SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1996 1-7801
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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, NY 10020-2302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-332-8080
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
9 1/8% Senior Notes due September 1, 2002
7 1/4% Senior Notes due July 15, 2005
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [x]
The aggregate market value of the voting stock of the registrant held by
non-affiliates was $826,648,563 as of March 26, 1997.
As of March 26, 1997, 13,762,499 Shares of Common Stock, $1.00 par value,
of registrant were outstanding exclusive of shares held by registrant and its
subsidiaries.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from
registrant's definitive proxy statement for its Annual Meeting to be held on
May 29, 1997. Registrant intends to file the proxy material, which involves the
election of directors, not later than 120 days after the close of its fiscal
year.
<PAGE>
Table of Contents Page
Part I
Item 1: Business 3
General 3
Regional Operations 10
Special Programs 11
Guaranty National Corporation 16
Insurance Industry Characteristics 19
Miscellaneous Operations 33
Item 2: Properties 33
Item 3: Legal Proceedings 34
Item 4: Submission of Matters to a Vote of Security Holders 34
Information concerning Executive Officers of the Company 34
Part II
Item 5: Market for Registrant's Common Equity and Related 36
Stockholder Matters
Item 6: Selected Financial Data 37
Item 7: Management's Discussion and Analysis of Financial 38
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 50
Item 9: Changes in and Disagreements with Accountants on 80
Accounting and Financial Disclosure
Part III
Item 10: Directors and Executive Officers of the Registrant 80
Item 11: Executive Compensation 80
Item 12: Security Ownership of Certain Beneficial Owners 80
and Management
Item 13: Certain Relationships and Related Transactions 80
Part IV
Item 14: Exhibits, Financial Statement Schedules, 80
and Reports on Form 8-K
Signatures 87
Exhibit Index 90
Forward-Looking Statements
All statements made in this Annual Report on Form 10-K 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 Orion Capital Corporation and its consolidated subsidiaries to be
materially different from any future results, performance or achievements,
expressed or implied by the forward-looking statements. Such risks,
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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 of new and renewal
policy applications submitted to us; and (ix) other factors over which we have
little or no control. Orion Capital Corporation disclaims any obligation to
update or to publicly announce the impact of any such factors or revisions to
any forward-looking statements to reflect future events or developments. Some
of these factors are discussed further in this report in Part I, Item 1:
Business, and Part II, Item 7: Managements' Discussion and Analysis of
Financial Condition and Results of Operations.
PART I
ITEM 1. BUSINESS
GENERAL
Our Operations
Orion Capital Corporation is an insurance holding company. We have the
ability, through our subsidiaries and investments in other insurance
companies, to write almost all types of property and casualty insurance
nation-wide and throughout Canada. However, we do not sell all types of
insurance. Our operations are highly specialized. We underwrite and sell the
following specialized insurance products and services:
- workers compensation products and related services through EBI
Companies;
- professional liability coverage for architects, engineers,
environmental consultants, lawyers and accountants through DPIC
Companies;
- special property and casualty insurance programs tailored to
the risks associated with selected types of businesses through
Connecticut Specialty;
- nonstandard automobile insurance for individuals and businesses,
as well as other property insurance through Guaranty National
Corporation and its subsidiaries (including Viking Insurance
Company of Wisconsin); and
- underwriting management of insurance pools focusing on ocean cargo,
inland marine and commercial property coverages through Wm. H. McGee
& Co., Inc.
We now own 81% of Guaranty National Corporation. Guaranty National and
its subsidiaries sell specialty property and casualty insurance coverages
which are not readily available in traditional insurance markets. Prior to
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July 1996, we owned slightly less than 50% of Guaranty National, but during
that month we bought 4,600,000 additional shares of Guaranty National at
$18.50 per share in a public tender offer. Later in July we purchased 120,000
shares in the open market at $14.50 per share. The total cost of the new
shares was $88,206,000 which was paid for in cash. Our greater ownership of
Guaranty National allows us to become more involved in its strategic
management. Also, we are now able to include Guaranty National in our
consolidated federal income tax return. Guaranty National remains an
independent public company with its common stock listed on the New York Stock
Exchange. Five of Guaranty National's eleven member board of directors also
serve on our board and one other Guaranty National board member is one of our
senior officers.
In 1995, we purchased Wm. H. McGee & Co., Inc., an insurance underwriting
management firm. McGee underwrites ocean cargo, inland marine and commercial
property insurance on behalf of the group of insurance companies it
represents, including two of our subsidiaries, Security Insurance Company of
Hartford and The Connecticut Indemnity Company. McGee has been in business
for over 109 years, and has represented us for over 100 years. McGee provides
practically all services related to the insurance business which it
underwrites. For example, it issues policies on behalf of its pool members,
settles claims and places reinsurance. McGee oversees an insurance pool in
the United States and one in Canada. Our rate of participation in McGee's
U.S. pool in 1996 was 37% and that will increase to 52% in 1997. Our
participation rate in McGee's Canadian pool in 1996 was approximately 49% and
that will increase to 60.5% in 1997.
In November 1996, we exited the assumed reinsurance business when we sold
the ongoing operations of our subsidiary, Security Reinsurance Company. The
purchaser was Hartford Fire Insurance Company acting for Hart Re, the Hartford
Insurance Group's reinsurance operation. As a result of the sale, Security
Reinsurance Company discontinued writing business and became an inactive
company. We kept the reserves of approximately $108 million with respect to
this operation's outstanding business. We will manage the settlement of
claims arising out of that business.
