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 March 31, 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 May 5, 1995, 1,946,710 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 March 31, 1995 and 1994
Unaudited
1995 1994
___________ ___________
PREMIUMS AND OTHER INCOME:
Premiums earned $16,668,061 $16,181,161
Net investment income (net of investment
expenses of $95,816 in 1995 and $87,551
in 1994) 1,017,045 1,328,572
Realized investment gains (losses) (43,632) 155,204
Interest on premium notes receivable and
other income 179,091 173,532
__________ __________
TOTAL 17,820,565 17,838,469
EXPENSES:
Losses and loss adjustment expenses 11,141,066 10,767,973
Policy acquisition costs 6,220,589 5,694,437
Retrospective premium adjustments on
workers' compensation policies (28,625) (151,672)
__________ __________
TOTAL 17,333,030 16,310,738
INCOME BEFORE FEDERAL INCOME TAX 487,535 1,527,731
PROVISION FOR FEDERAL INCOME TAX:
Current 2,915 10,322
Deferred
__________ __________
TOTAL 2,915 10,322
NET INCOME $ 484,620 $ 1,517,409
AVERAGE SHARES OUTSTANDING 1,946,710 1,946,610
EARNINGS PER SHARE:
NET INCOME $ .25 $ .78
DIVIDENDS DECLARED PER SHARE $ .06 $ .03
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
Unaudited
1995 1994
ASSETS ___________ ___________
______
Investments:
Fixed maturities - bonds:
Available for sale $ 67,183,153 $ 62,569,334
Preferred stocks 2,235,310 2,268,012
Common stocks 14,575,016 14,475,261
Mortgage loans on real estate 27,967 29,034
Short-term investments 60,000 60,000
___________ ___________
Total Investments 84,081,446 79,401,641
Cash and Cash Equivalents 2,897,267 4,937,544
Accrued Investment Income 810,309 736,466
Premiums in Course of Collection 7,954,173 5,962,784
Direct Premium Bills Receivable 8,889,197 7,908,893
Reinsurance Balances Receivable 11,745,838 10,788,671
Prepaid Reinsurance Premiums 910,864 1,327,484
Property and Equipment - Less accumulated
depreciation of $4,499,972 in 1995 and
$4,411,800 in 1994 3,950,689 3,791,245
Deferred Policy Acquisition Costs 9,575,906 9,097,464
Deferred income taxes 4,430,000 4,430,000
Other Assets 2,889,187 2,819,299
___________ ___________
TOTAL $138,134,876 $131,201,491
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Losses and Loss Adjustment Expenses $ 51,744,065 $ 50,916,776
Unearned Premiums 36,852,455 34,922,255
Reinsurance Balances Held or Payable 2,951,745 3,777,547
Accounts Payable and Other
Accrued Liabilities 8,723,639 8,146,547
___________ ___________
Total Liabilities 100,271,904 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
1,946,710 in 1995 and 1994 6,489,018 6,489,018
Paid-in surplus 13,045,866 13,045,866
Unrealized decline in
market value of investments (6,295,551) (10,352,340)
Retained earnings 24,623,639 24,255,822
___________ ___________
Total Stockholders' Equity 37,862,972 33,438,366
___________ ___________
TOTAL $138,134,876 $131,201,491
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994
Unaudited
1995 1994
_________ _________
OPERATING ACTIVITIES:
Net income $ 484,620 $ 1,517,409
Adjustments to reconcile net income to
net cash flow from operating activities:
Decrease (Increase) in:
Premiums in course of collection (1,991,389) (2,074,533)
Direct premium bills receivable (980,304) (43,480)
Reinsurance balances receivable (957,167) 1,936,330
Prepaid reinsurance premiums 416,620 272,060
Deferred policy acquisition costs (478,442) (130,249)
Other assets (69,888) (366,350)
Increase (Decrease) in:
Unpaid losses and loss adjustment expenses 827,289 (1,652,870)
Unearned premiums 1,930,200 479,493
Reinsurance balances held or payable (825,802) (46,168)
Accounts payable and other accrued
liabilities 577,092 396,549
Realized investment (gains) losses 43,632 (155,204)
Depreciation 88,172 71,729
Other (63,426) 384,485
_________ _________
Net cash flow from operating activities (998,793) 589,201
INVESTING ACTIVITIES:
Sale of bonds 17,411,450
Maturity of bonds 1,344,958 2,351,058
Redemption of preferred stocks 144,200 27,625
Sale of common stocks 649,736 569,450
Purchase of bonds (2,817,027) (19,777,483)
Purchase of preferred stocks (150,000)
