SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year end Commission File Number
December 31, 1995 0-671
MOTOR CLUB OF AMERICA
(Exact name of registrant as specified in its charter)
New Jersey 22-0747730
(State of incorporation) (I.R.S. Employer
Identification No.)
95 Route 17 South, Paramus, New Jersey 07653
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201)291-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value) $.50 per share
(Title of Class)
Indicate by check mark whether the registrant (l) 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 .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the voting Common Stock (par value
$.50 per share) held by non-affiliates on March 28, 1996 was
$7,227,682 based on the closing selling price.
2,043,754 shares of Common Stock were outstanding as of March 28,
1996.
Documents Incorporated by Reference: Portions of the registrant's
definitive proxy statement issued in conjunction with the June 12,
1996 Annual Meeting of Shareholders (Part III).
PART I
Item 1. Description of Business
(a) The Registrant and a group of affiliated corporations, of
which the Registrant is parent, are known as the
"Motor Club of America Companies" (the "Motor Club of America
Group") and provide a broad range of property and casualty
insurance and related services as well as a motor club. The
Registrant, incorporated in New Jersey in 1933 as "Automobile
Association of New Jersey", is the successor to a New Jersey
corporation organized in 1926. The present name was adopted in
1958.
The Registrant's wholly-owned subsidiary, Motor Club of
America Enterprises, Inc. ("Enterprises"), operates the motor club
under agency programs in 22 states.
The Registrant has two wholly-owned subsidiaries which
write property and casualty insurance, Motor Club of America
Insurance Company ("Motor Club") and Preserver Insurance Company
("Preserver"). Motor Club writes private passenger automobile
business; Preserver writes small commercial, homeowners and
ancillary coverages. Motor Club and Preserver are collectively
referred to as the "Insurance Companies". The Insurance Companies
are domiciled in the State of New Jersey.
On October 23, 1992, another insurance subsidiary of the
Registrant, MCA Insurance Company ("MCAIC") was declared insolvent
as a result of claims from Hurricane Andrew, which struck Florida
on August 24, 1992. The Registrant in 1992 wrote off its
investment in MCAIC and MCAIC's subsidiaries, Property-Casualty
Company of MCA ("PCCMCA") and Fairmount Central Urban Renewal
Corporation ("Fairmount").
(b) The Registrant does not have any reportable industry
segments for the three fiscal years reported in this Form 10-K.
(c) See Items 1 (a) and 7.
The Registrant and its subsidiaries distribute insurance policies and
motor club contracts through independent producers.
Fire and Casualty Insurance Operations
The Insurance Companies generate premium revenue through approximately
200 independent producers.
New Jersey Private Passenger Automobile
Private passenger automobile ("PPA") direct premiums
written by Motor Club increased 16% in 1995 as compared to 1994 and
decreased 9% in 1994 as compared to 1993. The increase in 1995 was
due to the fact that Motor Club began to write new PPA insurance
business in the first quarter of 1995 for the first time since
1990. During 1995, Motor Club wrote $6,011,000 in new business.
The 1994 decrease was due to attrition in the PPA book of business.
Motor Club has received relief under certain of the exemptive
provisions of the New Jersey Fair Automobile Insurance
Reform Act of 1990 ("FAIRA"). See Item 7 - New Jersey Private
Passenger Automobile Insurance.
Small Commercial and Homeowners Insurance
Preserver writes small commercial and ancillary coverages along with
homeowners and related coverages. Direct premiums written by
Preserver increased 24% in 1995 as compared to 1994 and 111% in 1994
as compared to 1993.
The Registrant believes Preserver offers a competitive variety of
commercial lines products and coverages which will enable this class
of business to grow steadily in the future. The Registrant has
modified the structure of its homeowners program to reflect recent experience.
See Item 7 - Results of Operations.
Projected Expansion Plans
The Registrant anticipates continuing its expansion program in small
commercial and ancillary coverages written by Preserver in the State
of New Jersey as well as through new PPA writings by Motor Club.
Motor Club Operations
In the operation of its motor club, the Registrant competes with other
motor clubs which are, or are affiliated with, national organizations
of greater size and resources than the Registrant.
The Registrant's motor club business written through AVCO Financial Services,
Inc. ("AVCO") offices was discontinued as of January 1, 1995.
During 1994 and 1993, motor club revenues generated through AVCO
offices constituted 16% of total motor club revenues generated by the
Registrant.
The Registrant believes the Motor Club of America Group offers as wide
a variety of services under common ownership as any other individual
motor club or insurance company, or any other affiliated group of
companies operating multiple line businesses of these types.
Employees
At December 31, 1995, the Motor Club of America Group had approximately
115 employees.
Item 2. Properties
Effective January 1, 1996, the Registrant entered into a lease at
95 Route 17 South, Paramus, New Jersey. The Registrant's home office
is now located at this facility. The lease expires on December 31, 2005.
The Registrant has an option to terminate the lease after six years, and an
option to extend the lease for an additional five years after the initial lease
term expires.
The Registrant and its subsidiaries (including MCAIC and PCCMCA) are
parties to an agreement with Fairmount for the lease of an office building
in Newark, New Jersey in which the Registrant and its subsidiaries
formerly operated. The Registrant presently has a limited operation
at this building. The Registrant is finalizing discussions of the
termination of its lease with Fairmount; at this time, the Registrant
does not believe that any lease termination costs will be material.
Item 3. Legal Proceedings
See Note Q to the Notes to Consolidated Financial Statements of Motor Club of
America and Subsidiaries for information on the insolvency of MCAIC in
general and litigation involving the Oklahoma Receiver regarding
ownership of Motor Club.
See Note J to the Notes to Consolidated Financial Statements of Motor
Club of America and Subsidiaries for information regarding legal
proceedings in general.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders in he fourth
quarter of the fiscal year covered by this Report.
Item Pursuant to Instruction 3 to Paragraph (b) of Item 401 of
Regulation S-K. Executive Officers of the Registrant.
At December 31, 1995, the executive officers of the Registrant and their
offices with the Registrant and principal occupations were as follows:
Years in
Which Officer
Has Served
Office and Principal as
Name Age Occupation Such(3)
Archer McWhorter (1) 74 Chairman of the Board of
Directors of the Registrant
and Director of Companies
in the Motor Club of America
Group 1986-1995
Stephen A. Gilbert (2) 57 President, General Counsel,
Director and Chief Operating
Officer of the Registrant and
President of the Companies in
the Motor Club of America
Group 1975-1995
Patrick J. Haveron (2) 34 Executive Vice President, Chief
Financial Officer and
Director of the Registrant and
Companies in the Motor Club of
America Group; Treasurer of
Motor Club of America Insurance
Company and Preserver Insurance
Company 1988-1995
Peter K. Barbano 45 Secretary; Associate General
Counsel 1993-1995
Myron Rogow 52 Vice President 1987-1995
George B. Meyers 68 Vice President 1971-1995
G. Bruce Patterson 51 Vice President 1989-1995
Charles J. Pelosi 50 Vice President 1983-1995
Theodore Green 49 Vice President 1987-1995
Norma Rodriguez 46 Treasurer 1984-1995
(l) Member of Executive Committee: For the past five years, Mr. McWhorter
has been President of Acceptance, Inc., a finance company. In addition
Mr. McWhorter is one-third owner of Santa Ana Holdings, Inc., which
owns National Car Rental and affiliated corporations, a car rental
enterprise, and Director of Baggage, Inc. (to November 1992), an airline
service and security company.
(2) Member of Finance Committee.
(3) Includes years during any portion of which the officer served as such.
All terms of office are until the date of the 1996 Annual Meetings of
Stockholders and Directors.
Except for Archer McWhorter, each of the officers devoted
substantially all of their business time to the affairs of the
Registrant or one or more other companies in the Motor Club of
America Group.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Registrant's Common Stock trades on the NASDAQ Stock Market under
the symbol MOTR. The following are the high and the low selling prices
for each quarter of 1994 and 1995, as reported by the NASDAQ:
1994
Quarter High Low
I .............................. 3 3/4 2 1/2
II .............................. 5 1/4 3
III .............................. 3 3/8 2 1/2
IV .............................. 3 1/8 2 1/2
1995
Quarter High Low
I .............................. 4 1/2 2 5/8
II .............................. 5 1/8 4
III .............................. 7 1/2 4 3/8
IV .............................. 7 1/8 6 5/8
There were approximately 600 holders of record of the Common Stock of the
Registrant as of December 31, 1995.
The Registrant paid no dividends in 1994 and 1995.
Item 6. Selected Financial Data
See Chart on Page 10.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview of Business Operations
The Registrant provides a broad range of property and casualty insurance
related services through the Insurance Companies. The Registrant also
operates a motor club through Enterprises. The Insurance Companies form
the largest segment of operations, which accounted for 96% of 1995 revenues.
One hundred percent of the Registrant's insurance operations are in the
State of New Jersey. Please refer to the New Jersey Private Passenger
Automobile Insurance section for further information on the Registrant's
insurance operations in the State of New Jersey.
The Registrant anticipates continuing revenue growth in the State of
New Jersey through small commercial and ancillary coverages written by
Preserver as well as through new PPA writings by Motor Club.
The Registrant also anticipates continued reductions in its operating
expenses, namely through the relocation of its headquarters in 1996 and
continued implementation of operating efficiencies which will reduce
other overhead expenditures.
Insolvency of MCA Insurance Company
On August 24, 1992, Hurricane Andrew struck the South Florida coast,
causing losses to MCAIC which exceeded its surplus as regards policyholders.
MCAIC was placed in liquidation on October 23, 1992 by the Oklahoma District
Court, Oklahoma.
On December 30, 1994, the Oklahoma District Court approved a settlement
between the MCAIC Receiver and its subsidiaries and the Registrant and
its subsidiaries (the "Settlement"). Under the Settlement, the
Registrant agreed to pay MCAIC approximately $5.4 million, $2 million
of which was paid on December 30, 1994. The Settlement also dismissed with
prejudice the litigation previously brought (in August 1993) by the MCAIC
Receiver against the Registrant regarding the ownership of Motor
Club. The Settlement released all parties from all potential
claims against one another, and put in place agreements regarding
the handling of consolidated taxes, common cost sharing and service
agreements.
On February 15, 1995, pursuant to the Settlement Agreement, MCAIC was paid
in full.
The Joint Services Agreement ("JSA") entered into as part of the
Settlement was retroactive to May 1, 1994 and provided for the rendering
of certain services by the parties to the JSA and amounts due for these
services, as well as the sharing of certain common expenses. Common
expenses emanated from the parties' co-tenancy in the office building in which
the parties' principal offices resided. The JSA was terminated
effective February 29, 1996.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Years ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994* 1993* 1992* 1991*
(in thousands, except as to per share data)
Operating Results:
Revenues from operations $36,703 $ 29,471 $ 31,695 $ 36,402 $ 68,073
Realized gains (losses) on sale
of investments 57 (43) 288 136 3,298
Net investment income 2,764 2,730 2,784 2,853 5,483
Total revenues $39,524 $ 32,158 $ 34,767 $ 39,391 $ 76,854
Income (loss) before
federal income taxes $ 2,455 $ 5,039 $ 3,827 ($ 21,882) $ 1,838
Net income (loss) $ 2,417 $ 5,035 $ 3,260 ($ 21,352) $ (671)
Financial Condition:
Total assets $81,959 $ 79,172 $ 86,669 $ 90,544 $131,702
Shareholders' equity $14,081 $ 10,546 $ 7,168 $ 7,154 $ 29,012
Per Common Share:
Net income (loss) $ 1.18 $ 2.46 $ 1.60 ($ 10.45) $ (0.33)
Cash dividends - - - $ 0.225 $ 0.30
Book Value $ 6.89 $ 5.16 $ 3.51 $ 3.50 $ 14.20
Weighted average number of
shares outstanding 2,043,197 2,043,004 2,043,004 2,043,004 2,043,004
Significant Insurance Indicators (GAAP basis unless otherwise noted):
Net premiums written $38,073 $31,797 $28,058 $26,714 $67,466
Loss and loss expense ratio 58.7% 54.8% 54.1% 77.3% 68.7%
Expense ratio 43.9% 39.3% 45.7% 45.2% 43.8%
Combined ratio 102.6% 94.1% 99.8% 122.5% 112.5%
Premiums to statutory
surplus ratio 2.87:1 2.67:1 2.78:1 3.02:1 2.81:1
</TABLE>
* Amounts reclassified to conform with 1995 presentation.
