=======================================================================
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 March 31, 1997
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 April 30, 1997 were
7,214,210 and 668,481, respectively.
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
FORM 10-Q
CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the three months ended
March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-11
PART II - OTHER INFORMATION 12
Signature 13
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Investments:
Cash and cash equivalents, at cost which approximates fair value $ 5,665,056 $ 15,403,450
Fixed maturities available for sale, at fair value (amortized cost
of $125,601,281 in 1997 and $122,511,012 in 1996) (Notes 4 and 5) 122,290,785 121,492,167
Equity securities, at fair value (cost $544,379 in 1997 and
$46,133 in 1996) 539,187 33,562
Policy loans 6,548,446 6,421,251
Mortgage loans 1,186,240 1,199,110
Property tax liens 131,729 131,729
----------- -----------
Total investments 136,361,443 144,681,269
Accrued investment income 3,261,122 2,875,497
Deferred policy acquisition costs 20,775,074 19,091,514
Amounts due from reinsurers 75,802,171 60,838,289
Due and unpaid premiums 1,458,984 2,712,021
Deferred income tax asset 1,879,863 2,069,876
Goodwill 3,501,574 3,529,529
Other assets 5,714,037 6,438,743
----------- -----------
Total assets $ 248,754,268 $ 242,236,738
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Policyholder account balances $ 133,933,543 $ 134,538,954
Reserves for future policy benefits 40,280,416 40,156,185
Policy and contract claims-life 907,612 1,186,702
Policy and contract claims-health 20,850,346 24,628,019
Short-term debt 800,000 800,000
Amounts due to reinsurers 22,969,387 11,129,232
Deferred revenues 334,654 357,957
Other liabilities 7,441,326 7,361,163
----------- -----------
Total liabilities 227,517,284 220,158,212
----------- -----------
Commitments and contingencies - -
----------- -----------
STOCKHOLDERS' EQUITY (Notes 6 and 7):
Series B preferred stock 4,000,000 4,000,000
Common stock (authorized 20,000,000, issued and outstanding
7,214,210 and 7,149,221, respectively) 72,142 71,492
Common stock warrants (authorized, issued and outstanding
668,481 for both periods) - -
Additional paid-in capital 16,192,714 16,049,888
Retained earnings 3,299,000 2,929,383
Net unrealized investment loss (2,326,872) (972,237)
----------- -----------
Total stockholders' equity 21,236,984 22,078,526
----------- -----------
Total liabilities and stockholders' equity $ 248,754,268 $ 242,236,738
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
3
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Gross premium and policyholder fees earned $ 24,594,393 $ 10,756,999
Reinsurance premium assumed 89,542 1,443,271
Reinsurance premiums ceded (14,975,242) (3,576,134)
---------- ----------
Premiums and policyholder fees earned 9,708,693 8,624,136
Net investment income 2,498,243 2,462,349
Realized gains on investments 41,509 80,692
Fee income 612,951 1,020,580
Amortization of deferred revenue 23,303 70,085
---------- ----------
Total revenues 12,884,699 12,257,842
---------- ----------
BENEFITS, CLAIMS & OTHER DEDUCTIONS:
Decrease in future policy benefits 119,104 (38,850)
Claims and other benefits 6,208,397 5,481,569
Interest credited to policyholders 1,544,908 1,601,503
Increase in deferred policy acquisition costs (741,348) (741,706)
Amortization of goodwill 27,955 -
Commissions 4,500,759 3,253,139
Commission and expense allowances on reinsurance ceded (4,367,536) (1,821,415)
Other operating costs and expenses 5,032,832 4,196,059
---------- ----------
Total benefits, claims & other deductions 12,325,071 11,930,299
---------- ----------
Operating income before Federal income taxes 559,628 327,543
Federal income tax expense 190,013 45,948
---------- ----------
Net income $ 369,615 $ 281,595
========== ==========
Earnings per common equivalent shares (Note 3): $ 0.03 $ 0.03
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE>
UNIVERSAL AMERICAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 369,615 $ 281,595
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in reserves for future policy benefits 124,231 (688,085)
Change in policy and contract claims (4,056,763) (206,814)
Change in deferred policy acquisition costs (741,354) (741,706)
Amortization of goodwill 27,955 -
Change in deferred revenue (23,303) (70,086)
Change in policy loans (127,195) (123,807)
Change in accrued investment income (385,625) (470,583)
Change in reinsurance balances (3,123,727) (2,840,947)
Realized gains on investments (41,509) (80,691)
Change in other assets and liabilities 2,262,164 2,511,041
---------- ----------
