UNITED STATES
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 THE PERIOD ENDED JUNE 30, 1996
COMMISSION FILE #0-11321
UNIVERSAL AMERICAN FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2580136
----------------------- -------------------------
(State of Incorporation) (I.R.S. Employer I.E. No.)
Mt. Ebo Corporate Park, Brewster, NY 10509
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 278-4094
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Registrant's Common Stock
and Common Stock Warrants as of August 1, 1996 were 6,975,877 and 671,481,
respectively.
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
FORM 10-Q
CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995 ........................................... 3
Consolidated Statements of Operations for the six months
ended June 30, 1996 and June 30, 1995 ....................... 4
Consolidated Statements of Operations for the three months
ended June 30, 1996 and June 30, 1995 ....................... 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and June 30, 1995 ....................... 6
Notes to Consolidated Financial Statements .................... 7-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 10-13
PART II - OTHER INFORMATION ............................................ 13
Signature ..................................................... 14
<PAGE>
<TABLE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1996 1995
-------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
Investments:
Cash and cash equivalents, at cost which approximates market ......................... $ 11,264,123 $ 12,289,801
Fixed maturities (Notes 5 and 6):
Available for sale, at market value (amortized cost $123,683,524 and $114,112,556) . 120,481,805 116,428,921
Equity securities, at market value (cost $46,133 and $46,133) ........................ 15,297 15,297
Policy loans.......................................................................... 5,821,683 5,622,136
Mortgage loans........................................................................ 990,179 1,067,605
Property tax liens.................................................................... 131,729 178,908
------------ ------------
Total investments................................................................ 138,704,816 135,602,668
Accrued investment income............................................................... 2,774,995 2,412,576
Deferred policy acquisition costs....................................................... 18,477,460 16,610,280
Amounts due from reinsurers............................................................. 23,303,036 17,635,580
Due and unpaid premiums................................................................. 2,397,339 2,826,833
Deferred income tax asset............................................................... 1,924,363 1,328,314
Other assets............................................................................ 5,536,853 6,578,136
------------ ------------
Total assets..................................................................... $193,118,862 $182,994,387
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Policyholder account balances........................................................... $130,685,742 $118,608,836
Reserves for future policy benefits..................................................... 22,171,023 22,099,350
Policy and contract claims-life......................................................... 991,745 693,679
Policy and contract claims-health....................................................... 8,024,968 8,681,136
Short-term debt ........................................................................ 800,000 800,000
Notes payable ......................................................................... -- 369,698
Amounts due to reinsurers............................................................... 5,694,043 1,294,295
Deferred revenues....................................................................... 498,122 638,293
Other liabilities ...................................................................... 3,971,698 5,694,824
------------ ------------
Total liabilities .............................................................. 172,837,341 158,880,111
------------ ------------
Commitments and contingencies........................................................... -- --
------------ ------------
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Series B preferred stock............................................................... 4,000,000 4,000,000
Common stock (authorized 20,000,000, issued and outstanding 6,975,877 and 6,957,532) 69,759 69,575
Common stock warrants (authorized, issued and outstanding 671,481 and 679,621) ........ -- --
Additional paid-in capital............................................................. 15,882,960 15,849,542
Retained earnings...................................................................... 3,230,530 2,825,508
Net unrealized investment gain (loss) ................................................. (2,901,728) 1,369,651
------------ ------------
Total stockholders' equity....................................................... 20,281,521 24,114,276
------------ ------------
Total liabilities and stockholders' equity....................................... $193,118,862 $182,994,387
============= ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six months ended June 30,
-----------------------------
1996 1995
----------- ----------
<S> <C> <C>
REVENUES:
Premiums and policyholder fees earned.................................................. $ 17,360,296 $ 17,984,886
Net investment income.................................................................. 1,602,531 1,652,523
Realized gains on investments ......................................................... 94,937 402,337
Fee income............................................................................. 1,632,080 1,870,431
Amortization of deferred revenue....................................................... 140,170 82,552
------------- ------------
Total revenues..................................................................... 20,830,014 21,992,729
------------ ------------
BENEFITS, CLAIMS & OTHER DEDUCTIONS:
Increase (decrease) in future policy benefits.......................................... 42,221 (2,029,055)
Claims and other benefits.............................................................. 10,897,903 12,052,142
Increase in deferred acquisition costs................................................. (1,326,051) (1,612,998)
