<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, 1995
( ) 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)
600 Fifth Avenue
New York, New York 10020 - 2302
- ---------------------------------------- -----------------------
(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
---- ----
14,068,965 shares of Common Stock, $1.00 par value, of the registrant
were outstanding on May 4, 1995.
Page 1 of 25
Exhibit Index Appears at Page 21
<PAGE>
ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 1995
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at March 31, 1995 (Unaudited)
and December 31, 1994 .................................. 3 - 4
Consolidated Statement of Earnings for the three-months
ended March 31, 1995 and 1994 (Unaudited) .............. 5
Consolidated Statement of Stockholders' Equity for the
three-months ended March 31, 1995 and 1994 (Unaudited),
and for the year ended December 31, 1994 ............... 6
Consolidated Statement of Cash Flows for the three-months
ended March 31, 1995 and 1994 (Unaudited) .............. 7 - 8
Notes to Consolidated Financial Statements (Unaudited) ... 9 - 11
Independent Accountants' Review Report ................... 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 13 - 18
PART II. OTHER INFORMATION .................................. 19
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(000s omitted)
March 31, 1995 December 31,
(Unaudited) 1994
-------------- ------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $355,944 - 1995 and $358,915 -
1994) .................................. $ 356,113 $ 367,417
Fixed maturities at market (amortized
cost $572,521 - 1995 and $565,880 - 1994) 559,644 530,424
Common stocks at market (cost $113,459 -
1995 and $116,078 - 1994) .............. 143,990 141,919
Non-redeemable preferred stocks at
market (cost $147,330 - 1995 and
$134,851 - 1994) ....................... 137,604 122,515
Other long-term investments .............. 52,979 52,564
Short-term investments ................... 122,039 104,201
---------- ----------
Total investments ..................... 1,372,369 1,319,040
Cash ....................................... 2,300 6,201
Accrued investment income .................. 15,766 17,364
Investments in and advances to affiliates .. 114,027 108,510
Accounts and notes receivable .............. 134,792 125,132
Reinsurance recoverables and prepaid
reinsurance .............................. 325,016 336,032
Deferred policy acquisition costs .......... 71,383 70,137
Property and equipment ..................... 25,872 25,157
Excess of cost over fair value of net
assets acquired .......................... 29,122 29,415
Deferred federal income taxes .............. 28,686 42,008
Other assets ............................... 43,588 33,765
---------- ----------
Total assets .......................... $2,162,921 $2,112,761
========== ==========
<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, 1995 December 31,
(Unaudited) 1994
-------------- ------------
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ...................................... $ 955,738 $ 952,531
Loss adjustment expenses .................... 236,772 228,798
Unearned premiums ........................... 257,842 256,855
Policyholders' dividends .................... 13,019 12,651
---------- ----------
Total policy liabilities .................. 1,463,371 1,450,835
Federal income taxes payable .................. 16,993 14,829
Notes payable ................................. 149,885 152,382
Other liabilities ............................. 130,160 129,627
---------- ----------
Total liabilities ......................... 1,760,409 1,747,673
---------- ----------
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 ............................... 147,772 147,598
Net unrealized investment gains (losses), net
of federal income tax benefits of $2,486 -
1995 and $14,146 - 1994 ..................... 10,156 (11,498)
Net unrealized foreign exchange translation
losses, net of federal income tax benefits of
$379 - 1995 and $553 - 1994 ................. (3,639) (3,959)
Retained earnings ............................. 257,156 242,908
Treasury stock, at cost (1,265,649 shares -
1995 and 1,296,834 shares - 1994) ........... (21,533) (22,451)
Deferred compensation on restricted stock ..... (2,738) (2,848)
---------- ----------
Total stockholders' equity ................ 402,512 365,088
---------- ----------
Total liabilities and stockholders' equity. $2,162,921 $2,112,761
========== ==========
<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,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Premiums earned ............................. $175,058 $167,095
Net investment income ....................... 23,853 20,768
Realized investment gains ................... 2,560 533
Other income ................................ 326 302
-------- --------
201,797 188,698
-------- --------
Expenses:
Losses incurred ............................. 94,745 96,998
Loss adjustment expenses .................... 27,852 24,771
