<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 September 30, 1997
( ) 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)
9 Farm Springs Road
Farmington, Connecticut 06032
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 674-6600
--------------
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
---- ----
27,562,292 shares of Common Stock, $1.00 par value, of the registrant
were outstanding on November 4, 1997
Page 1 of 28
Exhibit Index Appears at Page 24
<PAGE>
ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended September 30, 1997
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1997
(Unaudited) and December 31, 1996 .................... 3 - 4
Consolidated Statement of Earnings for the three
and nine-month periods ended September 30, 1997
and 1996 (Unaudited) ................................. 5
Consolidated Statement of Stockholders' Equity for
the nine-month periods ended September 30, 1997
and 1996 (Unaudited), and for the year ended
December 31, 1996 .................................... 6
Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 1997 and 1996 (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 - 22
PART II. OTHER INFORMATION ................................ 23
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(000s omitted)
September 30, 1997 December 31,
(Unaudited) 1996
------------------ -------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $327,661 - 1997 and $334,755 -
1996) .................................. $ 318,614 $ 326,841
Fixed maturities at market (amortized
cost $1,358,878 - 1997 and
$1,169,812 - 1996) ..................... 1,424,615 1,205,308
Common stocks at market (cost $134,406 -
1997 and $136,631 - 1996) .............. 232,267 209,281
Non-redeemable preferred stocks at
market (cost $185,665 - 1997 and
$151,439 - 1996) ....................... 200,498 152,312
Other long-term investments .............. 89,402 90,129
Short-term investments ................... 352,135 325,896
--------- ---------
Total investments ...................... 2,617,531 2,309,767
Cash ....................................... 2,529 11,607
Accrued investment income .................. 28,049 25,724
Investment in affiliate .................... 23,347 22,170
Accounts and notes receivable .............. 184,317 181,495
Reinsurance recoverables and prepaid
reinsurance .............................. 521,878 517,209
Deferred policy acquisition costs .......... 145,377 136,168
Property and equipment ..................... 70,893 68,763
Excess of cost over fair value of net
assets acquired .......................... 78,948 81,198
Deferred federal income taxes .............. - 23,554
Other assets ............................... 88,303 86,702
---------- ----------
Total assets .......................... $3,761,172 $3,464,357
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 3
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(000s omitted - except for share data)
September 30, 1997 December 31,
(Unaudited) 1996
------------------ -------------
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ...................................... $1,407,831 $1,421,920
Loss adjustment expenses .................... 397,226 363,744
Unearned premiums ........................... 508,910 496,249
Policyholders'dividends ..................... 21,286 22,489
---------- ----------
Total policy liabilities ................ 2,335,253 2,304,402
Notes payable ............................... 310,395 310,904
Other liabilities ........................... 251,678 227,087
---------- ----------
Total liabilities ........................ 2,897,326 2,842,393
---------- ----------
Contingencies (Note F)
Minority interest in subsidiary ............... 54,142 45,231
---------- ----------
Company-obligated mandatorily redeemable
capital securities of subsidiary trust
holding solely the Junior Subordinated
Debentures of Orion ......................... 125,000 -
---------- ----------
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares-
issued and outstanding - none
Common stock, $1 par value; authorized
50,000,000 shares; issued 30,675,300 shares 30,675 15,338
Capital surplus ............................. 143,667 158,587
Net unrealized investment gains, net of
federal income taxes of $53,891 - 1997 and
$31,674 - 1996 ............................ 114,999 72,260
Net unrealized foreign exchange translation
losses, net of federal income taxes of
$206 - 1997 and $414 - 1996 ............... (3,316) (2,164)
Retained earnings ........................... 437,505 370,793
Treasury stock, at cost(3,103,829 shares -
1997 and 3,138,230 shares - 1996) ......... (34,846) (34,980)
Deferred compensation on restricted stock ... (3,980) (3,101)
---------- ----------
Total stockholders' equity .............. 684,704 576,733
---------- ----------
Total liabilities and stockholders equity.... $3,761,172 $3,464,357
========== ==========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
Page 4
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(000s omitted - except for per common share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premiums earned ........................... $347,450 $332,936 $1,006,639 $ 954,447
Net investment income ..................... 40,754 36,028 122,291 106,821
Realized investment gains ................. 5,152 5,480 29,299 16,606
Other income .............................. 5,014 5,940 15,133 17,473
-------- -------- ---------- ----------
398,370 380,384 1,173,362 1,095,347
-------- -------- ---------- ----------
Expenses:
Losses incurred ........................... 177,293 175,729 520,840 518,533
Loss adjustment expenses .................. 51,792 47,979 152,941 136,485
Amortization of deferred policy
acquisition costs ....................... 99,490 95,021 287,565 260,270
Other insurance expenses .................. 9,491 6,329 26,110 21,862
Dividends to policyholders ................ 7,950 7,137 17,818 16,029