Purchase of common stocks (645,333)
Purchase of property and equipment (247,616) (128,531)
Other 1,068 7,423
_________ _________
Net cash flow from investing activities (924,681) (334,341)
FINANCING ACTIVITIES:
Cash dividends paid to stockholders (116,803) (58,398)
_________ _________
Net cash flow from financing activities (116,803) (58,398)
_________ _________
Net Increase (Decrease) in Cash and
Cash Equivalents (2,040,277) 196,462
Cash and Cash Equivalents, January 1 4,937,544 2,628,681
_________ _________
Cash and Cash Equivalents, March 31 $ 2,897,267 $ 2,825,143
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 March 31, 1995 and March 31, 1994 are
as follows:
March 31, 1995 March 31, 1994
______________ ______________
Deferred tax liabilities:
Deferred policy acquisition costs $ (3,255,808) $ (2,672,406)
Differences between book and tax
basis of property (255,001) (219,585)
Other (655,424) (560,550)
_____________ _____________
(4,166,233) (3,452,541)
Deferred tax assets:
Reserves not currently deductible 5,701,862 5,283,852
Unrealized investments losses 2,140,488 824,922
Operating loss carryforwards 10,142,310 10,500,325
_____________ ____________
17,984,660 16,609,099
_____________ ____________
Net Asset 13,818,427 13,156,558
Valuation allowance (9,388,427) (13,156,558)
_____________ ____________
Net deferred tax assets $ 4,430,000 $ -0-
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 provision for income tax
for the three months ended March 31, 1995 was $2,915, all of which
was current tax expense. The Company did not pay any federal
income taxes during the first three months of 1995, whereas the
Company paid $100,000 in federal income taxes during the first
three months of 1994.
The Company has a net operating loss carryforward for tax purposes
of $29,830,324, which expires if not previously utilized, in 1998-
$2,894,757; 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; and 2008-$13,450.
<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 or commitments which will or are reasonably likely to
have a significant effect on the Company's liquidity.
Operating Activities
The net cash flow from operating activities for the three months
ended March 31, 1995 was negative primarily as a result of an increase
in the amount of funds required for the payment of claims and an
increase in policy acquisition costs compared with the three months
ended March 31, 1994. The negative effect on cash flow of these items
was offset somewhat by a 12.3% increase in net premiums written for
the same comparison periods.
The amount of funds required for claim payments increased
approximately 15.7% for the three months ended March 31, 1995 compared
with the three months ended March 31, 1994. This resulted primarily
from an increase in claim payments, due to the settlements of several
large claims, in the first quarter of 1995 for the commercial
automobile line of business compared with the first quarter of 1994.
Policy acquisition costs increased 9.2% in the first three months
of 1995 compared with the first three 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 three months of 1995 compared with the first three 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 due
to increases in employee benefits and legal and auditing expenses.
The net cash flow from operating activities for the three months
ended March 31, 1994 was positive as a result of improved operating
results.
Investing Activities
During the first three months of 1995, management invested a
portion of available cash balances and the proceeds received from the
disposition of investments into investment grade bonds which provided
favorable yields. The net cash flow from investing activities was
negative in the first three months of 1995 as total investment
purchases exceeded total investment sales and maturities.
During the first three months of 1995, unrealized investment
gains increased stockholders' equity by approximately $4,057,000, of
which approximately $3,152,000 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
market conditions during the first three months of 1995.