Amortization of deferred policy acquisition
costs ..................................... 45,216 40,043
Other insurance expenses .................... 6,064 4,345
Dividends to policyholders .................. 3,316 3,636
Interest expense ............................ 3,562 3,324
Other expenses .............................. 1,921 1,400
-------- --------
182,676 174,517
-------- --------
Earnings before equity in earnings of
affiliates and federal income taxes .......... 19,121 14,181
Equity in earnings of affiliates .............. 3,095 3,032
-------- --------
Earnings before federal income taxes .......... 22,216 17,213
Federal income taxes .......................... 5,154 3,973
-------- --------
Net earnings ................................ $ 17,062 $ 13,240
======== ========
Net earnings per common share ............... $ 1.20 $ .91
======== ========
<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,
------------------- ------------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance ................................ $ 15,338 $ 15,338 $ 15,338
======== ======== ========
Capital surplus:
Balance, beginning of period ........... $147,598 $148,167 $148,167
Issuance of common stock ............... 152 - -
Exercise of stock options and issuance
(cancellation) of restricted stock ... 22 (106) (569)
-------- -------- --------
Balance, end of period ................. $147,772 $148,061 $147,598
======== ======== ========
Net unrealized investment gains (losses):
Balance, beginning of period ........... $(11,498) $ 49,566 $ 49,566
Change in unrealized investment gains
(losses), net of taxes ............... 21,654 (28,830) (61,064)
-------- -------- --------
Balance, end of period ................. $ 10,156 $ 20,736 $(11,498)
======== ======== ========
Net unrealized foreign exchange
translation losses:
Balance, beginning of period ........... $ (3,959) $ (3,665) $ (3,665)
Change in unrealized foreign exchange
translation losses, net of taxes ..... 320 (445) (294)
-------- -------- --------
Balance, end of period ................. $ (3,639) $ (4,110) $ (3,959)
======== ======== ========
Retained earnings:
Balance, beginning of period ........... $242,908 $198,491 $198,491
Net earnings ........................... 17,062 13,240 55,245
Dividends declared ..................... (2,814) (2,584) (10,828)
-------- -------- --------
Balance, end of period ................. $257,156 $209,147 $242,908
======== ======== ========
Treasury stock:
Balance, beginning of period ........... $(22,451) $(12,182) $(12,182)
Issuance of common stock ............... 728 - -
Exercise of stock options and issuance
of restricted stock .................. 190 232 3,476
Acquisition of treasury stock .......... - (984) (13,745)
-------- -------- --------
Balance, end of period ................. $(21,533) $(12,934) $(22,451)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of period ........... $ (2,848) $ (1,520) $ (1,520)
Issuance of restricted stock ........... (168) (6) (2,247)
Amortization of deferred compensation on
restricted stock ..................... 278 172 919
-------- -------- --------
Balance, end of period ................. $ (2,738) $ (1,354) $ (2,848)
======== ======== ========
<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,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums collected ........................... $ 170,978 $ 178,488
Net investment income collected .............. 24,526 22,580
Losses and loss adjustment expenses paid ..... (105,957) (103,262)
Policy acquisition costs paid ................ (51,027) (48,989)
Dividends paid to policyholders .............. (2,948) (4,251)
Interest paid ................................ (5,977) (5,753)
Federal income tax payments .................. (1,502) (4,001)
Other receipts (payments) .................... (1,978) 5,092
--------- ---------
Net cash provided by operating activities .. 26,115 39,904
--------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments ..... 17,349 49,766
Sales of fixed maturity investments .......... 22,172 43,039
Sales of equity securities ................... 8,560 24,922
Investments in fixed maturities .............. (36,825) (100,827)
Investments in equity securities ............. (17,494) (49,025)
Net sales (purchases) of short-term
investments ................................ (17,814) 7,098
Other payments ............................... (639) (1,049)
--------- ---------
Net cash used in investing activities ...... (24,691) (26,076)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options ...... - 120
Repayment of notes payable ................... (2,500) (2,000)
Dividends paid to stockholders ............... (2,809) (2,591)
Purchases of common stock .................... - (1,244)
Other payments ............................... (16) (14)
--------- ---------
Net cash used in financing activities ...... (5,325) (5,729)
--------- ---------
Net increase (decrease) in cash ............ (3,901) 8,099
Cash balance, beginning of period ............ 6,201 6,433
--------- ---------