Interest expense .......................... 6,196 6,165 18,498 18,483
Other expenses ............................ 8,470 8,848 30,132 32,003
-------- -------- ---------- ----------
360,682 347,208 1,053,904 1,003,665
-------- -------- ---------- ----------
Earnings before equity in earnings (loss)
of affiliate, federal income taxes and
minority interest expense ................. 37,688 33,176 119,458 91,682
Equity in earnings (loss) of affiliate....... 385 291 1,294 (430)
-------- -------- ---------- ----------
Earnings before federal income taxes and
minority interest expense .................. 38,073 33,467 120,752 91,252
Federal income taxes ........................ 9,728 7,677 30,519 21,444
Minority interest expense:
Subsidiary net earnings .................... 2,045 1,429 5,764 6,987
Subsidiary trust preferred securities,net of
federal income taxes ..................... 1,774 - 5,084 -
-------- -------- ---------- ----------
Net earnings............................... $ 24,526 $ 24,361 $ 79,385 $ 62,821
======== ======== ========== ==========
Net earnings per common share ............. $ .88 $ .88 $ 2.85 $ 2.26
======== ======== ========== ==========
<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,
------------------- ------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance, beginning of period ................ $ 15,338 $ 15,338 $ 15,338
Stock issued in 2-for-1 common stock split .. 15,337 - -
-------- -------- --------
Balance, end of period ...................... $ 30,675 $ 15,338 $ 15,338
======== ======== ========
Capital surplus:
Balance, beginning of period ................ $158,587 $146,658 $146,658
Exercise of stock options and issuance/
(cancellation) of restricted stock ........ 417 (250) 29
Recognition of pre-reorganization
federal income tax benefits ............... - - 11,900
Stock issued in 2-for-1 common stock split .. (15,337) - -
-------- -------- --------
Balance, end of period ...................... $143,667 $146,408 $158,587
======== ======== ========
Net unrealized investment gains:
Balance, beginning of period ................ $ 72,260 $ 63,255 $ 63,255
Change in unrealized investment gains,
net of taxes .............................. 42,739 (5,430) 9,005
-------- -------- --------
Balance, end of period ...................... $114,999 $ 57,825 $ 72,260
======== ======== ========
Net unrealized foreign exchange translation
losses:
Balance, beginning of period ................ $ (2,164) $ (3,935) $ (3,935)
Change in unrealized foreign exchange
translation losses, net of taxes .......... (1,152) 225 1,771
-------- -------- --------
Balance, end of period ...................... $ (3,316) $ (3,710) $ (2,164)
======== ======== ========
Retained earnings:
Balance, beginning of period ................ $370,793 $298,452 $298,452
Net earnings ................................ 79,385 62,821 86,631
Dividends declared .......................... (12,673) (10,436) (14,290)
-------- -------- --------
Balance, end of period ...................... $437,505 $350,837 $370,793
======== ======== ========
Treasury stock:
Balance, beginning of period ................ $(34,980) $(26,534) $(26,534)
Exercise of stock options and issuance/
(cancellation) of restricted stock......... 1,667 1,049 2,702
Acquisition of treasury stock ............... (1,533) (9,844) (11,148)
-------- -------- --------
Balance, end of period ...................... $(34,846) $(35,329) $(34,980)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of period ................ $ (3,101) $ (2,331) $ (2,331)
(Issuance)/cancellation of restricted stock.. (1,557) (109) (1,827)
Amortization of deferred compensation on
restricted stock .......................... 678 961 1,057
-------- -------- --------
Balance, end of period ...................... $ (3,980) $ (1,479) $ (3,101)
======== ======== ========
<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,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums collected .......................... $1,034,590 $1,000,285
Net investment income collected ............. 104,396 101,007
Losses and loss adjustment expenses paid .... (658,402) (606,332)
Policy acquisition costs paid ............... (307,241) (295,984)
Dividends paid to policyholders ............. (19,021) (14,096)
Interest paid ............................... (22,196) (22,290)
Federal income tax payments ................. (23,176) (22,337)
Payments to minority interest shareholders
of subsidiary trust preferred securities... (5,092) -
Other payments............................... (26,089) (5,637)
---------- ----------
Net cash provided by operating activities.. 77,769 134,616
---------- ----------
Cash flows from investing activities:
Maturities of fixed maturity investments .... 107,403 122,620
Sales of fixed maturity investments ......... 231,938 179,067
Sales of equity securities .................. 134,086 109,522
Investments in fixed maturities ............. (509,370) (275,937)
Investments in equity securities ............ (135,931) (60,193)
Purchase of Guaranty National common stock .. - (88,493)
Effect on cash of consolidating Guaranty
National .................................. - 6,794
Net purchases of short-term investments ..... (26,558) (71,023)
Purchase of property and equipment .......... (11,602) (10,782)
Other receipts (payments).................... 13,736 (5,941)
---------- ----------
Net cash used in investing activities ..... (196,298) (94,366)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of trust preferred
securities ................................ 123,036 -
Proceeds from exercise of stock options ..... 383 42
Dividends paid to stockholders .............. (12,169) ( 10,121)
Dividends paid to minority stockholders ..... (1,105) (2,308)
Repayment of notes payable .................. (563) (1,125)
Purchases of common stock ................... (1,415) (9,439)
