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 September 30, 1996
( ) 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
---- ----
13,783,990 shares of Common Stock, $1.00 par value, of the registrant
were outstanding on November 1, 1996
Page 1 of 28
Exhibit Index Appears at Page 24
<PAGE>
ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended September 30, 1996
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1996
(Unaudited) and December 31, 1995 .................... 3 - 4
Consolidated Statement of Earnings for the three
and nine-month periods ended September 30, 1996
and 1995 (Unaudited) ................................. 5
Consolidated Statement of Stockholders' Equity for
the nine-month periods ended September 30, 1996
and 1995 (Unaudited), and for the year ended
December 31, 1995 .................................... 6
Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 1996 and 1995 (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 - 21
PART II. OTHER INFORMATION ................................ 22
Page 2
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<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(000s omitted)
September 30, 1996 December 31,
(Unaudited) 1995
------------------ ------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $340,061 - 1996 and $276,282 -
1995) .................................. $ 334,734 $ 265,169
Fixed maturities at market (amortized cost
$1,111,881 - 1996 and $748,008 - 1995).. 1,132,064 782,869
Common stocks at market (cost $133,775 -
1996 and $108,211 - 1995) .............. 204,088 158,895
Non-redeemable preferred stocks at
market (cost $167,005 - 1996 and
$149,167 - 1995) ....................... 162,669 145,990
Other long-term investments .............. 85,479 62,925
Short-term investments ................... 314,434 187,013
---------- ----------
Total investments ..................... 2,233,468 1,602,861
Cash ....................................... 20,924 3,584
Accrued investment income .................. 22,334 19,290
Investments in and advances to affiliates .. 21,512 125,731
Accounts and notes receivable .............. 182,070 137,197
Reinsurance recoverables and prepaid
reinsurance .............................. 481,696 360,052
Deferred policy acquisition costs .......... 137,014 77,673
Property and equipment ..................... 68,544 34,009
Excess of cost over fair value of net
assets acquired .......................... 81,963 50,199
Deferred federal income taxes .............. 37,604 8,726
Other assets ............................... 67,195 54,266
---------- ----------
Total assets .......................... $3,354,324 $2,473,588
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 3
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(000s omitted - except for share data)
September 30, 1996 December 31,
(Unaudited) 1995
------------------ ------------
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses .................................. $1,361,647 $1,007,016
Loss adjustment expenses ................ 351,532 267,966
Unearned premiums ....................... 505,963 302,105
Policyholders' dividends ................ 20,879 18,946
---------- ----------
Total policy liabilities .............. 2,240,021 1,596,033
Federal income taxes payable .............. 13,531 18,910
Notes payable ............................. 311,073 209,148
Other liabilities ......................... 216,751 158,594
---------- ----------
Total liabilities ..................... 2,781,376 1,982,685
---------- ----------
Contingencies (Note F)
Minority interest ........................... 43,058 -
---------- ----------
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 ........................... 146,408 146,658
Net unrealized investment gains, net of
federal income taxes of $24,457 -
1996 and $26,691 - 1995 ................. 57,825 63,255
Net unrealized foreign exchange translation
losses, net of federal income tax
benefits of $418 - 1996 and $540 - 1995.. (3,710) (3,935)
Retained earnings ......................... 350,837 298,452
Treasury stock, at cost (1,580,699 shares -
1996 and 1,385,012 shares - 1995) ....... (35,329) (26,534)
Deferred compensation on restricted stock.. (1,479) (2,331)
---------- ----------
Total stockholders' equity ............ 529,890 490,903
---------- ----------
Total liabilities and stockholders'
equity .............................. $3,354,324 $2,473,588
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 4
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(000s omitted - except for per common share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premiums earned .............................. $332,936 $183,902 $ 954,447 $545,669
Net investment income ........................ 36,028 25,572 106,821 73,860
Realized investment gains .................... 5,480 5,885 16,606 9,171
Other income ................................. 5,940 6,862 17,473 7,429
-------- -------- ---------- --------
380,384 222,221 $1,095,347 636,129
-------- -------- ---------- --------
Expenses:
Losses incurred .............................. 175,729 95,155 518,533 289,710
Loss adjustment expenses ..................... 47,979 28,851 136,485 86,356
Amortization of deferred policy acquisition
costs ...................................... 95,021 48,985 260,270 142,351
Other insurance expenses ..................... 6,329 4,964 21,862 15,172
Dividends to policyholders ................... 7,137 5,507 16,029 13,972
Interest expense ............................. 6,165 4,447 18,483 11,481
Other expenses ............................... 8,848 9,954 32,003 15,264
-------- -------- ---------- --------
347,208 197,863 1,003,665 574,306
-------- -------- ---------- --------
Earnings before equity in earnings (loss) of
affiliates, federal income taxes and minority
interest expense ............................. 33,176 24,358 91,682 61,823
Equity in earnings (loss) of affiliates ........ 291 (1,713) (430) 4,104
-------- -------- ---------- --------
Earnings before federal income taxes and
minority interest expense .................... 33,467 22,645 91,252 65,927
Federal income taxes ........................... 7,677 5,388 21,444 15,559
Minority interest expense ...................... 1,429 - 6,987 -
-------- -------- ---------- --------
Net earnings ................................. $ 24,361 $ 17,257 $ 62,821 $ 50,368
======== ======== ========== ========
Net earnings per common share ................ $ 1.76 $ 1.21 $ 4.52 $ 3.55
======== ======== ========== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 5
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000s omitted)
Nine Months Ended
September 30, Year Ended
(Unaudited) December 31,