Cash balance, end of period .................. $ 2,300 $ 14,532
========= =========
<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,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings .................................. $ 17,062 $ 13,240
-------- --------
Adjustments:
Depreciation and amortization ............... 1,266 1,007
Amortization of excess of cost over fair
value of net assets acquired .............. 293 293
Deferred federal income taxes ............... 1,488 1,551
Amortization of fixed maturity investments .. 503 402
Non-cash investment income .................. (2,417) (1,423)
Equity in earnings of affiliates ............ (3,095) (3,032)
Dividends received from affiliates .......... 887 905
Realized investment gains ................... (2,560) (533)
Other ....................................... (10) 106
Change in assets and liabilities:
Decrease in accrued investment income ....... 1,598 2,072
Increase in accounts and notes receivable ... (9,660) (13,484)
Decrease in reinsurance recoverables and
prepaid reinsurance ....................... 11,016 29,456
Increase in deferred policy acquisition costs (1,246) (7,998)
Decrease (increase) in other assets ......... (9,185) 362
Increase in losses .......................... 3,207 9,309
Increase in loss adjustment expenses ........ 7,974 2,829
Increase in unearned premiums ............... 987 3,079
Increase (decrease) in policyholders'
dividends ................................. 368 (615)
Increase in other liabilities ............... 7,639 2,378
-------- --------
Total adjustments and changes ............. 9,053 26,664
-------- --------
Net cash provided by operating activities ..... $ 26,115 $ 39,904
======== ========
<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, 1995 and 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 ("Orion") 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
LLP, 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 1994 annual report on Form 10-K.
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 Company records its share of Intercargo's operating results
in the subsequent quarter, after Intercargo has reported its financial
results. Summarized financial information of the Company's affiliates for
the three months ended March 31, 1995 and 1994 is as follows:
Three Months Ended
March 31,
------------------
1995 1994
---- ----
(000s omitted)
Revenues:
Premiums earned ................................. $ 99,459 $ 75,331
Realized investment gains ....................... 569 1,145
Investment and other income ..................... 8,041 5,865
-------- --------
108,069 82,341
-------- --------
Expenses:
Insurance expenses .............................. 96,938 73,618
Interest and other .............................. 1,360 858
-------- --------
98,298 74,476
-------- --------
Earnings before federal income taxes .............. 9,771 7,865
Federal income taxes .............................. 2,349 1,795
-------- --------
Net earnings ...................................... $ 7,422 $ 6,070
======== ========
The Company's proportionate share ................. $ 3,095 $ 3,032
======== ========
Page 9
<PAGE>
The Company's investments in and advances to affiliates were as
follows:
March 31, December 31,
1995 1994
--------- ------------
(000s omitted)
Book value ................................ $114,027 $108,510
Market value .............................. 123,736 138,786
Guaranty National shares held ............. 6,004 6,004
- Book value of shares held ............. $ 78,252 $ 72,564
- Market value of shares held ........... 93,059 110,320
Intercargo shares held .................... 1,526 1,526
- Book value of shares held ............. $ 18,579 $ 18,750
- Market value of shares held ........... 14,120 12,593
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,
----------------------------
1995 1994
---- ----
(000s omitted)
Direct premiums written .................. $175,155 $165,819
Reinsurance assumed ...................... 30,569 29,980
-------- --------
Gross premiums written ................... 205,724 195,799
Reinsurance ceded ........................ (29,632) (7,652)
-------- --------
Net premiums written ..................... $176,092 $188,147
======== ========
Direct premiums earned ................... $173,320 $160,170
Reinsurance assumed ...................... 31,416 32,549
-------- --------
Gross premiums earned .................... 204,736 192,719
Reinsurance ceded ........................ (29,678) (25,624)
-------- --------
Net premiums earned ...................... $175,058 $167,095
======== ========
Loss and loss adjustment expenses incurred
recoverable from reinsurers ............ $ 11,013 $ 12,798
======== ========
Note D - Earnings Per Common Share
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, 1995 and 1994. The weighted average common
and equivalent shares amounted to 14,183,000 and 14,487,000 shares for the
quarters ended March 31, 1995 and 1994, respectively. Fully-diluted
earnings per share is not presented as dilution is less than three percent
for both periods.
