SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
----------------- -------------------
March 31, 1999 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
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x . No .
---- ----
2,116,429 shares of Common Stock were outstanding as of May 13, 1999
1 of 21
MOTOR CLUB OF AMERICA
FORM 10-Q
MARCH 31, 1999
PART I PAGE
------ ----
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
PART II
-------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
MOTOR CLUB OF AMERICA
AND SUBSIDIARIES
----------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<S> <C> <C>
March 31, December 31,
1999 1998
-------------------------------
ASSETS
Investments $ 74,749,108 $ 75,951,241
Cash and cash equivalents 3,533,364 2,773,427
Premiums receivable 20,504,721 20,401,069
Reinsurance recoverable on
paid & unpaid losses and
loss expenses 19,402,230 19,234,277
Notes and accounts receivable 164,890 125,444
Deferred policy acquisition costs 8,455,811 8,708,329
Fixed assets - at cost, less
accumulated depreciation 1,693,801 1,671,902
Prepaid reinsurance premiums 918,881 1,015,581
Federal income tax recoverable - 26,724
Other assets 1,222,992 1,104,782
------------------------------
Total Assets $130,645,798 $131,012,776
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Losses and loss expenses $ 60,457,620 $ 58,335,143
Unearned premiums 29,982,488 30,733,144
Other liabilities 8,384,295 10,163,520
Note payable 3,000,000 3,000,000
Deferred tax liability 763,858 957,440
Federal income taxes payable 1,545 -
------------------------------
Total Liabilities 102,589,806 103,189,247
==============================
Shareholders' Equity:
Common stock, par value $.50 per share:
(Authorized - 10,000,000 shares;
issued and outstanding - 2,116,429
(1999 and 1998) 1,058,215 1,058,215
Paid in additional capital 1,996,954 1,996,954
Accumulated other comprehensive loss (4,175,545) (3,422,387)
Retained earnings 29,176,368 28,190,747
------------------------------
Total Shareholders' Equity 28,055,992 27,823,529
------------------------------
Total Liabilities and
Shareholders' Equity $130,645,798 $131,012,776
==============================
</TABLE>
(Financial statements should be read in
conjunction with the accompanying notes)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA
AND SUBSIDIARIES
---------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C>
For the Three Months Ended
----------------------------------
March 31, 1999 March 31, 1998
----------------------------------
Revenues:
Insurance premiums (net of
premiums ceded totaling
$1,818,897 (1999) and
$1,578,300 (1998)) $13,084,199 $13,008,953
Net investment income 1,192,532 1,041,286
Realized gains on sales
of investments - 25,900
Other revenues 38,042 46,099
-------------------------------
Total revenues 14,314,773 14,122,238
-------------------------------
Losses and Expenses:
Insurance losses and
loss expenses incurred
(net of reinsurance recoveries
totaling $883,621 (1999) and
$889,336 (1998)) 8,882,943 8,334,324
Amortization of deferred policy
acquisition costs 3,832,123 3,790,219
Other operating expenses 391,608 564,992
-------------------------------
Total losses and expenses 13,106,674 12,689,535
-------------------------------
Income before Federal
income taxes 1,208,099 1,432,703
Provision for Federal income taxes 222,478 408,172
-------------------------------
Net income $ 985,621 $ 1,024,531
===============================
NET INCOME PER COMMON SHARE:
Basic $.47 $.49
==== ====
Diluted $.46 $.48
==== ====
WEIGHTED AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:
Basic 2,116,429 2,095,321
========= =========
Diluted 2,127,745 2,126,233
========= =========
</TABLE>
(Financial statements should be read in
conjunction with the accompanying notes)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA
AND SUBSIDIARIES
----------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C> <C> <C>
For the Three Months Ended
----------------------------------
March 31, 1999 March 31, 1998
-----------------------------------
Operating activities:
Net income $ 985,621 $ 1,024,531
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and net amortization 159,723 146,974
Gain on sale of investments - (25,900)
Changes in:
Deferred policy
acquisition costs 252,518 86,615
Premiums receivable (103,652) 121,671
Notes and accounts
receivable (39,446) (15,000)
Other assets (118,210) 247,391
Losses and loss expenses 2,122,477 1,372,277
Unearned premiums (750,656) (275,290)
Federal income tax - current 28,269 29,214
Federal income tax - deferred 194,408 378,958
Other liabilities (1,779,225) (1,241,749)
Reinsurance recoverable on
paid and unpaid losses (167,953) (283,798)
Prepaid reinsurance premiums 96,700 62,460
----------- ----------
Net cash provided by
operating activities $ 880,574 $1,628,354
Investing activities:
Investments purchased (32,510,702) (51,311,520)
Fixed assets purchased (179,043) (74,625)
Proceeds from sales and
maturities of investments 32,569,108 49,521,249
----------- -----------
Net cash used in
investing activities (120,637) (1,864,896)
Financing activities:
Common stock issued - 13,781
----------- -----------
Net cash provided by financing activities - 13,781
-------- ------------
Net increase (decrease) in cash and
cash equivalents 759,937 (222,761)
Cash and cash equivalents at
beginning of period 2,773,427 222,761
---------- -----------
Cash and cash equivalents at
end of period $3,533,364 $ -
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 53,295 $ 1,440
========== ===========
Federal income taxes paid $ - $ -
========== ===========
NON CASH INVESTING ACTIVITIES:
Invested assets and shareholders' equity decreased by $753,158 and
increased by $26,953 in 1999 and 1998, respectively, as a result of
changes in market value, net of taxes, pertaining to the Registrant's
application of SFAS No. 115 - Accounting for Certain Investments in
Debt and Equity Securities.