------------------- ------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Common stock ............................. $ 15,338 $ 15,338 $ 15,338
======== ======== ========
Capital surplus:
Balance, beginning of period ........... $146,658 $147,598 $147,598
Issuance of common stock ............... - 152 152
Exercise of stock options and issuance
(cancellation) of restricted stock ... (250) (306) (1,092)
-------- -------- --------
Balance, end of period ................. $146,408 $147,444 $146,658
======== ======== ========
Net unrealized investment gains (losses):
Balance, beginning of period ........... $ 63,255 $(11,498) $(11,498)
Change in unrealized investment gains
(losses), net of taxes ............... (5,430) 55,777 74,753
-------- -------- --------
Balance, end of period ................. $ 57,825 $ 44,279 $ 63,255
======== ======== ========
Net unrealized foreign exchange
translation losses:
Balance, beginning of period ........... $ (3,935) $ (3,959) $ (3,959)
Change in unrealized foreign exchange
translation losses, net of taxes ..... 225 326 24
-------- -------- --------
Balance, end of period ................. $ (3,710) $ (3,633) $ (3,935)
======== ======== ========
Retained earnings:
Balance, beginning of period ........... $298,452 $242,908 $242,908
Net earnings ........................... 62,821 50,368 67,622
Dividends declared ..................... (10,436) (8,865) (12,078)
-------- -------- --------
Balance, end of period ................. $350,837 $284,411 $298,452
======== ======== ========
Treasury stock:
Balance, beginning of period ........... $(26,534) $(22,451) $(22,451)
Issuance of common stock ............... - 770 770
Exercise of stock options and issuance
(cancellation) of restricted stock ... 1,049 866 2,330
Acquisition of treasury stock .......... (9,844) (885) (7,183)
-------- -------- --------
Balance, end of period ................. $(35,329) $(21,700) $(26,534)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of period ........... $ (2,331) $ (2,848) $ (2,848)
(Issuance) cancellation of restricted
stock ................................ (109) (272) (517)
Amortization of deferred compensation on
restricted stock ..................... 961 820 1,034
-------- -------- --------
Balance, end of period ................. $ (1,479) $ (2,300) $ (2,331)
======== ======== ========
<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)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums collected .......................... $1,000,285 $ 536,589
Net investment income collected ............. 101,007 68,188
Losses and loss adjustment expenses paid .... (606,332) (303,146)
Policy acquisition costs paid ............... (295,984) (160,630)
Dividends paid to policyholders ............. (14,096) (9,021)
Interest paid ............................... (22,290) (12,530)
Federal income tax payments ................. (22,337) (13,714)
Other receipts (payments) ................... (5,637) 4,413
---------- ---------
Net cash provided by operating activities.. 134,616 110,149
---------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments .... 122,620 38,108
Sales of fixed maturity investments ......... 179,067 140,252
Sales of equity securities .................. 109,522 51,259
Investments in fixed maturities ............. (275,937) (224,938)
Investments in equity securities ............ (60,193) (49,910)
Purchase of Guaranty National common stock .. (88,493) -
Acquisition of McGee ........................ - (22,333)
Effect on cash of consolidating Guaranty
National in 1996 and McGee in 1995 ........ 6,794 349
Net purchases of short-term investments ..... (71,023) (85,752)
Purchase of property and equipment .......... (10,782) (6,579)
Other receipts (payments) ................... (5,941) 2,797
---------- ---------
Net cash used in investing activities ..... (94,366) (156,747)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ..... - 110,485
Proceeds from exercise of stock options ..... 42 246
Dividends paid to stockholders .............. (10,121) (8,437)
Dividends paid to minority stockholders ..... (2,308) -
Repayment of notes payable .................. (1,125) (54,500)
Purchases of common stock ................... (9,439) (843)
Other payments .............................. 37 (18)
---------- ---------
Net cash provided by (used in) financing
activities .............................. (22,914) 46,933
---------- ---------
Effect of foreign exchange rate changes on cash 4 121
---------- ---------
Net increase in cash ...................... 17,340 456
Cash balance, beginning of period ............. 3,584 6,201
---------- ---------
Cash balance, end of period ................... $ 20,924 $ 6,657
========== =========
<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)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings .................................. $ 62,821 $ 50,368
-------- --------
Adjustments:
Depreciation and amortization ............... 8,313 4,004
Amortization of excess of cost over fair
value of net assets acquired .............. 2,329 1,062
Deferred federal income taxes ............... 4,653 330
Amortization of fixed maturity investments .. (2,414) 1,231
Non-cash investment income .................. (9,053) (9,567)
Equity in (earnings) loss of affiliates ..... 430 (4,104)
Dividends received from affiliates .......... 302 2,595
Realized investment gains ................... (16,606) (9,171)
Minority interest expense ................... 6,987 -
Foreign exchange transaction adjustment ..... 777 74
Other ....................................... 1,084 (32)
Change in assets and liabilities (net of
effects of acquiring Guaranty National in
1996 and McGee in 1995):
Decrease in accrued investment income ....... 4,570 220
Decrease (increase) in accounts and notes
receivable ................................ 6,765 (34,961)
Decrease (increase) in reinsurance
recoverables and prepaid reinsurance ...... (55,914) 11,827
Increase in deferred policy acquisition costs (21,704) (9,987)
Increase in other assets .................... (10,893) (4,193)
Increase in losses .......................... 67,611 36,699
Increase in loss adjustment expenses ........ 22,604 25,516
Increase in unearned premiums ............... 64,712 32,538
Increase in policyholders' dividends ........ 1,933 4,951
Increase (decrease) in other liabilities .... (4,691) 10,749
-------- --------
Total adjustments and changes ............. 71,795 59,781
-------- --------
Net cash provided by operating activities ..... $134,616 $110,149
======== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 8
</TABLE>
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months Ended September 30, 1996 and 1995
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 majority-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 1995 annual report on Form 10-K.
