<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994
( ) TRANSITION REPORT, PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7801
ORION CAPITAL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-6069054
- --------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 Rockefeller Plaza
New York, New York 10112 - 0156
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 332-8080
--------------
Former name, former address and former fiscal year if changed since
last report.
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
---- ----
14,320,729 shares of Common Stock, $1.00 par value, of the registrant
were outstanding on April 29, 1994.
Page 1 of 25
Exhibit Index Appears at Page 23
<PAGE>
ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 1994
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at March 31, 1994 (Unaudited)
and December 31, 1993 .................................. 3 - 4
Consolidated Statement of Earnings for the three-months
ended March 31, 1994 and 1993 (Unaudited) .............. 5
Consolidated Statement of Stockholders' Equity for the
three-months ended March 31, 1994 and 1993 (Unaudited),
and for the year ended December 31, 1993 ............... 6
Consolidated Statement of Cash Flows for the three-months
ended March 31, 1994 and 1993 (Unaudited) .............. 7 - 8
Notes to Consolidated Financial Statements (Unaudited) ... 9 - 12
Independent Accountants' Review Report ................... 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 14 - 20
PART II. OTHER INFORMATION .................................. 21
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(000s omitted)
March 31, 1994 December 31,
(Unaudited) 1993
-------------- ------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $399,849 - 1994 and $402,149 -
1993) .................................. $ 394,956 $ 384,402
Fixed maturities at market (amortized
cost $525,451 - 1994 and $517,716 - 1993) 527,794 548,336
Common stocks at market (cost $113,963 -
1994 and $111,325 - 1993) .............. 133,201 139,022
Non-redeemable preferred stocks at
market (cost $121,150 - 1994 and
$98,986 - 1993 ......................... 122,065 103,621
Other long-term investments .............. 51,671 50,682
Short-term investments ................... 91,450 96,473
---------- ----------
Total investments ..................... 1,321,137 1,322,536
Cash ....................................... 14,532 6,433
Accrued investment income .................. 15,551 17,623
Investments in and advances to affiliates .. 108,212 111,459
Accounts and notes receivable .............. 125,023 111,539
Reinsurance recoverables and prepaid
reinsurance .............................. 363,853 393,309
Deferred policy acquisition costs .......... 65,520 57,522
Property and equipment ..................... 23,976 23,596
Excess of cost over fair value of net
assets acquired .......................... 30,294 30,587
Deferred federal income taxes .............. 33,103 18,891
Other assets ............................... 24,169 23,959
---------- ----------
Total assets .......................... $2,125,370 $2,117,454
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 3
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(000s omitted - except for share data)
March 31, 1994 December 31,
(Unaudited) 1993
-------------- ------------
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ...................................... $ 947,084 $ 937,775
Loss adjustment expenses .................... 205,457 202,628
Unearned premiums ........................... 262,438 259,359
Policyholders' dividends .................... 11,908 12,523
---------- ----------
Total policy liabilities .................. 1,426,887 1,412,285
Federal income taxes payable .................. 17,713 19,294
Other liabilities ............................. 147,511 131,308
Notes payable ................................. 158,375 160,372
---------- ----------
Total liabilities ......................... 1,750,486 1,723,259
---------- ----------
Contingencies (Note E)
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares -
issued and outstanding - none
Common stock, $1 par value; authorized
30,000,000 shares; issued 15,337,650 shares.. 15,338 15,338
Capital surplus ............................... 148,061 148,167
Net unrealized investment gains, net of federal
income taxes of $3,195 - 1994 and $18,718 -
1993 ........................................ 20,736 49,566
Net unrealized foreign exchange translation
losses, net of federal income tax benefit of
$634 - 1994 and $394 - 1993 ................. (4,110) (3,665)
Retained earnings ............................. 209,147 198,491
Treasury stock, at cost (991,399 shares - 1994
and 965,442 shares - 1993) .................. (12,934) (12,182)
Deferred compensation on restricted stock ..... (1,354) (1,520)
---------- ----------
Total stockholders' equity ................ 374,884 394,195
---------- ----------
Total liabilities and stockholders' equity. $2,125,370 $2,117,454
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 4
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(000s omitted-except for per common share data)
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Revenues:
Premiums earned ............................. $167,095 $149,272
Net investment income ....................... 20,768 21,677
Realized investment gains ................... 533 4,812
Other income ................................ 302 303
-------- --------
188,698 176,064
-------- --------
Expenses:
Losses incurred ............................. 96,998 90,523
Loss adjustment expenses .................... 24,771 23,274
Amortization of deferred policy acquisition
costs ..................................... 40,043 34,042