In relation to the insolvency of MCAIC, there are no additional liabilities,
contingent or otherwise, which require accrual or disclosure in the
accompanying financial statements.
New Jersey Private Passenger Automobile Insurance
Motor Club received relief from the New Jersey Department of Insurance
("NJDOI") from certain provisions of FAIRA. Such relief included the
following: (1) exemption from its obligation to pay surtaxes and assessments
on business written until December 31, 1992. These exemptions allowed Motor
Club to reverse previously accrued surtaxes and assessments of $2,003,000 and
$2,682,000, as a reduction of expense, in 1994 and 1993, respectively; (2)
exemption (until January 1995) from the take-all-comers provisions
of FAIRA, which requires the writing of new PPA insurance; (3)
payment of only $2,275,000 of the Market Transition Facility
("MTF") deficit. Subsequent legislation retired the entire MTF
deficit, enabling Motor Club to eliminate its remaining $1,653,445
MTF liability in 1994 as a reduction of expense; and (4) non-
participation in the Personal Automobile Insurance ("Assigned
Risk") Plan.
At December 31, 1995 and 1994, Motor Club has no accrued FAIRA liabilities
which are subject to further relief from the NJDOI.
Results of Operations
Net income decreased $2,618,000 or $1.28 per share in 1995 as compared to
1994, after increasing $1,775,000 or $.86 per share in 1994 as compared
to 1993.
1995 vs. 1994
Net income in 1995 included $1,039,000 or $.51 per share for reduced
reinsurance costs relating to a decrease in the 1995 rate assessed by
the New Jersey Unsatisfied Claim and Judgment Fund ("UCJF"), which
pertains to New Jersey Personal Injury Protection claims in excess of
Motor Club's statutory retention limit of $75,000.
Net income in 1994 included $2,003,000 or $.98 per share of FAIRA surtaxes
and assessments which became exempt during 1994 pursuant to NJDOI rules.
In addition, the Registrant reversed its remaining liability for the MTF
deficit of $1,653,000 or $.81 per share during 1994. The Registrant
also recognized income of $625,000 or $.30 per share in 1994 for the
discounting of the Note due to MCAIC Receiver under the Settlement.
Exclusive of non-recurring items, income was $1,377,000 or $.67 per share
in 1995 as compared to $754,000 or $.37 per share in 1994. This increase
in earnings is attributable to higher revenues overall, improved expense
and combined ratios and reduced expenses from operations, primarily salaries
and related benefits.
1994 vs. 1993
Net income in 1994 and 1993 includes the reversal of $2,003,000 or $.98
per share and $2,682,000 or $1.31 per share of FAIRA surtaxes and
assessments which became exempt during 1994 and 1993, respectively,
pursuant to NJDOI rules.
Exclusive of non-recurring items, income was $754,000 or $.37 per share
in 1994 as compared to $857,000 or $.42 per share in 1993. This decline
in earnings is attributable to lower revenues overall, although loss and
loss expense ratios improved, and expenses from operations were reduced.
Revenues
Insurance Premiums
Insurance premiums increased $7,409,000 or 27% in 1995 as compared to 1994,
primarily as a result of: (1) the termination in February 1994 of Preserver's
80% quota share reinsurance treaty; (2) the aforementioned reduction in UCJF
costs; and (3) increases in new business written in 1995, particularly PPA.
Insurance premiums decreased $2,183,000 or 7% in 1994 as compared to 1993,
primarily as a result of continued attrition in the PPA book of business.
In 1995, Motor Club began to write new PPA business for the first time
since March 1990. New business written, net of reinsurance, was $5,644,000
during 1995, of which $2,964,000 was earned.
The 1994 non-PPA business insurance premiums include the effects of the
80% quota share reinsurance agreement for non-automobile business into
which the Insurance Companies entered.
The Insurance Companies earned a 37% commission on the business
ceded to this reinsurance agreement, which was recorded as a
reduction of deferred policy acquisition costs. The quota share
reinsurance agreement was terminated effective February 19, 1994;
the policies covered by the quota share as of the termination date
were run-off through the policies' respective expiration dates.
The following table depicts the composition of direct premiums written
for the four years through 1995:
<TABLE>
<CAPTION>
Direct Written Premiums
(Amounts in Thousands - Exclusive of Service Charges)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992
Direct Percent Direct Percent Direct Percent Direct Percent
Program Premium of Total Premium of Total Premium of Total Premium of Total
Private Passenger
Automobile $32,100 73.1% $27,636 74.4% $30,473 87.2% $26,360 81.4%
Personal Property 5,972 13.6% 5,056 13.6% 2,285 6.5% 3,703 11.4%
Commercial Lines 5,828 13.3% 4,431 12.0% 2,219 6.3% 2,331 7.2%
Total $43,900 100.0% $37,123 100.0% $34,977 100.0% $32,394 100.0%
</TABLE>
Net Investment Income
Net investment income increased $34,000 or 1% in 1995 as compared to 1994.
Average invested assets were $41,806,000 in 1995 as compared to $42,272,000
in 1994. The investment portfolio, including short-term investments, yielded
6.23% in 1995 as compared to 6.21% in 1994. Despite the significant decline
in interest rates in 1995, the increase in the Registrant's investment yield
in 1995 reflects investments made at higher interest rate levels in
1994. The Registrant's investment philosophy is to hold fixed maturity
investments until maturity.
Net investment income decreased $54,000 or 2% in 1994 as compared to 1993.
Average invested assets were $42,272,000 in 1994 as compared to $42,574,000
in 1993. The investment portfolio, including short-term investments,
yielded 6.21% in 1994 as compared to 6.34% in 1993. Although interest
rate levels increased significantly during 1994, new investments at
these higher interest rate levels made during 1994 had a limited impact on
investment income for the year, and invested assets generally reflect the
lower interest rates of the last several years.
Realized Gains on Sales of Investments
The Registrant does not actively trade its investment portfolio. Securities
have been occasionally sold to reflect operating requirements or business
circumstances, which have resulted in realized gains and losses.
Other Revenues
Other revenues decreased $72,000 or 37% in 1995 as compared to 1994, and
$132,000 or 40% in 1994 as compared to 1993.
The decreases were due to reduced mortgage loan revenue and other
miscellaneous income reductions.
Losses and Expenses
Losses and Loss Expenses Incurred
Losses and loss expenses incurred increased $5,451,000 or 36% in 1995
as compared to 1994 and decreased $992,000 or 6% in 1994 as compared to 1993.
The combined loss and loss expense ratios were 58.7% in 1995, 54.8% in 1994
and 54.1% in 1993.
The higher loss ratio in 1995 as compared to 1994 is primarily attributable
to a higher PPA loss ratio, which increased to 57.3% in 1995 from 52.9% in
1994. This increase was partially offset by a decrease in the corresponding
ratio for Preserver's book of business, which decreased from 70.0% in 1994
to 63.1% in 1995. Despite the higher loss ratio on a comparative basis, no
significant adverse trends were experienced or identified during 1995.
The increase in PPA loss ratio in 1995 as compared to 1994 is largely due
to the new business written by Motor Club. It will be at least twelve to
eighteen months before this business, much of which was written in the second
half of 1995, begins to display its own loss development characteristics.
Accordingly, until such development occurs, the Registrant has conservatively
reserved the ultimate development of this new business at a loss ratio of
75%. This increased the overall PPA loss ratio by 2.2 points in 1995.
Therefore, excluding the loss ratio on the new PPA business, the PPA loss
ratio was 55.1% in 1995, which compares with the loss ratios of 52.9% in 1994
and 54.1% in 1993 on the same business. The Registrant does believe that the
1994 PPA loss ratios were historically low, and the 1995 results are a return
to a more representative experience which remains profitable.
Finally, as the Registrant continues to write more new PPA business, PPA loss
ratios should generally trend higher, although within levels that should remain
profitable. Concurrently, as was the case in 1995, the Registrant will also
continue to experience continued reductions in its expense ratio as
a result of these new PPA writings. This should result in lower
overall combined ratios for the Registrant.
The improvement in Preserver's loss ratio in 1995 as compared to 1994 is
primarily attributable to lower levels of large losses (greater than $35,000)
which had been experienced prior to 1995. Both personal and commercial
lines' loss ratios for Preserver showed improvement in 1995 as compared to
1994. In 1994 and 1993, the business written by Preserver performed at levels
worse than historically experienced. The 1995 results are a return
to a more representative experience. Frequency of losses has generally been
at acceptable levels.
Large losses on older homes had been substantially increasing Preserver's
homeowners' loss ratio. In 1995 the Registrant implemented certain measures
in this book of business which should assist in improving its profitability
prospectively.
These measures include: (1) redefining what risks constitute "standard" risks
and "preferred" risks. The Registrant now defines a standard risk as any home
constructed before 1960 and a preferred risk is any home constructed after
1960. Previously, this definition was based on the value of a home; and (2)
in November 1995, a 7.3% rate increase on standard risks (as now defined).
Other Operating Expenses and Amortization of Deferred Policy
Acquisition Costs
These expenses include in 1995 and 1994, a reserve for a reinsurance dispute
(see Note G (c) in the Notes to the Financial Statements) and expenses related
to State Mandated Assessments discussed separately below. Excluding these
items, expenses decreased $94,000 or 1% in 1995 as compared to 1994. The
decrease in expenses (excluding non-recurring items discussed previously,
primarily the reversal of State mandated assessments) contributed
to the decrease in expense ratio to 43.9% for 1995 as compared to
53.9% in 1994. The Registrant is committed to further reducing its
expense ratio by increasing revenues without increasing overhead
expenditures.
Excluding acquisition related expenses, which increased commensurately with
the aforementioned 27% increase in insurance premiums, other operating expenses
decreased $1,136,000 or 12% in 1995 as compared to 1994. During 1994, these
expenditures increased $181,000 or 2% as compared to 1993.
In February 1996, the Registrant relocated its headquarters to a smaller
facility commensurate with the scope of its operations. This relocation is
expected to reduce the Registrant's expenses over $500,000 annually.
The Registrant expects to reduce its expenses and expense ratio further by
converting its information systems to a smaller, more contemporary computing
platform which will allow for more efficient operations and by re-doubling
the efforts made previously to reduce all unnecessary overhead expenditures.
Prior to 1995, the Registrant's expense ratio had increased because the
reduction of overhead expenditures had not kept pace with the reduction in
the Registrant's insurance premiums. With the commencement of new PPA writings
in 1995, the Registrant began to realize economies of scale which enhanced the
reduction of expenses and consequently expense ratio.
See the New Jersey Private Passenger Automobile section for an extended
discussion of the 1994 and 1993 New Jersey expenses mandated by FAIRA.
State Mandated Assessments
The Registrant has been subjected to increasing costs in recent years from
assessments and required participations in mandated pools, associations and
funds in the State of New Jersey.
The most substantial assessments have been the FAIRA surtaxes and
assessments and the MTF accrual. Please refer to the section on
New Jersey Private Passenger Automobile for a detailed explanation
of these items.
Motor Club of America Membership Program
Motor Club membership fees written through Enterprises decreased $124,000
or 10% in 1995 as compared to 1994, and decreased $27,000 or 2% in 1994
as compared to 1993.
The Registrant was advised in 1994 by AVCO that it would discontinue selling
the Registrant's motor club membership in its offices as of January 1, 1995. '
Sales of the Registrant's motor club through AVCO constituted 16% of the
Registrant's total motor club membership revenues in 1994 and 1993.