Amortization of present value of future profits........................................ -- 102,282
Other operating costs and expenses..................................................... 10,701,387 11,830,146
------------ ------------
Total benefits, claims & other deductions.......................................... 20,315,460 20,342,517
------------ ------------
Operating income before federal income taxes............................................ 514,554 1,650,212
Federal income tax expense.............................................................. 109,532 561,072
------------ ------------
Net income.............................................................................. $ 405,022 $ 1,089,140
============ ============
Earnings per common equivalent shares (Note 3): ........................................ $ 0.04 $ 0.10
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Premiums and policyholder fees earned ......................... $ 8,736,160 $ 8,991,106
Net investment income ......................................... 741,685 815,731
Realized gains (losses) on investments ........................ 14,245 382,623
Fee income .................................................... 611,500 906,458
Amortization of deferred revenue .............................. 70,085 41,276
------------ ------------
Total revenues ............................................ 10,173,675 11,137,194
------------ ------------
BENEFITS, CLAIMS & OTHER DEDUCTIONS:
(Decrease) increase in future policy benefits ................. 81,071 (930,834)
Claims and other benefits ..................................... 5,416,334 6,383,686
Increase in deferred acquisition costs ........................ (584,345) (931,770)
Amortization of present value of future profits ............... -- 51,141
Other operating costs and expenses ............................ 5,073,604 5,507,190
------------ ------------
Total benefits, claims & other deductions ................ 9,986,664 10,079,413
------------ ------------
Operating income before federal income taxes ................... 187,011 1,057,781
Federal income tax expense ..................................... 63,584 359,646
------------ ------------
Net income ..................................................... $ 123,427 $ 698,135
============ ============
Earnings per common equivalent shares (Note 3): ................ $ 0.01 $ 0.07
============ ============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1996 1995
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................... $ 405,022 $ 1,089,140
Adjustments to reconcile net income to net cash provided by operating activities:
Change in reserves for future policy benefits ......................................... 71,673 (1,162,788)
Change in policy and contract claims .................................................. (358,102) (325,708)
Change in deferred acquisition costs .................................................. (1,326,051) (1,612,998)
Amortization of present value of future profits ....................................... -- 102,282
Change in deferred revenue ............................................................ (140,171) (82,552)
Change in policy loans ................................................................ (199,547) (53,099)
Change in accrued investment income ................................................... (362,419) (71,409)
Change in reinsurance balances ........................................................ (1,267,708) (690,774)
Realized gains on investments ......................................................... (94,937) (402,338)
Change in other assets and liabilities ................................................ (99,104) 1,320,145
------------ ------------
Net cash used by operating expenses ........................................................ (3,371,344) (1,890,099)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of fixed maturities-available for sale ............................... 23,402,914 21,594,268
Proceeds from sale of fixed maturities-held to maturity ................................. -- 928,180
Proceeds from redemption of fixed maturities-available for sale ......................... 4,721,789 1,901,418
Proceeds from redemption of fixed maturities-held to maturity ........................... -- 645,396
Cost of fixed maturities purchased-available for sale ................................... (37,649,452) (31,700,865)
Cost of fixed maturities purchased-held to maturity ..................................... -- (277,891)
Proceeds from sale of equity securities ................................................. 506,250 --
Cost of equity securities purchased ..................................................... (501,250) --
Change in other invested assets ......................................................... 124,605 (47,160)
----------- ------------
Net cash used by investing activities ...................................................... (9,395,144) (6,956,654)
----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock ............................................... 33,602 1,211,786
Increase (decrease) in policyholder account balances ..................................... 12,076,906 (402,461)
Decrease in notes payable ................................................................ (369,698) (1,618,062)
------------ ------------
Net cash provided (used by) from financing activities ...................................... 11,740,810 (808,737)
------------ ------------
Net decrease in cash and cash equivalents .................................................. (1,025,678) (9,655,490)
Cash and cash equivalents at beginning of period ........................................... 12,289,801 16,420,763
------------ ------------
Cash and cash equivalents at end of period ................................................. $ 11,264,123 $ 6,765,273
============ ============
Supplemental cash flow information:
Cash paid during the year for interest ..................................................... $ 42,169 $ 52,330
============ ============
Cash paid during the year for income taxes ................................................. $ -- $ --
============ ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles and consolidate the accounts of
Universal American Financial Corp. ("Universal", formerly Universal Holding
Corp.), and its subsidiaries (collectively the "Company"), American Progressive
Life & Health Insurance Company of New York ("American Progressive"), American
Pioneer Life Insurance Company ("American Pioneer"), Quincy Coverage Corp.