Page 10
<PAGE>
Note E - Contingencies
Orion and its subsidiaries are routinely engaged in litigation
incidental to their businesses. Management believes that there are no
significant legal proceedings pending against the Company or its
subsidiaries which, net of reserves established therefor, are likely to
result in judgments for amounts that are material to the financial
condition, liquidity or results of operations of Orion and its consolidated
subsidiaries, taken as a whole. (See also Notes H and I to the 1994
consolidated financial statements).
Page 11
<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, 1995,
and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the three-month periods ended March 31, 1995 and 1994.
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.
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, 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended; and in our report dated February 24, 1995, we
expressed an unqualified opinion on those consolidated financial
statements. The consolidated statements of earnings and cash flows for the
year ended December 31, 1994 are not presented herein. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1994 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 LLP
Hartford, Connecticut
April 26, 1995
Page 12
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1995 and 1994
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 provides workers compensation
insurance products through EBI Companies and Nations' Care.
Reinsurance/Special Programs includes (i) DPIC Companies ("DPIC"), which
markets professional liability insurance, (ii) Connecticut Specialty
Insurance Group ("Connecticut Specialty"), which writes specialty
insurance programs, (iii) SecurityRe Companies ("SecurityRe"), a
reinsurer and (iv) a 20.0% interest in Intercargo Corporation
("Intercargo") which underwrites insurance coverages for international
trade. The third segment consists of the Company's interest in Guaranty
National Corporation, which specializes in 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 are
summarized as follows for the quarterly periods ended March 31, 1995 and
1994:
Three Months Ended
March 31,
------------------
1995 1994
---- ----
(000s omitted)
Regional Operations ............................... $14,483 $ 8,260
Reinsurance/Special Programs ...................... 9,219 9,175
Guaranty National Corporation ..................... 2,876 3,032
------- -------
26,578 20,467
Other ............................................. (4,362) (3,254)
------- -------
Total ........................................... $22,216 $17,213
======= =======
Page 13
<PAGE>
The following table sets forth certain ratios of insurance operating
expenses to premiums earned for the Company.
Three Months Ended
March 31,
------------------
1995 1994
---- ----
Loss and loss adjustment expenses ................. 70.0% 72.9%
Policy acquisition costs and other insurance
expenses ........................................ 29.3 26.5
----- -----
Total before policyholders' dividends ......... 99.3 99.4
Policyholders' dividends .......................... 1.9 2.2
----- -----
Total after policyholders' dividends .......... 101.2% 101.6%
===== =====
REVENUES
Premiums written and premiums earned
- ------------------------------------
Net premiums written decreased 6.4% ($12,055,000) to $176,092,000 in
the first quarter of 1995 from $188,147,000 in the first quarter of 1994.
The decline is attributable to a one-time premium refund amounting to
$13,704,000 included in 1994's first quarter relating to the cancellation
of a reinsurance contract covering a portion of DPIC's business. The
results by segment are as follows:
- Regional Operations' premiums written increased 4.0% ($3,014,000)
from $75,780,000 in the first quarter of 1994 to $78,794,000 in the
first quarter of 1995. Premiums written increased in new
territories where the Company believes it will benefit from its
service oriented approach. The increase was partially offset by the
impact of legislative reforms in certain states which have led to
lower premium rates and a reduction in losses and commission
expenses, resulting in higher profit margins. The increase in this
segment was also offset by the transition at Nations' Care toward
high-deductible and fee-based workers compensation products.