Exclusive of AVCO sales, motor club membership fees generated though
independent agents increased $91,000 or 8% in 1995 as compared to 1994.
This is attributable primarily to incentives provided producers to write
motor club memberships with the new PPA business Motor Club is now writing.
Loss Reserve Disclosures
Reserves for unpaid losses and loss expenses at any report date reflect the
estimate of the liabilities for the ultimate net loss of reported claims and
estimated incurred but not reported claims.
The liability for unpaid losses and loss expenses are determined using
case-basis evaluations and statistical projections and represent estimates
of the ultimate net cost of all unpaid losses and loss expenses through
December 31 of each year. These estimates are continually reviewed and
refined as historical experience develops, new information becomes known and
the effects of trends in future claim severity and frequency are considered.
The liabilities are adjusted accordingly with such adjustments being
reflected in the current year operations. No trends that are considered
abnormal have been identified as of the most recent evaluation date,
December 31, 1995.
The State of New Jersey has enacted an excess profits law which provides
that private passenger automobile insurers whose profits exceed a
statutorily computed maximum over a period of years, will be required to
pay such excess to its policyholders. It would appear that Motor Club does not
have any such excess profits.
The Registrant's insurance subsidiaries generally reinsure all risks in excess
of $150,000 for casualty lines and $75,000 for property lines.
The following table presents a reconciliation of beginning and ending
liability balances for 1995, 1994 and 1993 reported under generally
accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS EXPENSES
<S> <C> <C> <C>
1995 1994 1993
(Thousands of Dollars)
Liability for losses and loss expenses, net of
reinsurance recoverables at January 1 $22,356 $25,334 $28,469
Incurred losses and loss expenses
Provision for current year claims 19,625 14,367 17,603
Increase (decrease) in provision for prior years'
claims 1,112 919 (1,324)
Total incurred losses and loss expense 20,737 15,286 16,279
Payments for losses and loss expenses
Payments on current year claims 8,577 5,953 7,100
Payments on prior years' claims 11,107 12,311 12,314
Total payments for losses and loss expenses 19,684 18,264 19,414
Liability for losses and loss expenses, net
of reinsurance recoverables at December 31 23,409 22,356 25,334
Reinsurance recoverables, on unpaid losses
and loss expenses at December 31 16,415 19,309 20,484
Liability for losses and loss expenses,
gross of reinsurance recoverables,
at December 31 $39,824 $41,665 $45,818
</TABLE>
The reconciliation shows a 1995 deficiency of $1,112,000 in the liability
recorded at December 31, 1994. The deficiency is the result of a reduction
in the amount of anticipated salvage and subrogation recoveries for claims
incurred in 1994 and prior at December 31, 1995, as compared to
December 31, 1994.
Both the current and prior years' provisions are affected by a decrease in
the estimated amount of salvage and subrogation recoverable at December 31, 1994
as compared to December 31, 1993.
The 1995 net effect of this adjustment was a decrease of $7,000 (an
increase in the estimated amount recoverable of $1,320,000 in the
1995 accident year and a reduction of $1,327,000 in prior accident
years).
The difference between the reserves for unpaid losses and loss expenses
reported in the Registrant's consolidated financial statements prepared in
accordance with GAAP and those reported in the annual statements filed by
the Insurance Companies with State insurance departments in accordance with
Statutory Accounting Practices ("SAP") are reconciled as follows:
December 31,
1995 1994 1993
(thousands of dollars)
Reserves for unpaid losses and
loss expenses on a SAP basis
(net of reinsurance recoverables
on unpaid losses) $25,519 $24,473 $27,729
Reinsurance recoverables on unpaid
losses and loss expenses 16,415 19,309 20,484
Anticipated salvage and subrogation
recoveries (2,110) (2,117) (2,395)
Reserves for unpaid losses and loss
expenses, as reported in the
Registrant's GAAP basis financial
statements $39,824 $41,665 $45,818
The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and loss expenses. While anticipated price increases
due to inflation are considered in estimating the ultimate claim costs, the
increase in average severities of claims is caused by a number of factors
that vary with the individual type of policy written. These anticipated
trends are monitored based on actual development and are modified
if necessary.
The table on Page 23 presents the development of the GAAP balance sheet
liabilities for 1992 through 1995; data is presented for those years in which
the Insurance Companies had operations.
The top line on the table shows the estimated liability for unpaid losses
and loss expenses recorded at the balance sheet date for each of the
indicated years. This liability represents the estimated amount of losses
and loss expenses for claims arising in that and all prior years that are unpaid
at the balance sheet date, including losses that had been incurred but not yet
reported. The upper portion of the table shows the re-estimated amount of the
previously recorded liability, based on experience as of the end of
each succeeding year. The estimate is increased or decreased as
more information becomes known about the frequency and severity of
claims for development years. The "cumulative redundancy
(deficiency)" represents the aggregate change in the estimates over
all prior years. The lower section of the table shows the
cumulative amount paid with respect to the previously recorded
liability as of the end of each succeeding year.
In evaluating this information, it should be noted that each amount includes the
effects of all changes in amounts for prior periods. For example, the amount of
deficiency relating to losses settled in 1995, but incurred in 1993, will be
included in the cumulative deficiency for the 1995 year.
This table does not present accident or policy year development data, which
readers may be more accustomed to analyzing. Conditions and trends that have
affected development of the liability in the past may not necessarily occur in
the future. Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.
LOSS AND LOSS EXPENSE DEVELOPMENT (In Thousands)
Year ended December 31 1992 1993 1994 1995
Liability for unpaid
losses and loss expenses, net
of reinsurance recoverables $28,469 $25,334 $22,356 $23,409
Net Liability Re-estimated as of:
One year later 27,145 26,253 23,468 -
Two years later 28,563 26,766 - -
Three years later 28,454 - - -
Net Cumulative Redundancy
(Deficiency) $ 15 ($ 1,432) ($ 1,112) $ -
Cumulative Amount of Liability Paid Through:
One year later 12,314 12,311 11,106 -
Two years later 20,270 18,992 - -
Three years later 24,546 - - -
Net liability - December 31 $28,469 $25,334 $22,356 $23,409
Reinsurance recoverables 21,698 20,484 19,309 16,415
Gross liability - December 31 $50,167 $45,818 $41,665 $39,824
Financial Condition, Liquidity and Capital Resources
The Registrant's book value increased to $6.89 per share at December 31, 1995
from $5.16 per share at December 31, 1994. The principal sources of the
increase are: (1) net income of $2,417,000 or $1.18 per share described
previously; and (2) an increase of $2,661,000 or $1.30 per share in the market
value of the fixed maturity investments accounted for as available-for-sale
securities under SFAS No. 115.
These increases were partially offset by a reduction in shareholders' equity of
$1,545,000 or $.75 per share for recognition of additional minimum required
pension liabilities for the defined benefit pension plan sponsored by the
Registrant. This additional minimum liability was the result of a reduction in
the discount rate used to compute pension plan liabilities to 7.25% at
December 31, 1995, from 8.25% at December 31, 1994. Please refer to Note K in
the Notes to Financial Statements of the Registrant's Form 10-K for additional
information regarding the Registrant's minimum pension liability.
The Registrant's book value increased to $5.16 per share at December 31, 1994
from $3.51 per share at December 31, 1993. Net income of $5,034,000 or $2.46
per share was offset by: (1) a reduction in shareholders' equity of $387,800 or
$.19 per share for recognition of additional minimum required pension
liability; and (2) a decrease of $1,269,000 or $.62 per share in the market
value of the fixed maturity investments accounted for as available-for-
sale securities under SFAS No. 115. The additional minimum
required liability was created by asset return shortfalls.
The New Jersey Insurance Department requires that insurers maintain a premium to
surplus ("leverage") ratio of 3 to 1 or less in order to write new PPA.
Motor Club's present applicable leverage ratio for the twelve months ended
December 31, 1995 is 2.87 to 1.
On July 1, 1995, the Insurance Companies obtained catastrophe reinsurance
coverage in the increased amount of $24.5 million in excess of $500,000 with
only a modest increase in premium.
The Insurance Companies' need for liquidity arises primarily from the obligation
to pay claims. The primary sources of liquidity are premiums received,
collections from reinsurers and proceeds from investments.
Reserving assumptions (except as noted in Loss Reserve Disclosures) and payment
patterns of the Insurance Companies did not materially change from the prior
year and there were no unusually large retained losses resulting from claim
activity. Unpaid losses are not discounted.
Operating and Investing Activities
Net cash provided by and utilized in operating activities was $3,807,000
in 1995 and $3,060,000 in 1994, respectively. The increase in net cash
provided by operating activities in 1995 is attributable to the growth in
premium revenue combined with the reduction in overhead expenses.
The decrease in net cash utilized by operating activities in 1994 is due to
continued attrition in Motor Club's PPA book of business combined with payment
of Motor Club's MTF liability of $2,275,000.
Net cash utilized in and provided by investing activities was $3,255,000 in
1995 and $3,458,000 in 1994, respectively. The amount used in 1995 reflects
the investment of cash provided by operating activities. The amount provided
in 1994 reflects the sale of investments to provide cash utilized by operating
activities.
Operating cash flow at year end 1995 and 1994 was enhanced by the receipt of
premiums for the non-PPA business retained by Preserver, as well as the increase
in new business written in 1995.
Aside from the changes in operating expenditures noted
previously, particularly the State mandated assessments and costs
related to FAIRA which may recur in the future, no unusual or
nonrecurring operating expenditures have been incurred over this
period.
Expenses incurred on a prospective basis are anticipated
to reflect management's objective of continuing to improve the
Registrant's financial condition through stringent expense control
and limiting new writings to selected lines of business.
Additionally, the payout ratio of losses has not fluctuated
substantially over this period.
Management has maintained, in its opinion, a conservative
investing philosophy. At December 31, 1995 and 1994, the
Registrant's investment portfolio was comprised of the following
types of securities:
December 31, 1995 December 31, 1994
Carrying Carrying
Amount Percent Amount Percent
Taxable Fixed Maturities $44,630,457 97.9% $37,250,613 93.1%
Short Term Investments 200,719 0.4% 1,901,649 4.7%
Mortgage Loans 766,101 1.7% 872,937 2.2%
Total Investment Portfolio $45,597,277 100.0% $40,025,199 100.0%
Tax exempt securities have not been acquired since 1987,
primarily due to the Tax Reform Act of 1986. In addition,
management believes that the current tax position of the
Registrant, which includes substantial net operating loss
carryforwards, dictates the exclusion of tax exempt securities from
the portfolio, which historically provide substantially lower
yields on a before tax basis than taxable securities.
Taxable fixed maturities consist of direct obligations of
the United States Government, obligations of United States
Government agencies, Government National Mortgage Association
mortgage-backed securities ("GNMA's") and high quality corporate
fixed maturity issues. The goal of the portfolio is to enhance
investment returns within the structure of limited credit risk
assumption which management has utilized, with evaluations of
portfolio duration made in relation to the current interest rate
environment.
At December 31, 1995 and 1994, the taxable fixed maturity
portfolio consisted of the following types of securities:
December 31, 1995 December 31, 1994
Carrying Carrying
Amount Percent Amount Percent
United States Treasuries and
Government Agencies $31,788,829 71.2% $27,230,510 73.1%
GNMA Mortgage-Backed Securities 7,798,432 17.5% 5,283,701 14.2%
Corporate Bonds 5,043,196 11.3% 4,736,402 12.7%
Total $44,630,457 100.0% $37,250,613 100.0%
The fixed maturity portfolio duration at December 31,1995 and 1994 is 3.32
and 3.73 years, respectively.
All corporate obligations are generally of a maturity of
five years or less, to reduce credit risk; United States Treasuries
are weighted towards five to ten year maturities, to take advantage
of the yield curve; the average life of the GNMA portfolio has been
maintained at approximately 10 years to reduce interest rate risk.