</TABLE>
(Financial statements should be read in
conjunction with the accompanying notes)
<TABLE>
<CAPTION>
MOTOR CLUB OF AMERICA
AND SUBSIDIARIES
----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<S> <C> <C>
For the Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------------------------
Net income $985,621 $1,024,531
Other comprehensive income:
Unrealized gains (losses) on
securities:
Unrealized holding gains (losses)
during the period (net of taxes
of $387,990 and $22,691) (753,158) 44,047
Less: reclassification adjustment
for gains included in net income
(net of taxes of $8,806) - (17,094)
--------------------------
Other comprehensive income (753,158) 26,953
--------------------------
Comprehensive income $232,463 $1,051,484
==========================
</TABLE>
(Financial statements should be read in
conjunction with the accompanying notes)
MOTOR CLUB OF AMERICA
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Basis of Preparation and Presentation
-------------------------------------
The accompanying condensed consolidated financial statements of
Motor Club of America (the "Registrant") include its accounts and those of its
subsidiary companies, Motor Club of America Insurance Company ("Motor Club")
and Preserver Insurance Company ("Preserver") (collectively referred to as
the "Insurance Companies"), and, in the opinion of management, contain
all adjustments necessary to present fairly the Registrant's consolidated
financial position, results of operations and cash flows, in accordance with
generally accepted accounting principles.
These statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes included in the Notes to
Financial Statements in the Registrant's 1998 Annual Report on Form 10-K.
2. Per Share Data
--------------
Basic earnings per share are computed based upon the weighted average
number of common shares outstanding during each year. Diluted earnings per
share are computed based upon the weighted average number of common shares
outstanding including outstanding stock options.
3. Federal Income Taxes
--------------------
The Registrant and its subsidiaries file a consolidated Federal income
tax return. In the three month periods ended March 31, 1999 and 1998,
the provision for Federal income taxes resulted in effective tax rates
different from the expected statutory Federal income tax rates, principally
as a result of (i) certain adjustments, principally those enacted under the
Tax Reform Act of 1986; (ii) utilization of Net Operating Loss ("NOL")
carryforwards; and (iii) in 1999, the recognition as a deferred tax asset
of certain tax credit carryforwards for alternative minimum tax purposes.
The Registrant's NOL carryforwards at March 31, 1999 are approximately $381,000.
4. North East Merger
-----------------
On March 16, 1999, the Registrant signed a definitive Agreement and
Plan of Merger ("Merger Agreement") to acquire North East Insurance Company
("North East") through a merger of a wholly-owned subsidiary of the Registrant
with and into North East ("Merger"). North East is a NASDAQ listed property and
casualty insurance company, headquartered in Scarborough, Maine, and trading
under the symbol NEIC. Under the terms of the Merger Agreement, North East
shareholders will receive, at their individual election, (a) $3.30 per share of
North East common stock, (b) one share of the Registrant's common stock for
each 5.25 shares of North East common stock, or (c) a combination thereof.
If the North East shareholders in the aggregate elect to exchange more than
50% of their shares for the Registrant's stock, the aggregate percentage
will be ratably reduced to 50%.
Consummation of the Merger is subject to the satisfaction of certain
conditions set forth in the Merger Agreement, including approval from the
shareholders of the Registrant and North East and authorization by state
insurance regulators. Both the Registrant and North East expect that these
conditions will be satisfied in due course.