Note B - Purchase of Guaranty National Corporation Common Stock
On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National Corporation ("Guaranty National") common stock.
Together with the open-market purchase of 120,000 additional shares on July
17, 1996, the Company has increased its ownership of Guaranty National from
49.5% to 81.0%. The aggregate purchase price, including expenses, of
approximately $88,206,000 was paid in cash.
The purchases of Guaranty National shares were recorded as of June 30,
1996 using the purchase method of accounting. All revenues and expenses of
Guaranty National for 1996 have been consolidated with those of the
Company, and minority interest expense has been recorded for the portion of
Guaranty National's 1996 earnings that was attributable to the shares not
owned by the Company.
The increase in the Company's ownership to over 80% of Guaranty
National allows the inclusion of Guaranty National in Orion's consolidated
federal income tax return, as well as the reversal of a deferred tax
liability previously established by the Company for its share of the
undistributed earnings of Guaranty National. The excess of cost over the
estimated fair value of the 31.5% interest in Guaranty National's net assets
acquired during 1996 was $9,080,000, after the reversal of $21,547,000 of
deferred taxes, and will be amortized over 28 years, which is the remaining
amortization period for goodwill recorded upon Orion's initial investment in
Guaranty National.
Page 9
<PAGE>
Pro forma information as if the Guaranty National shares had been purchased
as of the beginning of each of the nine-month periods ended September 30, 1996
and 1995 is as follows:
Nine Months Ended
September 30,
----------------------
1996 1995
---- ----
(000s omitted)
Total revenues ................................ $1,093,109 $1,016,062
========== ==========
Net earnings .................................. $ 67,763 $ 49,870
========== ==========
Net earnings per common share ................. $ 4.88 $ 3.51
========== ==========
Note C - Investments in Affiliates
Investments in affiliates include the Company's interest in Guaranty
National through December 31, 1995, and the Company's 24.0% interest in
Intercargo Corporation ("Intercargo"), a publicly held company. 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 Intercargo for the three-month and nine-month periods ended
September 30, 1996, and for Guaranty National and Intercargo for the same
periods in 1995, is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(000s omitted)
Revenues:
Premiums earned ................... $ 16,590 $132,780 $ 52,958 $335,359
Realized investment gains ......... - 2,536 - 2,895
Investment and other income ....... 1,306 10,290 4,720 26,893
-------- -------- -------- --------
17,896 145,606 57,678 365,147
-------- -------- -------- --------
Expenses:
Insurance expenses ................ 16,728 148,392 59,508 345,983
Interest and other ................ 125 2,152 624 4,996
-------- -------- -------- --------
16,853 150,544 60,132 350,979
-------- -------- -------- --------
Earnings (loss) before equity in
earnings of affiliate and federal
income taxes ...................... 1,043 (4,938) (2,454) 14,168
Equity in earnings of affiliate ..... 1,108 - 1,660 -
Federal income (taxes) benefit ...... (397) 2,900 25 (1,858)
-------- -------- -------- --------
Net earnings (loss) ................. $ 1,754 $ (2,038) $ (769) $ 12,310
======== ======== ======== ========
The Company's proportionate share ... $ 291 $ (1,713) $ (430) $ 4,104
======== ======== ======== ========
Page 10
<PAGE>
Note D - 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 Nine Months Ended
September 30, September 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
(000s omitted)
Direct premiums written ......... $380,053 $233,536 $1,078,369 $599,400
Reinsurance assumed ............. 41,170 35,177 135,506 99,624
-------- -------- ---------- --------
Gross premiums written .......... 421,223 268,713 1,213,875 699,024
Reinsurance ceded ............... (71,451) (61,169) (218,075) (124,788)
-------- -------- ---------- --------
Net premiums written ............ $349,772 $207,544 $ 995,800 $574,236
======== ======== ========== ========
Direct premiums earned .......... $357,544 $206,261 $1,028,242 $566,509
Reinsurance assumed ............. 41,416 33,162 125,678 99,977
-------- -------- ---------- --------
Gross premiums earned ........... 398,960 239,423 1,153,920 666,486
Reinsurance ceded ............... (66,024) (55,521) (199,473) (120,817)
-------- -------- ---------- --------
Net premiums earned ............. $332,936 $183,902 $ 954,447 $545,669
======== ======== ========== ========
Loss and loss adjustment expenses
recoverable from reinsurers ... $ 55,536 $ 25,067 $ 114,547 $ 57,080
======== ======== ========== ========
Note E - Stockholders' Equity and Earnings Per Common Share
The Company repurchased 218,014 shares of its common stock at an
aggregate cost of $9,844,000 in the first nine months of 1996. The remaining
authorization from the Board of Directors for the Company's stock repurchase
program was $1,008,000 on September 30, 1996. Through October 23, 1996 the
Company has purchased an additional 10,000 common shares for $513,000. The
remaining authorization as of October 23, 1996 is $495,000.