We have also invested in a publicly traded insurance holding company
called Intercargo Corporation. We purchased an additional 4.8% of its stock
during 1996 increasing our ownership to 24.8%. Intercargo's subsidiaries are
insurance companies that specialize in international trade and transportation
coverages. Intercargo operates as an independent company and we select one
member of its seven-member board of directors. We have agreed with Intercargo
that, until December 31, 1998, we will not increase our ownership above 25%
without its approval.
We own insurance companies, brokerage companies and insurance management
and service companies. Those companies have licenses to transact business
nationwide and in all Canadian provinces. In general we do not sell our
insurance products directly to our policyholders. We obtain substantially all
our business through independent insurance agents and brokers. We have
approximately 3,250 employees, including 1,030 Guaranty National employees.
Substantially all our employees work in our insurance or insurance-related
operations.
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Orion Capital Corporation was incorporated in the State of Delaware in
1960, and all of its wholly-owned insurance subsidiaries are incorporated in
the State of Connecticut. Other insurance subsidiaries are incorporated in
the states of California, Colorado, Oklahoma, Texas and Wisconsin. Our
principal executive offices are located in New York City at 600 Fifth Avenue,
New York, New York 10020 and our telephone number is (212) 332-8080. In
addition, we maintain executive offices at 9 Farm Springs Road, Farmington,
Connecticut 06032 and the telephone number is (860) 674-6600.
Orion Capital Corporation - Capital Structure
We have simplified our debt and capital structure over the past five
years. This simplified structure has permitted us to take advantage of lower
interest rates, reduce the cost of capital and eliminate sinking fund payments
until the maturity of our senior notes. At year end, the only securities that
Orion Capital Corporation had outstanding were
- 13,769,000 shares of Common Stock;
- $110,000,000 face amount of 9 1/8% Senior Notes, due
September 1, 2002; and
- $100,000,000 face amount of 7 1/4% Senior Notes, due July 15,
2005.
Except for Guaranty National Corporation's $100 million bank credit facility,
we currently have no outstanding bank debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
On January 13, 1997, Orion Capital Corporation issued $125,000,000 of its
8.73% Junior Subordinated Deferrable Interest Debentures, due January 1, 2037
to Orion Capital Trust I, a Delaware business trust it sponsored. The Trust
simultaneously sold, in a private placement, $125,000,000 of the Trust's 8.73%
Capital Securities which have substantially the same terms as the 8.73%
Debentures. The proceeds from the sale of the securities will be used for
general corporate purposes. The transaction has a complicated structure but
gives us all the advantages of preferred stock with the tax deductibility
feature of debt. The securities provide a low after-tax cost of financing for
our business growth. The securities were registered with the Securities and
Exchange Commission on March 25, 1997. See Note Q to the Consolidated
Financial Statements, "Subsequent Events."
Segment Reporting
The Securities and Exchange Commission requires registered companies to
report their results in segments by type of business, geographic distribution
or other meaningful breakdown. Our insurance operations are divided into
three insurance segments. In addition, the miscellaneous income and expenses
of our parent company are reported as a fourth segment. The four segments are
as follows:
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I. Regional Operations - this segment includes the workers
compensation insurance products and services sold by the EBI
Companies
II. Special Programs - this segment is composed of five parts
1. DPIC Companies, which markets our professional liability
insurance;
2. Connecticut Specialty, which writes our specialty insurance
programs;
3. Wm. H. McGee & Co., Inc., our underwriting management
company that specializes in ocean marine, inland marine
and commercial property insurance;
4. our 24.8% interest in Intercargo Corporation, which sells
insurance coverages for international trade; and
5. SecurityRe - the run-off operations of our assumed
reinsurance business.
III. Guaranty National Corporation - which specializes primarily in
non-standard automobile insurance and other property insurance.
IV. Other - miscellaneous income and expenses of the parent
company.
Net Earnings
Our net earnings for the past three years, in the aggregate and per
share, were as follows:
1996 1995 1994
---- ---- ----
Net earnings $86,631,000 $67,622,000 $55,245,000
Net earnings per share $ 6.24 $ 4.77 $ 3.85
The above per share figures were based on weighted average common shares
outstanding of 13,894,000 in 1996, 14,187,000 in 1995 and 14,348,000 in
1994. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
In the following pages of this report Orion Capital Corporation is
referred to as "Orion" or the "parent corporation," while Orion and its
consolidated subsidiaries (including Guaranty National and its subsidiaries)
are referred to as the "Company."
The following tables present condensed financial information showing
revenues, pre-tax earnings (loss) and other financial data and ratios of the
four segments for each of the three years in the period ended December 31,
1996. Identifiable assets, by segment, are included in Note O to the
Consolidated Financial Statements, "Industry Segment Information."