The Registrant has made the necessary filings with the Maine Bureau of
Insurance and is finalizing the necessary materials to present to its
shareholders to approve the transaction.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Overview of Business Operations
- -------------------------------
The Registrant and a group of affiliated corporations provide property and
casualty insurance related services. The Registrant has two subsidiaries which
are domiciled in the State of New Jersey and write property and casualty
insurance, Motor Club and Preserver. At this time one hundred percent of the
Registrant's insurance operations are in the State of New Jersey.
The Registrant seeks to increase its identification as a provider of small
commercial lines insurance. The Registrant also seeks to expand and diversify
its insurance operations outside the State of New Jersey. The Registrant
believes that both of these objectives can be attained through the acquisition
of other insurance companies which present opportunities to write these product
lines in different geographic areas. The Registrant expects to continue to
pursue these objectives during 1999 and beyond.
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 private passenger automobile ("PPA") writings by Motor Club.
The Registrant also anticipates continued reductions in its operating
expenses, namely through the implementation of operating efficiencies which
should reduce other overhead expenditures.
New Jersey Private Passenger Automobile Insurance
- -------------------------------------------------
The New Jersey PPA market has historically been subject to regulatory and
legislative volatility which has, at times, adversely affected the
profitability of this line of business, despite New Jersey having among the
highest average premium rate in the United States. New Jersey insurance
law presently requires insurers to write all eligible personal automobile
coverage presented to them from drivers with eight points or less on their
driving record. This is commonly referred to as "take-all-comers".
The New Jersey Department of Banking and Insurance ("NJ DOBI") may grant
an insurer relief, by written notification, from writing new PPA pursuant to the
take-all-comers provisions of New Jersey law if a showing finds that the
insurer's premium to surplus ("leverage") ratio exceeds 3 to 1. Motor Club's
present applicable leverage ratio for the twelve months ended March 31, 1999
is 3.53 to 1. However, this ratio is temporarily elevated due to the
conversion from six month policies to twelve month policies that began July 1,
1998. It appears that Motor Club's leverage ratio, adjusted for this
conversion, was below 3 to 1 at March 31, 1999.
The Registrant's tier rating system implemented as part of the 1997
New Jersey PPA legislation was approved by the NJ DOBI and has been implemented
on all PPA policies with effective dates on and after November 1, 1998.
Additional New Jersey PPA legislation was enacted in 1998 and implemented
with new policies issued on and after March 22, 1999, which: 1) allows insureds
to reduce levels of compulsory coverages, including the option to reduce their
coverage for Personal Injury Protection ("PIP") to as low as $15,000, from the
presently required $250,000; 2) revises the PIP policy form to set forth the
medical treatments and services, valid diagnostic tests and appropriate health
care protocols which are eligible to be paid; 3) seeks to limit lawsuits by
claimants by redefining of the type of injury which would be grounds for
litigation; 4) replaces the present PIP arbitration system which utilizes part-
time arbitrators who render only oral decisions without consulting medical
professionals with one using full-time dispute resolution professionals who may
refer questions of medical necessity or diagnosis to medical review
organizations and who must render written decisions; 5) appoints a special
fraud prosecutor to increase enforcement of fraudulent acts committed against
insurance companies; 6) removes the system of territorial rating caps which have
been in place since 1983, enabling insurers to modify (as appropriate) rates
charged in various rating territories, which will be redefined; and 7)
requires up to a 15% reduction in rates on all PPA policies.
The only element of the 1998 legislation not implemented in 1999 is the
redefinition of the territories and removal of the territorial rating caps,
which will be implemented in 2000. The Registrant believes that the legislation
will have a modest net negative effect on Motor Club's PPA operations and
profitability, as the mandated rate reductions do not appear to be completely
cost justified (based on information presently available) by the cost savings
proposed in the legislation. The impact of these reforms on premiums, losses,
expenses or related financial ratios cannot be completely quantified.
Results of Operations
- ---------------------
Net income decreased $39,000 or $.02 basic net income per share in the
three months ended March 31,1999 as compared to the same period in 1998. The
decrease in net income is due to lower income before Federal taxes by Preserver
in 1999 as compared to 1998, offset by a lower effective Federal tax rate in
1999. The combined ratio for the three months ended March 31, 1999 was
100.2% as compared to 97.6% for the same period in 1998.