Other insurance expenses .................... 4,345 4,033
Dividends to policyholders .................. 3,636 3,309
Interest expense ............................ 3,324 2,875
Other expenses .............................. 1,400 2,141
-------- --------
174,517 160,197
-------- --------
Earnings before equity in earnings of affiliate,
federal income taxes and cumulative effect of
adoption of new accounting principles ....... 14,181 15,867
Equity in earnings of affiliate ............... 3,032 3,060
-------- --------
Earnings before federal income taxes and
cumulative effect of adoption of new
accounting principles ....................... 17,213 18,927
Federal income taxes .......................... 3,973 4,599
-------- --------
Earnings before cumulative effect of adoption
of new accounting principles ................ 13,240 14,328
Cumulative effect of adoption of new
accounting principles ....................... - 11,825
-------- --------
Net earnings ................................ $ 13,240 $ 26,153
======== ========
Earnings per common share before cumulative
effect of adoption of new accounting
principles .................................. $ .91 $ .97
Cumulative effect of adoption of new
accounting principles ....................... - .81
-------- --------
Net earnings per common share ............... $ .91 $ 1.78
======== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 5
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000s omitted)
Three Months Ended
March 31, Year Ended
(Unaudited) December 31,
------------------- -----------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Convertible exchangeable preferred stock:
Balance, beginning of period .............. $ - $ 28,524 $ 28,524
Conversion of preferred stock ............. - (28,524) (28,524)
-------- -------- --------
Balance, end of period .................... $ - $ - $ -
======== ======== ========
Common stock:
Balance, beginning of period .............. $ 15,338 $ 11,110 $ 11,110
Conversion of preferred stock ............. - 1,138 1,139
Exercise of stock options and issuance of
restricted stock ........................ - 7 24
Stock issued in 5-for-4 stock splits ...... - - 3,065
-------- -------- --------
Balance, end of period .................... $ 15,338 $ 12,255 $ 15,338
======== ======== ========
Capital surplus:
Balance, beginning of period .............. $148,167 $124,754 $124,754
Redemptions and conversions of preferred
stock ................................... - 26,387 26,072
Exercise of stock options and issuance
(cancellation) of restricted stock ...... (106) 191 406
Stock issued in 5-for-4 stock splits ...... - - (3,065)
-------- -------- --------
Balance, end of period .................... $148,061 $151,332 $148,167
======== ======== ========
Net unrealized investment gains:
Balance, beginning of period .............. $ 49,566 $ 18,815 $ 18,815
Cumulative effect of adoption of new
accounting principle, net of taxes
of $11,157 .............................. - - 20,720
Change in unrealized investment gains,
net of taxes ............................ (28,830) 9,790 10,031
-------- -------- --------
Balance, end of period .................... $ 20,736 $ 28,605 $ 49,566
======== ======== ========
Net unrealized foreign exchange translation
losses:
Balance, beginning of period .............. $ (3,665) $ (2,918) $ (2,918)
Change in unrealized foreign exchange
translation losses, net of taxes ........ (445) 87 (747)
-------- -------- --------
Balance, end of period .................... $ (4,110) $ (2,831) $ (3,665)
======== ======== ========
Retained earnings:
Balance, beginning of period .............. $198,491 $139,947 $139,947
Net earnings .............................. 13,240 26,153 68,813
Dividends declared ........................ (2,584) (2,707) (10,269)
-------- -------- --------
Balance, end of period .................... $209,147 $163,393 $198,491
======== ======== ========
<PAGE>
Treasury stock:
Balance, beginning of period .............. $(12,182) $ (6,694) $ (6,694)
Exercise of stock options and issuance
(cancellation) of restricted stock ...... 232 (3) (15)
Acquisition of treasury stock ............. (984) (22) (5,473)
-------- -------- --------
Balance, end of period .................... $(12,934) $ (6,719) $(12,182)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of period .............. $ (1,520) $ (2,251) $ (2,251)
Issuance of restricted stock .............. (6) (122) (108)
Amortization of deferred compensation on
restricted stock ........................ 172 214 839
-------- -------- --------
Balance, end of period .................... $ (1,354) $ (2,159) $ (1,520)
======== ======== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 6
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000s omitted)
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums collected ............................. $ 178,488 $ 152,400
Net investment income collected ................ 22,580 22,308
Losses and loss adjustment expenses paid ....... (103,262) (62,001)
Policy acquisition costs paid .................. (48,989) (37,637)
Dividends paid to policyholders ................ (4,251) (2,497)
Interest paid .................................. (5,753) (5,075)
Federal income tax payments .................... (4,001) (37)
Other receipts (payments) ...................... 5,092 (16,248)
--------- ---------
Net cash provided by operating activities .... 39,904 51,213
--------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments ....... 49,766 25,740
Sales of fixed maturity investments ............ 43,039 31,199
Sales of equity securities ..................... 24,922 29,188
Investments in fixed maturities ................ (100,827) (62,668)
