<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, 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
---- ----
13,766,506 shares of Common Stock, $1.00 par value, of the registrant
were outstanding on May 2, 1996.
Page 1 of 25
Exhibit Index Appears at Page 21
ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 1996
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at March 31, 1996 (Unaudited)
and December 31, 1995 .................................. 3 - 4
Consolidated Statement of Earnings for the three-months
ended March 31, 1996 and 1995 (Unaudited) .............. 5
Consolidated Statement of Stockholders' Equity for the
three-months ended March 31, 1996 and 1995 (Unaudited),
and for the year ended December 31, 1995 ............... 6
Consolidated Statement of Cash Flows for the three-months
ended March 31, 1996 and 1995 (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
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<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(000s omitted)
March 31, 1996 December 31,
(Unaudited) 1995
-------------- ------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $271,265 - 1996 and $276,282 -
1995) .................................. $ 264,664 $ 265,169
Fixed maturities at market (amortized
cost $751,715 - 1996 and $748,008 - 1995) 767,994 782,869
Common stocks at market (cost $103,704 -
1996 and $108,211 - 1995) .............. 153,026 158,895
Non-redeemable preferred stocks at
market (cost $154,804 - 1996 and
$149,167 - 1995) ....................... 151,390 145,990
Other long-term investments .............. 63,992 62,925
Short-term investments ................... 217,291 187,013
---------- ----------
Total investments ..................... 1,618,357 1,602,861
Cash ....................................... 7,298 3,584
Accrued investment income .................. 18,637 19,290
Investments in and advances to affiliates .. 126,221 125,731
Accounts and notes receivable .............. 137,615 137,197
Reinsurance recoverables and prepaid
reinsurance .............................. 382,238 360,052
Deferred policy acquisition costs .......... 82,238 77,673
Property and equipment ..................... 36,032 34,009
Excess of cost over fair value of net
assets acquired .......................... 49,951 50,199
Deferred federal income taxes .............. 16,486 8,726
Other assets ............................... 62,372 54,266
---------- ----------
Total assets .......................... $2,537,445 $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)
March 31, 1996 December 31,
(Unaudited) 1995
-------------- ------------
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ...................................... $1,033,638 $1,007,016
Loss adjustment expenses .................... 271,123 267,966
Unearned premiums ........................... 320,643 302,105
Policyholders' dividends .................... 18,227 18,946
---------- ----------
Total policy liabilities .................. 1,643,631 1,596,033
Federal income taxes payable .................. 22,172 18,910
Notes payable ................................. 209,164 209,148
Other liabilities ............................. 174,686 158,594
---------- ----------
Total liabilities ......................... 2,049,653 1,982,685
---------- ----------
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 ............................... 146,330 146,658
Net unrealized investment gains, net of
federal income taxes of $18,954 -
1996 and $26,691 - 1995 ..................... 48,887 63,255
Net unrealized foreign exchange translation
losses, net of federal income tax benefits of
$405 - 1996 and $540 - 1995 ................. (3,685) (3,935)
Retained earnings ............................. 312,867 298,452
Treasury stock, at cost (1,459,944 shares -
1996 and 1,385,012 shares - 1995) ........... (29,967) (26,534)
Deferred compensation on restricted stock ..... (1,978) (2,331)
---------- ----------
Total stockholders' equity ................ 487,792 490,903
---------- ----------
Total liabilities and stockholders' equity. $2,537,445 $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 March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Premiums earned ............................. $186,932 $175,058
Net investment income ....................... 25,086 23,853
Realized investment gains ................... 3,384 2,560
Other income ................................ 5,685 326
-------- --------
221,087 201,797
-------- --------
Expenses:
Losses incurred ............................. 97,382 94,745
Loss adjustment expenses .................... 29,750 27,852
Amortization of deferred policy acquisition
costs ..................................... 49,357 45,216
Other insurance expenses .................... 5,308 6,064
Dividends to policyholders .................. 3,946 3,316