("Quincy") and WorldNet Services Corp. ("WorldNet").
Effective July 2, 1996, the Company changed its name from Universal Holding
Corp. to Universal American Financial Corp. The Company's common stock and
common stock warrants continue to trade under the symbols UHCO and UHCOW on the
Nasdaq Stock Market.
The interim financial information herein is unaudited, but in the opinion
of management, includes all adjustments (consisting of normal, recurring
adjustments) necessary to present fairly the financial position and results of
operations for such periods. The results of operations for the six months ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the full year. The consolidated financial statements should be read in
conjunction with the Form 10-K for the year ended December 31, 1995. Certain
reclassifications have been made to prior years' financial statements to conform
with current period classifications.
2. FEDERAL INCOME TAXES
The Company and its non life subsidiaries file a consolidated Federal
income tax return. The life insurance subsidiaries file a separate consolidated
Federal income tax return.
3. EARNINGS PER SHARE
Earnings per common equivalent share was computed by dividing the net
income applicable to common shareholders by the weighted average number of
common equivalent shares outstanding during each period.
4. NOTE PAYABLE TO ONTARIO BLUE CROSS
On April 1, 1994 WorldNet purchased certain assets of Health Assistance for
Travelers, Inc.("HAT") and an affiliated corporation for Can. $625,000
(approximately U.S. $470,000), payable over five years. WorldNet also executed
an agreement with HAT and Ontario Blue Cross ("OBC") under which WorldNet
subcontracted HAT's obligations under certain service contracts between HAT and
OBC, and between HAT and other insurers. The note payable to HAT required annual
payments of Can. $125,000 (approximately U.S. $94,000) plus accrued interest,
beginning on April 1, 1994, and bore interest at 6%. In 1995, substantially all
of the assets of OBC (including the shares of OBC's subsidiary HAT) were
acquired by Liberty Mutual Insurance Company ("Liberty Health"). In February,
1996, WorldNet and Liberty Health agreed to terminate the service agreement
between OBC and WorldNet. In connection with the termination of the service
agreement, Liberty Health agreed to cancel the promissory notes executed on
April 1, 1994, which notes amounted to $370,000 at December 31, 1995. At the
same time, the Company wrote off certain corresponding assets, including the
value of the service agreement, which assets amounted to approximately $145,000.
The resulting net income from this transaction was approximately $225,000.
7
<PAGE>
5. INVESTMENTS
As of June 30, 1996 and December 31, 1995, fixed maturity securities are
classified as available for sale and are carried at fair value, with the
unrealized gain or loss, net of tax and other adjustments (deferred policy
acquisition costs), included in stockholders' equity.