Accelerated prepayments on GNMA's were experienced in 1993 as a
result of the sharp decline in long-term interest rates which are
a principal determinant of mortgage lending activity. As such,
refinancing activity was at record levels, causing the increase in
prepayments; as interest rates rose in 1994, this activity
stabilized.
Please refer to Note C of the Motor Club of America and
Subsidiaries Consolidated Notes to Financial Statements for
statistics regarding portfolio maturity composition.
The Registrant has not acquired, nor are there plans to
acquire, below investment grade or "junk" bonds. Ninety-nine
percent of the fixed maturity portfolio as of December 31, 1995 is
graded Class 1 according to the National Association of Insurance
Commissioners' valuation system. This classification is reserved
for only the highest quality securities, generally rated A or
better by two major rating services.
Management anticipates continuing this minimum risk
approach to investing for the foreseeable future.
Management believes that the mix of investments in both
type and maturity length is appropriate in order to preserve
capital, take advantage of investment opportunities as they are
presented, and provide the Registrant and its subsidiaries with
sufficient liquidity to react to economic and business
circumstances as they evolve.
As noted previously, the investment portfolio yielded
6.23% in 1995 as compared to 6.21% in 1994.
Including realized gains and losses, the investment
portfolio yielded 6.36% in 1995 as compared to 6.11% in 1994.
Financing Activities
The Registrant paid no dividend on its common stock in
1995, 1994 and 1993.
The Registrant has no material outstanding capital commitments which
would require additional financing. In 1995 the Registrant repaid the
$2,750,000 borrowed from Midlantic Bank, N.A. in conjunction with the
Settlement with the MCAIC Receiver.
Risk-Based Capital
The National Association of Insurance Commissioners
("NAIC") has adopted Risk-Based Capital ("RBC") requirements for
property/casualty insurance companies, to evaluate the adequacy of
statutory capital and surplus in relation to investment and
insurance risks such as asset quality, credit risk, loss reserve
adequacy, and other business factors. The RBC formula is used by
State insurance regulators as an early warning tool to identify,
for the purpose of initiating regulatory action, insurance
companies that potentially are inadequately capitalized.
Regulatory compliance is determined by a ratio of the insurer's
regulatory total adjusted capital to its authorized control level
RBC, as defined by the NAIC. Insurers below specific trigger
points or ratios are classified within certain levels, each of
which requires specific corrective action. The levels and ratios
are as follows: Ratio of Total Adjusted Capital to
Authorized Control Level RBC
Regulatory Event (Less Than or Equal to)
Company action level 2
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Insurance Companies ratios of Total Adjusted Capital
to Authorized Control Level RBC are in excess of three to one at
December 31, 1995, therefore requiring no action.
Recent Accounting Pronouncements
In October 1994, the Financial Accounting Standards Board
("FASB") promulgated SFAS No. 119 - Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments.
This Statement prescribes new disclosures about derivatives and
other financial instruments.
The Registrant does not use derivatives or derivative
securities for purposes of trading or risk management in its
investment portfolio or operations.
The FASB has issued SFAS No. 123 - Accounting for Stock-
Based Compensation. This statement becomes effective beginning
with the Registrant's first quarter of 1996 and will not have a
material effect on the Registrant's financial position or results
of operations. Upon adoption of SFAS No. 123, the Registrant will
continue to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees and will provide pro forma disclosures of net income and
earnings per share as if the fair value-based method prescribed by
SFAS No. 123 had been applied in measuring compensation expense.
Item 8. Financial Statements and Supplementary Data
See Item 14 (a).
Item 9. Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Items 10, 11, 12 and 13 are omitted from this Report on
Form 10-K; the Registrant shall file a definitive proxy statement
pursuant to Regulation 14A not later than April 29, 1996, which is
120 days after the close of the fiscal year of the Registrant.
PART IV
Item 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K
(a) (1) The following financial statements are
included in Part II, Item 8:
Page (s)
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31,
1995 and 1994 F-2
Consolidated Statements of Operations for
the years ended December 31, 1995, 1994
and 1993 F-3
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993 F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-29
(2) The following financial statement schedules
for the years 1995, 1994 and 1993 (pursuant
to Rule 5-04 of Regulation S-X) are presented
herewith:
Schedule I - Summary of Investments -
Other than Investments
in Related Parties* F-30
Schedule II - Condensed Financial
Information of Registrant F-31 to F-33
Schedule IV - Reinsurance* F-34
Schedule V - Valuation and Qualifying
Accounts and Reserves F-35
Schedule VI - Supplemental Information
Concerning Property/
Casualty Insurance
Operations* F-36
*Presented pursuant to Rule 7-05 of Regulation S-X.
Schedules other than those mentioned above are omitted because the
conditions requiring their filing do not exist, or because the
information is given in the financial statements filed herewith,
including the notes thereto.
(b) Exhibits:
Exhibit No. Description Reference
3-a Restated and Amended Certificate Exhibit 1(i) to Motor
of Incorporation of Motor Club of Club of America's
America, dated June 12, 1972 Annual Report on Form
10-K for fiscal year
ended December 31, 1972
3-l By-Laws of Motor Club of America, Exhibit 3-l to Motor
effective March 15, 1989 Club of America's
Annual Report on Form
10-K for fiscal year
ended December 31, 1988
3-m By-law Amendment of Motor Club Exhibit 3-m to Motor
of America, effective Club of America's
August 3, 1994 Form 8-K dated
July 21, 1994
4-a Specimen Certificate Exhibit 4 to File
representing Common Stock, No. 2-39996 on
$.50 par value Form S-1
10-o Motor Club of America 1987 Stock Exhibit 10-o to Motor
Option Plan Club of America's
Annual Report on Form
10-K for fiscal year
ended December 31,
1987
10-p Specimen copy of Motor Club of Exhibit 10-p to Motor
America 1987 Stock Option Club of America's
Agreement Annual Report on Form
10-K for fiscal year
ended December 31, 1987
10-q Motor Club of America 1992 Exhibit A to Motor
Stock Option Plan Club of America's
Proxy Statement for
fiscal year ended
December 31, 1991
10-r Specimen copy Motor Club of Exhibit 10-r to
America 1992 Stock Option Motor Club of
Plan Agreement America's Annual
Report on Form 10-K
for fiscal year
ended December 31, 1992
10-s Settlement Agreement between Exhibit 99 to Motor
Motor Club of America et als. Club of America's
and Receiver of MCA Insurance Form 8-K dated
Company in Liquidation et als. December 20, 1994
and related documents
10-t Term Note between Motor Club Exhibit 99-B to Motor
of America and Midlantic Bank, Club of America's
N.A., and related documents Form 8-K dated
December 20, 1994
10-u Order dated December 30, 1994 Exhibit 99-C to
Approving Settlement between to Motor Club of
Motor Club of America et als and America's Form 8-K
Receiver of MCA Insurance dated December 30, 1994
Company in Liquidation et als
and related conformed documents
10-v Cash Collateral Agreement between Exhibit 99-D to Motor
between Motor Club of America Club of America's
and Principal Shareholders Form 8-K dated
December 30, 1994
10-w Term Note between Motor Club Exhibit 99-E to Motor
of America and Midlantic Bank, Club of America's
N.A., and related documents Form 8-K dated
December 30, 1994
22 Subsidiaries of Motor Club of
America Page 35
28 Schedule P of the 1995
Annual Statement
provided to state regulatory
authorities by Motor Club of
America Insurance Company Pages 36 to 95
28-a Schedule P of the 1995
Annual Statement
provided to state regulatory
authorities by Preserver Insurance
Company Pages 96 to 155
Pursuant to the requirements of Section 13 or 15(d) 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.
MOTOR CLUB OF AMERICA
(Registrant)
Dated: March 29, 1996 By /s/ Stephen A. Gilbert
Stephen A. Gilbert
President, General Counsel
and Director
Dated: March 29, 1996 By /s/ Patrick J. Haveron
Patrick J. Haveron
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Dated: March 29, 1996 By /s/ Archer McWhorter
Archer McWhorter
Chairman of the Board
and Director
Dated: March 29, 1996 By /s/ Alvin E. Swanner
Alvin E. Swanner
Director
Dated: March 29, 1996 By /s/ Robert S. Fried
Robert S. Fried
Director
MOTOR CLUB OF AMERICA
Exhibit (22) Subsidiaries of the Registrant.
The following are the subsidiaries of the Registrant as
of March 28, 1996:
State of
Name Organization
Motor Club of America Enterprises, Inc.,
doing business as Motor Club of America Delaware
Motor Club of America Finance Company New Jersey
Motor Club of America Insurance Company New Jersey
Preserver Insurance Company New Jersey
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Motor Club of America:
We have audited the consolidated financial statements
schedules of MOTOR CLUB OF AMERICA and SUBSIDIARIES listed in Item
14 of this Form 10-K. These consolidated financial statements and
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Motor Club of America and subsidiaries as of
December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required
to be included therein.
As discussed in Note A to the financial statements,
effective January 1, 1994 the Company changed its method of
accounting for Investments in Debt Securities. As discussed in
Note H to the financial statements, effective January 1, 1993 the
Company changed its method of accounting for Income Taxes.
COOPERS & LYBRAND L.L.P.
New York, New York
March 28, 1996
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
ASSETS
Investments:
Fixed maturity securities, available-
for-sale, at market value (amortized
cost $43,238,185 - 1995 and
$38,519,668 - 1994) $44,630,457 $37,250,613
Mortgage loans on real estate - at the
unpaid principal amount 766,101 872,937
Short-term investments, at market value
which approximates cost 200,719 1,901,649
Total investments 45,597,277 40,025,199
Cash and cash equivalents 2,630,909 4,826,610
Premiums receivable 7,135,231 5,547,378
Reinsurance recoverable on paid
and unpaid losses & loss expenses 17,638,854 20,766,271
Notes and accounts receivable 209,953 284,099
Deferred policy acquisition costs 5,069,222 4,166,368
Fixed assets - at cost, less accumulated
depreciation 1,219,125 1,182,780
Federal income tax recoverable 13,680 33,280
Prepaid reinsurance premiums 1,193,098 682,065
Other assets 1,251,419 1,658,244
Total assets $81,958,768 $79,172,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss expenses $39,823,552 $41,665,101
Unearned premiums of $16,838,135
(1995) and $13,554,754 (1994)
and membership fees 17,363,031 14,184,030
Commissions payable 1,357,752 1,126,880
Note payable to Receiver of
MCA Insurance Company in
Liquidation ($3,374,850 face
amount, less unamortized discount
of $624,850) - 2,750,000
Accounts payable 302,791 269,430
Accrued expenses 7,673,251 4,721,600
Drafts outstanding 1,357,315 1,159,068
Note payable to Midlantic Bank, N.A. - 2,750,000
Total liabilities 67,877,692 68,626,109
Shareholders' equity 14,081,076 10,546,185
Total liabilities and
shareholders' equity $81,958,768 $79,172,294
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
<S> <C> <C> <C>
REVENUES
Insurance premiums (net of premiums
ceded totaling $5,750,247, $9,173,851
and $8,689,107) $35,300,872 $27,891,943 $30,074,764
Net investment income 2,764,188 2,730,211 2,784,122
Realized gains (losses) on
sales of investments (net) 56,823 (43,292) 287,814
Motor Club membership fees 1,276,324 1,381,591 1,290,915
Other revenues 125,613 197,917 329,665
Total revenues 39,523,820 32,158,370 34,767,280
LOSSES AND EXPENSES
Losses and loss expenses
incurred (net of reinsurance
recoveries totaling $1,153,901,
$4,892,994 and $5,156,245) 20,737,548 15,286,301 16,278,497
Amortization of deferred
policy acquisition costs 10,611,978 9,353,336 9,250,259
Other operating expenses 5,438,359 6,428,328 7,766,910
Reversal of prior years' accrual
for New Jersey FAIR Act
liabilities - (3,656,127) (2,682,299)
Discount of note payable to
Receiver of MCA Insurance
Company in Liquidation - (624,850) -
Motor Club benefits 280,836 332,315 326,472
Total losses and expenses 37,068,721 27,119,303 30,939,839
Income before Federal income
taxes 2,455,099 5,039,067 3,827,441
Provision for Federal
income taxes 38,320 4,420 567,903
Net income $ 2,416,779 $ 5,034,647 $ 3,259,538
Per share data:
Net income $ 1.18 $ 2.46 $ 1.60
Weighted average number of
common shares outstanding 2,043,197 2,043,004 2,043,004
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <S> <C> <C> <C>
Unrealized Unfunded
Appreciation Accumulated
(Depreciation) Benefit
Common Stock (a) Paid-In of Obligation In
Shares Additional Available-for-Sale Excess of Retained
Issued Amount Capital Securities Plan Assets Earnings Total
Balance at December 31, 1992 2,043,004 $1,021,501 $1,720,945 - - $ 4,411,182 $ 7,153,628
Adjustment to recognize minimum
required pension liability (3,245,200) (3,245,200)
Net income 3,259,538 3,259,538
Balance at December 31, 1993 2,043,004 1,021,501 1,720,945 - (3,245,200) 7,670,720 7,167,966
Unrealized depreciation on
available-for-sale securities (1,268,628) (1,268,628)
Adjustment to recognize
minimum required pension
liability (387,800) (387,800)
Net income 5,034,647 5,034,647
Balance at December 31, 1994 2,043,004 1,021,501 1,720,945 (1,268,628) (3,633,000) 12,705,367 10,546,185
Common stock issued 750 375 1,594 1,969
Unrealized appreciation on
available-for-sale securities 2,661,043 2,661,043
Adjustment to recognize
minimum required pension
liability (1,544,900) (1,544,900)
Net income 2,416,779 2,416,779
Balance at December 31, 1995 2,043,754 $1,021,876 $1,722,539 $1,392,415 ($5,177,900) $15,122,146 $14,081,076
</TABLE>
(a) Par value $.50 per share; authorized - 10,000,000 shares.