Investments in equity securities ............... (49,025) (27,316)
Net sales (purchases) of short-term investments. 7,098 (43,018)
Other payments ................................. (1,049) (3,264)
--------- ---------
Net cash used in investing activities ........ (26,076) (50,139)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ........ - 34,701
Proceeds from exercise of stock options ........ 120 51
Repayment of notes payable ..................... (2,000) (25,000)
Dividends paid to stockholders ................. (2,591) (3,100)
Purchases of adjustable rate preferred and
common stock ................................. (1,244) (181)
Other payments ................................. (14) (966)
--------- ---------
Net cash provided by (used in) financing
activities ................................. (5,729) 5,505
--------- ---------
Effect of foreign exchange rate changes on cash... - (24)
--------- ---------
Net increase in cash ......................... 8,099 6,555
Cash balance, beginning of period ................ 6,433 12,764
--------- ---------
Cash balance, end of period ...................... $ 14,532 $ 19,319
========= =========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 7
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(UNAUDITED)
(000s omitted)
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings .................................... $ 13,240 $ 26,153
-------- --------
Adjustments:
Cumulative effect of adoption of new accounting
principles .................................. - (11,825)
Depreciation and amortization ................. 1,007 936
Amortization of excess of cost over fair
value of net assets acquired ................ 293 292
Deferred federal income taxes ................. 1,551 1,911
Amortization of fixed maturity investments .... 402 (185)
Non-cash investment income .................... (1,423) (2,322)
Equity in earnings of affiliate ............... (3,032) (3,060)
Dividends received from affiliate ............. 905 711
Realized investment gains ..................... (533) (4,812)
Foreign exchange translation adjustment ....... 115 37
Other ......................................... (9) 8
Change in assets and liabilities:
Decrease in accrued investment income ......... 2,072 2,747
Increase in accounts and notes receivable ..... (13,484) (9,897)
Decrease in reinsurance recoverables and
prepaid reinsurance ......................... 29,456 35,259
Increase in deferred policy acquisition costs.. (7,998) (2,299)
Decrease in other assets ...................... 362 2,411
Increase in losses ............................ 9,309 19,010
Increase in loss adjustment expenses .......... 2,829 1,253
Increase in unearned premiums ................. 3,079 9,369
Increase (decrease) in policyholders'
dividends ................................... (615) 812
Increase (decrease) in other liabilities ...... 2,378 (15,296)
-------- --------
Total adjustments and changes ............... 26,664 25,060
-------- --------
Net cash provided by operating activities ....... $ 39,904 $ 51,213
======== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 8
</TABLE>
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 31, 1994
Note A - Basis of Financial Statement Presentation
The consolidated financial statements and notes thereto are prepared
in accordance with generally accepted accounting principles for property
and casualty insurance companies. The consolidated financial statements
include Orion Capital Corporation and its wholly-owned subsidiaries
(collectively the "Company"). The Company's investments in unconsolidated
affiliates are accounted for using the equity method. All material
intercompany balances and transactions have been eliminated.
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the Company's results of
operations, financial position and cash flows for all periods presented.
Although these consolidated financial statements are unaudited, they have
been reviewed by the Company's independent accountants, Deloitte & Touche,
for conformity with accounting requirements for interim financial
reporting. Their report on such review is included herein. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1993 annual report on Form 10-K.
Effective January 1, 1993 the Company recorded the cumulative effect
of adopting Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions." Upon adoption of SFAS
No. 109, the Company recorded a benefit of $16,881,000 which was
principally attributable to its deferred tax benefits that had not been
recognized due to limitations under prior accounting standards. SFAS
No. 106 requires the accrual of the estimated cost of retiree benefit
payments during the years the employees provide services. Upon adoption of
SFAS No. 106 the Company's accumulated obligation for providing medical
benefits to retirees was $5,056,000, after a related tax benefit of
$2,604,000. Included in the cumulative effects of adopting these
accounting principles is the Company's portion of Guaranty National's
benefit from changes in accounting principles in 1993 of $360,000, net of
$185,000 of federal income taxes provided by the Company.
Effective December 31, 1993, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
establishes the "available-for-sale" category of investment securities and
requires such securities to be recorded at market value, with unrealized
gains and losses reported in a separate component of stockholders' equity.
As a result of the adoption of this standard on December 31, 1993, the
Company increased its investments recorded at market value by $452,102,000,
and its unrealized appreciation on investments, a component of
stockholders' equity, by $20,720,000, net of deferred income taxes.