Other receipts .............................. 1,299 37
---------- ----------
Net cash provided by (used in) financing
activities .............................. 109,466 (22,914)
---------- ----------
Effect of foreign exchange rate changes on cash (15) 4
---------- ----------
Net (decrease) increase in cash ........... (9,078) 17,340
Cash balance, beginning of period ............. 11,607 3,584
---------- ----------
Cash balance, end of period ................... $ 2,529 $ 20,924
========== ==========
<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,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings .................................. $ 79,385 $ 62,821
-------- --------
Adjustments:
Depreciation and amortization ............... 9,376 8,313
Amortization of excess of cost over fair
value of net assets acquired .............. 2,251 2,329
Deferred federal income taxes ............... 348 4,653
Amortization of fixed maturity investments .. (1,703) (2,414)
Non-cash investment income .................. (13,354) (9,053)
Equity in (earnings) loss of affiliate ...... (1,294) 430
Dividends received from affiliate ........... 342 302
Realized investment gains ................... (29,299) (16,606)
Minority interest expense in subsidiary
net earnings............................... 5,764 6,987
Foreign exchange translation adjustment ..... 332 777
Other ....................................... 115 1,084
Change in assets and liabilities(net of effects
of consolidating Guaranty National in 1996):
(Increase) decrease in accrued
investment income ......................... (2,325) 4,570
(Increase) decrease in accounts and notes
receivable ................................ (2,822) 6,765
Increase in reinsurance recoverables and
prepaid reinsurance ....................... (4,669) (55,914)
Increase in deferred policy acquisition costs (9,209) (21,704)
Increase in other assets .................... (8,229) (10,893)
(Decrease) increase in losses................ (14,089) 67,611
Increase in loss adjustment expenses......... 33,482 22,604
Increase in unearned premiums ............... 12,661 64,712
(Decrease) increase in policyholders'
dividends ................................. (1,203) 1,933
Increase (decrease) in other liabilities..... 21,909 (4,691)
-------- --------
Total adjustments and changes ............. (1,616) 71,795
-------- --------
Net cash provided by operating activities ..... $ 77,769 $134,616
======== ========
<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, 1997 and 1996
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 investment in its unconsolidated
affiliate is 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 1996 annual report on Form 10-K.
Note B - Investments in Affiliate
As of September 30, 1997 the Company owned 24.8% of the common stock of
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, 1997 and 1996 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
(000s omitted)
Revenues:
Premiums earned .................... $13,835 $ 16,590 $43,917 $ 52,958
Investment and other income ........ 1,305 1,306 6,312 4,720
-------- -------- -------- --------
15,140 17,896 50,229 57,678
-------- -------- -------- --------
Expenses:
Insurance expenses ................. 14,067 16,728 45,394 59,508
Interest ........................... 190 125 639 624
-------- -------- -------- --------
14,257 16,853 46,033 60,132
-------- -------- -------- --------
Earnings (loss) before equity in
earnings of affiliate and federal
income taxes ....................... 883 1,043 4,196 (2,454)
Equity in earnings of affiliate ...... 1,437 1,108 3,389 1,660
Federal income tax (expense) benefit.. ( 276) (397) (883) 25
-------- -------- -------- --------
Net earnings (loss) .................. $ 2,044 $ 1,754 $ 6,702 $ (769)
======== ======== ======== ========
The Company's proportionate share,
including amortization of goodwill.. $ 385 $ 291 $ 1,294 $ (430)
======== ======== ======== ========
Page 9
<PAGE>
Note C - Reinsurance
In the normal course of business, the Company's insurance subsidiaries
reinsure certain risks, generally on an excess-of-loss or pro rata basis, with
other companies to limit exposure to losses. Reinsurance does not discharge
the primary liability of the original insurer. The table below summarizes
certain reinsurance information:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------------
1997 1996 1997 1996
---- ---- ---- ----
(000s omitted)
Direct premiums written ......... $394,318 $380,053 $1,142,611 $1,078,369
Reinsurance assumed ............. 18,744 41,170 73,972 135,506
-------- -------- ---------- ----------
Gross premiums written .......... 413,062 421,223 1,216,583 1,213,875
Reinsurance ceded ............... (61,569) (71,451) (190,631) (218,075)
-------- -------- ---------- ----------
Net premiums written ............ $351,493 $349,772 $1,025,952 $ 995,800
======== ======== ========== ==========
Direct premiums earned .......... $378,999 $357,544 $1,113,156 $1,028,242
Reinsurance assumed ............. 27,034 41,416 89,598 125,678
-------- -------- ---------- ----------
Gross premiums earned ........... 406,033 398,960 1,202,754 1,153,920
Reinsurance ceded ............... (58,583) (66,024) (196,115) (199,473)
-------- -------- ---------- ----------
Net premiums earned ............. $347,450 $332,936 $1,006,639 $ 954,447
======== ======== ========== ==========
Loss and loss adjustment expenses
recoverable from reinsurers ... $ 56,477 $ 55,536 $ 130,669 $ 114,547
======== ======== ========== ==========
Note D - Trust Preferred Securities
On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion. The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures. The Trust Preferred
Securities are subordinate to all liabilities of the Company, and may be
redeemed without premium on or after January 1, 2007. Orion registered the
Trust Preferred Securities under the Securities Act of 1933 in April 1997.