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the years ended December 31,
1995 1994 1993
Net income $ 2,416,779 $ 5,034,647 $ 3,259,538
Adjustments to reconcile net income
to cash provided by
(utilized in) operating activities:
Discount of Note due Receiver of
MCA Insurance Company in Liquidation - (624,850) -
Depreciation expense 297,291 325,029 455,588
Amortization (accretion) of bond
premium (discount) - net 66,843 236,602 327,316
Loss (gain) on sale of investments (56,823) 43,292 (287,814)
Changes in:
Premiums receivable (1,587,853) (458,911) 165,601
Notes and accounts receivable 74,146 336,444 (39,687)
Deferred policy acquisition costs (902,854) (1,373,682) 370,559
Federal income tax recoverable 19,600 1,405,876 646,626
Reinsurance recoverable on paid and
unpaid losses 3,127,417 1,747,075 (181,009)
Prepaid reinsurance premiums (511,033) 3,415,982 (283,853)
Other assets 406,825 (108,468) 946,460
Losses and loss expenses (1,841,549) (4,153,102) (4,348,772)
Unearned premiums and membership fees 3,179,001 404,424 (497,381)
Commissions payable 230,872 (524,190) (535,616)
Accounts payable 33,361 (17,776) (60,434)
Accrued expenses 1,406,751 (7,165,753) (3,392,835)
Drafts outstanding 198,247 125,286 (407,657)
Amount due to/from MCA Insurance
Company in Liquidation and
subsidiaries (2,750,000) (1,707,760) 1,759,610
Total cash provided by (utilized in)
operating activities 3,807,021 (3,059,835) (2,103,760)
</TABLE>
(Continued)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<S> <C> <C> <C>
For the years ended December 31,
1995 1994 1993
Investing activities:
Proceeds from:
Maturities of fixed maturities 4,128,756 6,708,618 4,027,911
Sales of fixed maturities 4,417,499 7,749,369 3,639,859
Payments received on mortgage
loan principal 106,835 308,584 648,809
Sale or maturities of short-
term investments 1,916,411 5,093,063 -
Sale of fixed assets - 1,751 -
Purchase of:
Fixed maturities (13,289,423) (12,671,277) (7,290,822)
Short-term investments (201,134) ( 3,483,016) (3,487,764)
Fixed assets (333,635) (248,770) (143,526)
Total cash provided by
(utilized in)
investing activities (3,254,691) 3,458,322 (2,605,533)
Financing activities:
Common stock issued 1,969 - -
(Repayment) Borrowing from
Midlantic Bank, N.A. (2,750,000) 2,750,000 -
Total cash provided by (utilized
in) financing activities (2,748,031) 2,750,000 -
Net increase (decrease) in cash (2,195,701) 3,148,487 (4,709,293)
Cash and cash equivalents
at beginning of year 4,826,610 1,678,123 6,387,416
Cash and cash equivalents
at end of year $ 2,630,909 $ 4,826,610 $ 1,678,123
</TABLE>
Supplemental Disclosures of Cash Flow Information
(1) Total interest paid was $33,934 (1995), $53 (1994) and $299
(1993).
(2) Total Federal income taxes paid was $52,000 (1995), $54,227
(1994) and $25,613 (1993).
The accompanying notes are an integral part of
these consolidated financial statements.
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies:
(a) Basis of Presentation and Principles of Consolidation:
The consolidated financial statements of Motor Club of
America (the "Company") include its accounts and those of
its wholly-owned subsidiary companies. The financial
statements have been prepared on the basis of generally
accepted accounting principles ("GAAP"). The preparation
of financial statements in conformity with these
practices requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
period. Actual results could differ from those
estimates.
The Company's insurance subsidiaries, Motor Club of
America Insurance Company ("Motor Club") and Preserver
Insurance Company ("Preserver") are collectively referred
to as the "Insurance Companies". All material
intercompany items and transactions have been eliminated
in consolidation.
Certain reclassifications have been made to prior year
financial information to conform to the 1995
classification.
(b) Nature of Operations:
The Company is a New Jersey corporation which owns the
Insurance Companies and other financial service related
businesses, including a motor club. The Insurance
Companies engage in property and casualty insurance
produced by independent agents; one hundred percent of
the Insurance Companies' operations are conducted in the
State of New Jersey. The Company generates 96% of its
revenues from insurance premiums. There is one agent who
individually produces more than ten percent of the
Company's insurance premiums.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies (Continued):
(c) Insurance Premiums:
Insurance premiums are credited to income by the
straight-line method over the terms of the contracts.
Contracts for private passenger automobile insurance are
for terms of six months. Insurance contracts for policies
other than private passenger automobile are for terms of
twelve months.
(d) Motor Club Operations:
Motor Club membership fees are credited to income by the
straight-line method over the terms of the contracts.
Commission expense is deferred and amortized in the same
manner as the related unearned membership fees. Other
related costs are charged to expense as incurred.
(e) Investments:
The Company adopted SFAS No. 115 ("Accounting for Certain
Investments in Debt and Equity Securities") as of January
1, 1994 by classifying all of its fixed maturity
investments as available-for-sale.
Debt and equity securities classified as available-for-
sale securities are reported at fair value, with
unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity,
net of applicable deferred taxes.
The Company recognizes income for the mortgage-backed
bond portion of its fixed maturity securities portfolio
using the constant effective yield method. Premium and
discount amounts are amortized based on the stated
contractual life of the securities.
When actual prepayments differ from this assumption, the
effective yield is recalculated to reflect actual
payments to date. The net investment in the security is
adjusted to the amount that would have existed had the
new effective yield been applied since the acquisition of
the security. That adjustment is included in net
investment income.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies (Continued):
Gains and losses on investments are recognized when
investments are sold or redeemed on a specific
certificate basis.
(f) Other Revenues:
Other revenues consist principally of interest on
mortgage loans.
(g) Losses and Loss Expenses:
The estimated liability for losses are based on (i) the
accumulation of cost estimates for unpaid losses reported
prior to the close of the accounting period; and (ii)
estimates of incurred but unreported losses based upon
past experience; less (iii) estimates of anticipated
salvage and subrogation recoveries. In the normal course
of business, the Company seeks to reduce the loss that
may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain
levels of risk in various areas of exposure with other
insurance enterprises or reinsurers.
Changes to the estimated liabilities are reflected in the
results of operations currently.
Amounts recoverable from reinsurers are estimated in a
manner consistent with the claim liability associated
with the reinsured policy. The liability for loss
expenses is based on estimates of expenses to be
incurred in the settlement of claims.
(h) Deferred Policy Acquisition Costs:
Deferred policy acquisition costs are costs that vary
with and are directly related to the production of new
and renewal business. Such costs include commissions,
premium taxes, certain State mandated assessments and
certain underwriting and policy issuance costs which are
deferred when incurred (subject to a maximum) and
amortized to income as the related written premiums are
earned. Investment income is anticipated in determining
whether a premium deficiency relating to these costs
exists.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies (Continued):
(i) Fixed Assets:
Depreciation on leasehold improvements is computed by the
straight-line method over the remaining lease term.
Depreciation on furniture and fixtures, data processing
and other equipment, is computed by the straight-line
method over the estimated useful lives, ranging from
three to twenty years.
Expenditures for major renewals and betterments are
capitalized, and expenditures for maintenance and repairs
are charged to income as incurred. When property units
are retired, or otherwise disposed of, the cost thereof
and related accumulated depreciation are eliminated from
the accounts. Any gain or loss on disposal is credited
or charged to operations.
(j) Federal Income Taxes:
Deferred Federal income taxes are provided for temporary
differences between the financial statement and tax basis
of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected
to reverse.
(k) Statement of Cash Flows:
For purposes of the statement of cash flows, the Company
considers demand deposits held with financial
institutions and money market mutual fund holdings to be
cash equivalents.
(l) Per Share Data:
Earnings per share are computed based upon the weighted
average number of common shares outstanding during each
year.
Note B - New Jersey Private Passenger Automobile ("PPA") Business:
Motor Club received relief from the New Jersey Department
of Insurance ("NJDOI") from certain provisions of the New
Jersey Fair Automobile Insurance Reform Act of 1990
("FAIRA"). Such relief included the following: (1)
exemption from its obligation to pay surtaxes and
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B - New Jersey Private Passenger Automobile Business
(Continued):
assessments on business written until December 31, 1992.
These exemptions allowed Motor Club to reverse previously
accrued surtaxes and assessments of $2,003,000 and
$2,682,000, as a reduction of expense, in 1994 and 1993,
respectively; (2) exemption (until January 1995) from the
take-all-comers provisions of FAIRA, which requires the
writing of new PPA insurance; (3) payment of only
$2,275,000 of the Market Transition Facility ("MTF")
deficit. Subsequent legislation retired the entire MTF
deficit, enabling Motor Club to eliminate its remaining
$1,653,445 MTF liability in 1994 as a reduction of
expense; and (4) non-participation in the Personal
Automobile Insurance ("Assigned Risk") Plan.
At December 31, 1995 and 1994, Motor Club had no accrued
FAIRA liabilities which were subject to further relief
from the NJDOI.
Note C - Investments:
(a) The amortized cost and estimated market value of
investments in fixed maturity securities at December 31,
1995 were as follows:
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
securities $30,583,393 $1,221,968 ($16,532) $31,788,829
GNMA Mortgage-
backed
securities 7,684,299 150,474 ( 36,341) 7,798,432
Corporate
securities 4,970,493 82,902 ( 10,199) 5,043,196
Total $43,238,185 $1,455,344 ($63,072) $44,630,457
The amortized cost and estimated market value of
investments in fixed maturities at December 31, 1994 were
as follows:
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C - Investments (Continued):
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
securities $27,955,315 $ 15,125 ($ 739,930) $27,230,510
GNMA Mortgage-
backed
securities 5,574,339 11,476 (302,114) 5,283,701
Corporate
securities 4,990,014 2,002 (255,614) 4,736,402
Total $38,519,668 $ 28,603 ($1,297,658) $37,250,613
The amortized cost and market value of investments in
fixed maturities at December 31, 1995, by contractual
maturity, are as follows:
Amortized Market
Cost Value
Due in one year or less $ 5,397,499 $ 5,439,988
Due after one year through
five years 21,019,504 21,630,424
Due after five years through
ten years 8,856,955 9,466,029
Due after ten years 7,964,227 8,094,016
$43,238,185 $44,630,457
The above maturity tables includes $7,798,432 (at market
value) of Government National Mortgage Association
mortgage-backed securities, which are classified as due
after ten years based on the contractual life of the
securities.