Page 9
<PAGE>
Note B - Investment in Affiliates
The Company owns slightly less than fifty percent of the common
stock of Guaranty National Corporation ("Guaranty National"), and
approximately twenty percent of Intercargo Corporation ("Intercargo"),
both publicly-held companies. The acquisition of the Company's interest
in Intercargo was completed in December 1993. Beginning in 1994 the
Company will record its share of Intercargo's operating results in the
following quarter. Summarized financial information of Guaranty National
for the three months ended March 31, 1994 and 1993 is as follows:
Three Months Ended
March 31,
---------------------
1994 1993
---- ----
(000s omitted)
Revenues:
Premiums earned ................................. $ 75,331 $ 56,956
Realized investment gains ....................... 1,145 876
Investment and other income ..................... 5,865 5,650
--------- ---------
82,341 63,482
--------- ---------
Expenses:
Insurance expenses .............................. 73,618 54,156
Interest and other .............................. 858 835
--------- ---------
74,476 54,991
--------- ---------
Earnings before federal income taxes and cumulative
effect of change in accounting principles ....... 7,865 8,491
Federal income taxes .............................. 1,795 2,284
--------- ---------
Earnings before cumulative effect of change in
accounting principles ........................... $ 6,070 $ 6,207
========= =========
The Company's proportionate share:
Earnings before cumulative effect of change in
accounting principles ......................... $ 3,032 $ 3,060
========= =========
Cumulative effect of change in accounting
principles .................................... $ - $ 545
========= =========
The Company's investments in and advances to affiliates are as
follows:
March 31, December 31,
1994 1993
--------- ------------
(000s omitted)
Book value ................................ $108,212 $111,459
Market value .............................. 120,565 143,255
Guaranty National shares held ............. 6,059 6,143
- Book value of shares held ............. $ 72,284 $ 75,394
- Market value of shares held ........... 89,369 107,510
Intercargo shares held .................... 1,526 1,526
- Book value of shares held ............. $ 18,732 $ 18,869
- Market value of shares held ........... 14,120 17,936
Page 10
<PAGE>
Note C - Reinsurance
In the normal course of business, the Company's insurance
subsidiaries reinsure certain risks, generally on an excess-of-loss or
pro rata basis, with other companies to limit exposure to losses.
Reinsurance does not discharge the primary liability of the original
insurer. The table below summarizes certain reinsurance information:
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
(000s omitted)
Direct premiums written .................. $165,819 $157,354
Reinsurance assumed ...................... 29,980 31,268
-------- --------
Gross premiums written ................... 195,799 188,622
Reinsurance ceded ........................ (7,652) (28,329)
-------- --------
Net premiums written ..................... $188,147 $160,293
======== ========
Direct premiums earned ................... $160,170 $159,735
Reinsurance assumed ...................... 32,549 19,518
-------- --------
Gross premiums earned .................... 192,719 179,253
Reinsurance ceded ........................ (25,624) (29,981)
-------- --------
Net premiums earned ...................... $167,095 $149,272
======== ========
Loss and loss adjustment expenses
recoverable from reinsurers ............ $ 12,798 $ 18,481
======== ========
Note D - Stockholders' Equity and Earnings Per Common Share
During the first quarter of 1994, the Company repurchased 31,000
shares of its common stock at an aggregate cost of $984,000.
Common stock and per common share data have been restated, as
required, to give effect to the 5-for-4 stock split paid on November 15,
1993 to stockholders of record on October 15, 1993.
On December 21, 1992, Orion called for redemption its $2.125
Convertible Exchangeable Preferred Stock (the "$2.125 Preferred Stock")
on January 21, 1993. The market price of the shares of common stock that
a holder would receive upon conversion of the preferred stock was
substantially higher than the redemption price of $25.76 per share.
Consequently, most holders converted into common stock prior to the
redemption date, resulting in the issuance of 3,579 shares of common
stock in December 1992 and 1,423,544 shares of common stock in January
1993. Holders of 21,605 shares of $2.125 Preferred Stock, who did not
elect to convert, redeemed their shares for an aggregate of $557,000.
Page 11
<PAGE>
Primary earnings per common share are computed using the weighted
average common and dilutive common equivalent shares outstanding for the
three months ended March 31, 1994 and 1993. The weighted average common
shares amounted to 14,487,000 and 14,446,000 shares for the quarters
ended March 31, 1994 and 1993, respectively. Included in the calculation
of 1993 first quarter earnings per common share were $380,000 of
dividends on the Company's Adjustable Rate Preferred Stock and $2,000 of
dividends on shares of its $2.125 Preferred Stock. Preferred stock
dividends were deducted from earnings to compute earnings per common
share. Fully-diluted earnings per share is not presented as dilution is
less than three percent for both periods.
Note E - Contingencies
The Company and its subsidiaries are routinely engaged in litigation
incidental to their businesses; however, in the judgment of the Company's
management, there are no significant legal proceedings pending against
the Company or its subsidiaries which, net of loss reserves established
therefor and giving effect to reinsurance, are likely to result in
judgments for amounts that are material to the financial condition of the
Company and its consolidated subsidiaries, taken as a whole. (See also
Notes G and H to the 1993 consolidated financial statements).
