholders' equity by approximately $8,242,000, of which
approximately $5,762,000 of this amount was from debt securities, with
the remainder from equity securities. These unrealized investment
gains were a result of an overall improvement in investment market
conditions during the first nine months of 1995.
<PAGE>
Approximately $2,633,000 of the $5,762,000 unrealized investment gains
on debt securities was related to six derivative issues owned by the
company. On September 30, 1995, the value carried in the Company's
balance sheet for these six issues was $19,298,000.
The Company's debt and equity securities are reported on the
Company's balance sheet at their respective market values which
fluctuate based upon a variety of market factors. Such fluctuations
will result in changes to the Company's unrealized investment gains or
losses and will have a corresponding impact on the Company's
stockholders' equity. The derivative securities mentioned above are
known as inverse floaters as their yields, which are adjusted
periodically, vary inversely to certain LIBOR rates. These derivative
securities will probably exacerbate swings in unrealized investment
gains and losses and stockholders' equity in the event of significant
movement of the applicable LIBOR rates. Additionally, the yield
formulas for these securities will result in commensurate swings in
investment income. At current yield rates and considering future
yield resets for these securities, net investment income for the final
three months of 1995 is expected to be reduced by approximately
$41,000 as compared to the corresponding period in 1994. This is
subject to change, either positively or negatively, depending on
future investment market conditions.
The Company believes that the principal of these derivative
securities is assured at maturity as they are issued by government
agencies. However, if conditions are favorable for their disposition
or if unforeseen circumstances occur, the Company may dispose of all
or a portion of these securities prior to maturity.
During the first nine months of 1994, management invested funds
which were generated from the disposition of investments, together
with a portion of available cash balances, into bonds and common and
preferred stocks. As a result, the net cash flow from investing
activities was negative for the nine months ended September 30, 1994.
Financing Activities
There were no new financing commitments entered into the first
nine months of 1995. The net cash flow from financing activities was
negative for the first nine months of 1995 and the first nine months
of 1994, as a result of cash dividends paid to stockholders.
CAPITAL RESOURCES
The activities of insurance companies are regulated by state
authorities and adequate levels of reserves and equity capital are
required to be maintained to ensure that enough capital is retained in
the business to provide sufficient funds to meet its obligations. The
Company has met all statutory and regulatory requirements and
management believes that sufficient funds have been retained to meet
its obligations. The Company has no current commitments or plans for
debt or equity financing.
RESULTS OF OPERATIONS
Premiums earned increased 2.5% and 4.6%, respectively, for the
three months and nine months ended September 30, 1995 compared with
the same 1994 periods. The increase in premiums earned resulted
primarily from the continued increase in the number of commerical
lines policies written and the cancellation of the 25% quota share
reinsurance agreement in the third quarter of 1994.
<PAGE>
Primarily as a result of the unrealized losses in market value of
investments experienced in 1994, average invested assets at September
30, 1995 decreased approximately $2,232,000 compared with September
30, 1994. Additionally, net investment income decreased 16.5% and
20.1% respectively, for the three months and nine months ended
September 30, 1995 compared with the same 1994 period, primarily as a
result of reduced yields on the Company's derivative securities. The
average investment yield reflected this decrease as it was 4.81% for
the nine months ended September 30, 1995 compared with 5.86% for the
nine months ended September 30, 1994. Management will continue to
seek improvement in investment earnings without sacrificing investment
portfolio quality.
The loss and loss adjustment expense ratio was 72.4% for the
three months ended September 30, 1995 compared with 64.7% for the
three months ended September 30, 1994 and was 75.3% for the nine
months ended September 30, 1995 compared with 66.8% for the nine
months ended September 30, 1994. This increase resulted primarily
from claims attributable to the occurrence of numerous weather-related
natural catastrophes in Texas during 1995, which were unprecedented in
their severity. Claims from weather-related natural catastrophes
resulted in approximately $1,028,000 in losses for the three months
ended September 30, 1995, compared with approximately $309,000 for the
three months ended September 30, 1994. For the nine months ended
September 30, 1995, weather-related natural catastrophes resulted in
losses of approximately $5,696,000, compared with $2,276,000 for the
nine months ended September 30, 1994. The remainder of the increase
in this ratio for the first nine months of 1995 resulted principally
from an increased number of large commercial automobile liability
claims which occurred during the second quarter of 1995.