Expected maturities may differ from contractual
maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment
penalties. Gross gains of $53,851, $44,783 and $286,744,
were realized in 1995, 1994 and 1993, respectively, on
those sales and calls. Gross losses of $88,064 were
realized in 1994 on those sales and calls.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C - Investments (Continued):
(b) Investment income (including net realized gains and
losses) by category of investments consists of the
following:
Category 1995 1994 1993
Fixed maturities $2,837,597 $2,741,045 $3,179,532
Other, principally
short-term
investments 168,335 126,268 90,418
Total investment
income 3,005,932 2,867,313 3,269,950
Investment
expenses 184,921 180,394 198,014
Net investment
income $2,821,011 $2,686,919 $3,071,936
(c) At December 31, 1995 and 1994, fixed maturity investments
deposited with various state insurance departments (at
market value) amounted to $439,821 and $632,083,
respectively.
(d) There were no investments in any persons and its
affiliates in excess of ten percent of shareholders'
equity.
(e) The change in net unrealized gains (losses) on
investments are as follows:
Years Ended December 31,
1995 1994 1993
Fixed
maturities $2,661,043 ($3,416,148) $656,640
(f) In the opinion of management there has been no permanent
impairment in the carrying amount of investments.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D - Unpaid Losses and Loss Expenses:
(a) The following table provides a reconciliation of the
beginning and ending balances for unpaid losses and loss
expenses for 1995, 1994 and 1993:
1995 1994 1993
Balance at January 1 $41,665,101 $45,818,203 $50,166,975
Less: Reinsurance recover-
ables 19,311,132 20,485,582 21,698,575
Net balance at January 1 22,353,969 25,332,621 28,468,400
Incurred losses and loss
expenses:
Provision for current
year claims 19,625,070 14,367,183 17,603,144
Increase (decrease) in
provision for prior
years' claims 1,112,478 919,118 (1,324,647)
Total incurred losses and
loss expenses 20,737,548 15,286,301 16,278,497
Payment for losses and
loss expenses:
Payment on current
year claims 8,577,000 5,953,183 7,099,254
Payment on prior
years' claims 11,105,578 12,311,770 12,315,022
Total payments for losses
and loss expenses 19,682,578 18,264,953 19,414,276
Net balance at December 31 23,408,939 22,353,969 25,332,621
Plus: Reinsurance recover-
ables 16,414,613 19,311,132 20,485,582
Balance at December 31 $39,823,552 $41,665,101 $45,818,203
The reconciliation shows a deficiency of $1,112,478 in
the liability recorded at December 31, 1995. This
deficiency is the result of a reduction in the amount of
anticipated salvage and subrogation recoveries for claims
incurred in 1994 and prior at December 31, 1995 as
compared to December 31, 1994.
(b) Losses incurred are reduced by salvage and subrogation
approximating $1,661,000, $1,495,000 and $2,406,000 for
the years ended December 31, 1995, 1994 and 1993,
respectively.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Mortgage Loans:
These loans consist principally of first lien home
mortgages. The interest rate on outstanding loans
ranges from 7.75% to 11.00%.
At December 31, 1995 and 1994, mortgage loans receivable
from directors, officers and employees amounted to
$462,068 and $535,734, respectively, all of which are
collateralized by real property.
Note F - Fixed Assets:
Fixed assets consist of the following:
1995 1994
Leasehold improvements $ 446,744 $ 446,744
Office furniture, fixtures
and data processing equipment 2,375,989 2,181,836
2,822,733 2,628,580
Less accumulated depre-
ciation 1,603,608 1,445,800
$1,219,125 $1,182,780
Note G - Reinsurance:
(a) Unearned premiums and unpaid loss and loss expenses are
stated gross of the effects of reinsurance.
(b) Reinsurance contracts do not relieve the Insurance
Companies from their obligations to policyholders.
Failure of reinsurers to honor their obligations could
result in losses to the Insurance Companies. Generally,
all risks in excess of $150,000 for liability lines and
$75,000 for property lines are reinsured.
The Insurance Companies also maintained an 80% quota
share reinsurance agreement for their non-automobile
business. The quota share reinsurance agreement was
terminated as of February 19, 1994, and covers policies
inforce as of the termination date through the policies'
respective expiration dates. The Insurance Companies
earned a 37% commission on the business ceded, which is
recorded as a reduction of deferred policy acquisition
costs.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G - Reinsurance (Continued):
The Insurance Companies evaluate the financial condition
of their reinsurers and monitor concentrations of credit
risk arising from activities or economic characteristics
of the reinsurers to minimize their exposure to
significant losses from reinsurer insolvencies.
As referred to in Note A, one hundred percent of the
Company's insurance operations are located in the State
of New Jersey, the laws of which require participation in
certain reinsurance funds.
Reinsurance recoverable on paid and unpaid loss and loss
expenses are principally attributable to the amounts of
reinsurance recoverable from the Unsatisfied Claim and
Judgment Fund ("UCJF") of the State of New Jersey, which
pertains to New Jersey Personal Injury Protection claims
in excess of Motor Club's statutory retention limit of
$75,000. Reinsurance recoverable from the UCJF was
$11,717,543 and $13,656,209 as of December 31, 1995 and
1994, respectively.
Motor Club is required to participate in the New Jersey
Automobile Insurance Risk Exchange ("NJ AIRE"). NJ AIRE
is designed to balance differences between company bodily
injury loss payments as compared to industry loss
payments under New Jersey's dual tort threshold system.
Assessments paid to NJ AIRE based on subject bodily
injury exposure are accounted for as ceded premiums
written and totaled $1,541,875, $1,578,064 and $673,649
in 1995, 1994 and 1993, respectively. Reimbursements
from NJ AIRE based on subject claim payment experience
are accounted for as ceded losses incurred and totaled
$800,872, $1,057,817 and $1,090,801 in 1995, 1994 and
1993, respectively.
Prepaid reinsurance premiums of $1,193,098 and $682,065
as of December 31, 1995 and 1994, respectively, are
attributable to, in 1995 and 1994, the Insurance
Companies' excess of loss reinsurance treaties, and in
1994, the quota share agreement referred to above, which
is with one reinsurer.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Note G - Reinsurance (Continued):
The effect of reinsurance on premiums written and earned
is as follows:
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993
Written Earned Written Earned Written Earned
Direct $44,334,501 $41,051,119 $37,555,248 $37,065,794 $34,977,781 $38,763,871
Ceded (6,261,282) (5,750,247) (5,757,866) (9,173,851) (6,919,164) (8,689,107)
Net $38,073,219 $35,300,872 $31,797,382 $27,891,943 $28,058,617 $30,074,764
</TABLE>
(c) During 1993, Motor Club was notified by one of its
reinsurers of a dispute. The reinsurer has not denied
the validity of coverage; rather, the reinsurer has
indicated that it believes that a right of set-off exists
for the reinsurance which Motor Club has ceded to the
reinsurer for accident years 1973 to 1975 against
reinsurance which MCAIC had assumed from the reinsurer
between 1968 and 1976. Motor Club assumed the ceded
reinsurance from MCAIC in 1991. The reinsurer has
indicated that payments to Motor Club will be held in
abeyance pending resolution of the dispute. Motor Club
has recorded a liability of $1,695,774 and $1,456,416 at
December 31, 1995 and 1994, respectively, in the event
the right to set-off does exist. The Statement of
Operations includes in other operating expenses $239,357,
$100,084 and $1,356,332 for this matter in 1995, 1994 and
1993, respectively.
Note H - Taxes:
(a) The Company and its subsidiaries (including MCA Insurance
Company in Liquidation ("MCAIC") and its subsidiaries -
see Note Q) file a consolidated Federal income tax
return. During 1993, the Company adopted SFAS No. 109
("Accounting for Income Taxes"). Adoption of this
Statement had no effect on the Company's financial
condition or results of operations. The provision for
Federal income taxes consists of the following:
1995 1994 1993
Current $38,320 $4,420 $567,903
Deferred - - -
Provision $38,320 $4,420 $567,903
There were no adjustments to deferred tax assets and
liabilities for enacted changes in tax laws and rates.
(b) The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
liabilities were as follows:
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H - Taxes (Continued):
December 31,
1995 1994
Deferred tax assets:
Unpaid losses and loss expenses $1,006,482 $ 894,176
Unearned premium 1,063,862 875,343
Net operating loss carryforward 3,645,058 3,409,577
Pension liability - 840,444
Unrealized loss on debt securities - 431,334
Other deferred tax assets 189,068 81,365
Alternative minimum tax and
general business credit carry-
forwards 64,270 25,950
Total deferred tax assets 5,968,740 6,558,189
Deferred tax liabilities:
Deferred acquisition costs (1,723,535) (1,416,565)
Unrealized gain on debt securities (473,421) -
Prepaid pension cost (665,338) -
Other deferred tax liabilities (132,038) (70,650)
Total deferred tax liabilities (2,994,332) (1,487,215)
Less: valuation allowance for
deferred tax assets (2,974,408) (5,070,974)
Net deferred tax asset $ - $ -
The net operating loss carryforward of $10,720,758
expires beginning in 2007.
(c) The provision for Federal income taxes resulted in
effective tax rates lower than the statutory Federal
income tax rates, as follows:
1995 1994 1993
Tax provision
computed at statutory
federal income tax rates $ 834,734 $1,713,283 $1,301,330
Change in valuation allowance (1,191,781) (1,713,283) -
Impact of alternative
minimum tax ("AMT")
calculation 38,320 - (150,918)
Conversion of net loss carry-
back to credit carry-
forward - - 541,686
Effect of net operating
loss carryforward - - (1,128,851)
Other-net 357,047 4,420 4,656
Provision $ 38,320 $ 4,420 $ 567,903
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H - Taxes (Continued):
(d) The consolidated statements of operations for the years
ended December 31, 1995, 1994 and 1993 include state
taxes based on insurance premiums of $116,410, $98,625
and $92,933 and state income tax (benefit) of ($19,928),
$9,255 and $53,248, respectively.
Note I - Shareholders' Equity:
(a) The Insurance Companies are domiciled in the State of New
Jersey and therefore prepare their statutory financial
statements in accordance with accounting practices
prescribed or permitted by the NJDOI.
Prescribed statutory accounting practices include a
variety of publications of the National Association of
Insurance Commissioners, as well as state laws,
regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting
practices not so prescribed.
The maximum amount of dividends which the Insurance
Companies can pay to shareholders without approval of the
Insurance Commissioner is subject to restrictions
relating to statutory surplus as regards policyholders
and net income, as defined.
(b) The consolidated financial statements of the Company's
insurance subsidiaries have been prepared in accordance
with generally accepted accounting principles ("GAAP"),
which differ in certain respects from accounting
practices prescribed or permitted by insurance regulatory
authorities (statutory basis).