Earnings per common share are computed using the weighted average common
and dilutive common equivalent shares outstanding. The weighted average
common shares amounted to 13,851,000 and 14,220,000 shares for the three
months ended September 30, 1996 and 1995, respectively, and 13,899,000 and
14,200,000 shares for the nine months ended September 30, 1996 and 1995,
respectively.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 have not been recognized pending completion of the IRS
examination. Accordingly, the Company will record as a credit to capital
surplus in the fourth quarter of 1996 tax benefits of $11,900,000 with respect
to the 1976 reorganization. The recording of this credit will have no impact
on the Company's earnings.
Page 11
<PAGE>
Note F - 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 Note J to the 1995 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 September 30, 1996,
and the related consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 1996 and 1995 and the statements of
stockholders' equity and cash flows for the nine-month periods ended September
30, 1996 and 1995. 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, 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
the year then ended; and in our report dated February 21, 1996, we expressed
an unqualified opinion on those consolidated financial statements. The
consolidated statements of earnings and cash flows for the year ended
December 31, 1995 are not presented herein. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31,
1995 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
October 23, 1996
Page 13
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Nine Months Ended September 30, 1996 and 1995
RESULTS OF OPERATIONS
Orion Capital Corporation ("Orion") and its majority-owned subsidiaries
(collectively the "Company") operate principally in the property and casualty
insurance business. The Company reports its insurance operations in three
segments - Regional Operations, Reinsurance/Special Programs and Guaranty
National Companies. Regional Operations provides workers compensation
insurance products through EBI Companies. Reinsurance/Special Programs
includes (i) DPIC Companies ("DPIC"), which markets professional liability
insurance, (ii) Connecticut Specialty, which writes specialty insurance
programs, (iii) SecurityRe Companies ("SecurityRe"), a reinsurer, (iv) Wm. H.
McGee & Co., Inc. ("McGee"), an underwriting management company that
specializes in ocean marine, inland marine and property insurance and (v) a
24.0% interest in Intercargo Corporation ("Intercargo") which underwrites
insurance coverages for international trade. The third segment, Guaranty
National Corporation ("Guaranty National"), specializes in nonstandard
commercial and personal automobile insurance. The miscellaneous income and
expenses of the parent company (primarily interest, general and administrative
expenses and other consolidating elimination entries) are reported as a fourth
segment.
On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National common stock. Together with the open-market
purchase of 120,000 additional shares on July 17, 1996, the Company has
increased its ownership of Guaranty National from 49.5% to 81.0%. The
aggregate purchase price, including expenses, of approximately $88,206,000 was
paid in cash. The Company increased its investment in Guaranty National as
management believes it will provide a favorable investment return and it will
also allow the inclusion of Guaranty National in Orion's consolidated federal
income tax return. The Company's increased ownership percentage allows the
Company's management to become more involved in setting the strategic
direction of Guaranty National.
The purchases of Guaranty National shares were recorded as of June 30,
1996. All revenues and expenses of Guaranty National for 1996 have been
consolidated with those of the Company, and minority interest expense has been
recorded for the portion of Guaranty National's 1996 earnings that was
attributable to the shares not owned by the Company.