The amortized cost and fair value of fixed maturities as of June 30, 1996
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government $ 18,730,015 $ 64,614 $ (542,204) $ 18,252,425
Foreign government debt securities 1,492,415 2,319 (27,562) 1,467,172
Corporate debt securities 69,982,315 804,473 (2,084,644) 68,702,144
Mortgage-backed securities 33,478,779 214,468 (1,633,183) 32,060,064
------------ ---------- ---------- ------------
$123,683,524 $1,085,874 $(4,287,593) $120,481,805
============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government $ 19,546,697 $ 393,356 $ (150,445) $ 19,789,608
Corporate debt securities 72,149,554 2,669,249 294,300) 74,524,503
Mortgage-backed securities 22,416,305 373,429 (674,924) 22,114,810
------------ ----------- ----------- ------------
$114,112,556 $3,436,034 $(1,119,669) $116,428,921
============ ========== =========== ============
</TABLE>
The amortized cost and fair value of fixed maturities at June 30, 1996 by
contractual maturity, are shown below. 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.
Amortized Fair
Cost Value
------------ ------------
Due in 1 year or less $ 4,751,630 $ 4,764,945
Due after 1 year through 5 years. 25,058,309 24,973,559
Due after 5 years through 10 years 32,790,329 32,471,862
Due after 10 years 22,654,610 21,644,090
Mortgage-backed securities 38,428,646 36,627,349
------------ ------------
$123,683,524 $120,481,805
============ ============
8
<PAGE>
6. FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
At June 30, 1996 and December 31, 1995, the Company held unrated or
less-than-investment grade corporate debt securities with carrying and fair
values as follows:
June 30, December 31,
1996 1995
----------- -----------
Carrying value $ 3,677,618 $ 5,092,566
=========== ===========
Fair value $ 3,677,618 $ 5,092,566
=========== ===========
Percentage of total assets 1.9% 2.8%
=========== ===========
7. SERIES B PREFERRED STOCK
The Company has 2,000,000 authorized shares of preferred stock to be issued
in series with 400 shares, par value $10,000 classified as Series B, issued and
outstanding at June 30, 1996 and December 31, 1995. The Series B preferred stock
carries no interest and is convertible into common stock at $2.25 per share.
8. STOCKHOLDERS' EQUITY
Common Stock
The par value of common stock is $.01 per share with 20,000,000 shares
authorized for issuance. The shares issued and outstanding at June 30, 1996 and
December 31, 1995 were 6,975,877 and 6,957,532, respectively.
Common Stock Warrants
At June 30, 1996 and December 31, 1995, the Company had 671,481 and 679,621
common stock warrants issued and outstanding, respectively, which are registered
under the Securities Exchange Act of 1934 (the "Act"). The warrants have no par
value and an exercise price to purchase common stock at $1.00 per share.
The Company also has 2,015,760 outstanding common stock warrants which are
not registered under the Securities Exchange Act of 1934. The exercise price of
these warrants is $1.00 and expire on December 31, 1999.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
On September 30, 1994, the Company entered into an agreement with its
commercial bank, under which it borrowed $800,000 on a one year term loan,
extendable by the Company for a second year. The loan is secured by the pledge
of 100% of the outstanding common stock of Quincy, the receivables of Quincy and
WorldNet and 9.9% of the outstanding common stock of American Progressive. The
loan bears interest at 2.0% over prime. The Company expects to refinance this
loan when it matures.
Insurance Subsidiaries
American Progressive and American Pioneer are required to maintain minimum
amounts of capital and surplus as determined by statutory accounting ("statutory
capital"). The minimum statutory capital and surplus requirements of American
Progressive and American Pioneer as of June 30, 1996 for the maintenance of
authority to do business were $2,500,000 and $1,720,071, respectively, but
substantially more than this is needed to permit continued writing of new
business. At June 30, 1996 the adjusted statutory capital and surplus, including
asset valuation reserve, of American Progressive and American Pioneer were
$8,529,875 and $14,070,099, respectively.