The Trust is wholly-owned by Orion and the sole assets of the Trust are
the Debentures issued by Orion. Orion has provided a full and unconditional
guaranty of the Trust's obligations under the Trust Preferred Securities,
including all costs, expenses, debts and liabilities of the Trust.
Page 10
<PAGE>
Note E - Stockholders' Equity and Earnings Per Common Share
On June 5, 1997 the Company declared a 2-for-1 split of its common stock
payable on July 7, 1997 to shareholders of record on June 23, 1997. All
common stock and per common share data presented in these financial statements
have been restated to give effect to this stock split.
The Company repurchased 42,916 shares of its common stock at an aggregate
cost of $1,533,000 in the first nine months of 1997. The remaining
authorization from the Board of Directors for the Company's stock repurchase
program was $3,169,000 on September 30, 1997.
Earnings per common share are computed using the weighted average common
and dilutive common equivalent shares outstanding. The weighted average
common shares amounted to 27,881,000 and 27,702,000 shares for the three
months ended September 30, 1997 and 1996, respectively, and 27,828,000 and
27,798,000 shares for the nine months ended September 30, 1997 and 1996,
respectively.
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 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.
On September 18, 1997, a complaint naming the Company, Guaranty National
Corporation and Guaranty National's Directors, as defendants, was filed on
behalf of the Guaranty National's shareholders in connection with the
Company's exchange offer announced on that date. A response to this complaint
will be made promptly after the offer commences (See Note H regarding purchase
of Guaranty National shares).
Note G - Accounting Standards Not Yet Adopted
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" which establishes new guidelines for the computation and disclosure of
earnings per share. SFAS No. 128 is required to be adopted at the end of
1997. Current earnings per share ("EPS") disclosures will be replaced by
Basic EPS and Diluted EPS as defined in SFAS No. 128. Pro forma Basic EPS and
Diluted EPS computed in accordance with SFAS No. 128 would be $.90 and $.88
for the third quarter of 1997 and $.89 and $.88 for the third quarter of 1996,
respectively. The pro forma nine-month Basic EPS and Diluted EPS would be
$2.91 and $2.85 for 1997 and $2.29 and $2.26 for 1996, respectively.
Page 11
<PAGE>
In June 1997 the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which changes the way public companies
report information about segments. This statement is effective for financial
statements for periods beginning after December 15, 1997. Management is
currently evaluating the effects of this change on the Company's financial
statements.
Note H - Purchase of Guaranty National Shares
On October 31, 1997, the Company and Guaranty National Corporation
announced that their respective Boards of Directors have approved an agreement
providing for the merger of Guaranty National into a wholly-owned subsidiary
of Orion. Under the agreement reached, the merger will take place following
the completion of an Orion tender offer for the approximately 2.9 million
shares of Guaranty National common stock that it does not already own for $36
per share in cash. The cash tender offer supersedes the exchange offer
previously announced on September 18, 1997. Orion currently owns 80.5% of the
outstanding stock of Guaranty National.
Page 12
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Orion Capital Corporation
Farmington, Connecticut
We have reviewed the accompanying consolidated balance sheet of Orion
Capital Corporation and subsidiaries (the "Company") as of September 30,
1997, and the related consolidated statements of earnings for the three-
month and nine-month periods ended September 30, 1997 and 1996 and the
statements of stockholders' equity and cash flows for the nine-month
periods ended September 30, 1997 and 1996. 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, 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended; and in our report dated February 14, 1997, we
expressed an unqualified opinion on those consolidated financial
statements. The consolidated statements of earnings and cash flows for the
year ended December 31, 1996 are not presented herein. In our opinion,
the information set forth in the accompanying consolidated balance sheet as
of December 31, 1996 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 31, 1997
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, 1997 and 1996
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. In addition, 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.
The three insurance segments are as follows:
Regional Operations - this segment includes the workers
compensation insurance products and services sold by the EBI
Companies.
Special Programs - this segment is comprised of several parts
- DPIC Companies, which markets professional liability
insurance;
- Connecticut Specialty, which writes specialty insurance programs;
- Wm. H. McGee, an underwriting management company that specializes
in ocean marine, inland marine and commercial property insurance;
and
- the Company's 24.8% interest in Intercargo Corporation, which
sells insurance coverages for international trade.
Guaranty National - this segment specializes primarily in non-standard
automobile insurance and other property insurance.