- Reinsurance/Special Programs' premiums written during the first
quarter of 1995 decreased 13.4% ($15,069,000) from $112,367,000 in
the first quarter of 1994 to $97,298,000 in the 1995 first quarter.
Premiums written by DPIC for professional liability insurance, the
largest special program, decreased 24.0% ($12,048,000) to
$38,087,000 in 1995's first quarter from $50,135,000 for the first
quarter of 1994. Premiums written in 1994 included the premium
refund of $13,704,000 discussed above, associated with the
discontinuation of a reinsurance contract in order to retain more of
DPIC's profitable business. Premium volume for Connecticut
Specialty decreased 14.9% ($7,069,000) to $40,389,000 in the first
quarter of 1995 from $47,458,000 in the 1994 period. The decrease
is largely attributable to the cancellation in 1994 of a personal
injury protection program in Florida and a physical damage program
in Texas, where the Company had unfavorable loss experience, offset
in part by increased premiums written in the truck liability program
and the introduction of an additional marine program. The
percentage of treaty and facultative reinsurance premiums assumed to
total net premiums written for Reinsurance/Special Programs
increased to 19.3% in the first quarter of 1995 from 13.1% in the
first quarter of 1994.
Page 14
<PAGE>
Premiums earned increased 4.8% ($7,963,000) to $175,058,000 in the
first quarter of 1995 compared to $167,095,000 in the first quarter of
1994. The reinsurance contract cancelled by DPIC did not have a
significant impact on earned premiums for this comparison.
Net investment income
- ---------------------
Pre-tax net investment income increased $3,085,000 to $23,853,000
for the first quarter of 1995 from $20,768,000 for the first quarter of
1994. The pre-tax yields on the average investment portfolio were 7.1%
for the first quarter of 1995 and 6.6% for the first quarter of 1994 and
the after-tax yields were 5.5% and 5.1%, respectively. The increase in
net investment income reflects earnings from limited partnership
investments of $2,175,000 for the first quarter of 1995 as compared to
$1,158,000 for the 1994 period, as well as a higher investment base and a
rise in market interest rates.
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 $1,037,796,000 and $1,002,042,000
at March 31, 1995 and December 31, 1994, respectively, or approximately
75.5% and 75.6% of the Company's cash and investments.
The Company's investment philosophy is to achieve a superior rate of
return after taxes and maintain a high degree of safety and liquidity.
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, 1995 and December 31,
1994, the Company's investments in non-investment grade and unrated fixed
maturity securities were carried at $129,211,000 and $119,853,000 with
market values of $128,762,000 and $119,277,000, respectively. These
investments represented a total of 9.4% and 9.0% of cash and investments
and 6.0% and 5.7% of total assets at March 31, 1995 and December 31,
1994, respectively.
Page 15
<PAGE>
Realized investment gains
- -------------------------
Net realized investment gains increased $2,027,000 to $2,560,000 in
the first quarter of 1995 from $533,000 in the first quarter of 1994.
Realized investment gains in the first quarters of 1995 and 1994 are net
of $500,000 and $794,000, 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 70.0% in the 1995 first quarter compared to 72.9%
in the same period of 1994. The decrease in the loss ratio from the
first quarter of 1994 to the first quarter of the current year was
attributable to lower loss ratios in the Regional Operations segment.
Adverse development of prior years' losses amounted to $4,344,000 in the
first quarter of 1995, compared with $5,084,000 in the 1994 period.
Management believes that the Company's reserves for loss and loss
adjustment expenses make reasonable and sufficient provision for the
ultimate cost of all losses on claims incurred.