Preserver had very strong results in the first quarter 1999, although not
as profitable as the same period in 1998, which were the result of historically
low loss ratios. Motor Club's results were slightly better in the 1999 first
quarter despite a higher loss ratio. The increase in the Insurance
Companies' loss ratios offset improvements in the expense ratio, causing the
increase in the combined ratio. The reduction in the provision for Federal
income taxes is due to the recognition in 1999, as a deferred tax asset, of
certain tax credit carryforwards for alternative minimum tax purposes.
Revenues
- --------
INSURANCE PREMIUMS
Insurance premiums increased $75,000 or 0.6% in the three months ended
March 31, 1999, compared to the same period in 1998, primarily the result of
increases in new commercial business written.
The following table details the increases in insurance premiums for the
three month period ended March 31, 1999 as compared to the same period in
1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31, 1999
------------------
Increase in
Net
Class of Business Premium Percent
----------------- --------- -------
Private Passenger Automobile ($155,000) (2%)
Commercial Lines 175,000 10%
Personal Property 55,000 4%
-------- ---
Total $ 75,000 0.6%
======== ===
</TABLE>
Reinsurance costs related to the New Jersey Automobile Insurance
Risk Exchange ("NJ AIRE") were $100,000 higher in the three months ended
March 31, 1999 as compared to the same period in 1998. Please refer to Note F
in the Notes to Financial Statements in the Registrant's Annual
Report on Form 10-K for additional information on NJ AIRE.
Effective July 1, 1998, Motor Club began converting its existing six month
policies, which constitute 98% of its personal automobile book of business, to
twelve month policies. This measure will further improve the Registrant's
operating efficiency and service levels, and reduce expenses. The
Registrant believes this is particularly important since the NJ DOBI has not
proposed or adopted regulations which would provide for expedited prior approval
rate increases, as required by legislation passed by the New Jersey Legislature
in 1997. While conversion to twelve month policies will, for a one year period
commencing July 1, 1998, temporarily increase the amount of premiums written
by the Registrant, it will not effect the amount of premium earned.
PPA insurance premiums will begin to decline in the 1999 second quarter as
a result of the imposed rate reductions in the 1998 PPA legislation.
During the first quarter of 1998, Preserver introduced its new workers'
compensation product. The Registrant believes the introduction of this product,
along with other product improvements, enable Preserver to offer a broad,
competitive product line which will grow steadily in the future.
Insurance premiums in Preserver's workers' compensation program increased
$70,000 in the three months ended March 31, 1999 as compared to the same period
in 1998.
NET INVESTMENT INCOME
Net investment income increased $151,000 or 15% for the three months ended
March 31, 1999 as compared to the same period in 1998, due to an increase in
invested assets. Average invested assets for the three month period ended
March 31, 1999 were $73,718,000 as compared to $64,000,000 for the same period
in 1998. The investment portfolio (including short-term investments
and excluding realized capital gains) yielded 6.47% for the three months
ended March 31, 1999 as compared to 6.51% for the same period in 1998.
Losses and Expenses
- -------------------
LOSSES AND LOSS EXPENSES INCURRED
Losses and loss expenses incurred increased $549,000 or 7% in the three
months ended March 31, 1999 as compared to the same period in 1998. Loss ratios
for the three month period ended March 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
------------------------------------
March 31, 1999 March 31, 1998
Motor Club 72.0% 69.7%
Preserver 56.2% 46.6%
---- ----
Total 67.9% 64.1%
==== ====
</TABLE>
The personal automobile loss ratio for Motor Club remains in line with
expectations which consider the increased amounts of new personal automobile
written since 1995, now representing 54% of the total Motor Club book of
business. The first quarter 1998 loss ratio was historically
low for Preserver and the first quarter 1999 loss ratio represents a return
to the more typical experience for Preserver in the last several years, which
remains at excellent levels. The relative lack of Winter weather losses in New
Jersey in both 1999 and 1998 have been contributing factors to the strong
Preserver loss ratio.
Despite the higher loss and loss expense ratios for Motor Club on a
comparative basis, no significant adverse trends were experienced or identified
during the three month period ended March 31, 1999.
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS AND OTHER OPERATING EXPENSES
Such expenses decreased $131,000 or 3% in the three months ended
March 31, 1999 as compared to the same period in 1998, primarily due to lower
operating expenses. The decrease allowed for a decrease in the expense ratio to
32.3% for the three month period ended March 31, 1999 as compared to 33.5% for
the same period in 1998.