Page 14
<PAGE>
Earnings (loss) by segment before federal income taxes and minority
interest expense are summarized as follows for the quarterly and nine-month
periods ended September 30, 1996 and 1995.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(000s omitted)
Regional Operations ................. $12,454 $15,828 $ 42,555 $42,909
Reinsurance/Special Programs ........ 16,201 13,625 40,662 32,798
Guaranty National Corporation ....... 9,778 (2,016) 23,964 3,279
------- ------- -------- -------
Total ............................. 38,433 27,437 107,181 78,986
Other ............................... (4,966) (4,792) (15,929) (13,059)
------- ------- -------- -------
$33,467 $22,645 $ 91,252 $65,927
======= ======= ======== =======
The following table sets forth certain ratios of insurance operating
expenses to premiums earned for the Company.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Loss and loss adjustment expenses ... 67.2% 67.4% 68.6% 68.9%
Policy acquisition costs and other
insurance expenses ................ 30.4 29.4 29.6 28.9
----- ----- ----- -----
Total before policyholders'
dividends ..................... 97.6 96.8 98.2 97.8
Policyholders' dividends ............ 2.2 3.0 1.7 2.5
----- ----- ----- -----
Total after policyholders'
dividends ..................... 99.8% 99.8% 99.9% 100.3%
===== ===== ===== =====
REVENUES
Premiums written and premiums earned
- ------------------------------------
Net premiums written increased 68.5% ($142,228,000) to $349,772,000 in
the third quarter of 1996 versus $207,544,000 in the third quarter of 1995,
and 73.4% ($421,564,000) to $995,800,000 in the first nine months of 1996 from
$574,236,000 in the first three quarters of 1995. The consolidation of
Guaranty National increased the Company's net written premiums by $124,304,000
for the third quarter and $368,659,000 for the first nine months of 1996. The
results by segment are as follows:
- Regional Operations' premiums written increased 6.4% ($5,253,000) to
$87,367,000 in the third quarter of 1996 from $82,114,000 in the third
quarter of 1995 and 10.1% ($24,527,000) to $266,525,000 in the first nine
months of 1996 as compared to $241,998,000 in 1995. Premiums written
increased from business generated by fifteen branch offices which were
opened in 1995 and 1996. The offices were opened in territories where
the Company believes it will benefit from its service-oriented approach.
Page 15
<PAGE>
The increases were partially offset by the impact of legislative reforms
in certain states which have led to lower premium rates and a concomitant
reduction in losses and commission expenses.
- Reinsurance/Special Programs' premiums written increased 10.1%
($12,671,000) to $138,101,000 in the third quarter of 1996 from
$125,430,000 in the 1995 third quarter, and 8.5% ($28,378,000) to
$360,616,000 in the first three quarters of 1996 from $332,238,000 in
1995. Premiums written by DPIC for professional liability insurance, the
largest special program, increased 1.1% ($1,532,000) to $142,544,000 for
the first nine months of 1996 from $141,012,000 for the same period of
1995. Premium volume for Connecticut Specialty increased 16.9%
($22,942,000) to $158,637,000 in the first nine months of 1996 from
$135,695,000 in the 1995 period. The increase resulted from greater
participation by Connecticut Specialty in the underwriting pools managed
by McGee and increased premiums written in low exposure professional
liability programs, offset in part by lower premiums from other marine
coverages. The percentage of treaty and facultative reinsurance premiums
assumed to total net premiums written for Reinsurance/Special Programs
amounted to 16.5% and 16.7% in the first three quarters of 1996 and 1995,
respectively.
- Guaranty National's net written premiums of $124,304,000 for the third
quarter of 1996 and $368,659,000 for the first nine months of the year
have been included in the Company's financial statements. Net written
premiums for Guaranty National were $113,484,000 and $277,805,000 in the
three and nine-month periods ended September 30, 1995, respectively.
Guaranty National's net written premiums for its personal lines,
commercial lines, and collateral protection unit increased 45.1%, 9.7%
and 57.7% for the first nine months of 1996 over the comparable period
for 1995. The increase for personal lines was the result of Guaranty
National's acquisition of Viking Insurance Company of Wisconsin
("Viking") in July 1995. Commercial lines premium increases, which
resulted from the expansion of existing programs and new programs as well
as geographic expansion, were partially offset by a planned reduction in
commercial automobile liability premiums. The increase in the collateral
protection unit was due to geographic expansion in the Northeast and new
products.
Premiums earned increased 81.0% ($149,034,000) to $332,936,000 in the
third quarter of 1996 compared to $183,902,000 in the third quarter of 1995,
and 74.9% ($408,778,000) to $954,447,000 in the first nine months of 1996 from
$545,669,000 in 1995. The 1996 increases were attributable to the inclusion
of Guaranty National's earned premiums of $122,321,000 for the third quarter
and $356,740,000 for the nine-month period, as well as the recognition in
income of increased premium writings from other operations.
Net investment income
- ---------------------
Pre-tax net investment income increased 40.9% ($10,456,000) to
$36,028,000 for the third quarter of 1996 versus $25,572,000 for the third
quarter of 1995, and 44.6% ($32,961,000) to $106,821,000 for the first nine
months of 1996 as compared to $73,860,000 for 1995. The pre-tax yields on the
Page 16
<PAGE>
average investment portfolio were 6.7% for the first nine months of 1996 and
7.2% for the first three quarters of 1995, and the after-tax yields were 5.3%
and 5.6%, respectively. Net investment income increased by $10,062,000 and
$28,906,000 in the three and nine-month periods ended September 30, 1996,
respectively, from the inclusion of Guaranty National in 1996, as well as by
increased earnings on a higher investment base, notwithstanding a growing
portfolio of lower yielding tax-advantaged securities and the cash outlay to
acquire Guaranty National common stock. Net investment income reflects
earnings from limited partnership investments of $3,803,000 and $9,875,000 for
the third quarter and first nine months of 1996, respectively, and $2,750,000
and $7,438,000 for the respective 1995 periods. These increases were
primarily attributable to including Guaranty National's partnership earnings
for 1996. Earnings from limited partnership investments can vary considerably
from quarter to quarter; however, the Company's long-term experience with
these investments has been quite favorable.