The loss ratio for the Regional Operations segment was 63.0% in the
1995 first quarter and 69.6% in the 1994 first quarter, reflecting
continued success of the Company's service oriented approach for workers
compensation insurance, and an increase in high-deductible policies
written by Nations' Care. The first quarter 1995 and 1994 loss ratios
for Reinsurance/Special Programs amounted to 75.2% for both years.
The ratio of deferred policy acquisition costs and other insurance
expenses to premiums earned (the "expense ratio") was 29.3% in the first
three months of 1995 as compared to 26.5% in 1994. The increase in the
expense ratio in 1995 is attributable to a number of factors including
opening offices in new territories, a change in the mix of business
toward policies with lower premiums and losses relative to policyholder
servicing expenses and general inflationary increases in fixed operating
expenses. The ratio of policyholders' dividends to premiums earned (the
"dividend ratio") was 1.9% in 1995 and 2.2% in 1994. The combined ratio
was 101.2% in the first quarter of 1995 and 101.6% for the same period of
1994.
Page 16
<PAGE>
Interest expense
- ----------------
Interest expense increased to $3,562,000 in the first quarter of
1995 versus $3,324,000 in 1994. The increase of 7.2% reflects higher
interest rates in 1995 as compared to 1994, offset in part by lower
average debt outstanding.
Equity in earnings of affiliates
- --------------------------------
Equity in earnings of affiliates includes the Company's portion of
earnings from Guaranty National and Intercargo. Earnings of $219,000
were recorded from the Intercargo investment in the first quarter of
1995. The Company's portion of Guaranty National's net earnings was
$2,876,000 for the first quarter of 1995 and $3,032,000 for the first
quarter of 1994, based on Guaranty National's earnings of $5,768,000 and
$6,070,000 for the respective periods. Guaranty National's gross
premiums written increased to $94,578,000 for the first three months of
1995 from $88,470,000 for the 1994 period. Guaranty National's overall
combined ratio was 97.7% in both the first quarters of 1995 and 1994.
Federal income taxes
- --------------------
Federal income taxes on pre-tax operating results and the related
effective tax rates amounted to $5,154,000 (23.2%) and $3,973,000 (23.1%)
in the first quarters of 1995 and 1994, 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased by $13,789,000 from
$39,904,000 in 1994 to $26,115,000 in 1995. Cash flow for 1995 included
a disbursement of $7,800,000 under a retrospectively rated program
written by DPIC. In 1994 operating cash flow included a $10,223,000
receipt from DPIC's discontinuation of a reinsurance contract. Excluding
these one-time items, first quarter cash flow increased approximately
$4,200,000 from 1994 to 1995.
Cash used in investment activities decreased to $24,691,000 in 1995
from $26,076,000 in 1994. Cash is used in investment activities
primarily for purchases of investments, which are funded by maturities
and sales of investments, as well as by the net cash from positive
operating cash flows after payments made to fund financing activities.
Cash used in financing activities was $5,325,000 and $5,729,000 for
the first quarters of 1995 and 1994, respectively, reflecting dividend
payments and scheduled debt repayments in both years, and in 1994,
payments related to the Company's stock repurchase program. The Company
increased its quarterly dividend rate by 11.1% in the third quarter of
1994.
Page 17
<PAGE>
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 $113,816,000 and $96,572,000 at March 31, 1995 and
December 31, 1994, respectively. Orion's insurance subsidiaries had
consolidated policyholders' surplus of $463,217,000 at March 31, 1995 and
$458,676,000 at December 31, 1994, and statutory operating leverage
ratios of trailing twelve months net premiums written to policyholders'
surplus of 1.5:1 at March 31, 1995 and 1.6:1 at December 31, 1994.
At March 31, 1995 the Company had $40,000,000 outstanding under a
bank loan arrangement (the "Loan Agreement"), including a $35,000,000
term loan and $5,000,000 under a $30,000,000 line of credit. These
borrowings are unsecured and bear interest at or below prime. At March
31, 1995, the Company had available $25,000,000 in unused commitments
under the line of credit.
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, 1995, 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.