Interest expense ............................ 4,455 3,562
Other expenses .............................. 10,416 1,921
-------- --------
200,614 182,676
-------- --------
Earnings before equity in earnings of
affiliates and federal income taxes .......... 20,473 19,121
Equity in earnings of affiliates .............. 2,026 3,095
-------- --------
Earnings before federal income taxes .......... 22,499 22,216
Federal income taxes .......................... 4,612 5,154
-------- --------
Net earnings ................................ $ 17,887 $ 17,062
======== ========
Net earnings per common share ............... $ 1.28 $ 1.20
======== ========
<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,
------------------- ------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance ................................ $ 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 ... (328) 22 (1,092)
-------- -------- --------
Balance, end of period ................. $146,330 $147,772 $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 ............... (14,368) 21,654 74,753
-------- -------- --------
Balance, end of period ................. $ 48,887 $ 10,156 $ 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 ..... 250 320 24
-------- -------- --------
Balance, end of period ................. $ (3,685) $ (3,639) $ (3,935)
======== ======== ========
Retained earnings:
Balance, beginning of period ........... $298,452 $242,908 $242,908
Net earnings ........................... 17,887 17,062 67,622
Dividends declared ..................... (3,472) (2,814) (12,078)
-------- -------- --------
Balance, end of period ................. $312,867 $257,156 $298,452
======== ======== ========
Treasury stock:
Balance, beginning of period ........... $(26,534) $(22,451) $(22,451)
Issuance of common stock ............... - 728 770
Exercise of stock options and issuance
(cancellation) of restricted stock ... 453 190 2,330
Acquisition of treasury stock .......... (3,886) - (7,183)
-------- -------- --------
Balance, end of period ................. $(29,967) $(21,533) $(26,534)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of period ........... $ (2,331) $ (2,848) $ (2,848)
(Issuance) cancellation of restricted
stock ................................ 124 (168) (517)
Amortization of deferred compensation on
restricted stock ..................... 229 278 1,034
-------- -------- --------
Balance, end of period ................. $ (1,978) $ (2,738) $ (2,331)
======== ======== ========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 6
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000s omitted)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums collected ........................... $ 196,612 $ 170,978
Net investment income collected .............. 23,431 24,526
Losses and loss adjustment expenses paid ..... (108,010) (105,957)
Policy acquisition costs paid ................ (61,000) (51,027)
Dividends paid to policyholders .............. (4,665) (2,948)
Interest paid ................................ (8,610) (5,977)
Federal income tax payments .................. (1,367) (1,502)
Other payments ............................... (5,139) (1,978)
--------- ---------
Net cash provided by operating activities .. 31,252 26,115
--------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments ..... 10,981 17,349
Sales of fixed maturity investments .......... 63,957 22,172
Sales of equity securities ................... 18,924 8,560
Investments in fixed maturities .............. (67,861) (36,825)
Investments in equity securities ............. (17,004) (17,494)
Net purchases of short-term investments ...... (27,106) (17,814)
Other payments ............................... (2,624) (639)
--------- ---------
Net cash used in investing activities ...... (20,733) (24,691)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable ................... - (2,500)
Dividends paid to stockholders ............... (3,213) (2,809)
Purchases of common stock .................... (3,417) -
Other payments ............................... (12) (16)
--------- ---------
Net cash used in financing activities ...... (6,642) (5,325)
--------- ---------
Effect of foreign exchange rate changes on
cash ..................................... (163) -
--------- ---------
Net increase (decrease) in cash ............ 3,714 (3,901)
Cash balance, beginning of period ............ 3,584 6,201
--------- ---------
Cash balance, end of period .................. $ 7,298 $ 2,300
========= =========
<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,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings .................................. $ 17,887 $ 17,062
-------- --------
Adjustments:
Depreciation and amortization ............... 1,508 1,266
Amortization of excess of cost over fair
value of net assets acquired .............. 491 293
Deferred federal income taxes ............... (158) 1,488