Net cash used by operating activities (5,715,511) (2,430,083)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of fixed maturities-available for sale 4,961,298 18,237,258
Proceeds from redemption of fixed maturities-available for sale 1,983,800 2,846,268
Cost of fixed maturities purchased-available for sale (10,008,099) (23,146,814)
Cost of equity securities purchased (510,817) -
Change in other invested assets 12,870 41,533
---------- ----------
Net cash used by investing activities (3,560,948) (2,021,755)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 143,476 3,602
(Decrease) increase in policyholder account balances (605,411) 7,306,086
Decrease in notes payable - (369,698)
---------- ----------
Net cash provided from (used by) financing activities (461,935) 6,939,990
---------- ----------
Net increase (decrease) in cash and cash equivalents (9,738,394) 2,488,152
Cash and cash equivalents at beginning of period 15,403,450 12,289,801
---------- ----------
Cash and cash equivalents at end of period $ 5,665,056 $ 14,777,953
========== ==========
Supplemental cash flow information:
Cash paid during the period for interest $ 18,014 $ 21,214
========== ==========
Cash paid during the period for income taxes $ 61,515 $ -
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<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. ("UHCO"), and its
subsidiaries (collectively the "Company"), American Progressive Life &
Health Insurance Company of New York ("American Progressive"), American
Pioneer Life Insurance Company ("American Pioneer"), WorldNet Services
Corp. ("WorldNet"), Quincy Coverage Corp. ("Quincy") and Amerifirst
Insurance Company ("Amerifirst").
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 three months ended March 31, 1997 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, 1996. Certain
reclassifications have been made to the prior year 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 were computed by dividing the
net income applicable to common shareholders by the weighted average
number of common equivalent shares outstanding during each period.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per share
("FAS 128"). FAS 128 is effective for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted.
This Statement replaces primary earnings per share ("EPS") with basic
EPS. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of
common shares outstanding for the period. The Company's basic EPS for
the three months ended March 31, 1997, was $0.05 per share.
4. Investments
-----------
As of March 31, 1997 and December 31, 1996, fixed maturity
securities are classified as investments 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.
6
<PAGE>
The amortized cost and fair value of debt securities classified as
available for sale as of March 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government $ 12,093,000 $ 29,537 $ (224,104) $ 11,898,433
Foreign government debt securities 1,486,589 45 (43,732) 1,442,902
Corporate debt securities 68,760,589 748,791 (2,007,952) 67,501,428
Mortgage-backed securities 43,261,103 240,439 (2,053,520) 41,448,022
----------- ---------- ---------- -----------
$ 125,601,281 $ 1,018,812 $ (4,329,308) $ 122,290,785
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 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 $ 12,141,823 $ 121,631 $ (85,890) $ 12,177,564
Corporate debt securities 74,020,305 1,167,066 (1,244,311) 73,943,060
Mortgage-backed securities 36,348,884 414,210 (1,391,551) 35,371,543
----------- ---------- ---------- -----------
$ 122,511,012 $ 1,702,907 $ (2,721,752) $ 121,492,167
=========== ========== ========== ===========
</TABLE>
The amortized cost and fair value of fixed maturities at March 31,
1997 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 $ 2,480,767 $ 2,509,861
Due after 1 year through 5 years 27,040,322 27,046,152
Due after 5 years through 10 years 30,301,786 29,751,012
Due after 10 years 23,184,441 22,204,303
Mortgage-backed securities 42,593,965 40,779,457
----------- -----------
$ 125,601,281 $ 122,290,785
=========== ===========
5. Financial Instruments with Concentrations of Credit Risk
--------------------------------------------------------
At March 31, 1997 and December 31, 1996, the Company held unrated
or less-than-investment grade corporate debt securities with carrying
and fair values as follows:
March 31, December 31,
1997 1996
--------- ------------
Carrying value $ 4,018,962 $ 3,850,510
========= ============
Fair value $ 4,018,962 $ 3,850,510
========= ============
Percentage of total assets 1.6% 1.6%
========= ============
The holdings of less-than-investment grade securities are widely
diversified and the investment in any one such security is currently
less than $1,000,000, which is approximately 0.4% of total assets.