The policy acquisition cost ratio was 36.6% for the three months
ended September 30, 1995 compared with 38.5% for the three months
ended September 30, 1994. The decrease in this ratio was a result of
decreases in amortization of deferred policy acquisition costs during
the third quarter of 1995 compared with the third quarter of 1994.
The policy acquisition cost ratio was 37.0% for the nine months ended
September 30, 1995, compared with 35.2% for the nine months ended
September 30, 1994. The increase in this ratio was a result of
increases in amortization of deferred policy acquisition costs,
expenses related to commissions and overhead expenses during the first
nine months of 1995 compared with the first nine months of 1994.
Expenses related to commissions increased as a result of the
cancellation of the 25% quota share reinsurance agreement and
increased bonus commission expense. Overhead expenses increased
primarily as a result of an increase in legal expense.
The occurrence of numerous severe weather-related natural
catastrophes, the increase in policy acquisition costs, and the
decrease in net investment income resulted in a net loss of
approximately $3,746,000 for the nine months ended September 30, 1995
compared with net income of approximately $3,065,000 for the nine
months ended September 30, 1994.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Item 6. (a) Exhibit 11 - Computation of Fully Diluted Net
Income per Common and Common Equivalent Share.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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.
AMERICAN INDEMNITY FINANCIAL CORPORATION
________________________________________
(Registrant)
Date NOVEMBER 13, 1995 PHILLIP E. APGAR
_________________ _______________________________________
PHILLIP E. APGAR
VICE PRESIDENT-TREASURER - CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL & ACCOUNTING OFFICER)
AMERICAN INDEMNITY FINANCIAL CORPORATION EXHIBIT 11
AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
NINE NINE THREE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
09-30-95 09-30-94 09-30-95 09-30-94
________ ________ ________ ________
PRIMARY EARNINGS PER SHARE
__________________________
Weighted average shares of
common stock outstanding 1,946,754 1,946,677 1,946,843 1,946,710
Stock options (treasury
stock method) (1) 6,951 9,946 6,951 9,946
________ _________ _________ _________
Weighted average shares out-
standing for primary earnings
per share computation 1,953,705 1,956,623 1,953,794 1,956,656
Net income (loss) $(1.92) $1.57 $(.35) $.47
FULLY DILUTED EARNINGS PER SHARE
________________________________
Weighted average shares of
common stock outstanding 1,946,754 1,946,677 1,946,843 1,946,710
Stock options (treasury
stock method) (1) 9,119 10,087 9,119 10,087
_________ _________ _________ _________
Weighted average shares out-
standing for fully diluted
computation 1,955,873 1,956,764 1,955,962 1,956,797
Net income (loss) $(1.92) $1.57 $(.35) $.47
(1)This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000005227
<NAME> AMERICAN INDEMNITY FINANCIAL CORP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 71,207,953
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,799,623
<MORTGAGE> 25,753
<REAL-ESTATE> 0
<TOTAL-INVEST> 85,093,329
<CASH> 3,767,901
<RECOVER-REINSURE> 11,901,307
<DEFERRED-ACQUISITION> 9,480,969
<TOTAL-ASSETS> 139,404,300
<POLICY-LOSSES> 52,530,100
<UNEARNED-PREMIUMS> 36,762,210
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 6,490,351
0
0
<OTHER-SE> 31,037,676
<TOTAL-LIABILITY-AND-EQUITY> 139,404,300
51,158,487
<INVESTMENT-INCOME> 2,965,137
<INVESTMENT-GAINS> 7,212
<OTHER-INCOME> 549,530
<BENEFITS> 38,544,783
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 18,939,513
<INCOME-PRETAX> (3,758,960)
<INCOME-TAX> (13,088)
<INCOME-CONTINUING> (3,745,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,745,872)
<EPS-PRIMARY> (1.92)
<EPS-DILUTED> (1.92)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