Page 12
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Orion Capital Corporation
New York, New York
We have reviewed the accompanying consolidated balance sheet of Orion
Capital Corporation and subsidiaries (the "Company") as of March 31, 1994,
and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the three-month periods ended March 31, 1994 and 1993.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements
effective January 1, 1993 the Company changed the method of accounting for
income taxes and post-retirement benefits. Also effective on December 31,
1993, the Company changed its method of accounting for investments.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Orion Capital
Corporation and subsidiaries as of December 31, 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended; and in our report dated February 22, 1994, we
expressed an unqualified opinion on those consolidated financial
statements. The consolidated statements of earnings and cash flows for
the year ended December 31, 1993 are not presented herein. In our
opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1993 and related consolidated statement
of stockholders' equity for the year then ended is fairly stated, in all
material respects, in relation to the consolidated financial statements
from which it has been derived.
DELOITTE & TOUCHE
Hartford, Connecticut
April 25, 1994
Page 13
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1994 and 1993
RESULTS OF OPERATIONS
Orion Capital Corporation ("Orion") and its wholly-owned
subsidiaries (collectively the "Company") operate principally in the
property and casualty insurance business which is reported as three
segments - Regional Operations, Reinsurance/Special Programs and Guaranty
National Companies. Regional Operations markets workers compensation
insurance through EBI Companies and Nations' Care, Inc.
Reinsurance/Special Programs includes (i) DPIC Companies ("DPIC"), which
markets professional liability insurance, (ii) Connecticut Specialty
Insurance Group ("Connecticut Specialty"), which underwrites and sells
specialty insurance programs, (iii) SecurityRe Companies ("SecurityRe"),
which writes reinsurance and (iv) a 20.0% interest in Intercargo
Corporation ("Intercargo") which underwrites insurance coverages for
international trade. The third segment, Guaranty National Companies,
specializes in writing nonstandard commercial and personal automobile
insurance. The miscellaneous income and expenses (primarily interest,
general and administrative expenses and other consolidating elimination
entries) of the parent company are reported as a fourth segment.
Earnings (loss) by segment before federal income taxes and the
cumulative effect of the adoption of new accounting principles are
summarized as follows for the quarterly periods ended March 31, 1994 and
1993.
Three Months Ended
March 31,
------------------
1994 1993
---- ----
(000s omitted)
Regional Operations ............................... $ 8,260 $ 6,788
Reinsurance/Special Programs ...................... 9,175 12,847
Guaranty National Corporation ..................... 3,032 3,060
------- -------
Total ........................................... 20,467 22,695
Other ............................................. (3,254) (3,768)
------- -------
$17,213 $18,927
======= =======
Page 14
<PAGE>
The following table sets forth certain ratios of insurance operating
expenses to premiums earned for the Company.
Three Months Ended
March 31,
------------------
1994 1993
---- ----
Loss and loss adjustment expenses ................. 72.9% 76.3%
Policy acquisition costs and other insurance
expenses ........................................ 26.5 25.5
----- -----
Total before policyholders' dividends ......... 99.4 101.8
Policyholders' dividends .......................... 2.2 2.2
----- -----
Total after policyholders' dividends .......... 101.6% 104.0%
===== =====
REVENUES
Premiums written and premiums earned
- ------------------------------------
Net premiums written increased 17.4% ($27,854,000) to $188,147,000
in the first quarter of 1994 versus $160,293,000 in the first quarter of
1993. The results by segment are as follows:
- Regional Operations' premiums written increased 3.6% ($2,622,000)
from $73,158,000 in the first quarter of 1993 to $75,780,000 in the
first quarter of 1994. Premiums written increased in geographic
areas where the Company has had favorable loss experience stemming
from its service oriented approach. The increase was partially
offset by the impact of legislative reforms in certain states which
have led to both lower premium rates and reduced loss expenses,
generally resulting in more profitable business. This segment has
begun to market alternative workers compensation products and
services through its new division, Nations' Care Inc.
- Reinsurance/Special Programs' premiums written during the first
quarter of 1994 increased 29.0% ($25,232,000) from $87,135,000 in
the first quarter of 1993 to $112,367,000 in the 1994 first quarter.
Premium volume for Connecticut Specialty decreased 2.6% ($1,246,000)
to $47,458,000 in the first quarter of 1994 from $48,704,000 in the
1993 period. Premiums written by DPIC for professional liability
insurance, the largest special program, increased 71.7%
($20,931,000) to $50,135,000 in 1994's first quarter from
$29,204,000 for the first quarter of 1993. The increase is
primarily attributable to the discontinuation on January 1, 1994 of
a reinsurance contract related to business in force on that date in
order to retain more of DPIC's profitable business. The percentage
of treaty and facultative reinsurance premiums assumed to total net
premiums written for Reinsurance/Special Programs amounted to 13.1%
and 10.6% in the first quarters of 1994 and 1993, respectively.