7
<PAGE>
6. Stockholders' Equity
--------------------
The Company has 2,000,000 authorized shares of preferred stock to
be issued in series.
Series B Preferred Stock
There were 400 shares, par value $10,000 classified as Series B,
issued and outstanding at March 31, 1997 and December 31, 1996. The
Series B preferred stock carries no interest and is convertible into
common stock at $2.25 per share (subject to anti-dilution adjustment).
Series C Preferred Stock
On April 25, 1997, the Company issued 40,400 shares (par value
$100) of Series C Preferred Stock for $4,040,000, of which $3 million
was purchased by AAM Capital Partners L.P. ("AAM"), an unaffiliated
investment firm, and $1,040,000 by Richard A. Barasch, members of his
family, and members and associates of the Company's management. This
transaction received the approval of the Florida Insurance Department.
The Series C Preferred shares will be convertible into Common
Stock by the holders at any time at a conversion price of $2.375 per
share (subject to anti-dilution adjustment). The Company can require
conversion if it executes a public offering of common stock at over
$3.45 per share (or equivalent equity), with gross proceeds in excess of
$10 million, or if the average bid price of it's common stock exceeds
$3.45 per share for any 60 day period through December 31, 2001. In the
event that the Company takes certain action without the consent of the
holders of a majority of the Series C Preferred Stock, those holders who
voted against such action have the right to require its redemption at
the Redemption Price or the Call Price, (which Prices are defined below)
depending on the nature of the action taken.
The Company will also have the right to call all of the Series C
Preferred Stock at any time between January 1, 2000 and December 31,
2002, at a per share call price (the "Call Price") of $150 in the year
2000 or $175 in the years 2001 and 2002, in each case increased by the
redemption accrual at the rate of 8% of the par value. Unless converted
or called earlier, the Series C Convertible Preferred Stock will be
redeemed on December 1, 2002, at a per share redemption price (the
"Redemption Price") equal to par, increased by a redemption accrual at
the rate of 8% per annum. The redemption price will be payable in two
equal installments on December 31, 2002 and December 31, 2003. The
redemption accrual is not payable upon any conversion. No dividends
will be paid on the Series C Preferred Stock, unless dividends are paid
on the common stock, in which case the Series C Preferred Stock will
participate as if converted. The holders of the Series C Preferred
Stock (excluding a portion of such series which may be issued without
voting rights) will have the right to elect one director of the Company.
The Company, AAM, the holders of the Series C Preferred Stock,
Barasch Associates Limited Partnership ("BALP") and Richard A. Barasch
entered into a shareholders agreement, under which (i) the holders of
the Series C Preferred Stock were given registration rights and
informational rights, (ii) the Series C Preferred Stock holders agreed
to vote their shares for the election of a person designated by AAM as
the director elected by that Series, and (iii) BALP and Mr. Barasch
granted the Series C holders a co-sale right should they sell any shares
of the Company's common stock held by them, except to certain "permitted
transferees".
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
March 31, 1997 and December 31, 1996 were 7,214,210 and 7,149,221,
respectively.
Common Stock Warrants
At March 31, 1997 and December 31, 1996, the Company had 668,481
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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
On April 25, 1997, the Company issued 40,400 shares of Series C
Preferred Stock for $4,040,000, of which $3 million was purchased by AAM
Capital Partners L.P. and $1,040,000 by Richard A. Barasch, members of
his family, and members and associates of the Company's management. For
terms of the Series C Preferred Stock please refer to Footnote 6 in the
accompanying financial statements. The Company will be using at least
$3 million of the proceeds to begin the implementation of the conversion
of American Pioneer from being a direct subsidiary of American
Progressive to being a direct subsidiary of Universal.
The Company has borrowed $800,000 under a term loan agreement with
its commercial bank which matures on September 30, 1998. 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 a 1.0%
over prime.
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
March 31, 1997 for the maintenance of authority to do business were
$2,500,000 and $2,198,000, respectively, but substantially more than
this is needed to permit continued writing of new business. At March
31, 1997 the statutory capital and surplus of American Progressive and
American Pioneer were $6,306,262 and $12,313,019, respectively.