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<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
REVENUES:
Regional Operations -
Premiums earned ....................... $ 356,809 $322,098 $278,040
Net investment income ................. 38,226 35,750 29,287
Realized investment gains ............. 6,804 4,636 1,246
Other income .......................... 176 188 239
---------- -------- --------
Total Regional Operations ........... 402,015 362,672 308,812
---------- -------- --------
Special Programs -
Premiums earned ....................... 462,295 426,905 413,183
Net investment income ................. 62,646 59,584 53,209
Realized investment gains ............. 11,066 7,781 2,191
Other income .......................... 22,658 13,564 575
---------- -------- --------
Total Special Programs .............. 558,665 507,834 469,158
---------- -------- --------
Guaranty National Corporation -
Premiums earned ....................... 481,648 - -
Net investment income ................. 39,439 - -
Realized investment gains ............. 8,455 - -
Other income .......................... - - -
---------- -------- --------
Total Guaranty National Corporation.. 529,542 - -
---------- -------- --------
Other ................................... 3,227 3,774 2,977
---------- -------- --------
$1,493,449 $874,280 $780,947
========== ======== ========
EARNINGS (LOSS):
Regional Operations ..................... $ 68,371 $ 57,830 $ 42,514
Special Programs ........................ 44,052 43,241 34,117
Guaranty National Corporation ........... 35,727 4,466 11,244
---------- -------- --------
Total property and casualty operations. 148,150 105,537 87,875
Other ................................... (20,794) (17,502) (16,329)
---------- -------- --------
127,356 88,035 71,546
Federal income taxes .................... (32,033) (20,413) (16,301)
Minority interest expense ............... (8,692) - -
---------- -------- --------
Net earnings .......................... $ 86,631 $ 67,622 $ 55,245
========== ======== ========
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<CAPTION>
The following table sets forth, on a consolidated basis, certain
insurance ratios for the Company:
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loss and loss adjustment expenses to
premiums earned ....................... 67.9% 68.4% 72.1%
Policy acquisition and other insurance
expenses to premiums earned ........... 30.1 29.0 27.0
----- ----- -----
Total before policyholders' dividends.. 98.0 97.4 99.1
Policyholders' dividends to premiums
earned ................................ 1.8 2.9 2.1
----- ----- -----
Total after policyholders' dividends .. 99.8% 100.3% 101.2%
===== ===== =====
</TABLE>
One or more of Orion's insurance subsidiaries are licensed and transact
business in each of the 50 states of the United States, the District of
Columbia, Puerto Rico and all provinces of Canada. In 1996, approximately
12.0% of the Company's consolidated direct premiums written was generated in
California, 9.1% in Pennsylvania, 7.4% in New York and 6.0% in Texas. The
large increase in California premiums in 1996 is from private passenger
automobile coverages written by Guaranty National. Also significant in
California is architects and engineers professional liability insurance. The
primary line of business in Pennsylvania and Texas is workers compensation.
New York's primary line is ocean and inland marine business written by McGee.
The following table shows the geographical distribution of direct premiums
written by the Company in 1996, 1995 and 1994, including Guaranty National's
premiums for 1996:
<TABLE>
<CAPTION>
Geographical Distribution of Direct Premiums Written
Year Ended December 31,
------------------------------------------------------
State 1996 Pct. 1995 Pct. 1994 Pct.
- ----- ---- ---- ---- ---- ---- ----
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
California ......... $ 171,962 12.0% $ 45,308 5.7% $ 60,313 8.7%
Pennsylvania ....... 130,786 9.1 110,993 13.9 79,031 11.5
New York ........... 106,090 7.4 37,667 4.7 26,755 3.9
Texas .............. 84,939 6.0 62,426 7.8 53,439 7.7
All others (1) ..... 937,673 65.5 542,890 67.9 471,955 68.2
---------- ----- -------- ----- -------- -----
$1,431,450 100.0% $799,284 100.0% $691,493 100.0%
========== ===== ======== ===== ======== =====
<FN>
(1) In 1996, no other single state or country accounts for more than 5% of
total direct premiums written.
</TABLE>
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For 1996, 28.8% of the Company's net premiums written was derived from
workers compensation insurance written primarily in twenty-four states
(including all states listed in the preceding table except California); 34.0%
came from private passenger and commercial automobile insurance; 18.7% related
to liability insurance other than automobile, primarily professional liability
insurance; and 5.1% was from marine insurance coverages. No other line of
business contributed in excess of 5% to 1996 net premiums written. The
following table shows premiums written for the Company, including Guaranty
National for 1996, net of reinsurance, by major statutory lines of business:
<TABLE>
<CAPTION>
Net Premiums Written
Year Ended December 31,
-------------------------------------------------------
1996 Pct. 1995 Pct. 1994 Pct.
---- ---- ---- ---- ---- ----
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Workers compensation .. $ 383,615 28.8% $355,691 47.0% $305,157 42.9%
Private passenger
automobile .......... 307,533 23.0 33,161 4.4 62,590 8.8
Liability other than
automobile .......... 249,425 18.7 210,679 27.8 199,214 28.0
Commercial automobile . 147,287 11.0 64,874 8.6 73,596 10.3
Marine ................ 67,587 5.1 49,152 6.5 30,323 4.3
Commercial multiple
peril ............... 46,401 3.5 5,654 .7 8,701 1.2
All others ............ 132,273 9.9 38,225 5.0 32,474 4.5
---------- ----- -------- ----- -------- -----
$1,334,121 100.0% $757,436 100.0% $712,055 100.0%
========== ===== ======== ===== ======== =====
</TABLE>
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REGIONAL OPERATIONS
The Regional Operations segment is mainly comprised of the EBI Companies
("EBI"), which provides workers compensation insurance as well as alternative
workers compensation services and related products. Through the addition of
alternative products and pricing approaches, entry into new states and
continued emphasis on its value-added services, EBI expects to extend the
length of its client relationships and further expand its presence in the
workers compensation market. EBI operates through 45 branch offices located
in 24 states. Its headquarters is in Milwaukee, Wisconsin. Information about
EBI is available on the Internet at http://www.ebico.com.