However, during 1999, the completion of the Policy Term Conversion, in
conjunction with the rate rollback required under the 1998 PPA reforms, may
increase the Registrant's expense ratio.
The Registrant remains committed to reducing its expense ratio by
increasing revenues while either limiting increases or reducing where possible
its overhead expenditures.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Registrant's book value increased to $13.26 per share at March 31, 1999
from $13.15 per share at December 31, 1998. The sources of the net increase
were net income of $986,000 or $.47 per share described previously, offset by a
decrease of $753,000 or $.36 per share (net of deferred taxes) in the market
value of fixed maturity investments accounted for as available-for-sale
securities under SFAS No. 115.
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 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 operating activities were $881,000 and $1,628,000
in the three months ended March 31, 1999 and 1998, respectively. The lower
cash flow provided by operating activities in the three months ended March 31,
1999 as compared to 1998 reflects the lower growth in the Insurance Companies'
premium revenue during those periods. Net cash utilized in investing activities
was $121,000 in 1999 and $1,865,000 in 1998, reflecting the investment of cash
provided by operating activities.
No unusual or nonrecurring operating expenditures have been incurred over
these periods. Additionally, the payout ratio of losses has not fluctuated
substantially over these periods.
Financing Activities
- --------------------
The Registrant paid no dividend on its common stock in 1999 or 1998.
In connection with its announced acquisition of North East, an Independent
Committee of the Registrant's Board of Directors has approved an alternative
plan of financing the merger, to be voted on by the Registrant's stockholders at
a special meeting.
Under this plan, the Registrant would issue unsecured debentures, in one or
more series, for a total principal amount of up to $10 million. Each series
would be due on the tenth anniversary of the closing of the merger and will bear
interest at a rate equal to 2.5% over the London Interbank Offered Rate, fixed
as of the date on which the series is issued. Interest would be paid quarterly,
in arrears.
At the holder's option, each debenture would be convertible at any time, in
whole or in part, into a number of the Registrant's shares equal to the total
principal amount of indebtedness to be converted, divided by 130% of the average
trading price of the Registrant's common stock over the 20 day period
immediately prior to the debenture's issue date.
The debentures must be offered only to high net worth individuals,
institutional investors, and other accredited investors (as defined in section
501 of the Securities Act of 1933). Consequently, an offering of these
debentures would be structured to be exempt from the registration requirements
of the Securities Act of 1933. The Registrant expects that the members
of the Executive Committee of its Board of Directors will be the debenture
offerees. The members of the Executive Committee have advised the Registrant
that they will, if this plan of financing is approved by the stockholders,
subscribe for up to all of the debentures.
If the members of the Executive Committee convert a substantial portion of
the debentures, their percentage ownership in the Registrant's common stock will
substantially increase. It is possible that the Executive Committee could
increase its collective percentage stock ownership from the current 42.2% to
over 50%.
If the Registrant's stockholders do not approve this alternative plan of
financing, the Registrant will obtain merger financing from either of two
lenders that have each offered to lend up to $10 million at less favorable
terms. Completion of the Merger is not contingent on approval of the
alternative plan of financing.
The Registrant has no other material outstanding capital commitments which
would require additional financing.
Year 2000
- ---------
The Registrant has been addressing the issues resulting from computer
programs which use two digits, rather than four digits to define a year and
which may be affected by the use of dates after January 1, 2000 ("Y2K Issue").
The Registrant has divided the Y2K Issue into the following three areas:
(1) Internal Technology; (2) External Technology; and (3) Insurance Issues.
This disclosure updates the disclosure made in the Registrant's 1998
Annual Report on Form 10-K. All terms used herein are as defined in that
Report.
The Registrant has not experienced any significant Y2K related problems
from its Business Critical Internal Technology to date in 1999, including
processing of policy information and changes which have date information after
January 1, 2000. A rating mechanism for certain Business Critical Internal
Technology, which represents less than 5% of the Registrant's direct
premium revenue, was recently discovered to require additional Y2K
remediation, which is expected to be completed by August 1, 1999. The
Registrant is approximately 50% complete with the certification of the LAN and
PC environments utilized in its Internal Technology as Y2K complaint. The
Registrant expects to be compliant with this element of its Y2K compliance
effort no later than July 1, 1999, the original date estimated. All
conversions of Other Internal Technology to Y2K compliant versions are expected
to be completed by July 1, 1999.