At March 31, 1997, the investment portfolios of the life insurance
subsidiaries included cash and short-term investments totaling
$5,409,000 as well as fixed maturity securities carried at their fair
values which amounted to $122,291,000 that could be readily converted to
cash. These liquid investments' fair values totaled more than
$127,700,000 and constituted approximately 94% of the Company's
investments at March 31, 1997. At March 31, 1997, all of the Company's
investments were income producing and current in interest and principal
payments except for one bond with a carrying value of $331,250. 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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997
For the three months ended March 31, 1997, the Company earned net
income after Federal income taxes of $370,000 ($0.03 per share) compared
to $282,000 ($0.03 per share) in the year ago period. Operating income
before Federal income taxes and realized gains amounted to $518,000 for
the three months ended March 31, 1997 compared to $247,000 in the year
ago period.
9
<PAGE>
REVENUES. Total revenues increased approximately $627,000 to
approximately $12,885,000 for the three months ended March 31, 1997,
compared to total revenues of approxitmately $12,258,000 in the year ago
period, and this increase is primarily attributable to the Company's
growth in premium volume. In the three months ended March 31, 1997, the
Company's gross premium and policyholder fees earned amounted to
$24,594,000, a $13,837,000 increase over the $10,757,000 amount in the
year ago period. This gross premium increase is significantly
attributable to the premiums received on the policies assumed from First
National Life Insurance Company ("First National"), which premiums
amounted to $14,244,000. In addition, the gross premiums earned on the
Company's following currently marketed programs and their increases were
as follows:
Product Premium Increase Premium Earned
------- ---------------- --------------
Senior market accident and health $ 625,000 $ 1,955,000
Senior market life insurance 162,000 447,000
Group dental 356,000 1,708,000
Group life insurance 55,000 855,000
--------- ---------
Totals $ 1,198,000 $ 4,965,000
========= =========
These increases totaled $15,442,000 and were offset by the decrease in
premiums on the products terminated and not currently marketed by the
Company. Effective December 31, 1996, the Company withdrew its
participation in the NAIU specialty accident and health insurance pool
and also sold its New York State DBL business in force. Premium on
these two programs amounted to $2,429,000 for the three months ended
March 31, 1996. (The premiums from the NAIU pool were included in the
reinsurance premium assumed amount.) In addition, other life insurance
premiums decreased $304,000 to $1,900,000, while the run off accident
and health insurance premiums decreased $229,000.
While the Company was able to increase its gross premium revenue
from its core products, it continues to reinsure a portion of these
risks to unaffiliated reinsurers. Reinsurance premiums ceded for the
three months ended March 31, 1997 amounted to $14,975,000, an
$11,399,000 increase from the 1996 amount of $3,576,000. Of this
increase, $11,617,000 relates to the business assumed from First
National, while $291,000 relates to senior market accident and health
and $111,000 to senior market life insurance. In addition to these
increases, the Company participates in a reinsurance treaty under which
it writes international medical insurance and cedes 90% in 1997 (95% in
1996) out to an unaffiliated insurer. Gross and ceded premium amounts
for the three months ended March 31, 1997 amounted to $565,000 and
$520,000, respectively, compared to $187,000 and $178,000, respectively,
in the year ago period. These reinsurance premium ceded increases of
$12,361,000 were offset by decreases of $444,000 in other life insurance
premiums ceded and $81,000 in runoff accident and health premiums ceded.
Effective January 1, 1997, the Company entered into a new reinsurance
agreement on American Pioneer's major medical/major hospital business.
Under the new treaty, the Company retains 50% of the first $60,000 in
claims risk compared to 25% under the prior agreement. As a result,
reinsurance premiums ceded on this product decreased $437,000 in the
three months ended March 31, 1997. Gross premiums on this business
continue to decline, which decrease for the three months ended March 31,
1997 amounted to $151,000.
Net investment income of the Company increased $36,000 to
$2,498,000 for the three months ended March 31, 1997, compared to
$2,462,000 in the year ago period, and realized gains on investments
amounted to $42,000 for the three months ended March 31, 1997 compared
to $81,000 in the year ago period.