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 $1,781,232,000 and $1,235,051,000 at September 30, 1996 and
December 31, 1995, respectively, or approximately 79.0% and 76.9% of the
investment portfolio.
The Company's investment philosophy is to achieve a superior rate of
return after taxes while maintaining a proper balance of safety, liquidity,
maturity and marketability. 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 September 30, 1996 and December 31,
1995, the Company's investments in non-investment grade and unrated fixed
maturity securities were carried at $220,422,000 and $139,075,000 with market
values of $220,814,000 and $139,067,000, respectively. The increases are
primarily attributable to the inclusion of Guaranty National's portfolio in
1996. Non-investment grade and unrated fixed maturity securities represent
a total of 9.8% and 8.7% of cash and investments and 6.6% and 5.6% of total
assets at September 30, 1996 and December 31, 1995, respectively.
Realized investment gains
- -------------------------
Net realized investment gains decreased $405,000 to $5,480,000 in the
third quarter of 1996 from $5,885,000 in 1995's third quarter, and increased
$7,435,000 to $16,606,000 in the first nine months of 1996 versus $9,171,000
in 1995. Realized investment gains in the third quarter of 1995 are net of
Page 17
<PAGE>
a provision of $1,300,000 for losses on securities deemed to be other than
temporarily impaired. No such provision was recorded during the third quarter
of 1996. Provisions for other than temporary impairment were $1,868,000 and
$2,800,000 for the nine-month periods ended September 30, 1996 and 1995,
respectively. 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 67.2% and 68.6% in the third quarter and first nine months
of 1996, respectively, compared to 67.4% and 68.9% in the corresponding
periods of 1995. The Company's efforts to reduce its loss costs have had a
very positive impact on the Company's profitability. Adverse development of
prior years' losses amounted to $6,662,000, including $789,000 from Guaranty
National, in the first nine months of 1996 compared with $12,159,000 excluding
Guaranty National in the first three quarters of 1995. Management believes
that the Company's reserves for losses 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 61.4% in the 1996
third quarter and 60.2% in the 1995 third quarter. In the first nine months
of 1996 the loss ratio was 62.8% as compared to 62.7% in 1995. The increases
in the 1996 loss ratios result from higher initial reserving, offset by
continued favorable loss experience resulting from the success of the
Company's service oriented approach for workers compensation insurance.
The third quarter 1996 and 1995 loss ratios for Reinsurance/Special
Programs amounted to 69.3% and 73.1%, respectively. The loss ratios for the
nine-month periods ended September 30, 1996 and 1995 were 70.7% and 73.5%,
respectively. The improvement in the 1996 loss ratios for this segment is
primarily attributable to lower loss ratios for Connecticut Specialty, where
1995 results were impacted by certain cancelled programs which had unfavorable
loss experience, offset in part by higher initial reserving for DPIC in 1996.
Guaranty National's loss ratio for its personal lines of business
improved to 72.8% for the first nine months of 1996 from 78.1% for the first
three quarters of 1995. The commercial lines year-to-date loss ratio
decreased to 71.4% in 1996 from 77.8% in 1995. The lower loss ratios for 1996
are primarily attributable to Guaranty National having significantly
strengthened its loss reserves for both personal and commercial lines in the
third quarter of 1995 in response to adverse claims trends in the first half
of 1995. Also, personal lines experienced less claims severity in 1996.
Page 18
<PAGE>
The ratio of deferred policy acquisition costs and other insurance
expenses to premiums earned (the "expense ratio") was 29.6% in the first nine
months of 1996 as compared to 28.9% in 1995. The increase in the expense
ratio in 1996 is attributable to the Company's continued investment in
building its loss prevention and claims management competencies as well as the
costs of opening EBI offices in new territories, a change in Connecticut
Specialty's reinsurance providing for lower ceding commissions and the
consolidation of Guaranty National in 1996. The decrease in the ratio of
policyholders' dividends to premiums earned (the "dividend ratio") to 1.7%
during the first nine months of 1996 from 2.5% in 1995 results from the
consolidation of Guaranty National in 1996. The combined ratio was 99.9% in
the first nine months of 1996 and 100.3% for the same period of 1995.
Interest expense
- ----------------
Interest expense increased to $6,165,000 in the third quarter of 1996
versus $4,447,000 in 1995, and to $18,483,000 in the first nine months of 1996
from $11,481,000 in 1995. The 61.0% increase in year-to-date interest expense
is due to the inclusion of interest expense on Guaranty National's
$100,000,000 bank debt for the 1996 periods, and higher average debt
outstanding after the issuance of $100,000,000 of Senior Notes by Orion on
July 17, 1995, offset in part by the extinguishment of Orion's bank debt at
that time.