EBI's net premiums written is responsible for almost all of the premium
volume of the Regional Operations segment. EBI devotes substantially all of
its resources to underwriting and selling workers compensation insurance
products and services through independent agents and brokers. EBI's
competitive edge stems from its highly service oriented approach. It ranks
among the 20 largest writers of workers compensation insurance in the United
States based on net premiums written.
EBI staffs its offices with underwriters, field production
representatives, claims and loss control representatives, lawyers, medical and
rehabilitation experts and other technical and administrative personnel. EBI's
specialized approach is founded upon a team concept under which loss control
and claims management personnel have significant direct involvement in account
selection and in underwriting each policy. Upon acceptance of each new
account, an EBI team begins to work with the insured and its employees to
identify the factors that influence their insurance costs.
EBI's approach to underwriting is not merely to evaluate the risk but to
attempt to reduce the likelihood of loss through loss control services.
During the policy term, an EBI team continues to provide services designed to
reduce the frequency and severity of injuries. EBI stresses the concept of
"Zero Accident Culture" (registered mark), which focuses insureds on creating
an accident free work environment. With a desire to influence and impact the
workplace environment in order to reduce losses, EBI concentrates its effort
on an ever broadening array of businesses in selected industries who can most
benefit from its service-oriented approach, including manufacturers, nursing
homes, hospitals, hotels, restaurants and school districts. EBI's expansion
in recent years has given it a much broader base of operations. This permits
EBI to fully serve companies with multi-state locations which it previously
could only provide on a limited basis.
Alternative workers compensation products and services are designed to
capitalize on EBI's expertise acquired from its service oriented and team
approach to traditional workers compensation. EBI applies those skills to
writing workers compensation for large accounts and accounts with large
deductibles. Among the alternative products EBI offers is a workers
compensation excess coverage and an accompanying self-insured administration
program. In addition, during 1996, EBI tested a new product in Wisconsin
called Integrated Employee Benefits. The Integrated Employee Benefits program
combines workers compensation, group health and group disability coverages.
EBI believes it can contain group health costs by applying its distinctive
workers compensation perspective and active case management techniques to a
select group of clients. The product will be selectively expanded to
additional states in 1997.
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A workers compensation policy obligates an insurance company to pay all
compensation and other benefits for injured workers as may be required by
applicable state workers compensation laws. Such benefits include, among
other things, payments for medical and hospital expenses and disability and
vocational rehabilitation expenses. The insurance policies currently written
by EBI provide workers compensation coverage with limits of liability set by
the provisions of state workers compensation laws. The benefits provided by
these laws vary with the nature and severity of the injury or disease, as well
as with the wage level, occupation and age of the employee. Employers
liability coverage is also provided to employers who may be subject to claims
for damages (not workers compensation benefits) because of an injury to a
worker.
The amount of workers compensation premiums earned is directly dependent
upon wage levels as well as the number of employees on the payroll of each
policyholder and the job classifications of those employees. Accordingly,
premiums may be affected by the level of unemployment in general, and
particularly by the level of unemployment experienced in those industries and
geographic areas which represent a substantial portion of the Company's
workers compensation insurance business. Premium rates are revised annually
in most states in which EBI does business. EBI uses the rates and rating
plans filed in the states where it does business. See "Industry
Characteristics - Rates."
EBI has recorded profitable underwriting results for the past five years
which has led it to continue a plan of geographic expansion. In 1996, it
added seven new branch offices and expanded into two new states. It intends
to add an additional 4 to 5 offices in 1997. Always selective about the
states in which it operates, EBI's expansion strategy is to anticipate reform
initiatives in various states and establish a foothold in such new markets
before reform benefits are realized. EBI is thus able to gain a reputation
for service and effective control before such markets attract the more
traditional workers compensation companies.
Approximately 850 independent agents and brokers produced substantially
all of the direct business written in 1996 by EBI. All of such agents and
brokers receive commissions on the sale of insurance. No single independent
agent or broker contributed more than 5% of this segment's net written
premiums. The agents and brokers provide a broad range of insurance services
to the public within their local areas, operate as independent contractors and
generally represent other insurers as well.
SPECIAL PROGRAMS
The Company's Special Programs segment is comprised of five components,
all of which are concentrated in highly specialized lines of business in the
property and casualty insurance field. The components are
- DPIC Companies
- Connecticut Specialty
- Wm. H. McGee & Co., Inc.
- the Company's 24.8% interest in Intercargo Corporation, and
- the run-off operations of SecurityRe
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DPIC
- ----
DPIC Companies ("DPIC") writes professional liability insurance for
architects, engineers, environmental consultants, accountants and lawyers. It
is the second largest underwriter of architect and engineer liability
insurance in North America. DPIC operates in thirteen offices throughout the
United States and Canada. It has its headquarters in Monterey, California.
Information about DPIC can be found on the Internet at http://www.dpic.com.
DPIC's operations are organized to be directly aligned with its various
clients. The architects and engineers underwriting unit is currently divided
into three divisions: Architects, Engineers and Special (large accounts)
Risks. As of July 1997, the operations will be consolidated and reorganized
along geographical regions to better and more efficiently serve its clients.