Page 15
<PAGE>
Premiums earned increased 11.9% ($17,823,000) to $167,095,000, in
the first quarter of 1994 compared to $149,272,000 in the first quarter
of 1993.
Net investment income
- ---------------------
Pre-tax net investment income decreased $909,000 to $20,768,000 for
the first quarter of 1994 versus $21,677,000 for the first quarter of
1993. The pre-tax yields on the average investment portfolio were 6.6%
and 7.5% for the first quarters of 1994 and 1993, respectively,
reflecting a change in the Company's mix of investments toward higher
amounts of tax-advantaged securities which generally yield less than
fully taxable securities, issuers calling their securities in order to
refinance at lower rates and generally lower yields on new investments
due to current market conditions. The Company's investment portfolio was
carried at $1,321,137,000 at March 31, 1994 and $1,322,536,000 at
December 31, 1993. Net purchases of investments during 1994 were offset
by the recording of the decline in market values of investments during
the first quarter.
The Company's investment philosophy is to achieve a superior rate of
return after taxes and maintain a high degree of safety and liquidity.
Fixed maturity investments which the Company has both the positive intent
and the ability to hold to maturity are recorded at amortized cost.
Investments which may be sold in response to, among other things, changes
in interest rates, prepayment risk, income tax strategies or liquidity
needs are classified as "available-for-sale" and are carried at market
value, with unrealized gains and losses reported in a separate component
of stockholders' equity. The carrying value of fixed maturity and short
term investments amounted to $1,014,200,000 and $1,029,211,000 at
March 31, 1994 and December 31, 1993, respectively, or approximately
76.8% and 77.8% of the investment portfolio.
The Company invests primarily in investment grade securities and
strives to enhance the average return of its portfolio through limited
investment in a diversified group of non-investment grade fixed maturity
securities or securities that are not rated. The risk of loss due to
default is generally considered greater for non-investment grade
securities than for investment grade securities because the former, among
other things, are often subordinated to other indebtedness of the issuer
and are often issued by highly leveraged companies. At March 31, 1994
and December 31, 1993, the Company's investments in non-investment grade
and unrated fixed maturity securities were carried at $130,617,000 and
$97,653,000 with market values of $129,964,000 and $97,306,000,
respectively. These investments represented a total of 9.8% and 7.3% of
cash and investments and 6.1% and 4.6% of total assets at March 31, 1994
and December 31, 1993, respectively.
Page 16
<PAGE>
Realized investment gains
- -------------------------
Net realized investment gains decreased $4,279,000 to $533,000 in
the first quarter of 1994 from $4,812,000 in the first quarter of 1993.
Realized investment gains in the first quarters of 1994 and 1993 are net
of $794,000 and $1,700,000, respectively, of provisions for losses on
securities deemed to be other than temporarily impaired. Realized gains
(losses) vary from period to period, depending on market conditions
relative to the Company's investment holdings, the timing of investment
sales generating gains and losses, the occurrence of events which give
rise to other than temporary impairment of investments, and other
factors.
EXPENSES AND OTHER
Operating ratios
- ----------------
The ratio of loss and loss adjustment expenses to premiums earned
(the "loss ratio") was 72.9% in the 1994 first quarter compared to 76.3%
in the same period of 1993. The decrease in the loss ratio from the
first quarter of 1993 to the first quarter of the current year was
attributable to lower loss ratios in both the Regional Operations and
Reinsurance/Special Programs segments. Adverse development of prior
years' losses amounted to $5,084,000, compared with $7,789,000 in the
first quarter of 1993. Management believes that the Company's reserves
for loss and loss adjustment expenses make reasonable and sufficient
provision for the ultimate net cost of all losses on claims incurred.
The loss ratio for the Regional Operations segment was 69.6% in the
1994 first quarter and 75.8% in the 1993 first quarter, reflecting
continued improvement in workers compensation insurance, and decreasing
levels of losses for runoff, principally from closed offices and
commercial package business.
The first quarter 1994 and 1993 loss ratios for Reinsurance/Special
Programs amounted to 75.2% and 76.6%, respectively. The decrease in the
1994 loss ratio was primarily attributable to improved operating results
for DPIC and Security Re. The 1994 and 1993 loss ratios were impacted by
1.0 and .7 percentage points, respectively, by the January 1994
California earthquake and the explosion at the World Trade Center from
the Company's participation as a reinsurer.
The ratio of deferred policy acquisition costs and other insurance
expenses to premiums earned (the "expense ratio") was 26.5% in the first
three months of 1994 as compared to 25.5% in 1993. The increase in the
1994 expense ratio results primarily from lower ceding commissions in
1994 related to the DPIC reinsurance program coupled with low assessments
in 1993 from assigned risk pools. The ratio of policyholders' dividends
to premiums earned (the "dividend ratio") was 2.2% in both 1994 and 1993.
The combined ratio was 101.6% in the first quarter of 1994 and 104.0% for
the same period of 1993.