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, 1997 and 1996.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
(000s omitted)
Regional Operations ................. $22,899 $12,454 $ 60,360 $ 42,555
Special Programs .................... 5,187 16,201 33,143 40,662
Guaranty National ................... 14,209 9,778 40,519 23,964
------- ------- -------- --------
42,295 38,433 134,022 107,181
Other ............................... (4,222) (4,966) (13,270) (15,929)
------- ------- -------- --------
Total.............................. $38,073 $33,467 $120,752 $ 91,252
======= ======= ======== ========
Page 14
<PAGE>
Net premiums written for the Company by segment are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
---- ---- ---- ----
(000s ommitted)
Regional Operations ............. $ 99,176 $ 87,367 $ 276,971 $266,525
Special Programs ................ 106,785 138,101 325,248 360,616
Guaranty National ............... 145,532 124,304 423,733 368,659
-------- -------- ---------- --------
$351,493 $349,772 $1,025,952 $995,800
======== ======== ========== ========
Regional Operations' net premiums written increased 13.5% in the third
quarter of 1997 and increased 3.9% in the first nine months of 1997 compared
to the same 1996 periods. The increase in premiums written in the third
quarter of 1997 over the 1996 period was from the growth generated by a
national account program EBI started in the first quarter of 1997. The
increase in premiums written in 1997 was also from EBI's selective geographic
expansion and penetration, including the opening of five branch offices in
1997 and seven in 1996 in territories where the Company believes it will
benefit from its service-oriented approach. The increase in premiums was
mitigated in part by the effects of legislative reforms in certain states that
have led to an increasingly competitive workers compensation marketplace.
Special Programs' net premiums written decreased 22.7% in the third
quarter of 1997 and 9.8% in the first nine months of 1997 compared to the same
1996 periods. In November 1996, the Company sold the renewal book of business
of its reinsurance operations to concentrate on businesses where the Company
can better service specialized niche markets. Excluding premiums from the
assumed reinsurance business, this segment's net premiums written decreased
9.9% for the third quarter and increased 4.6% for the nine-month period ended
September 30, 1997. The decrease in premiums written in the third quarter of
1997 in comparison to the 1996 period largely related to a cancelled
Connecticut Specialty inland marine program. Premiums written by DPIC
Companies for professional liability insurance decreased 0.4% to $142,020,000
in the first nine months of 1997 from $142,544,000 for the same 1996 period.
The decrease is primarily attributable to rate reductions in a very
competitive professional liability insurance market offset in part by a
continued high level of policy renewals. Premium volume for Connecticut
Specialty in the first nine months of the year increased 1.5% to $129,856,000
in 1997 from $127,901,000 in 1996. The increase in premiums was primarily
from transportation programs, including truck liability and physical damage
coverages, and from increases in low exposure professional liability programs,
in part offset by a decrease in premiums from a cancelled inland marine
program. Also, premiums written for most Connecticut Specialty programs
increased in 1997 from the comparable 1996 period from higher retentions after
a change in reinsurance effective May 1996. Premiums written by Wm. H. McGee
increased 40.9% to $43,292,000 for the first nine months of 1997 from
$30,736,000 for the same 1996 period. The increase is principally the result
of the Company's greater participation in the underwriting pools managed by
McGee.
Page 15
<PAGE>
Guaranty National's net premiums written increased 17.1% for the third
quarter of 1997 and increased 14.9% for the nine-months of 1997 compared to
the same periods in 1996. Net premiums written for personal lines increased
30.1% to $248,502,000 in the first nine months of 1997 from $191,030,000 in
the same period of 1996. Much of this premium volume growth in the private
passenger line of business was due mainly to newly-enacted legislation in the
state of California which requires all drivers to maintain liability
insurance. This change in California law resulted in a significant increase
in the personal lines one-month product business. Commercial lines premiums
decreased 11.4% to $107,007,000 in 1997 from $120,750,000 during the first
nine months of 1996. The majority of the decrease for commercial lines was
from lower production in the nonstandard division, increased competition by
standard carriers in the nonstandard marketplace, and the effect of both agent
and program cancellations during 1996. Premiums written by the collateral
protection unit increased 20.0% to $68,224,000 in the first nine months of
1997 from $56,879,000 for the comparable period in 1996. The premium volume
growth for this unit comes from increased writing in mortgage fire coverages
and a new mechanical breakdown program.
Premiums earned by the Company increased 4.4% to $347,450,000 in the
third quarter of 1997 compared to $332,936,000 in the third quarter of 1996,
and 5.5% to $1,006,639,000 in the first nine months of 1997 from $954,447,000
in 1996. Premiums earned reflects the recognition in income of the changing
levels of net premium writings.
Net investment income
- ---------------------
Pre-tax net investment income increased 13.1% to $40,754,000 for the
third quarter of 1997 versus $36,028,000 for the third quarter of 1996, and
increased 14.5% to $122,291,000 for the first nine months of 1997 as compared
to $106,821,000 for 1996. The pre-tax yields on the average investment
portfolio were 7.0% and 6.7% for the first nine months of 1997 and 1996,
respectively, and the after-tax yields were 5.3% in both 1997 and 1996. The
increase in net investment income resulted from increased earnings both on a
higher investment base and from investments in limited partnerships. The
higher investment base includes the proceeds related to the issuance of
$125,000,000 of trust preferred securities in January 1997 and the effects of
operating cash flow, offset in part by the July 1996 cash outlay of
approximately $88,000,000 for the purchase of Guaranty National common shares.