Each geographical unit will be staffed with underwriters and other
professionals who focus on a specific discipline in their area thus enabling
them to develop programs to address the unique issues facing their clients.
As part of the geographical reorganization, DPIC has opened an underwriting
field office in Atlanta, Georgia. At the same time, in order to cater to
specific needs of architect and engineering professionals, DPIC has expanded
its environmental professionals programs, its project-specific professional
liability policies and now also offers general liability coverage.
DPIC markets a program of professional liability insurance for law firms,
the Lawyers Professional Liability System. The program is analogous to its
architects and engineers products. In addition, DPIC writes the Accountants
Professional Liability System, a program for selected medium-sized certified
public accounting firms that is similar to the lawyers' program. Matching the
architects, engineers and special risk divisions reorganization, the lawyers
and accountants units will be consolidated and reorganized along geographic
regions.
Professional liability insurance covers liability arising out of alleged
negligent performance of professional services. Underwriting and claims
management require a high level of knowledge and expertise. In an attempt to
limit risk exposure, DPIC's specialized underwriters evaluate a great number
of factors, including the experience of an applicant firm's professional
personnel, the loss history of the firm, the employees covered, the type of
work performed and the firm's utilization of suggested loss prevention
measures. DPIC uses a premium credit incentive program to encourage insureds
to participate in its liability education programs and to use other loss
prevention practices, such as "limitation of liability" clauses in contracts
with its clients.
The professional liability coverage offered by DPIC is on a "claims-made"
policy form, a form which generally insures only those claims reported by the
insured during the policy term. DPIC generally uses a policy form in which
defense costs, primarily legal fees, are limited by their inclusion within the
insured's stated policy limits. This policy form has had a favorable impact
in controlling legal costs. The general liability coverage is only offered to
those firms which maintain their professional liability coverage with DPIC.
This is written on an occurrence basis for architectural, engineering and
environmental consulting firms, although some consulting firms will only be
offered claims-made coverage.
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DPIC's specialized claims staff stresses early intervention in disputes
to avoid litigation whenever possible. DPIC has pioneered the use of
alternative dispute resolution ("ADR") and other loss mitigation methods to
promptly resolve disputes. DPIC's "Mediation Works" program has been
particularly successful offering incentives to insureds who agree to mediate
disputes. Currently, approximately one third of all open claims are in
mediation or some other form of ADR. Additionally, DPIC has instituted a
program with a selected group of its counsel network, to investigate
alternative fee structures and then channeling more work to the preferred
group of lawyers. We believe that the use of such methods has had a
beneficial impact on DPIC's operating results.
DPIC markets its products through 55 specialized agencies, each highly
knowledgeable about risk management for the professions served and about
DPIC's loss prevention programs. We believe that our "value-added" approach
is the reason why DPIC has experienced a high customer retention rate
(averaging over 90% for the tenth consecutive year) and why it is less
vulnerable to price competition. The agents participate in continuing
education programs sponsored by DPIC and are active in their clients'
professional societies and associations.
Connecticut Specialty.
- ----------------------
Connecticut Specialty Insurance Group, Inc. ("Connecticut Specialty")
currently administers the operation of approximately 30 specialty programs
written through general agents. The specialized programs include workers
compensation for underground coal mines, brownwater marine insurance
(generally coverage for non-ocean going vessels), professional liability,
surety coverage and various auto liability coverages for the trucking
industry. Connecticut Specialty serves businesses principally east of the
Mississippi. Its principal offices are located in Farmington, Connecticut and
it has claims offices in Georgia and Louisiana.
Connecticut Specialty finds opportunity in commercial niches, utilizing
general agents not only as an efficient and ready-made means of distribution
but drawing upon their established expertise and contacts. Connecticut
Specialty also develops its own expertise in order to supplement the
contributions of its general agents. Connecticut Specialty has developed a
methodology for judging opportunities that stresses the knowledge and quality
of the general agent and the unique aspects of the type of coverage or class
of business being underwritten in order to provide a competitive advantage.
Connecticut Specialty defines a "program" as the writing of risks in a
class of business not widely pursued, utilizing forms, coverage, pricing
methodologies and risk management techniques tailored to the needs of the
customer. While the average program premium size is $6 million, a few
programs are larger, such as long-haul and intermediate truck liability,
workers compensation for underground coal mines, brownwater marine, and multi-
line coverage for volunteer firefighters.
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<PAGE>
Connecticut Specialty has formed strategic alliances with what it
believes are knowledgeable and well respected general agents in the specialty
insurance field. Each of its general agents has superior knowledge of its
markets and has earned customer loyalty by providing quality services and
support. Connecticut Specialty strives to provide its customers with services
ranges from loss control expertise to administrative, actuarial and legal
support, from forms and filing services to risk management analysis and
reports, each in a mix that best fits a particular program or customer.
Connecticut Specialty utilizes a profit-sharing approach in writing its
special programs whereby a portion of the agent's compensation is tied to the
profitability of the program. Connecticut Specialty closely monitors its
programs throughout their existence to ensure that profit potential is
maximized.
The specialty nature of Connecticut Specialty's business provides some
insulation against the competitive pressures of the overall insurance market.
Enhanced automation designed for each general agent promotes efficiency and
effectiveness for both the agent and Connecticut Specialty. This relationship
with the general agent creates a competitive advantage in the insurance
marketplace and also directly impacts the cost of entry by competitors.