The Registrant has expended less that $150,000 to address Y2K issues in
1999, consisting primarily of the purchase of new PC's and file servers for its
LAN's which are Y2K compliant and are replacing obsolete equipment. Estimated
costs to complete work related to the Y2K issue are currently less than
$100,000.
The risks associated with the Registrant's Internal Technology, External
Technology and Insurance Issues with regard to the Y2K Issue could result in an
interruption in, or a failure of, certain normal business activities or
operations, in addition to increased amounts of losses and loss expenses
incurred. This could materially and adversely affect the Registrant's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K Issue, the Registrant is unable to determine at this time
whether the consequences of Y2K failures will have a material impact on the
Registrant's results of operations, liquidity and financial condition. The
Registrant's efforts to address the Y2K Issue are expected to significantly
reduce its level of uncertainty about the Y2K Issue. The Registrant believes
that, with the steps described herein, the possibility of significant
interruptions of normal operations should be reduced.
This disclosure regarding the Y2K Issue contains statements which are
forward looking and that involve risks and uncertainties and qualify for the
statutory safe harbor under the Private Securities Litigation Reform Act of
1995. Future activities related to the Y2K Issue may not adhere to the
anticipated schedule and cost estimates because the Registrant may encounter:
(1) more problems than anticipated in bringing its Internal Technology in
compliance with the Y2K Issue and not be able to provide adequate resources to
address those problems; (2) unexpected problems with External Technology due to
Business Partners who are not able to be in compliance with the Y2K Issues
despite their communications with the Registrant to the contrary; and (3)
public policy decisions related to Insurance Issues which adversely affect the
Registrant's operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
This Report on Form 10-Q contains statements that are not historical facts
and are considered "forward-looking statements" (as defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by terms such
as "believes", "expects", "may", "will", "should", "anticipates", the negatives
thereof, or by discussions of strategy. Certain statements contained herein are
forward-looking statements that involve risks, uncertainties, opinions and
predictions, and no assurance can be given that the future results will be
achieved since events or results may differ materially as a result of risks
facing the Registrant. These include, but are not limited to, economic, market
or regulatory conditions as well as risks associated with Motor Club of
America's entry into new markets; diversification; catastrophic events; and
state regulatory and legislative actions which can affect the profitability of
certain lines of business and impede Motor Club of America's ability to charge
adequate rates. Accordingly, Motor Club of America's premium growth and
underwriting results have been and will continue to be potentially materially
affected by these factors.
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibits
None
b) Reports on Form 8-K
A report on Form 8-K, dated January 26, 1999, was filed during the
quarter for which this report is filed, and was reported in
Item 5 - Other Events.
A report on Form 8-K, dated March 16, 1999, was filed during the
quarter for which this report is filed, and was reported in
Item 5 - Other Events.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTOR CLUB OF AMERICA
s/Stephen A. Gilbert
By: Stephen A. Gilbert
President
s/Patrick J. Haveron
By: Patrick J. Haveron
Executive Vice President -
Chief Financial Officer
and Chief Accounting Officer
Dated: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
These schedules contain summary financial information extracted from Motor Club
of America's Consolidated Balance Sheets for the period ending March 31, 1999
and the Consolidated Statements of Operations for the three months then ended
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 77,241,963
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 207,145
<REAL-ESTATE> 0
<TOTAL-INVEST> 74,749,108
<CASH> 3,533,364
<RECOVER-REINSURE> 19,402,230
<DEFERRED-ACQUISITION> 8,455,811
<TOTAL-ASSETS> 130,645,798
<POLICY-LOSSES> 60,457,620
<UNEARNED-PREMIUMS> 29,982,488
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 3,000,000
0
0
<COMMON> 1,058,215
<OTHER-SE> 26,997,777
<TOTAL-LIABILITY-AND-EQUITY> 130,645,798
13,084,199
<INVESTMENT-INCOME> 1,192,532
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 38,042
<BENEFITS> 8,882,943
<UNDERWRITING-AMORTIZATION> 3,832,123
<UNDERWRITING-OTHER> 391,608
<INCOME-PRETAX> 1,208,099
<INCOME-TAX> 222,478
<INCOME-CONTINUING> 985,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985,621
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
<RESERVE-OPEN> 58,335,143
<PROVISION-CURRENT> 12,436,669
<PROVISION-PRIOR> (2,670,105)
<PAYMENTS-CURRENT> 1,601,920
<PAYMENTS-PRIOR> 6,042,167
<RESERVE-CLOSE> 60,457,620
<CUMULATIVE-DEFICIENCY> (2,670,105)
</TABLE>