Page 17
<PAGE>
Interest expense
- ----------------
Interest expense increased to $3,324,000 in the first quarter of
1994 versus $2,875,000 in 1993. The increase of 15.6% reflects higher
average debt outstanding in 1994 as compared to 1993, including debt
incurred to redeem the Company's Adjustable Rate Preferred Stock, offset
for the most part by lower average interest rates.
Equity in earnings of affiliate
- -------------------------------
The Company's portion of Guaranty National's net earnings before the
cumulative effect of adopting changes in accounting principles was
$3,032,000 for the first quarter of 1994 and $3,060,000 for the first
quarter of 1993, based on Guaranty National's earnings of $6,070,000 and
$6,207,000 for the respective periods. Guaranty National's gross
premiums written increased to $88,148,000 for the first three months of
1994 from $75,830,000 for the 1993 period. Guaranty National's overall
combined ratio was 97.7% and 95.0% in the first quarters of 1994 and
1993, respectively.
Federal income taxes
- --------------------
Federal income taxes on pre-tax operating results and the related
effective tax rates amounted to $3,973,000 (23.1%) and $4,599,000 (24.3%)
in the first quarters of 1994 and 1993, respectively. The Company's
effective tax rate is less than the statutory tax rate of 35% primarily
because of income derived from tax-advantaged securities.
Cumulative effect of adoption of new accounting principles
- ----------------------------------------------------------
Effective January 1, 1993 the Company recorded the cumulative effect
of adopting Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions." The cumulative effect of
adopting SFAS No. 109, was a benefit of $16,881,000, which was
principally attributable to the Company's deferred tax benefits that had
not been recognized due to limitations under prior accounting standards.
SFAS No. 106 requires the accrual of the estimated cost of retiree
benefit payments during the years the employee provides services. Upon
adoption of SFAS No. 106 the Company's accumulated obligation for
providing medical benefits to retirees was $5,056,000, after a related
tax benefit of $2,604,000. Included in the cumulative effects of
adopting these accounting principles is the Company's portion of Guaranty
National's benefit from changes in accounting principles in 1993 of
$360,000, net of $185,000 of federal income taxes provided by the
Company.
Page 18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased by $11,309,000, from
$51,213,000 in 1993 to $39,904,000 in 1994. The decrease in operating
cash provided for the first quarter of 1994 is primarily due to an
increase in paid losses and federal income tax payments, offset in part
by an increase in premiums collected. Excluding the following one-time
items, the decline in year-to-year operating cash flows approximated
$400,000. In 1994 operating cash flow included a $10,223,000 receipt
from DPIC's discontinuation of a reinsurance contract. Cash flow for
1993 included a receipt of $17,096,000 under a retrospectively rated
program written by DPIC, and the benefit of a prior period income tax
overpayment of approximately $4,000,000.
Cash used in investment activities decreased to $26,076,000 in 1994
from $50,139,000 in 1993. The use of investment cash in both 1994 and
1993 is attributable to purchases of investments which exceeded
maturities and sales of investments, reflecting positive operating cash
flows.
Cash used in financing activities was $5,729,000 for the first
quarter of 1994 and cash provided by financing activities during the
first quarter of 1993 was $5,505,000. The cash provided in 1993 resulted
from an increase in bank borrowings.
Orion's uses of cash consist of debt service, dividends to
stockholders and overhead expenses. These cash uses are funded from
existing available cash, financing transactions and receipt of dividends,
reimbursement of overhead expenses and amounts in lieu of federal income
taxes from Orion's insurance subsidiaries. Payments of dividends by
Orion's insurance subsidiaries must comply with insurance regulatory
limitations concerning stockholder dividends and capital adequacy. State
insurance regulators have broad discretionary authority with respect to
limitations on the payment of dividends by insurance companies.
Limitations under current regulations are well in excess of Orion's cash
requirements.
Orion's insurance subsidiaries maintain liquidity in their
investment portfolios substantially in excess of that required to pay
claims and expenses. The insurance subsidiaries held cash and short-term
investments of $93,665,000 and $92,421,000 at March 31, 1994 and
December 31, 1993, respectively. Orion's insurance subsidiaries had
consolidated policyholders' surplus of $421,628,000 at March 31, 1994 and
$460,986,000 at December 31, 1993, and statutory operating leverage
ratios of trailing twelve months net premiums written to policyholders'
surplus of 1.6:1 at March 31, 1994 and 1.4:1 at December 31, 1993.
The Company entered into a bank loan arrangement (the "Loan
Agreement") in March 1993 that provided for initial borrowings of up to
$60,000,000, consisting of a $50,000,000 term loan (reduced by $6,500,000
in scheduled commitment reductions through March 31, 1994) and a
$10,000,000 line of credit. These borrowings are unsecured and bear
interest at or below prime. Borrowings under the Loan Agreement amounted
to $48,500,000 at March 31, 1994. The proceeds were used to repay the
Company's outstanding bank debt and to redeem the Company's Adjustable
Rate Preferred Stock in April 1993. At March 31, 1994 the Company had
available $5,000,000 in unused commitments under the line of credit.