At June 30, 1996, the investment portfolios of the life insurance
subsidiaries included cash and short-term investments totaling $11,264,000, as
well as fixed maturity securities carried at their fair values which amounted to
$120,481,000 that could be readily converted to cash. These liquid investments
totaled more than $131,745,000 and constituted approximately 95% of the
Company's investments at June 30, 1996. At June 30, 1996, one fixed maturity
with a carrying value of $290,000 was non-income producing, all of the Company's
other investments were current in interest and principal payments. In addition,
the Company has no investment in any derivative instruments or other hybrid
securities that contained any off balance sheet risk or investments in other
securities whose market values and principal repayments would be highly volatile
to changes in interest rates, except for GNMA's, FNMA's and investment grade
corporate collateralized mortgage obligations.
WorldNet
On April 1, 1994 WorldNet purchased certain assets of Health Assistance for
Travelers, Inc.("HAT") and an affiliated corporation for Can. $625,000
(approximately U.S. $470,000), payable over five years. WorldNet also executed
an agreement with HAT and Ontario Blue Cross ("OBC") under which WorldNet
subcontracted HAT's obligations under certain service contracts between HAT and
OBC, and between HAT and other insurers. The note payable to HAT required annual
payments of Can. $125,000 (approximately U.S. $94,000) plus accrued interest,
beginning on April 1, 1994, and bore interest at 6%. In 1995, substantially all
of the assets of OBC (including the shares of OBC's subsidiary HAT) were
acquired by Liberty Mutual Insurance Company ("Liberty Health"). In February,
1996, WorldNet and Liberty Health agreed to terminate the service agreement
between OBC and WorldNet. In connection with the termination of the service
agreement, Liberty Health agreed to cancel the promissory notes executed on
April 1, 1994, which notes amounted to $370,000 at December 31, 1995. At the
same time, the Company wrote off certain corresponding assets, including the
value of the service agreement, which assets amounted to approximately $145,000.
The resulting net income from this transaction was approximately $225,000.
10
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996
NET INCOME. For the six months ended June 30, 1996, the Company earned net
income of $405,000 resulting in an earnings per share applicable to common
shareholders of $0.04. For the six months ended June 30, 1995, the Company
reported net income of $1,089,000 resulting in net income applicable to common
shareholders of $0.10 per share.
REVENUES. Total revenues decreased $1,163,000 to $20,830,000 for the six
months ended June 30, 1996 compared to total revenues of $21,993,000 for the six
months ended June 30, 1995. Premiums and policyholder fees earned decreased
$625,000. Increase in premiums at American Progressive for senior market
supplemental health was $955,000 (gross premiums increased $1,633,000 while
premiums ceded to reinsurers increased $678,000) and for New York State DBL was
$234,000. American Pioneer's increase in premiums for life insurance amounted to
$874,000 (gross premiums increased $2,477,000 while premiums ceded to reinsurers
increased $1,603,000) and for group dental amounted to $219,000. In addition,
premium income in the NAIU special accident pool participated in by American
Progressive increased $289,000 to $2,694,000. (In August, 1996, the Company
notified the accident pool of its intention to withdraw effective December 31,
1996.) The increase in these premiums of $2,571,000 was offset by the decrease
of $3,196,000 in American Pioneer and American Progressive's runoff lines of
business, particularly major hospital and other health premiums inforce. Net
investment income decreased $50,000, while realized gains on investments
decreased $307,000 to a gain of $95,000, compared to a gain of $402,000 for the
same period last year, primarily due to rising interest rates in 1996.
Fee income for the six months ended June 30, 1996 decreased $238,000 which
decrease reflects the fees earned by WorldNet, primarily as a result of the
termination of the OBC contract. For the six months ended June 30, 1996, the
Company recognized $140,000 of the deferred revenue compared to $83,000
recognized in the same period in 1995, which increase is due to the inclusion of
the deferred revenue generated by the reinsurance of the major hospital business
in June, 1995.
BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and other
deductions decreased $27,000 to $20,315,000 for the six months ended June 30,
1996. The change in future policy benefits amounted to an increase of
$2,071,000. The increase in reserves for the six months ended June 30, 1996 was
$42,000 compared to a decrease of $2,029,000 for the six months ended June 30,
1995. This increase in the change in reserves is primarily related to the
increase in unearned premium reserves resulting from the increase in senior
market supplemental health premiums discussed above. Claims and other benefits
decreased approximately $1,154,000 resulting from the reduction of $1,704,000
major hospital health claims incurred at American Pioneer due to the reinsurance
of this block in June, 1995. This reduction was offset by an increase in the
senior market supplemental health claims of $412,000 and in group dental claims
of $138,000.
The increase in deferred acquisition costs decreased $287,000 as a result
of a decrease in the amount of deferrable general expenses and an increase in
the amortization of the deferred acquisition cost asset. Other operating costs
and expenses decreased $1,129,000. Expenses incurred by the insurance
subsidiaries during 1995 exceeded the 1996 amount by $243,000. Commissions and
new business expenses and premium taxes increased $128,000, while the general
overhead expenses decreased $371,000. The remaining decrease of $886,000 results
from a decrease of continuing operation expenses incurred by WorldNet ($669,000
resulting from decrease in fee revenue) and a decrease by the Parent Company
($217,000). Amortization of the present value of future profits was
approximately $102,000 in the first six months of 1995.
11
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996
NET INCOME. For the three months ended June 30, 1996, the Company earned
net income of $123,000 resulting in an earnings per share applicable to common
shareholders of $0.01. For the three months ended June 30, 1995, the Company
reported net income of $698,000 resulting in net income applicable to common
shareholders of $0.07 per share.
REVENUES. Total revenues decreased $963,000 to $10,174,000 for the three
months ended June 30, 1996 compared to total revenues of $11,137,000 for the
three months ended June 30, 1995. Premiums and policyholder fees earned
decreased $255,000. Increase in premiums at American Progressive for senior
market supplemental health was $577,000 (gross premiums increased $977,000 while
premiums ceded to reinsurers increased $400,000) and for New York State DBL was
$58,000. American Pioneer's increase in premiums for life insurance amounted to
$547,000 (gross premiums increased $1,979,000 while premiums ceded to reinsurers
increased $1,432,000) and for group dental amounted to $244,000. The increase in
these premiums of $1,426,000 was offset by the decrease of $1,563,000 in
American Pioneer and American Progressive's runoff lines of business,
particularly major hospital and other health premiums inforce. In addition,
premium income in the NAIU special accident pool participated in by American
Progressive decreased $118,000. Net investment income decreased $74,000, while
realized gains on investments decreased $368,000 to a gain of $14,000, compared
to a gain of $382,000 for the same period last year, primarily due to rising
interest rates in 1996.
Fee income for the three months ended June 30, 1996 decreased $295,000
which decrease reflects the fees earned by WorldNet, primarily as a result of
the termination of the OBC contract. For the three months ended June 30, 1996,
the Company recognized $70,000 of the deferred revenue compared to $41,000
recognized in the same period in 1995, which increase is due to the inclusion of
the deferred revenue generated by the reinsurance of the major hospital business
in June, 1995.
BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and other
deductions decreased $93,000 to $9,987,000 for the three months ended June 30,
1996. The change in future policy benefits amounted to an increase of
$1,012,000. The increase in reserves for the three months ended June 30, 1996
was $81,000 compared to a decrease of $931,000 for the three months ended June
30, 1995. This increase in the change in reserves is primarily related to the
increase in unearned premium reserves resulting from the increase in senior
market supplemental health premiums discussed above. Claims and other benefits
decreased approximately $967,000 resulting from the reduction of $940,000 in
major hospital health claims due to the reinsurance of this block in June, 1995
and $99,000 in group dental claims incurred at American Pioneer. This reduction
was offset by an increase in the senior market supplemental health claims of
$173,000 and in life mortality of $165,000. In addition, claims incurred at NAIU
decreased $266,000.