Approximately $1,535,000 of the $3,152,000 unrealized investment gains
on debt securities was related to six derivative issues owned by the
company. On March 31, 1995, the value carried in the Company's
balance sheet for these six issues was $18,200,000.
<PAGE>
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 corresponding impacts 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 quarters of 1995 is expected to be reduced by approximately
$647,000 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 three 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 three months ended March 31, 1994.
Financing Activities
There were no new financing commitments entered into the first
three months of 1995. The net cash flow from financing activities was
negative for the first three months of 1995 and the first three 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 3.0% and net premiums written increased
12.3% for the three months ended March 31, 1995 compared with the
three months ended March 31, 1994 as a result of the continued
increase in the number of commercial lines policies written and the
cancellation of the 25% quota share reinsurance agreement in the third
quarter of 1994.
Primarily as a result of the unrealized losses in market value of
investments experienced in 1994, average invested assets at March 31,
1995 decreased approximately $5,518,000 compared with March 31, 1994.
Additionally, net investment income decreased 23.1% for the three
months ended March 31, 1995 compared with the three months ended March
31, 1994, primarily as a result of reduced yields on the Company's
derivative securities. The average investment yield reflected this
decrease as it was 4.98% for the three months ended March 31, 1995
compared with 6.09% for the three months ended March 31, 1994.
Management will continue to seek improvement in investment earnings
without sacrificing investment portfolio quality.
<PAGE>
The loss and loss adjustment expense ratio was 66.8% for the
three months ended March 31, 1995 compared with 66.5% for the three
months ended March 31, 1994. The underwriting results of the
commercial multiple peril and general liability lines of business were
not as favorable for the three months ended March 31, 1994, but
remained profitable. The adverse effect of this was offset somewhat
by improved underwriting results in the automobile line of business
for the same comparison periods.
The policy acquisition cost ratio was 37.3% for the three months
ended March 31, 1995 compared with 35.2% for the three months ended
March 31, 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 three months of
1995 compared with the first three 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 due to increases in employee
benefits and legal and auditing expenses.
Primarily as a result of the increase in policy acquisition costs
and the decrease in net investment income during the first three
months of 1995, the net income of the Company decreased compared with
the first three months of 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 MAY 9, 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
THREE MONTHS THREE MONTHS
ENDED ENDED
03-31-95 03-31-94
___________ ____________
PRIMARY EARNINGS PER SHARE
__________________________
Weighted average shares of
common stock outstanding 1,946,710 1,946,610
Stock options (treasury stock
method) (1) 8,804 13,829
_________ _________
Weighted average shares out-
standing for primary earnings
per share computation 1,955,514 1,960,439
Net income $ .25 $ .77
FULLY DILUTED EARNINGS PER SHARE
_______________________________
Weighted average shares of
common stock outstanding 1,946,710 1,946,610
Stock options (treasury stock
method) (1) 9,063 13,829
_________ _________
Weighted average shares out-
standing for fully diluted
computation 1,955,773 1,960,439
Net income $ .25 $ .77
(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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 67,183,153
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 16,810,326
<MORTGAGE> 27,967
<REAL-ESTATE> 0
<TOTAL-INVEST> 84,081,446
<CASH> 2,897,267
<RECOVER-REINSURE> 11,745,838
<DEFERRED-ACQUISITION> 9,575,906
<TOTAL-ASSETS> 138,134,876
<POLICY-LOSSES> 51,744,065
<UNEARNED-PREMIUMS> 36,852,455
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 6,489,018
0
0
<OTHER-SE> 31,373,954
<TOTAL-LIABILITY-AND-EQUITY> 138,134,876
16,668,061
<INVESTMENT-INCOME> 1,017,045
<INVESTMENT-GAINS> (43,632)
<OTHER-INCOME> 179,091
<BENEFITS> 11,141,066
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 6,220,589
<INCOME-PRETAX> 487,535
<INCOME-TAX> 2,915
<INCOME-CONTINUING> 484,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484,620
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