Connecticut Specialty is aggressively streamlining its processes and
upgrading its technology in order to better serve its customer base and expand
in its strongest programs.
McGee.
- ------
In 1995, the Company acquired Wm. H. McGee & Co., Inc. ("McGee"), a
leading ocean cargo, inland marine and commercial property insurance
underwriter. McGee has been in business for over 109 years. Security
Insurance Company of Hartford, a subsidiary of the Company, has been
represented by McGee since 1894. McGee provides all related services in
connection with this business, including policy issuance, claim settlement,
accounting and placement of reinsurance. Operations are conducted in the
United States, through its headquarters in New York and twenty branch offices
throughout the country. Activities in Canada, Bermuda and Puerto Rico are
managed by McGee's subsidiaries located in those jurisdictions and they
perform substantially similar services.
In the United States, McGee ranks among the top 10 writers of ocean cargo
insurance and among the 20 largest writers of inland marine insurance. Ocean
cargo insurance covers cargo against the perils of the sea and is usually
broadened to include loss or damage to the goods while in transit until they
arrive at the destination specified in the policy. Inland marine insurance
covers property while being transported, property of a movable nature and
property instrumental to transportation or communication. Some common
examples of property covered by inland marine insurance are cargo being
shipped by train, truck or airplane; mobile equipment; bridges and tunnels;
radio and television transmitting equipment; personal jewelry and furs; art
collections; livestock and medical equipment.
Each insurer represented by McGee participates in either the United
States or Canadian Inter-Office Reinsurance Agreement (the "McGee Pools"). It
is through these underwriting pooling agreements that premiums and risk
are allocated among the various insurers. The insurers participating in the
McGee Pools and the percentage allocated to each insurer is reviewed and
-14-
<PAGE>
revised annually. The current pool participants have an average tenure of 48
years. Security is a participant in both the United States and Canadian
pools. For the year ending December 31, 1996, McGee underwrote approximately
$210 million premiums on behalf of the insurers participating in the McGee
Pools. The Company's participation in the United States pool was 37%, 14.5%
and 7% in 1996, 1995 and 1994, respectively. Participation in the Canadian
pool was approximately 49% in 1996, 15% in 1995 and 10% in 1994. The Company
will increase its rate of participation in the McGee Pools for 1997 to 52% in
the United States and 60.5% in Canada.
McGee excels at providing innovative coverages that respond to the often
distinctive exposures of the property being insured. McGee's strategy is to
identify and serve those clients which require strong technical problem
solving and risk management support. McGee's strong underwriting and claim
capabilities allow it to tackle unusual risks, such as armored car and jewelry
store chains, bringing a highly specialized resource to those markets.
McGee, as an underwriting manager, does not directly solicit business
from insureds but instead relies on a production force consisting of insurance
brokers and agents appointed to represent the portion of the insurers'
business which McGee manages. McGee is compensated for its services by the
insurers it represents based upon a combination of factors, including a
percentage of the premiums written, the profitability of the business written
and the management services provided.
Intercargo Corporation.
- -----------------------
The Special Programs segment also includes the Company's 24.8% interest
in Intercargo Corporation ("Intercargo"). Intercargo is an insurance holding
company whose subsidiaries specialize in international trade and
transportation coverages. Its principal product lines are U.S. customs bonds
and marine cargo insurance sold to importers and exporters through customs
brokers and other service firms engaged in the international shipment of
goods. Intercargo operates as an independent entity and a pro rata share of
any profit or loss is reflected in the Company's consolidated financial
statements, based on the Company's equity interest in Intercargo.
SecurityRe Companies.
- ---------------------
In November 1996, the Company exited the assumed reinsurance business and
sold for cash the ongoing business of its subsidiary, Security Reinsurance
Company ("SecurityRe"). The Company may receive an additional cash payment
depending upon the amount of actual renewals obtained by the purchaser.
SecurityRe underwrote a diverse book of primarily casualty business, using
reinsurance intermediaries, with exposures largely concentrated in the
domestic market. SecurityRe's premiums in recent years had been principally
concentrated in the treaty segment reinsuring small to medium-sized regional
and specialty companies in various lines of business (primarily automobile and
commercial coverages). Facultative coverage was provided on an excess of loss
basis for casualty and property exposures. Generally, the largest net amount
insured by SecurityRe was $1,000,000. As a result of the sale, SecurityRe
discontinued writing business. The Company kept the reserves of approximately
$108 million with respect to the outstanding business and will continue to
manage the settlement of claims arising out of that business.
-15-
<PAGE>
GUARANTY NATIONAL CORPORATION
The Company participates in nonstandard business and personal automobile
insurance and surplus lines insurance through its interest in Guaranty
National Corporation ("Guaranty National") and its subsidiaries (collectively,
"Guaranty National Companies"). Based in Englewood, Colorado, the Guaranty
National Companies underwrite and sell specialty property and casualty
coverages which are not readily available in traditional insurance markets.
Guaranty National is a publicly held company with its stock listed on the New
York Stock Exchange. Information about Guaranty National Companies can be
found on the Internet at http://www.gnic.com.