The principal differences relate to (1) acquisition costs
incurred in connection with acquiring new business which
are charged to expense under statutory practices but
under GAAP are deferred and amortized as the related
premiums are earned; (2) anticipated salvage and
subrogation recoveries which have not been credited to
losses incurred for statutory purposes and (3) in 1993,
certain State mandated assessments which are not required
to be accrued for statutory accounting purposes.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I - Shareholders' Equity (Continued):
The consolidated capital and surplus, shareholders'
equity and income (loss) of Motor Club and Preserver on
a statutory and GAAP basis were as follows:
December 31,
1995 1994
Capital and surplus -
Statutory basis $13,877,312 $11,579,503
Shareholders' equity -
GAAP basis $23,323,722 $16,981,627
Years ended December 31,
1995 1994 1993
Net income (loss):
Statutory basis $1,811,612 ($ 905,394) $1,440,125
GAAP basis $2,808,466 $5,076,289 $3,650,377
Distribution by the Insurance Companies of the excess of
GAAP shareholders' equity over statutory capital and
surplus to the Company is prohibited by law.
Note J - Contingencies:
The Company and its subsidiaries are parties to various
legal actions and administrative proceedings and subject
to various claims arising in the ordinary course of
business. The Company believes that the disposition of
these matters will not have a material adverse effect on
the financial position or the results or operations of
the Company.
Note K - Pensions:
(a) The Company has a non-contributory defined benefit plan
(the "Plan"). Eligible salaried and hourly employees of
the Company participate in the Plan after twelve months
of continuous employment with the Company when age 21 has
been attained. Retirement benefits are based on each
participant's average compensation and years of service.
Vesting of benefits begins after five years of service
commencing from the minimum age of 21 or date of hire, if
later.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K - Pensions (Continued):
The Company's contributions are designed to fund the
Plan's normal costs on a current basis and to fund the
unfunded prior service costs, including accrued benefits
arising from qualifying employee service occurring prior
to the establishment of the Plan, over 40 years.
On January 15, 1992, the Company suspended the accrual of
benefits arising from participant service. The Company
continues to fund the Plan for benefits earned through
January 31, 1992.
The Plan maintains a significant amount of assets in
group annuity contracts with Mutual Benefit Life
Insurance Company ("Mutual"), which was placed in
rehabilitation by the NJDOI on July 16, 1991. The Plan
has not received payment on the group annuity contracts
that matured on July 15, 1991 and thereafter.
On November 10, 1993, a Plan of Rehabilitation for Mutual
was confirmed by the Superior Court of New Jersey. As a
result, certain changes are implemented to the Plan's
contracts ("the restructured contract"), which is now
transferred to the MBL Life Assurance Corporation
("MBLLAC"), the successor corporation of Mutual, where
the restructured contract continues.
Under the Plan of Rehabilitation, payment of all
maturities and interest will be held subject to payout
which will not begin for at least seven years.
In October 1994, MBLLAC approved and subsequently paid a
"hardship withdrawal" of $2,666,204 (net of an
administrative charge of $470,507) to the Plan.
The Plan also received $167,368, $61,449 and $52,612 in
distributions from MBLLAC and Mutual in 1995, 1994 and
1993, respectively, under provisions of the Plan of
Rehabilitation.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K - Pensions (Continued):
(b) Pension expense for 1995, 1994 and 1993 included the
following components:
1995 1994 1993
Interest cost on projected
benefit obligation $862,600 $818,400 $ 838,700
Actual return on assets (809,900) (371,600) (859,100)
Net amortization and deferral 214,400 (295,800) 15,400
Net periodic pension cost
(income) $267,100 $151,000 ($ 5,000)
Net amortization and deferral consists of amortization of
net assets at transition, amortization of unrecognized
prior service cost and deferral of subsequent net gains
and losses. The assumptions used included a discount
rate of 8.25% (1995), 7.5% (1994) and 9.5% (1993) and an
expected long-term rate of return on assets of 10.0%.
(c) The following table sets forth the funded status of the
Plan and amounts recognized in the Company's balance
sheet at December 31, 1995 and 1994. The discount rate
assumed as of December 31, 1995 and 1994 is 7.25% and
8.25%, respectively.
1995 1994
Actuarial present value of
benefit obligations:
Vested benefit obligation $11,856,000 $10,595,600
Accumulated benefit obli-
gation $11,856,000 $10,597,200
Projected benefit obli-
gation $11,856,000 $10,597,200
Plan assets at fair value,
including guaranteed insurance
contracts with MBL Life Assurance
Corporation, in rehabil-
itation, $3,080,000 (1995) and
$5,710,000 (1994) 8,462,000 ( 8,125,300)
Projected benefit obligation
in excess of plan assets 3,394,000 2,471,900
Unrecognized net loss (5,177,900) (3,633,000)
Adjustment required to recognize
minimum liability 5,177,900 3,633,000
Pension liability recognized
in the statement
of financial position $ 3,394,900 $ 2,471,900
The adjustment required to recognize the minimum
liability is reflected as a reduction of shareholders'
equity as of December 31, 1995 and 1994, respectively.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K - Pensions (Continued):
(d) The Company maintains a defined contribution plan for
substantially all employees (including those of MCAIC).
Employer contributions of a discretionary amount are made
by the Company and its subsidiaries. MCAIC and its
subsidiaries provide similar employer contributions.
Employer contributions in the amount of $134,987,
$110,458 and $128,230 were made by the Company in 1995,
1994 and 1993, respectively, for its employees and
charged to expense.
Note L - Post-retirement Benefits:
The Company currently provides certain life and health
benefits to retired employees with twenty-five or more
years of service, subject to certain eligibility
restrictions. These benefits consist of the payment of
medical, life and dental premiums for the retired
employees. The Company's funding policy is to pay for
the premiums currently; any future increases in the cost
of these benefits will be borne by the retirees and not
the Company. The following table sets forth the funded
status and amounts recognized in the Company's balance
sheet:
December 31,
1995 1994
Accumulated postretirement
benefit obligation:
Retirees $362,000 $345,000
Fully eligible active
plan participants 194,000 138,000
Other active plan
participants 56,000 53,000
Total 612,000 536,000
Plan assets at fair value - -
Accumulated postretirement
benefit obligation in excess
of plan assets 612,000 536,000
Unrecognized net (gain)
from past experience different
from that assumed and from
changes in assumptions (219,000) (94,000)
Unrecognized transition obli-
gation (473,000) (501,000)
Prepaid postretirement benefit
cost recognized in the state-
ment of financial position ($ 80,000) ($ 59,000)
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L - Post-retirement Benefits (Continued):
Net periodic postretirement benefit cost for 1995 and
1994, respectively, included the following components:
1995 1994
Service cost of benefits attributed
to service during the period $ 2,000 $11,000
Interest cost on accumulated post-
retirement benefit obligation 45,000 37,000
Net amortization and deferral 37,000 28,000
Net periodic postretirement
benefit cost $84,000 $76,000
It is the policy of the Company that any future increase
in life and health care benefits will be borne by the
retirees and not the Company; as a result, there will be
no increase in either the Accumulated Postretirement
Benefit Obligation or the service and interest cost
components of net periodic postretirement benefit cost
related to a 1% increase in the health care trend rate.
The weighted average discount rate used in determining
the Accumulated Postretirement Benefit Obligation was
7.25% in 1995 and 8.25% in 1994.
Note M - Selected Quarterly Financial Data (Unaudited):
(a) Year ended December 31, 1995:
1st 2nd 3rd 4th
Quarter* Quarter* Quarter* Quarter
Revenues $9,497,890 $9,517,606 $10,185,612 $10,322,712
Losses and
expenses $9,047,624 $8,867,995 $ 9,525,441 $ 9,627,661
Net income $ 439,266 $ 638,611 $ 646,171 $ 692,731
Net income
per common
share $ .22 $ .31 $ .31 $ .34
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - Selected Quarterly Financial Data (Unaudited):
(b) Year ended December 31, 1994:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Revenues $8,046,614 $7,967,613 $ 7,538,608 $ 8,605,535
Losses and
expenses $6,913,552 $6,932,261 $ 5,495,523 $ 7,777,967
Net income $1,123,875 $1,044,539 $ 2,038,665 $ 827,568
Net income
per common
share $ .55 $ .51 $ 1.00 $ .40
* Amounts reclassified to conform with year-end 1995 presentation.
Note N - Stock Option Plans:
The Motor Club of America 1987 and 1992 Stock Option
Plans ("the 1987 Option Plan" and "the 1992 Option Plan",
respectively) provide for the issuance of options to
purchase 100,000 common shares, respectively, by key
executives at the market price at date of grant.
Options under the 1987 Option Plan are exercisable for a
four year period commencing one year from the date of
grant. As of December 31, 1995, 61,000 shares under the
1987 Option Plan are available for grant; 38,250 shares
were exercisable as of that date.
Options under the 1992 Option Plan are exercisable for a
five year period in twenty-five percent increments each
year, commencing one year from the date of grant. As of
December 31, 1995, 49,000 shares under the 1992 Option
Plan are available for grant; 38,250 shares were
exercisable as of that date.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Stock Option Plans (Continued):
Transactions during 1993, 1994 and 1995 relating to the
1987 Option Plan are as follows:
Exercise
Number of Price per Aggregate
Shares Share Amount
Options outstanding
at December 31, 1992 41,250 $ 433,438
Options granted in 1993 48,750 $2.625 to 127,969
Options lapsed in 1993 (20,000) $10.25 (205,000)
Options outstanding at
December 31, 1993 70,000 356,407
$2.625 to
Options lapsed in 1994 (28,750) $10.75 (248,126)
Options outstanding at
December 31, 1994 41,250 108,281
Options exercised in 1995 (750) $2.625 (1,969)
Options lapsed in 1995 (2,250) $2.625 (5,906)
Options outstanding at
December 31, 1995 38,250 $2.625 $ 100,406
Transactions during 1993, 1994 and 1995 relating to the
1992 Option Plan are as follows:
Exercise
Number of Price per Aggregate
Shares Share Amount
Options outstanding
at December 31, 1992 69,000 $ 414,000
Options lapsed in 1993 (4,000) $6.00 (24,000)
Options outstanding
at December 31, 1993 65,000 390,000
Options lapsed in 1994 (10,000) $6.00 (60,000)
Options outstanding at
December 31, 1994 55,000 330,000
Options lapsed in 1995 (4,000) $6.00 (24,000)
Options outstanding at
December 31, 1995 51,000 $6.00 $ 306,000
The Financial Accounting Standards Board has issued SFAS
No. 123 - Accounting for Stock-Based Compensation. This
statement becomes effective beginning with the Company's
first quarter of 1996 and will not have a material effect
on the Company's financial position or results of
operations. Upon adoption of SFAS No. 123, the Company
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Stock Option Plans (Continued):
will continue to measure compensation expense for its
stock-based employee compensation plans using the
intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees and will provide
pro forma disclosures of net income and earnings per
share as if the fair value-based method prescribed by
SFAS No. 123 had been applied in measuring compensation
expense.
Note O - Related Party Transactions:
Thrifty Rent-A-Car System, Inc. ("Thrifty") owned 39.2%
of the outstanding common stock of the Company through
July 25, 1994.
On July 25, 1994, Thrifty sold all of its shares to three
of the Company's directors ("Acquisition Group"). The
Acquisition Group owns 43.7% of the outstanding common
stock of the Company at December 31, 1995. The Company
paid directors fees and certain expenses to the
Acquisition Group of $180,000 and $256,530 during 1995
and 1994, respectively.
Note P - Lease Obligations:
At December 31, 1995 the Company was party to an
agreement with Fairmount Central Urban Renewal
Corporation ("Fairmount"), a subsidiary of MCAIC for the
lease of the office building in which the Company and its
subsidiaries operated. Rent of $324,000 per year, subject
to adjustment for property taxes in excess of $200,000,
was paid by the Company, along with other costs as
defined in the lease. In 1995, 1994 and 1993, rent
expense paid by the Company (net of amounts paid by
MCAIC) was $252,000, $261,000 and $228,000, respectively.