Limited partnership earnings were $3,768,000 and $12,333,000 for the third
quarter and first nine months of 1997, respectively, versus $3,803,000 and
$9,906,000 for the respective 1996 periods.
Fixed maturity investments which the Company has both the positive intent
and the ability to hold to maturity are recorded at amortized cost. Fixed
maturity 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.
The carrying value of fixed maturity and short-term investments amounted to
$2,095,364,000 and $1,858,045,000, or approximately 80.0% of the Company's
cash and investments at both September 30, 1997 and December 31, 1996.
Page 16
<PAGE>
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. At September 30, 1997
and December 31, 1996, the Company's investments in non-investment grade and
unrated fixed maturity securities were carried at $242,671,000 and
$219,473,000, respectively. These investments represented a total of 9.3% and
9.5% of cash and investments and 6.5% and 6.3% of total assets at
September 30, 1997 and December 31, 1996, respectively.
Realized investment gains
- -------------------------
Net realized investment gains decreased $328,000 and increased
$12,693,000 to $5,152,000 and $29,299,000 in the third quarter and first nine
months of 1997, respectively, from net realized investment gains of $5,480,000
and $16,606,000 in the respective periods of 1996. Realized investment gains
are net of provisions for losses on securities deemed to be other than
temporarily impaired of $1,778,000 and $1,300,000 for the first nine months of
1997 and 1996, respectively, all from the first half of such years. 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 following table sets forth certain ratios of insurance operating
expenses to premiums earned for the Company and the ratio of loss and loss
adjustment expenses to premiums earned (the "loss ratio") by segment:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Loss and loss adjustment expenses.. 65.9% 67.2% 66.9% 68.6%
Policy acquisition costs and other
insurance expenses .............. 31.4 30.4 31.2 29.6
---- ---- ---- ----
Total before policyholders'
dividends ................... 97.3 97.6 98.1 98.2
Policyholders' dividends .......... 2.3 2.2 1.8 1.7
---- ---- ---- ----
Total after policyholders'
dividends ................... 99.6% 99.8% 99.9% 99.9%
==== ==== ==== ====
Loss and loss adjustment expense
ratio by segment:
Regional Operations ........... 49.4% 61.4% 55.5% 62.8%
Special Programs .............. 75.1 69.3 72.9 70.7
Guaranty National ............. 69.8 69.4 69.6 71.0
Page 17
<PAGE>
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. Adverse development of prior years'
losses amounted to $6,683,000 in the first nine months of 1997 compared with
$6,662,000 in the first nine months of 1996.
The current year improvement in the loss ratios for the Regional
Operations segment results from favorable loss experience achieved by EBI
Companies through its service oriented approach of working with its customers
to prevent losses and reduce claim costs.
The increase in loss ratios for the Special Programs segment is mainly
attributable to losses from certain programs cancelled by Connecticut
Specialty. The increase in the loss ratios for this segment has been offset
in part by the impact of the change in this segment's mix of business,
particularly the lower premiums and losses from the assumed reinsurance
business that the Company exited in November 1996.
The improvement in the year-to-date loss ratio for Guaranty National is
primarily attributable to lower claim frequency for the personal lines and
commercial lines units. This improvement has been offset in part by costs
incurred to improve claim handling and reduce insurance fraud in the personal
lines unit and by higher estimates for loss adjustment expenses for the
commercial lines unit.
The increase in the ratio of deferred policy acquisition costs and other
insurance expenses to premiums earned is attributable to the Company's
continued investment in building its loss prevention and claims management
competencies. The increase for 1997 was also the result of the change in
Connecticut Specialty's reinsurance in May 1996, which provides for lower
ceding commissions.
Interest expense
- ----------------
Interest expense was $6,196,000 in the third quarter of 1997 compared to
$6,165,000 in 1996, and $18,498,000 in the first nine months of 1997 versus
$18,483,000 in 1996, reflecting consistent levels of debt outstanding and
interest rates on the Company's debt for the first three quarters of both
years.
Equity in earnings (loss) of affiliate
- --------------------------------------
Equity in earnings (loss) of affiliate includes the Company's portion of
earnings of $385,000 and $291,000 from the investment in Intercargo in the
third quarters of 1997 and 1996, respectively, and earnings of $1,294,000 in
the first nine months of 1997 versus a loss of $430,000 recorded in the first
nine months of 1996. The Company records its share of Intercargo's results in
the subsequent quarter.