Approximately 84% of the Guaranty National Companies' net premiums
written during 1996 was derived from writing personal and commercial
automobile insurance. Other types of insurance products sold by Guaranty
National Companies are general liability, standard multi-peril, umbrella,
excess insurance and property. Guaranty National Companies have historically
focused their operations on the nonstandard markets. Nonstandard risks
require specialized underwriting, claims management and other skills and
experience. However, approximately 9 percent of the Guaranty National
Companies' net premiums written consists of standard commercial coverage.
Nonstandard risks generally involve a potential for poor claims
experience because of increased risk exposure. Premium levels for
nonstandard risks are substantially higher than for preferred or standard
risks. In personal lines, Guaranty National Companies' loss exposure is
limited by the fact that its insureds typically purchase low liability limits,
often a state's statutory minimum. The nonstandard insurance industry is also
characterized by the insurer's ability to minimize its exposure to
unprofitable business by effecting timely changes in premium rates and policy
terms in response to changing loss and other experiences.
Guaranty National Companies' personal lines unit principally writes
nonstandard automobile insurance, insurance (i) for drivers usually
unacceptable to other insurers for, among other reasons, adverse driving or
accident history, age or vehicle type, or (ii) for customers who can only
afford a low down payment or are transitioning from an uninsured to an insured
status. This insurance coverage is sold primarily in the State of California
and the Rocky Mountain and Pacific Northwest regions, and in general, is sold
through approximately 8,900 independent agents located in 28 states.
Guaranty National Companies' commercial lines unit writes commercial
automobile insurance, which covers policyholders such as local and
intermediate trucking, garages, used car dealers, public and private livery,
and artisan contractors. Other commercial lines of coverage include property
(for example, motor-truck cargo), general liability (for example, contractors
and fuel-convenience stores), standard umbrella insurance, standard commercial
packages and other commercial coverages.
The nonstandard commercial lines business primarily offers commercial
coverages for transportation risks, regional programs, specialized coverages
for small to medium-sized businesses, and umbrella coverages for a broad range
of organizations. This nonstandard commercial business is written through 69
general agents and various brokers throughout the United States except for
some Northeastern states. These general agents specialize in particular types
of risks and/or geographical locations. Guaranty National Companies'
objective for its nonstandard commercial business is to maintain long-term.
mutually profitable relationships with a small number of select general agents
who follow strict underwriting guidelines.
-16-
<PAGE>
Guaranty National Companies also markets, through Intercon General
Agency, Inc., collateral protection insurance, primarily insuring automobiles
pledged as security for loans for which the borrower has not maintained
physical damage coverage as required by the lender. Such business represents
15% of Guaranty National Companies' gross written premiums for 1996.
Information about Intercon can be found on the Internet at
http://www.gniccp.com.
In 1995, Guaranty National acquired all the capital stock of Viking
Insurance Holdings, Inc. ("Viking"). Viking is the parent company of Viking
Insurance Company of Wisconsin and other affiliated companies which specialize
in providing nonstandard personal automobile insurance. The Viking
acquisition has enabled the Guaranty National Companies to change its business
mix, expand its personal lines business into new territories, strengthen
personal lines market share in existing states, and provide flexibility in
marketing Guaranty National Companies' personal lines products. In 1996, the
Guaranty National Companies and Viking personal lines business were integrated
into one unit.
Overall, Guaranty National Companies seeks to distinguish itself from its
personal lines competitors by providing a superior, highly automated and
responsive level of service to its agents and insureds. In addition to high
quality service, the Guaranty National Companies' personal lines business unit
provides ease of payment for insureds through low monthly installments.
In underwriting nonstandard automobile risks, the Guaranty National
Companies sets premium rates which are substantially higher than standard
rates. Policy coverage periods are generally one or six months on personal
automobile policies. Commercial policy coverage periods are generally one
year. Collateral protection policy coverage periods generally range from one
month to one year, although some policies are issued for the term of the
underlying loan. The business of the Guaranty National Companies is not
materially dependent upon any single customer, group of customers, or group of
agents.
Customer service and policy processing operations are a critical part of
the personal lines business unit. Operation centers are currently located in
Freeport, Illinois; Denver, Colorado; Salt Lake City, Utah; and Salem, Oregon.
Multiple locations in multiple time zones contribute to efficient volume
routing, as well as providing a convenient disaster recovery mechanism. In
the customer service area, use of the Interactive Voice Response system
permits efficient, automated answering of routine agent and customer
questions.
Colorado Casualty Insurance Company ("CCIC"), an insurance subsidiary of
Guaranty National Companies, writes primarily standard commercial lines
business. CCIC writes small, standard commercial package policies. The
standard commercial business is primarily written in the Rocky Mountain
region, but has recently expanded to states outside of the Rocky Mountain
region, mainly in the southeast region of the United States. CCIC has been
successful in serving a niche market of approximately 600 small to medium
retail agents. In addition, CCIC utilizes seven general agents as branch
offices.
-17-
<PAGE>
The Company owns 81% of Guaranty National Corporation. Prior to July
1996, the Company owned slightly less than 50% of Guaranty National, but
during that month the Company bought 4,600,000 additional shares at $18.50 per
share in a public tender offer. Later in July the Company purchased 120,000
shares in the open market at $14.50 per share. The total cost of the new
shares was $88,206,000 which was paid in cash. The Company's greater
ownership of Guaranty National allows it to become more involved in its
strategic management. Also, Guaranty National is now included in the
Company's consolidated federal income tax return.