Page 19
<PAGE>
The terms of the Loan Agreement and Orion's Indenture for its 9 1/8%
Senior Notes limit the amount of additional borrowings, prepayments on
existing indebtedness, liens and guaranties by the Company. Management
does not believe that any of these limitations unduly restricts the
Company's operations or limits Orion's ability to pay dividends on its
stock. At March 31, 1994, the Company was in compliance with the terms
of its debt agreements. Management believes that the Company continues
to have substantial sources of capital and liquidity from the capital
markets and bank borrowings.
The Company repurchased 31,000 shares of its common stock at an
aggregate cost of $984,000 in the first quarter of 1994. The Company's
remaining stock purchase authorization from its Board of Directors
amounted to $4,835,000 at March 31, 1994.
On September 10, 1993 the Company declared a 5-for-4 split of its
common stock payable on November 15, 1993 to shareholders of record on
October 15, 1993. Prior period common stock and per common share data
presented in the financial statements have been restated to give effect
to this stock split.
On December 21, 1992, Orion called for redemption its $2.125
Convertible Exchangeable Preferred Stock (the "$2.125 Preferred Stock")
on January 21, 1993. The market price of the shares of common stock that
a holder would receive upon conversion of the preferred stock was
substantially higher than the redemption price of $25.76 per share.
Consequently, most holders converted into common stock prior to the
redemption date, resulting in the issuance of 3,579 shares of common
stock in December 1992 and 1,423,544 shares of common stock in January
1993. Holders of 21,605 shares of $2.125 Preferred Stock, who did not
elect to convert, redeemed their shares for an aggregate of $557,000.
Page 20
<PAGE>
PART II. OTHER INFORMATION
Items 1 - 5.
- ------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(a) Exhibits
Exhibit 11: Computation of Earnings Per Common Share
Exhibit 15: Deloitte & Touche letter re unaudited interim
financial information.
(b) Reports on Form 8-K.
None.
Page 21
<PAGE>
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.
ORION CAPITAL CORPORATION
Date: May 2, 1994 By: /s/ Alan R. Gruber
---------------------------------
Alan R. Gruber
Chairman of the Board
and Chief Executive Officer
Date: May 2, 1994 By: /s/ Daniel L. Barry
----------------------------------
Daniel L. Barry
Vice President, Controller
and Principal Accounting Officer
Page 22
<PAGE>
EXHIBIT INDEX
Page No.
Exhibit 11: Computation of Earnings 24
Per Common Share
Exhibit 15: Deloitte & Touche Letter 25
re unaudited interim financial
information
Page 23
<TABLE>
<CAPTION>
EXHIBIT 11
ORION CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
(000s omitted-except for per common share data)
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Computation of weighted average
number of common and equivalent
shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ............................. 14,354 14,301
Dilutive effect of stock options .......... 133 145
------- -------
Weighted average number of common and
equivalent shares ....................... 14,487 14,446
======= =======
Net earnings before preferred dividend
requirements ............................ $13,240 $26,153
Preferred dividends ....................... - 382
------- -------
Net earnings attributable to common
stockholders ............................ $13,240 $25,771
======= =======
Net earnings per common share ............. $ .91 $ 1.78
======= =======
FULLY DILUTED -
Weighted average number of shares
outstanding ............................. 14,354 14,301
Dilutive effect of stock options .......... 133 158
Conversion of $2.125 preferred stock ...... - 230
------- -------
Weighted average number of common and
equivalent shares ....................... 14,487 14,689
======= =======
Net earnings before preferred dividend
requirements ............................ $13,240 $26,153
Adjustable rate preferred stock dividends.. - 380
------- -------
Net earnings attributable to common
stockholders ............................ $13,240 $25,773
======= =======
Net earnings per common share ............. $ .91 $ 1.75
======= =======
</TABLE>
Page 24
EXHIBIT 15
April 25, 1994
Orion Capital Corporation
30 Rockefeller Plaza
New York, New York
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Orion Capital Corporation and subsidiaries for the
periods ended March 31, 1994 and 1993, as indicated in our report dated
April 25, 1994; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, is
incorporated by reference in Registration Statements No. 2-65348 on Form S-8
and S-16 relating to the Orion Capital Corporation 1976 and 1979 Stock
Option Plans, No. 2-80636 on Form S-8 relating to the Orion Capital
Corporation 1982 Long-Term Performance Incentive Plan and No. 2-63344 on
Form S-8 relating to the Orion Capital Corporation Employees' Stock Savings
and Retirement Plan.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
DELOITTE & TOUCHE
Hartford, Connecticut
Page 25