Fee income amounted to $613,000 for the three months ended March
31, 1997, a decrease of $408,000 over the $1,021,000 amount for the year
ago period. This decrease is the result of the cancellation of the
Ontario Blue Cross service contract effective February, 1996. The
amortization of deferred revenue amounted to $23,000 for the three
months ended March 31, 1997 compared to $70,000 in the year ago period.
10
<PAGE>
BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims
and other deductions increased approximately $395,000 to $12,325,000 for
the three months ended March 31, 1997, compared to $11,930,000 in the
year ago period.
Claims and other benefits increased $727,000 to $6,208,000 for the
three months ended March 31, 1997 compared to $5,481,000 in the year ago
period. Net claims on the business assumed from First National amounted
to $1,973,000, while net claims on the senior market accident and health
increased $61,000. Claims on the group dental product increased
$252,000 to $1,310,000 for the three months ended March 31, 1997, a 24%
increase which corresponds to the 26% increase in premiums. As
discussed above, the Company is retaining a higher amount of major
medical/major hospital business under a new reinsurance agreement and,
as a result, the Company's claims on this product increased $298,000 to
$548,000. (This increase corresponds to the $437,000 increase in
retained premiums.) Mortality incurred by the Company increased
$88,000. These increases of $2,672,000 were offset by decreases in the
claims incurred on the runoff accident and health business ($284,000)
and the terminated businesses (NAIU - $883,000; New York State DBL -
$778,000).
The change in reserves for the three months ended March 31, 1997
amounted to an increase of $119,000 compared to a decrease of $39,000
in the year ago period generating a variance of $158,000. The
withdrawal from the NAIU pool accounted for the majority of this
variance ($130,000). Interest credited to policyholders decreased
$57,000 to $1,545,000.
The change in deferred acquisition costs amounted to $741,000 for
the three months ended March 31, 1997 and 1996. However, the amount of
acquisition costs capitalized increased $261,000 from $1,407,000 in 1996
to $1,668,000 in 1997. This increase is the result of the increase in
new premium production in the three months ended March 31, 1997 compared
to the year ago period. The amortization of deferred acquisition costs
increased $261,000 from $665,000 in 1996 to $926,000 in 1997. This
increase is the result of the increase in the asset balance. In the
three months ended March 31, 1997, the Company amortized $28,000 of the
goodwill generated in the First National acquisition.
Commissions increased $1,248,000 in the three months ended March
31, 1997 to $4,501,000, compared to $3,253,000 in the year ago period.
This increase is the direct result of the $13,837,000 increase in gross
premium earned discussed above. Commissions and expense allowances on
reinsurance ceded increased $2,546,000 in the three months ended March
31, 1997 to $4,368,000, compared to $1,822,000 in the year ago period.
This increase is the direct result of the $11,399,000 increase in
reinsurance premium ceded discussed above.
Other operating costs and expenses increased $837,000 in the three
months ended March 31, 1997 to $5,033,000, compared to $4,196,000 in the
year ago period. The insurance companies' expenses amounted to
$4,346,000 for the three months ended March 31, 1997 compared to
$3,278,000 in the year ago period, an increase of $1,068,000. Expenses
incurred administering the recently acquired business from First
National amounted to $1,066,000, while new business expenses increased
$74,000 and premium taxes increased $312,000. These increases totaled
$1,452,000 and were offset by the decrease in expenses incurred in the
NAIU pool in 1996 of $234,000 and a decrease in the general overhead of
the insurance companies of $150,000. The non-insurance companies
expenses decreased $231,000 to $687,000 for the three months ended March
31, 1997 as a result of the decrease in expenses incurred at WorldNet.
INVESTMENTS
The Company invests its funds primarily in fixed income securities
and has invested in a limited number of non-investment grade securities
which provide higher yields than investment grade securities. As of
March 31, 1997 and December 31, 1996, the Company held unrated or less-
than-investment grade corporate debt securities of approximately
$4,019,000 and $3,851,000, respectively. These holdings amounted to
2.9% of total investments and 1.6% of total assets at March 31, 1997
compared to 2.7% of total investments and 1.6% of total assets at
December 31, 1996.
11
<PAGE>
PART II - OTHER INFORMATION
NONE
-------------------------------------------------
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
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Robert A. Waegelein
Senior Vice President
Chief Financial Officer
Date: May 14, 1997
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