Other expenses
- --------------
Other expenses were $8,848,000 and $32,003,000 in the three-month and
nine-month periods ended September 30, 1996, respectively, versus $9,954,000
and $15,264,000 in the respective 1995 periods. The year-to-date increases
in both other income and other expenses for 1996 are primarily attributable
to the inclusion of the revenue and expenses of McGee after it was acquired
by the Company on June 30, 1995.
Equity in earnings of affiliates
- --------------------------------
Equity in earnings of affiliates for 1996 consists of earnings recorded
from the Company's investment in Intercargo of $291,000 for the third quarter
and a loss of $430,000 for the first nine months. The Company records its
share of Intercargo's results in the subsequent quarter, and the nine-month
period reflects a loss reported by Intercargo in the fourth quarter of 1995.
Earnings of $303,000 and $825,000 were recorded from the Intercargo investment
in the third quarter and first nine months of 1995, respectively. In 1995
Guaranty National was a non-majority owned affiliate of the Company and was
therefore accounted for using the equity method. Included in equity in net
earnings of affiliates from Guaranty National for 1995 was a third quarter
loss of $2,016,000 and nine-month earnings of $3,279,000. The loss incurred
by Guaranty National in the third quarter of 1995 was due to reserve
strengthening in response to adverse claims trends in the first half of 1995.
Guaranty National became a majority-owned subsidiary in July 1996, and its
results have been consolidated in the Company's financial statements for all
of 1996. Minority interest expense of $1,429,000 for the third quarter and
$6,987,000 for the first nine months of 1996 were recorded for the after-tax
portion of Guaranty National's 1996 earnings attributable to stockholders of
Guaranty National other than the Company.
Page 19
<PAGE>
Federal income taxes
- --------------------
Federal income taxes on pre-tax operating results and the related
effective tax rates amounted to $7,677,000 (23.0%) and $5,388,000 (23.8%) in
the third quarters of 1996 and 1995, respectively. The corresponding amounts
for the first nine months of 1996 and 1995 were $21,444,000 (23.5%) and
$15,559,000 (23.6%), 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.
The liability for deferred taxes established by the Company through June
30, 1996 for its share of Guaranty National's undistributed earnings has been
reversed, resulting in a reduction of $21,547,000 in the amount of goodwill
recorded from the purchase of Guaranty National shares, with no effect on net
income.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased by $24,467,000 for the
first nine months of 1996 from $110,149,000 in 1995 to $134,616,000 in 1996.
The increase is attributable to including Guaranty National's cash flow in the
Company's consolidated financial statements. Cash flow for 1995 included a
disbursement of $7,800,000 under a retrospectively rated program written by
DPIC.
Cash used in investment activities decreased to $93,760,000 for the first
nine months of 1996 from $156,747,000 in 1995. Cash is used in investment
activities primarily for purchases of investments. The purchases are funded
by maturities and sales of investments, as well as by the net cash from
positive operating cash flows after cash provided by or used in financing
activities. In July 1996 the Company purchased Guaranty National common stock
for cash of $86,840,000 plus expenses. In June 1995 Orion paid $22,000,000
in cash plus acquisition costs to acquire McGee.
Cash used in financing activities was $22,914,000 for the first nine
months of 1996 and cash provided by financing activities during the same
period of 1995 was $46,933,000. Orion borrowed $12,000,000 under its bank
line of credit in June 1995 to finance part of the McGee acquisition. In July
1995 Orion issued $100,000,000 of senior debt and repaid all of its
outstanding bank debt. Cash was used in both 1996 and 1995 for dividend
payments, scheduled debt payments and to repurchase Orion's common stock.
Orion increased its quarterly dividend rate by 15% in the third quarter of
1995 and an additional 9% in the first quarter of 1996.
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
Page 20
<PAGE>
stockholder dividends and capital adequacy. 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 terms of Orion's indentures for its $100,000,000 of 7 1/4% Senior
Notes due 2005 and its $110,000,000 of 9 1/8% Senior Notes due 2002 limit the
amount of liens and guaranties by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes. Management does not believe that these limitations unduly restrict the
Company's operations or limit Orion's ability to pay dividends on its stock.
At September 30, 1996, the Company was in compliance with the terms of its
senior note indentures. Management believes that the Company continues to
have substantial sources of capital and liquidity from the capital markets and
bank borrowings.
As of September 30, 1996, Guaranty National has $100,000,000 outstanding
under an agreement with several banks which provides for an unsecured reducing
revolving credit facility. Principal payments are due from April 1998 until
2002. Interest is payable quarterly at interest rates based on the floating
LIBOR rate, plus a margin of 0.5% to 1.0%. Guaranty National hedged
$80,000,000 of these borrowings until 1998 with interest rate swap agreements
which result in a fixed interest rate of approximately 6.5%.
The Company repurchased 218,014 shares of its common stock at an
aggregate cost of $9,844,000 in the first nine months of 1996. The Company's
remaining stock purchase authorization from its Board of Directors amounted
to $1,008,000 at September 30, 1996. Since September 30, 1996, the Company
repurchased an additional 10,000 shares for $513,000. The remaining
authorization as of October 23, 1996 is $495,000.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 have not been recognized pending completion of the IRS
examination. Accordingly, the Company will record as a credit to capital
surplus in the fourth quarter of 1996 tax benefits of $11,900,000 with respect
to the 1976 reorganization. The recording of this credit will have no impact
on the Company's earnings.