Page 18
<PAGE>
Federal income taxes
- --------------------
Federal income taxes on pre-tax operating results and the related
effective tax rates, including the tax benefit from the minority interest
expense in subsidiary trust, amounted to $8,772,000 (24.8%) and $7,677,000
(23.0%) in the third quarters of 1997 and 1996, respectively. The
corresponding amounts for the first nine months of 1997 and 1996 were
$27,781,000 (24.6%) and $21,444,000 (23.5%), respectively. The Company's
effective tax rate is less than the statutory tax rate of 35.0% primarily
because of income derived from tax-advantaged securities.
Minority interest expense
- -------------------------
Minority interest in subsidiary net earnings of $2,045,000 and $1,429,000
for the third quarters and $5,764,000 and $6,987,000 for the first nine months
of 1997 and 1996, respectively, represents the portion of Guaranty National's
earnings, net of federal income taxes, attributable to Guaranty National's
minority shareholders. The 1997 nine month expense was lower due to the
increase in the Company's ownership of Guaranty National in July 1996.
Minority interest in subsidiary trust of $1,774,000 and $5,084,000 for
the third quarter and first nine months of 1997, respectively, represents the
financing cost after the federal income tax deduction on Orion's $125,000,000
of 8.73% trust preferred securities issued in January 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased by $56,847,000 for the
first nine months of 1997 from $134,616,000 in 1996 to $77,769,000 in 1997.
The decrease in operating cash flow for 1997 was the result of higher payments
for losses, policy acquisition costs, policyholders' dividends, minority
interest in subsidiary trust, and other payments, consistent with the
Company's growth level in recent years and including the payment of losses for
the assumed reinsurance business the Company exited in November 1996.
Partially offsetting these increased cash outflows were higher premiums
collected, reflective of the Company's current rate of growth.
Cash used in investment activities increased to $196,298,000 for the
first nine months of 1997 from $94,366,000 in 1996. 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 operating cash flows after cash provided by or used in financing
activities. Cash invested in 1997 includes the investment of the net proceeds
from $125,000,000 of trust preferred securities issued by Orion in January
1997.
Cash provided by financing activities was $109,466,000 for the first nine
months of 1997 and cash used in financing activities was $22,914,000 for the
same period of 1996. Cash was provided by the net proceeds from the issuance
of $125,000,000 of trust preferred securities by Orion. Cash was used for
dividend payments and the Company's stock repurchase program in both 1997 and
1996. Orion increased its quarterly dividend rate by 14.3% in the second
quarter of 1997 and by 8.7% and 12.0% in the first and fourth quarters of
1996, respectively.
Page 19
<PAGE>
Orion's uses of cash consist of debt service, dividends to stockholders
and overhead expenses. These cash uses are funded from existing available
cash, financing transactions and receipt of dividends, reimbursement of
overhead expenses and amounts in lieu of federal income taxes from Orion's
insurance subsidiaries. Payments of dividends by Orion's insurance
subsidiaries must comply with insurance regulatory limitations concerning
stockholder dividends and capital adequacy. 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
$182,117,000 and $293,477,000 at September 30, 1997 and December 31, 1996,
respectively. Orion's insurance subsidiaries had combined policyholders'
surplus of $795,079,000 at September 30, 1997 and $670,572,000 at December 31,
1996, and statutory operating leverage ratios based on trailing twelve months
net premiums written to policyholders' surplus of 1.7:1 at September 30, 1997
and 2.0:1 at December 31, 1996.
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, 1997, 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, 1997, 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 1999 until
2002. Interest is payable quarterly at interest rates based on the floating
LIBOR rate, plus a margin of 0.375% to 0.75%. Guaranty National has two
interest rate swap agreements which effectively change the interest rate
exposure on $80,000,000 of these borrowings to a fixed rate of approximately
6.3% through March 31, 1998. Guaranty National is in compliance with the
various covenants and restrictions in its bank loan agreement.
On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion. The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures. The net proceeds from the
sale of the Trust Preferred Securities will be used in part for the recently
announced acquisition of Guaranty National common stock not already owned by
Orion. The Trust Preferred Securities are subordinate to all liabilities of
the Company, and may be redeemed without premium on or after January 1, 2007.
The Company may defer interest distributions on the Trust Preferred
Securities; however, during any period when such cumulative distributions
Page 20
<PAGE>
have been deferred, Orion may not declare or pay any dividends or
distributions on its common stock.
On June 5, 1997 the Company declared a 2-for-1 split of its common stock
payable on July 7, 1997 to shareholders of record on June 23, 1997. All
common stock and per common share data presented in the financial statements
has been restated to give effect to this stock split.
The Company repurchased 42,916 shares of its common stock at an aggregate
cost of $1,533,000 in the first nine months of 1997. The remaining
authorization for the stock repurchase program from the Company's Board of
Directors was $3,169,000 as of September 30, 1997.
On October 31, 1997, the Company and Guaranty National Corporation
announced that their respective Boards of Directors have approved an agreement
providing for the merger of Guaranty National into a wholly-owned subsidiary
of Orion. Under the agreement reached, the merger will take place following
the completion of an Orion tender offer for the approximately 2.9 million
shares of Guaranty National common stock that it does not already own for $36
per share in cash. The cash tender offer supersedes the exchange offer
previously announced on September 18, 1997. A complaint naming the Company,
Guaranty National and Guaranty National's Directors, as defendants, was filed
on behalf of the Guaranty National's shareholders in connection with the
Company's exchange offer announced. A response to this complaint will be made
promptly after the offer commences. Orion currently owns 80.5% of the
outstanding stock of Guaranty National.