Amortization of fixed maturity investments .. (673) 503
Non-cash investment income .................. (2,594) (2,417)
Equity in earnings of affiliates ............ (2,026) (3,095)
Dividends received from affiliates .......... 1,053 887
Realized investment gains ................... (3,384) (2,560)
Foreign exchange translation adjustment ..... 544 -
Other ....................................... (12) (10)
Change in assets and liabilities:
Decrease in accrued investment income ....... 663 1,598
Increase in accounts and notes receivable ... (418) (9,660)
Decrease (increase) in reinsurance
recoverables and prepaid reinsurance ...... (22,186) 11,016
Increase in deferred policy acquisition costs (4,565) (1,246)
Decrease (increase) in other assets ......... 4,284 (9,185)
Increase in losses .......................... 26,622 3,207
Increase in loss adjustment expenses ........ 3,157 7,974
Increase in unearned premiums ............... 18,538 987
Increase (decrease) in policyholders'
dividends ................................. (719) 368
Increase (decrease) in other liabilities .... (6,760) 7,639
-------- --------
Total adjustments and changes ............. 13,365 9,053
-------- --------
Net cash provided by operating activities ..... $ 31,252 $ 26,115
======== ========
<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, 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 - Investment in Affiliates
As of March 31, 1996 the Company owned 49.5% of the common stock of
Guaranty National Corporation ("Guaranty National"), and 20.7% 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,
1996 and 1995 is as follows:
Three Months Ended
March 31,
------------------
1996 1995
---- ----
(000s omitted)
Revenues:
Premiums earned ................................. $137,098 $ 99,459
Realized investment gains ....................... 1,981 569
Investment and other income ..................... 11,504 8,041
-------- --------
150,583 108,069
-------- --------
Expenses:
Insurance expenses .............................. 145,320 96,938
Interest and other .............................. 2,290 1,360
-------- --------
147,610 98,298
-------- --------
Earnings before federal income taxes .............. 2,973 9,771
Federal income taxes .............................. 825 2,349
-------- --------
Net earnings ...................................... $ 2,148 $ 7,422
======== ========
The Company's proportionate share ................. $ 2,026 $ 3,095
======== ========
Page 9
<PAGE>
The Company's investments in and advances to affiliates were as follows:
March 31, December 31,
1996 1995
--------- ------------
(000s omitted)
Book value ................................ $126,221 $125,731
Market value .............................. 136,127 128,120
Guaranty National shares held ............. 7,410 7,340
- Book value of shares held ............. $106,865 $106,059
- Market value of shares held ........... 122,264 112,855
Intercargo shares held .................... 1,584 1,526
- Book value of shares held ............. $ 19,356 $ 19,672
- Market value of shares held ........... 13,863 15,265
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,
----------------------------
1996 1995
---- ----
(000s omitted)
Direct premiums written .................. $222,657 $175,155
Reinsurance assumed ...................... 39,393 30,569
-------- --------
Gross premiums written ................... 262,050 205,724
Reinsurance ceded ........................ (64,717) (29,632)
-------- --------
Net premiums written ..................... $197,333 $176,092
======== ========
Direct premiums earned ................... $209,654 $173,320
Reinsurance assumed ...................... 33,858 31,416
-------- --------
Gross premiums earned .................... 243,512 204,736
Reinsurance ceded ........................ (56,580) (29,678)
-------- --------
Net premiums earned ...................... $186,932 $175,058
======== ========
Loss and loss adjustment expenses incurred
recoverable from reinsurers ............ $ 23,011 $ 11,013
======== ========
Page 10
<PAGE>
Note D - Stockholders' Equity and Earnings Per Common Share
The Company repurchased 84,811 shares of its common stock at an aggregate
cost of $3,886,000 in the first three months of 1996. On March 29, 1996, the
Board of Directors authorized an additional $5,000,000 for the stock
repurchase program. Since March 31, 1996, the Company repurchased an
additional 104,100 shares for $4,646,000. The remaining authorization as of
April 29, 1996 is $2,087,000.
Earnings per common share is computed using the weighted average common
and dilutive common equivalent shares outstanding for the three months ended
March 31, 1996 and 1995. The weighted average common and equivalent shares
amounted to 13,997,000 and 14,183,000 shares for the quarters ended March 31,
1996 and 1995, respectively.