The lease expires on December 31, 2011. The Company
presently has a limited operation at this building and is
discussing termination of the lease with Fairmount. At
this time, the Company does not believe any lease
termination costs will be material.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P - Lease Obligations (Continued):
Effective January 1, 1996, the Company entered into a
lease at 95 Route 17 South, Paramus, New Jersey. The
lease expires on December 31, 2005. The Company has an
option to terminate the lease after six years, and an
option to extend the lease for an additional five years
after the initial lease term expires. The Company will
pay a base annual rental of $371,745 through December 31,
2000 and $416,805 thereafter until the lease expires.
Additional charges for electricity and escalation of
certain operating costs apply.
Note Q - Insolvency of MCA Insurance Company:
On August 24, 1992, Hurricane Andrew struck the South
Florida coast, causing losses to MCAIC which exceeded its
surplus as regards policyholders. MCAIC was placed in
liquidation on October 23, 1992 by the Oklahoma District
Court, Oklahoma.
On December 30, 1994, the Oklahoma District Court
approved a settlement between the MCAIC Receiver and its
subsidiaries and the Company and its subsidiaries (the
"Settlement"). Under the Settlement, the Company agreed
to pay MCAIC approximately $5.4 million, $2 million of
which was paid on December 30, 1994. The Settlement also
dismissed with prejudice the litigation previously
brought (in August 1993) by the MCAIC Receiver against
the Company regarding the ownership of Motor Club. The
Settlement released all parties from all potential claims
against one another, and put in place agreements
regarding the handling of consolidated taxes, common cost
sharing and service agreements.
On February 15, 1995, pursuant to the Settlement
Agreement, MCAIC was paid in full.
The Joint Services Agreement ("JSA") entered into as part
of the Settlement was retroactive to May 1, 1994 and
provided for the rendering of certain services by the
parties to the JSA and amounts due for these services, as
well as the sharing of certain common expenses. Common
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Q - Insolvency of MCA Insurance Company (Continued):
expenses emanate from the parties' co-tenancy in the
office building in which the parties' principal offices
resided. The JSA was terminated effective February 29,
1996.
In relation to the insolvency of MCAIC, there are no
additional liabilities, contingent or otherwise, which
require accrual or disclosure in the accompanying
financial statements.
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE I. SUMMARY OF INVESTMENTS-
OTHER THAN INVESTMENTS IN RELATED PARTIES
at December 31, 1995
Column A Column B Column C Column D
Amount at
which shown
in the
Cost(a) Market balance sheet
Type of investment
Fixed maturity securities
available-for-sale:
United States Government
and government agencies
and authorities $38,267,692 $39,587,261 $39,587,261
Industrial and
miscellaneous 4,427,079 4,489,996 4,489,996
Public utilities 543,414 553,200 553,200
Total fixed maturities 43,238,185 44,630,457
Mortgage loans on real
estate 766,101 766,101
Short-term investments,
available-for-sale 200,576 200,719 200,719
Total investments $44,204,862 $45,597,277
Note: (a) Represents original cost of investments reduced by
repayment and as to fixed maturities, adjusted for
amortization of premiums or accrual of discounts.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE II. CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
December 31,
1995 1994
Assets:
Cash and cash equivalents $ - $ 2,820,394
Investments in related parties 25,072,857 20,433,519
Insurance premiums receivable 7,018,662 5,530,807
Other assets 1,444,902 3,382,903
Total assets $33,536,421 $32,167,623
Liabilities and shareholders' equity:
Indebtedness to subsidiaries $13,968,869 $11,466,953
Other liabilities 5,486,476 4,654,485
Note payable to Midlantic
Bank, N.A. - 2,750,000
Amounts due to MCA Insurance
Company in Liquidation and
subsidiaries - 2,750,000
Total liabilities 19,455,345 21,621,438
Shareholders' equity 14,081,076 10,546,185
Total liabilities and
shareholders' equity $33,536,421 $32,167,623
Notes to Schedule
The Notes to Consolidated Financial Statements of Motor Club
of America and Subsidiaries are incorporated by reference to
this schedule.
The Statements of Shareholders' Equity are the same as those
presented for Motor Club of America and Subsidiaries.
(Continued)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE II. CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
Revenues:
Motor Club membership fees (1) $ 113 $ 35,566 $ 31,248
Commission income (2) 10,093 8,425 453,256
Other income (3) 157,012 160,576 242,256
Total revenues 167,218 204,567 726,760
Expenses:
Depreciation - - 442,622
General and administrative
expenses (4) 91,079 810,893 290,101
Discount of Note Payable to
Receiver of MCA Insurance
Insurance Company in
Liquidation - (624,850) -
Total expenses 91,079 186,043 732,723
Income (loss) before item
shown below (76,139) 18,524 (5,963)
Equity in net income
of subsidiaries 2,340,640 5,016,123 3,265,501
Net income $2,416,779 $5,034,647 $3,259,538
(1) Amount is from Enterprises.
(2) Amount includes $0 (1995), $0 (1994) and
$440,638 (1993) of commission from insurance
subsidiaries.
(3) Amount includes $67,117 (1995), $94,676 (1994)
and $126,235 (1993) of interest due from Motor
Club.
(4) Amount is net of $223,691 (1995), $335,590
(1994) and $9,482,265 (1993) of management
fees charged to subsidiaries.
(Continued)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE II. CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the years ended December 31,
1995 1994 1993
Net income $ 2,416,779 $5,034,647 $ 3,259,538
Adjustments to reconcile net
income to net cash provided by
(utilized in) operating
activities:
Discount of Note due Receiver of
MCA Insurance Company in
Liquidation - (624,850) -
Write-off of investment in
MCA Insurance Company and its
subsidiaries - - 442,622
Depreciation expense 248,540 286,305 -
Accretion of bond discount (16,368) (3,823) (43)
Changes in:
Premiums receivable (1,487,855) (342,333) 165,604
Investments in related parties (1,978,815) (2,929,014) (6,076,987)
Other assets 284,074 1,344,928 1,853,670
Other liabilities (712,909) (1,162,720) (886,030)
Indebtedness to related parties 2,501,916 1,689,614 (1,108,042)
Amounts due to MCA Insurance Company
in Liquidation and subsidiaries (2,750,000) (1,458,624) 1,610,225
Net cash provided by (utilized in)
operating activities (1,494,638) 1,834,130 (739,443)
Investing activities:
Proceeds from:
Disposal of short-term
investments 1,665,897 - -
Disposal of fixed
maturities 596,783 1,448,129 9,014
Purchase of:
Fixed maturities (608,402) (1,447,525) -
Short-term investments - (1,649,740) (6,171,072)
Fixed assets (232,003) (114,600) (20,640)
Net cash provided by (utilized in)
investing activities 1,422,275 (1,763,736) (11,626)
Financing activities:
(Repayment to) borrowing from
Midlantic Bank, N.A. (2,750,000) 2,750,000 -
Common stock issued 1,969 - -
Net cash provided by (utilized in)
financing activities (2,748,031) 2,750,000 -
Increase (decrease) in cash and
cash equivalents (2,820,394) 2,820,394 (751,069)
Cash and cash equivalents at
beginning of year 2,820,394 - 751,069
Cash and cash equivalent at end of year $ - $2,820,394 $ -
</TABLE>
Supplemental Disclosures of Cash Flow Information
(1) Total interest paid was $33,934 (1995), $53 (1994) and
$299 (1993).
(2) Total federal income taxes paid was $52,000 (1995),
$54,227 (1994) and $25,613 (1993).
(Continued)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE IV. REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E Column F
% of
Ceded to Assumed from Amount
other other Assumed
Gross Amount Companies Companies Net Amount to Net
December 31, 1995:
Total property and casualty
insurance premiums earned $41,051,119 $ 5,750,247 $ - $35,300,872 0.0%
December 31, 1994*:
Total property and casualty
insurance premiums earned $37,065,794 $ 9,173,851 $ - $27,891,943 0.0%
December 31, 1993*:
Total property and casualty
insurance premiums earned $38,763,871 $ 8,689,107 $ - $30,074,764 0.0%
</TABLE>
* Amounts have been reclassified to conform with 1995 presentation.
(Continued)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE V. VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
<C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance
Beginning Cost and Other at end
Description of Period Expenses Accounts Deductions of Period
Allowance for
doubtful
receivables:
December 31, 1995 $ 439,309 $316,774 $ - $ 100,000 $ 656,083
December 31, 1994 $ 200,000 $239,309 $ - $ - $ 439,309
December 31, 1993 $ 200,000 $ - $ - $ - $ 200,000
Valuation allowance
for deferred taxes:
December 31, 1995 $5,070,974 $ - $ 682,329 $2,778,895 $2,974,408
December 31, 1994 $7,057,259 $ - $1,309,191 $3,295,476 $5,070,974
December 31, 1993 $7,430,147 $125,990 $1,154,300 $1,653,178 $7,057,259
</TABLE>
(Continued)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E Column F Column G
Reserves for
Deferred Unpaid Claims Discount,
Policy and Claim if any, Net
Acquisition Adjustment Deducted in Unearned Earned Investment
Costs Expenses Column C Premiums Premiums Income (a)
Year ended
December 31, 1995 $ 5,069,222 $39,823,552 - $16,838,135 $35,300,872 $2,759,337
Year ended
December 31, 1994* $ 4,166,368 $41,665,101 - $13,554,754 $27,891,943 $2,506,701
Year ended
December 31, 1993* $ 2,792,686 $45,818,203 - $13,065,299 $30,074,764 $2,651,627
</TABLE>
Note: (a) Excludes non-insurance subsidiaries' investment income and
realized investment gains.
* Amounts reclassified to conform with 1995 presentation
The accompanying notes are an integral part
of these consolidated financial statements.
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA AND SUBSIDIARIES
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C> <C>
Column A Column H Column I Column J Column K
Claims and Claim
Adjustment Expenses Amortization Paid
Incurred Related to of deferred Claims
(1) (2) policy and Claim
Current Prior acquisition Adjustment Premium
Year Years Costs Expenses Written
Year ended
December 31, 1995 $19,625,070 $1,112,475 $10,611,978 $19,682,580 $37,639,344
Year ended
December 31, 1994* $14,367,136 $ 919,165 $ 9,353,336 $18,264,953 $31,365,121
Year ended
December 31, 1993* $17,602,255 ($1,323,758) $ 9,250,259 $19,414,277 $28,058,617
</TABLE>
Note: (a)Excludes non-insurance subsidiaries' investment income and
realized investment gains.
* Amounts reclassified to conform with 1995 presentation
The accompanying notes are an integral part
of these consolidated financial statements.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
These schedules contain summary financial information extracted from Motor Club
of America's Consolidated Balance Sheet for the period ending December 31, 1995
and the Consolidated Statements of Operations for the twelve months then ended
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 44,831,176
<EQUITIES> 0
<MORTGAGE> 766,101
<REAL-ESTATE> 0
<TOTAL-INVEST> 45,597,277
<CASH> 2,630,909
<RECOVER-REINSURE> 17,638,854
<DEFERRED-ACQUISITION> 5,069,222
<TOTAL-ASSETS> 81,958,768
<POLICY-LOSSES> 39,823,552
<UNEARNED-PREMIUMS> 17,363,031
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,021,876
<OTHER-SE> 13,059,200
<TOTAL-LIABILITY-AND-EQUITY> 81,958,768
35,300,872
<INVESTMENT-INCOME> 2,764,188
<INVESTMENT-GAINS> 56,823
<OTHER-INCOME> 1,401,937
<BENEFITS> 20,737,548
<UNDERWRITING-AMORTIZATION> 10,611,978
<UNDERWRITING-OTHER> 5,438,359
<INCOME-PRETAX> 2,455,099
<INCOME-TAX> 38,320
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,416,779
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 0
<RESERVE-OPEN> 41,665,101
<PROVISION-CURRENT> 23,002,073
<PROVISION-PRIOR> (1,110,918)
<PAYMENTS-CURRENT> 9,809,000
<PAYMENTS-PRIOR> 13,923,704
<RESERVE-CLOSE> 39,823,552
<CUMULATIVE-DEFICIENCY> (860,918)
</TABLE>