The increase in deferred acquisition costs decreased $348,000 as a result
of a decrease in the amount of deferrable general expenses and an increase in
the amortization of the deferred acquisition cost asset. Other operating costs
and expenses decreased $434,000. Expenses incurred by the insurance subsidiaries
during 1996 were primarily the same as 1995. However, commissions, new business
expenses and premium taxes increased $236,000, while the general overhead
expenses decreased $239,000. The remaining decrease of $431,000 results from a
decrease of continuing operation expenses incurred by WorldNet ($312,000
resulting from decrease in fee revenue) and a decrease by the Parent Company
($119,000). Amortization of the present value of future profits was
approximately $51,000 in the first six months of 1995.
12
<PAGE>
INVESTMENTS
The Company's investment policy is to balance the portfolio between
long-term and short-term investments so as to continue to achieve investment
returns consistent with the preservation of capital and maintenance of liquidity
adequate to meet payment of policy benefits and claims. The Company invests in
assets permitted under the insurance laws of the various states in which it
operates, which laws prescribe the nature, quality of and limitations on various
types of investments which may be made. Current policy is to invest primarily in
fixed maturity securities of the U.S. Government and its agencies and in
corporate fixed maturity securities with investment grade ratings of Baa3
(Moody's) or BBB- (Standard & Poors) or better with the intent to hold them for
long term investment. However, as a result of changes in economic factors, such
as changes in interest rates, cash flow needs or regulatory issues, the Company
may from time to time decide to sell securities prior to their scheduled
maturities.
The Company has invested in a limited number of non-investment grade
securities which provide higher yields than investment grade securities. As of
June 30, 1996 and December 31, 1995, the Company held unrated or less-than-
investment grade corporate debt securities of approximately $3,678,000 and
$5,093,000, respectively. These holdings amounted to 2.7% of total investments
and 1.9% of total assets at June 30, 1996 compared to 3.8% of total investments
and 2.8% of total assets at December 31, 1995.
---------------------------
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on June 20, 1996, at
which two matters were voted upon.
1. Election of Directors:
Michael A. Barasch, David F. Bolger and Walter L. Harris were
re-elected as directors to serve until the annual meeting of
stockholders in 1999. Bertram Harnett was elected as a director for a
term expiring in 1998. In addition to these elected directors, the
following directors continue to serve as directors of the Company:
Richard A. Barasch, Stuart Becker, Harry B. Henshel and Patrick J.
McLaughlin (terms expire in 1997); Mark M. Harmeling and Marvin
Barasch (terms expire in 1998).
2. Amendment to Change the Company's Name:
An amendment to change the Company's name from Universal Holding Corp.
to Universal American Financial Corp. was approved.
13
<PAGE>
SIGNATURE
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.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ ROBERT A. WAEGELEIN
-------------------------------
Robert A. Waegelein
Senior Vice President
Chief Financial Officer
Date: August 14, 1996
14
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 120,481,805
<DEBT-CARRYING-VALUE> 120,481,805
<DEBT-MARKET-VALUE> 120,481,805
<EQUITIES> 15,297
<MORTGAGE> 990,179
<REAL-ESTATE> 0
<TOTAL-INVEST> 138,704,816
<CASH> 11,264,123
<RECOVER-REINSURE> 23,303,036
<DEFERRED-ACQUISITION> 18,477,460
<TOTAL-ASSETS> 193,118,862
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 22,171,023
<POLICY-HOLDER-FUNDS> 130,685,742
<NOTES-PAYABLE> 0
0
4,000,000
<COMMON> 69,759
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17,360,296
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<INCOME-PRETAX> 514,554
<INCOME-TAX> 109,532
<INCOME-CONTINUING> 405,022
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<NET-INCOME> 405,022
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<RESERVE-OPEN> 0
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