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 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 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, 1996,
and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the three-month periods ended March 31, 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
April 29, 1996
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, 1996 and 1995
RESULTS OF OPERATIONS
Orion Capital Corporation ("Orion") and its wholly-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 20.7%
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, 1996 and
1995:
Three Months Ended
March 31,
------------------
1996 1995
---- ----
(000s omitted)
Regional Operations ............................... $12,815 $14,483
Reinsurance/Special Programs ...................... 11,947 9,219
Guaranty National Corporation ..................... 2,866 2,876
------- -------
27,628 26,578
Other ............................................. (5,129) (4,362)
------- -------
Total ........................................... $22,499 $22,216
======= =======
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,
------------------
1996 1995
---- ----
Loss and loss adjustment expenses ................. 68.0% 70.0%
Policy acquisition costs and other insurance
expenses ........................................ 29.3 29.3
----- -----
Total before policyholders' dividends ......... 97.3 99.3
Policyholders' dividends .......................... 2.1 1.9
----- -----
Total after policyholders' dividends .......... 99.4% 101.2%
===== =====
REVENUES
Premiums written and premiums earned
- ------------------------------------
Net premiums written increased 12.1% ($21,241,000) to $197,333,000
in the first quarter of 1996 from $176,092,000 in the first quarter of
1995. The results by segment are as follows:
- Regional Operations' premiums written increased 16.3% ($12,811,000)
from $78,794,000 in the first quarter of 1995 to $91,605,000 in the
first quarter of 1996. Premiums written was increased by the
opening of eight new offices since last year's first quarter,
including five 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 concomitant
reduction in losses and commission expenses. The increase in this
segment was also mitigated by a shift towards high-deductible
workers compensation products, which also have lower premium rates.
- Reinsurance/Special Programs' premiums written during the first
quarter of 1996 increased 8.7% ($8,430,000) from $97,298,000 in the
first quarter of 1995 to $105,728,000 in the 1996 first quarter.
Premiums written by DPIC for professional liability insurance, the
largest special program, increased 16.1% ($6,141,000) to $44,228,000
in 1996's first quarter from $38,087,000 for the first quarter of
1995. The increase is primarily attributable to growth in DPIC's
programs for architects and engineers. Premium volume for
Connecticut Specialty increased 8.4% ($3,394,000) to $43,783,000 in
the first quarter of 1996 from $40,389,000 in the 1995 period. The
increase is the result of increased participation in the
underwriting pools managed by McGee, offset in part by lower
premiums from transportation coverages. The percentage of treaty
and facultative reinsurance premiums assumed to total net premiums
written for Reinsurance/Special Programs decreased to 16.8% in the
first quarter of 1996 from 19.3% in the first quarter of 1995.
Page 14
<PAGE>
Premiums earned increased 6.8% ($11,874,000) to $186,932,000 in the
first quarter of 1996 compared to $175,058,000 in the first quarter of
1995. Premiums earned reflects the recognition in income of the changing
levels of net premium writings.
Net investment income
- ---------------------
Pre-tax net investment income increased $1,233,000 to $25,086,000
for the first quarter of 1996 from $23,853,000 for the first quarter of
1995. The pre-tax yields on the average investment portfolio were 6.6%
for the first quarter of 1996 and 7.1% for the first quarter of 1995 and
the after-tax yields were 5.2% and 5.5%, respectively. The increase in
net investment income reflects increased earnings on a higher investment
base, notwithstanding a growing portfolio of lower yielding tax-
advantaged investments. The increase in net investment income also
reflects earnings from limited partnership investments of $2,402,000 for
the first quarter of 1996 as compared to $2,175,000 for the 1995 period.
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 $1,249,949,000 and $1,235,051,000,
or approximately 76.9% of the Company's cash and investments at March 31,
1996 and December 31, 1995, respectively.
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 March 31, 1996 and December 31, 1995, the Company's
investments in non-investment grade and unrated fixed maturity securities
were carried at $141,995,000 and $139,075,000 with market values of
$142,059,000 and $139,067,000, respectively. These investments
represented 8.7% of cash and investments and 5.6% of total assets at both
March 31, 1996 and December 31, 1995.