Page 21
<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: Letter in Lieu of Consent of Deloitte & Touche
re Unaudited Interim Financial Information
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K, was filed on July 16, 1996 to report the purchase
by Orion and certain of its subsidiaries of 4,600,000 shares of Guaranty
National Corporation ("GNC") common stock on July 2, 1996, at $18.50 per
share, pursuant to an Orion tender offer. The GNC shares acquired, together
with the 7,409,942 shares then already owned by Orion and its subsidiaries,
represented approximately 80.2% of the GNC shares outstanding as of July 2,
1996.
An Amendment No. 1 to the Report on Form 8-K that was filed on July 16,
1996 referred above, was filed on September 13, 1996, to provide the pro forma
financial information required by Regulation S-X with respect to Orion's
increased ownership of GNC's common stock.
A report on Form 8-K was filed by Orion on September 25, 1996 to report
the redemption of Orion's original stockholder rights on September 16, 1996
and the approval by the Orion Board of Directors of the adoption of a new
stockholder rights plan effective as of September 16, 1996.
Page 22
<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: November 4, 1996 By: /s/ Alan R. Gruber
---------------------------------
Chairman of the Board
and Chief Executive Officer
Date: November 4, 1996 By: /s/ Daniel L. Barry
----------------------------------
Vice President and
Chief Financial Officer
Page 23
<PAGE>
EXHIBIT INDEX
Page No.
Exhibit 11: Computation of Earnings 25
Per Common Share
Exhibit 15: Letter in Lieu of Consent of 26
Deloitte & Touche re Unaudited
Interim Financial Information
Exhibit 27: Financial Data Schedule 27
Page 24
<TABLE>
<CAPTION>
EXHIBIT 11
ORION CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
(000s omitted - except for per common share data)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of weighted average number of
common and equivalent shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ............................. 13,664 14,071 13,714 14,069
Dilutive effect of stock options and
stock awards ............................ 187 149 185 131
------- ------- ------- -------
Weighted average number of common and
equivalent shares ....................... 13,851 14,220 13,899 14,200
======= ======= ======= =======
Net earnings attributable to common
stockholders .............................. $24,361 $17,257 $62,821 $50,368
======= ======= ======= =======
Net earnings per common share ............... $ 1.76 $ 1.21 $ 4.52 $ 3.55
======= ======= ======= =======
FULLY DILUTED
Weighted average number of shares
outstanding ............................. 13,664 14,071 13,714 14,069
Dilutive effect of stock options and
stock awards ............................ 194 163 194 139
------- ------- ------- -------
Weighted average number of common and
equivalent shares ....................... 13,858 14,234 13,908 14,208
======= ======= ======= =======
Net earnings attributable to common
stockholders .............................. $24,361 $17,257 $62,821 $50,368
======= ======= ======= =======
Net earnings per common share ............... $ 1.76 $ 1.21 $ 4.52 $ 3.55
======= ======= ======= =======
Page 25
</TABLE>
EXHIBIT 15
October 23, 1996
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 September 30, 1996 and 1995, as
indicated in our report dated October 23, 1996; because we did not
perform an audit, we expressed no opinion on the 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 September 30, 1996,
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. 33-59847 on Form S-8 relating to the
Orion Capital Corporation 1994 Stock Option Plan for Non-Employee
Directors.
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 26
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,132,064
<DEBT-CARRYING-VALUE> 334,734
<DEBT-MARKET-VALUE> 340,061
<EQUITIES> 366,757
<MORTGAGE> 1,214
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,233,468
<CASH> 20,924
<RECOVER-REINSURE> 394,599
<DEFERRED-ACQUISITION> 137,014
<TOTAL-ASSETS> 3,354,324
<POLICY-LOSSES> 1,713,179
<UNEARNED-PREMIUMS> 505,963
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,879
<NOTES-PAYABLE> 311,073
<COMMON> 161,746
0
0
<OTHER-SE> 368,144
<TOTAL-LIABILITY-AND-EQUITY> 3,354,324
954,447
<INVESTMENT-INCOME> 106,821
<INVESTMENT-GAINS> 16,606
<OTHER-INCOME> 17,473
<BENEFITS> 655,018
<UNDERWRITING-AMORTIZATION> 260,270
<UNDERWRITING-OTHER> 37,891
<INCOME-PRETAX> 91,252
<INCOME-TAX> 21,444
<INCOME-CONTINUING> 62,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,821
<EPS-PRIMARY> 4.52
<EPS-DILUTED> 4.52
<RESERVE-OPEN> 1,280,317
<PROVISION-CURRENT> 648,356
<PROVISION-PRIOR> 6,662
<PAYMENTS-CURRENT> 236,857
<PAYMENTS-PRIOR> 369,475
<RESERVE-CLOSE> 1,329,003
<CUMULATIVE-DEFICIENCY> 6,662
</TABLE>