In August 1994, a shelf registration statement relating to the
offering of up to $100 million of the Company's debt and/or equity
securities was declared effective by the Securities and Exchange
Commission ("SEC"). The shelf registration provides for securities to be
issued from time to time, with specified terms of an issue of securities
set forth in a prospectus supplement at the time of issuance. The
proceeds from the sale of securities may be used for general corporate
purposes, including working capital, investment in subsidiaries, the
repayment of existing bank debt, the repurchase of shares of common
stock, or for such other purpose as may be specified in a prospectus
supplement.
Page 18
<PAGE>
Item 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.
Exhibit 27: Financial Data Schedule.
(b) Reports on Form 8-K.
None.
Page 19
<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 5, 1995 By: /s/ Alan R. Gruber
---------------------------------
Chairman of the Board
and Chief Executive Officer
Date: May 5, 1995 By: /s/ Daniel L. Barry
-----------------------------------
Vice President, Controller
and Principal Accounting Officer
Page 20
<PAGE>
EXHIBIT INDEX
Page No.
Exhibit 11: Computation of Earnings 22
Per Common Share
Exhibit 15: Deloitte & Touche Letter 23
re unaudited interim financial
information
Exhibit 27: Financial Data Schedule 24
Page 21
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,
----------------------------
1995 1994
---- ----
Computation of weighted average
number of common and equivalent
shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ............................. 14,066 14,354
Dilutive effect of stock options .......... 117 133
------- -------
Weighted average number of common and
equivalent shares ....................... 14,183 14,487
======= =======
Net earnings attributable to common
stockholders ............................ $17,062 $13,240
======= =======
Net earnings per common share ............. $ 1.20 $ .91
======= =======
FULLY DILUTED -
Weighted average number of shares
outstanding ............................. 14,066 14,354
Dilutive effect of stock options .......... 117 133
------- -------
Weighted average number of common and
equivalent shares ....................... 14,183 14,487
======= =======
Net earnings attributable to common
stockholders ............................ $17,062 $13,240
======= =======
Net earnings per common share ............. $ 1.20 $ .91
======= =======
Page 22
EXHIBIT 15
April 26, 1995
Orion Capital Corporation
600 Fifth Avenue
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, 1995 and 1994, as indicated in our report dated April
26, 1995; 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, 1995, 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, No. 2-63344 on Form S-8 relating to the
Orion Capital Corporation Employees' Stock Savings and Retirement Plan and No.
33-53759 on Form S-3.
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 LLP
Hartford, Connecticut
Page 23
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 559,644
<DEBT-CARRYING-VALUE> 356,113
<DEBT-MARKET-VALUE> 355,944
<EQUITIES> 281,594
<MORTGAGE> 1,850
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,372,369
<CASH> 2,300
<RECOVER-REINSURE> 293,354
<DEFERRED-ACQUISITION> 71,383
<TOTAL-ASSETS> 2,162,921
<POLICY-LOSSES> 1,192,510
<UNEARNED-PREMIUMS> 257,842
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 13,019
<NOTES-PAYABLE> 149,885
<COMMON> 163,110
0
0
<OTHER-SE> 239,402
<TOTAL-LIABILITY-AND-EQUITY> 2,162,921
175,058
<INVESTMENT-INCOME> 23,853
<INVESTMENT-GAINS> 2,560
<OTHER-INCOME> 326
<BENEFITS> 122,597
<UNDERWRITING-AMORTIZATION> 45,216
<UNDERWRITING-OTHER> 9,380
<INCOME-PRETAX> 22,216
<INCOME-TAX> 5,154
<INCOME-CONTINUING> 17,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,062
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<RESERVE-OPEN> 891,542
<PROVISION-CURRENT> 118,253
<PROVISION-PRIOR> 4,344
<PAYMENTS-CURRENT> 14,202
<PAYMENTS-PRIOR> 91,755
<RESERVE-CLOSE> 908,182
<CUMULATIVE-DEFICIENCY> 4,344
</TABLE>