On October 20, 1997, Guaranty National announced plans to purchase Unisun
Insurance ("Unisun") from Michigan Mutual Insurance Company for $26 million.
Unisun, which is primarily a personal lines company, is headquartered in
Charleston, South Carolina. Unisun also writes commercial multi-lines,
homeowners protection and flood insurance under the U.S. Government insured
Write Your Own program. Guaranty National expects the transaction to be
completed by year end following appropriate approvals by regulatory
authorities.
FORWARD-LOOKING STATEMENTS
All statements made in this Quarterly Report on Form 10-Q that do not
reflect historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. Such
risks, uncertainties and other factors include, among other things, (i)
general economic and business conditions; (ii) interest rate and financial
market changes; (iii) competition and the regulatory environment in which we
operate; (iv) claims frequency; (v) claims severity; (vi) medical cost
inflation; (vii) increases in the cost of property repair; (viii) the number
Page 21
<PAGE>
of new and renewal policy applications submitted to us; and (ix) other factors
over which we have little or no control. The Company disclaims any obligation
to update or to publicly announce the impact of any such factors or any
revisions to any forward looking statements to reflect future events or
developments.
Page 22
<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 LLP Letter re unaudited interim
financial information
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter.
Page 23
<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, 1997 By: /s/ W. Marston Becker
--------------------------
Chairman of the Board
and Chief Executive Officer
Date: November 4, 1997 By: /s/ Daniel L. Barry
--------------------------
Senior Vice President and
Chief Financial Officer
Page 24
<PAGE>
EXHIBIT INDEX
Page No.
Exhibit 11 Computation of Earnings 25
Per Common Share
Exhibit 15 Deloitte & Touche LLP Letter
re unaudited interim financial
information 26
Exhibit 27 Financial Data Schedule 27
Page 25
<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,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of weighted average number of
common and equivalent shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ...................... 27,335 27,328 27,313 27,428
Dilutive effect of stock options and
stock awards ..................... 546 374 515 370
------ ------ ------ ------
Weighted average number of common and
equivalent shares ................ 27,881 27,702 27,828 27,798
====== ====== ====== ======
Net earnings attributable to common
stockholders ....................... $24,526 $24,361 $79,385 $62,821
====== ====== ====== ======
Net earnings per common share ........ $ .88 $ .88 $ 2.85 $ 2.26
====== ====== ====== ======
FULLY DILUTED -
Weighted average number of shares
outstanding ....................... 27,335 27,328 27,313 27,428
Dilutive effect of stock options and
stock awards ...................... 625 388 558 388
------ ------ ----- ------
Weighted average number of common and
equivalent shares ................ 27,960 27,716 27,871 27,816
====== ====== ====== ======
Net earnings attributable to common
stockholders ....................... $24,526 $24,361 $79,395 $62,821
====== ====== ====== ======
Net earnings per common share ........ $ .88 $ .88 $ 2.85 $ 2.26
======= ======= ======= =======
</TABLE> Page 26
EXHIBIT 15
October 31, 1997
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
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, 1997 and 1996, as
indicated in our report dated October 31, 1997; 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,
1997, 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 LLP
Hartford, Connecticut
Page 27
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EXHIBIT 27
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,424,615
<DEBT-CARRYING-VALUE> 318,614
<DEBT-MARKET-VALUE> 327,661
<EQUITIES> 432,765
<MORTGAGE> 2,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,617,531
<CASH> 2,529
<RECOVER-REINSURE> 441,898
<DEFERRED-ACQUISITION> 145,377
<TOTAL-ASSETS> 3,761,172
<POLICY-LOSSES> 1,805,057
<UNEARNED-PREMIUMS> 508,910
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 21,286
<NOTES-PAYABLE> 310,395
<COMMON> 174,342
0
0
<OTHER-SE> 510,362
<TOTAL-LIABILITY-AND-EQUITY> 3,761,172
1,006,639
<INVESTMENT-INCOME> 122,291
<INVESTMENT-GAINS> 29,299
<OTHER-INCOME> 15,133
<BENEFITS> 673,781
<UNDERWRITING-AMORTIZATION> 287,565
<UNDERWRITING-OTHER> 43,928
<INCOME-PRETAX> 120,752
<INCOME-TAX> 30,519
<INCOME-CONTINUING> 79,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,385
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.85
<RESERVE-OPEN> 1,368,420
<PROVISION-CURRENT> 667,098
<PROVISION-PRIOR> 6,683
<PAYMENTS-CURRENT> 277,151
<PAYMENTS-PRIOR> 381,249
<RESERVE-CLOSE> 1,383,801
<CUMULATIVE-DEFICIENCY> 6,683
</TABLE>