Page 15
<PAGE>
Realized investment gains
- -------------------------
Net realized investment gains increased $824,000 to $3,384,000 in
the first quarter of 1996 from $2,560,000 in the first quarter of 1995.
Realized investment gains in the first quarters of 1996 and 1995 are net
of $1,034,000 and $500,000, 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 68.0% in the 1996 first quarter compared to 70.0%
in the same period of 1995. The decrease in the loss ratio from the
first quarter of 1995 to the first quarter of the current year was
attributable to lower loss ratios in the Reinsurance Special Programs
segment. Adverse development of prior years' losses amounted to
$1,359,000 in the first quarter of 1996, compared with $4,344,000 in the
1995 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 65.8% in the
1996 first quarter versus 63.0% in the 1995 first quarter. The higher
loss ratio for 1996 is primarily attributable to higher initial
reserving.
The first quarter 1996 and 1995 loss ratios for Reinsurance/Special
Programs amounted to 70.0% and 75.2%, respectively. The improvement in
this segment is attributable in large part to lower loss ratios for
Connecticut Specialty, where results were impacted in 1995 by certain
programs cancelled in the second half of 1994 which had unfavorable loss
experience.
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 1996 and 1995. The ratio of policyholders' dividends to
premiums earned (the "dividend ratio") was 2.1% in 1996 and 1.9% in 1995.
The combined ratio was 99.4% in the first quarter of 1996 and 101.2% for
the same period of 1995.
Page 16
<PAGE>
Interest expense
- ----------------
Interest expense increased to $4,455,000 in the first quarter of
1996 versus $3,562,000 in 1995. The increase of 25.1% is due to higher
average debt outstanding after the issuance of $100,000,000 of Senior
Notes by Orion on July 17, 1995.
Other Expenses
- --------------
Other expenses were $10,416,000 in the first quarter of 1996 versus
$1,921,000 for the first three months of 1995. The increases in both
other income and other expenses for 1996 are primarily attributable to
the inclusion of McGee's revenue and expenses after it was acquired by
the Company on June 30, 1995.
Equity in earnings of affiliates
- --------------------------------
Equity in earnings of affiliates includes the Company's portion of
earnings from Guaranty National and Intercargo. A loss of $840,000 was
recorded from the Intercargo investment in the first quarter of 1996
versus earnings of $219,000 recorded in 1995's first quarter. The
Company records its share of Intercargo's results in the subsequent
quarter, and the current period reflects the loss reported by Intercargo
for the fourth quarter of 1995. The Company's portion of Guaranty
National's net earnings was $2,866,000 for the first quarter of 1996 and
$2,876,000 for the first quarter of 1995, based on Guaranty National's
earnings of $5,787,000 and $5,768,000 for the respective periods.
Guaranty National's gross premiums written increased to $137,039,000 for
the first three months of 1996 from $94,578,000 for the 1995 period.
Guaranty National's overall combined ratio was 101.6% and 97.7% in the
first quarters of 1996 and 1995, respectively. The increase in gross
premiums written in 1996 is primarily attributable to the acquisition of
Viking Insurance Holdings, Inc. by Guaranty National in July 1995.
Federal income taxes
- --------------------
Federal income taxes on pre-tax operating results and the related
effective tax rates amounted to $4,612,000 (20.5%) and $5,154,000 (23.2%)
in the first quarters of 1996 and 1995, 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 lower tax
rate for 1996 versus 1995 results from the increased level of tax-
advantaged investments in the Company's portfolio.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased by $5,137,000 to
$31,252,000 in 1996 from $26,115,000 in 1995. The increase in operating
cash flow for 1996 was the result of higher premiums collected, offset in
part by increases in policy acquisition costs, interest, paid losses and
policyholders' dividends. Cash flow for 1995's first quarter included a
disbursement of $7,800,000 under a retrospectively rated program written
by DPIC.
Page 17
<PAGE>
Cash used in investment activities decreased to $20,733,000 in 1996
from $24,691,000 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.
Cash used in financing activities was $6,642,000 and $5,325,000 for
the first quarters of 1996 and 1995, respectively. Cash was used for the
Company's stock repurchase program in 1996, a scheduled debt repayment in
1995 and for dividend payments in both years. The Company 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 received 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. 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 $168,348,000 and $123,457,000 at March 31, 1996 and
December 31, 1995, respectively. Orion's insurance subsidiaries had
consolidated policyholders' surplus of $548,885,000 at March 31, 1996 and
$521,510,000 at December 31, 1995, and statutory operating leverage
ratios of trailing twelve months' net premiums written to policyholders'
surplus of 1.4:1 at March 31, 1996 and 1.5:1 at December 31, 1995.
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 March 31, 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.
The Company repurchased 84,811 shares of its common stock at an
aggregate cost of $3,886,000 in the first three months of 1996. On March
29, 1996, the Board of Directors authorized an additional $5,000,000 for
the stock repurchase program. The Company's remaining stock purchase
authorization from its Board of Directors amounted to $6,733,000 at March
31, 1996. Between April 1 and April 29, 1996, the Company repurchased an
additional 104,100 shares for $4,646,000, reducing the remaining
authorization to $2,087,000.
Page 18
<PAGE>
PART II OTHER INFORMATION
Items 1 - 5.
- ------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
Exhibit 11: Computation of Earnings Per Common Share.
Exhibit 15: Deloitte & Touche Letter re unaudited
interim financial information.
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 2, 1996 By: /s/ Alan R. Gruber
----------------------------
Chairman of the Board
and Chief Executive Officer
Date: May 2, 1996 By: /s/ Daniel L. Barry
--------------------------------
Vice President, Chief Financial
Officer and Controller
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
<PAGE>
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,
----------------------------
1996 1995
---- ----
Computation of weighted average
number of common and equivalent
shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ............................. 13,815 14,066
Dilutive effect of stock options and stock
awards .................................. 182 117
------- -------
Weighted average number of common and
equivalent shares ....................... 13,997 14,183
======= =======
Net earnings attributable to common
stockholders ............................ $17,887 $17,062
======= =======
Net earnings per common share ............. $ 1.28 $ 1.20
======= =======
FULLY DILUTED -
Weighted average number of shares
outstanding ............................. 13,815 14,066
Dilutive effect of stock options and stock
awards .................................. 182 117
------- -------
Weighted average number of common and
equivalent shares ....................... 13,997 14,183
======= =======
Net earnings attributable to common
stockholders ............................ $17,887 $17,062
======= =======
Net earnings per common share ............. $ 1.28 $ 1.20
======= =======
Page 22
EXHIBIT 15
April 29, 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 March 31, 1996 and 1995, as indicated in our report dated April
29, 1996; 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, 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.
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, 1996, 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-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 767,994
<DEBT-CARRYING-VALUE> 264,664
<DEBT-MARKET-VALUE> 271,265
<EQUITIES> 304,416
<MORTGAGE> 1,598
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,618,357
<CASH> 7,298
<RECOVER-REINSURE> 305,576
<DEFERRED-ACQUISITION> 82,238
<TOTAL-ASSETS> 2,537,445
<POLICY-LOSSES> 1,304,761
<UNEARNED-PREMIUMS> 320,643
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 18,227
<NOTES-PAYABLE> 209,164
<COMMON> 161,668
0
0
<OTHER-SE> 326,124
<TOTAL-LIABILITY-AND-EQUITY> 2,537,445
186,932
<INVESTMENT-INCOME> 25,086
<INVESTMENT-GAINS> 3,384
<OTHER-INCOME> 5,685
<BENEFITS> 127,132
<UNDERWRITING-AMORTIZATION> 49,357
<UNDERWRITING-OTHER> 9,254
<INCOME-PRETAX> 22,499
<INCOME-TAX> 4,612
<INCOME-CONTINUING> 17,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,887
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<RESERVE-OPEN> 993,978
<PROVISION-CURRENT> 125,773
<PROVISION-PRIOR> 1,359
<PAYMENTS-CURRENT> 19,006
<PAYMENTS-PRIOR> 89,004
<RESERVE-CLOSE> 1,013,100
<CUMULATIVE-DEFICIENCY> 1,359
</TABLE>