Guaranty National and its subsidiaries have entered into a series of
agreements with the Company. One of these agreements is a shareholder
agreement pursuant to which the Company has the right to designate four
members of Guaranty National's board, including the Chairman of the Board, for
so long as the Company beneficially owns 30% or more of Guaranty National.
Currently, five of the eleven Guaranty National board of directors also serve
on the Company's board of directors. Also, a senior officer of the Company
serves on Guaranty National's board. Under the shareholder agreement, the
Company also has a right until November 1997 to require Guaranty National to
register under the Securities Act of 1933, all or part of the shares of common
stock the Company owns.
In addition, in the ordinary course of business, the Company's insurance
subsidiaries and the Guaranty National Companies entered into certain
reinsurance agreements and a trade name agreement. Orion and Guaranty
National have signed an investment management agreement pursuant to which most
of the Guaranty National Companies' investment portfolio, including that of
Viking (other than short-term investments and a portion of its equity
securities portfolio), is managed by Orion's investment managers (under the
direction and supervision of Guaranty National). Orion was paid a fee of
$650,000 in 1996 under the agreement.
-18-
<PAGE>
INSURANCE INDUSTRY CHARACTERISTICS
Loss Reserves
- -------------
The Company establishes reserve liabilities for reported losses, incurred
but not reported ("IBNR") losses, and claim settlement and administration
expenses. Reserves for reported losses and loss adjustment expenses are
estimates of the ultimate costs of claims reported to the Company but not
settled. IBNR loss reserves are estimates for both unreported claims and
additional development of previously reported claims. Reserves are based on
the circumstances surrounding each claim, the Company's historical experience
with losses arising from claims not yet reported and the particular experience
associated with the line of business and type of risk involved. Consideration
is also given to expected changes in costs for property, repairs to property,
medical care, litigation and other legal costs, and vocational rehabilitation.
The Company regularly monitors the factors affecting its reserves to better
control claim costs, which also provides a base of information to reevaluate
reserve estimates. The reserve estimates are regularly reviewed and adjusted
to consider all pertinent information as it becomes available. Such
reevaluation is a normal, recurring activity that is inherent in the process
of loss reserve estimation.
Several methods are used for reviewing reserves, including paid and
incurred loss development, and incurred claim counts and average claim costs.
These methods can be subject to variability in reserve estimation for a number
of reasons, including improved claims department operating procedures and
accelerated claims settlement due to the use of alternate dispute resolution
and expedited resolution of civil suits in litigation. Other factors that are
analyzed and are considered in the determination of loss reserves include (i)
claim emergence and settlement patterns and changes in these patterns from
year to year, (ii) trends in the frequency and severity of paid and incurred
losses, (iii) changes in policy limits and changes in reinsurance coverages,
(iv) changes in the mix and classes of business, and (v) changes in claims
handling procedures.
Management revises its reserve estimates as appropriate and believes that
the loss and loss adjustment expense reserves of the Company's insurance
subsidiaries make reasonable and sufficient provision for the ultimate cost of
all losses and claims incurred. However, no assurances can be given that
reserve development will not occur in the future.
-19-
<PAGE>
Accident Year Loss and Loss Adjustment Expense Analysis
- -------------------------------------------------------
Accident year is a period of exposure that is used to accumulate loss and
loss adjustment experience by the year in which an incident giving rise to a
claim occurs. Accident year information is used for loss reserving and in
establishing premium rates. The accident year loss experience is updated in
subsequent calendar years until all losses and loss adjustment expenses
related to that given accident year have been settled. Accident year loss
ratio relates losses associated with incidents giving rise to claims occurring
within a given calendar year to premiums earned during the same calendar year.
Presented below are loss reserve development tables for the five years ended
December 31, 1996 prepared in accident year format.
<TABLE>
<CAPTION>
For each accident year, the following table presents premiums earned, and
the provision for loss and loss adjustment expenses as a percentage of
premiums earned (the "loss ratios") as established in the initial accident
year and cumulative as of December 31, 1996:
Loss and Loss Adjustment
Expense Development
-------------------------------
Accident Premiums
Year Earned Initial Cumulative
- -------- -------- ------- ----------
(000s omitted)
<S> <C> <C> <C>
1992 $ 560,205 71.0% 68.5%
1993 617,404 70.4 69.4
1994 691,223 69.6 70.2
1995 749,003 66.8 68.0
1996 1,300,752 67.2 -
<CAPTION>
The table set forth below indicates premiums earned, the cumulative loss
ratio for each accident year, the ratio of policy acquisition costs and other
insurance expenses to premiums earned (the "expense ratio"), the ratio of
policyholders' dividends to premiums earned (the "policyholders' dividend
ratio") and the total of the ratios (the "combined ratio") at December 31,
1996:
Accident Premiums Loss Expense Policyholders' Combined
Year Earned Ratio Ratio Dividend Ratio Ratio
- -------- -------- ----- ------- -------------- --------
(000s omitted)
<S> <C> <C> <C> <C> <C>
1992 $ 560,205 68.5% 27.3% 2.4% 98.2%
1993 617,404 69.4 26.8 2.0 98.2
1994 691,223 70.2 27.0 2.1 99.3
1995 749,003 68.0 29.0 2.9 99.9
1996 1,300,752 67.2 30.1 1.8 99.1
-20-
<PAGE>
<CAPTION>
Calendar Year Loss Reserve Analysis
- -----------------------------------
An analysis of the Company's calendar year loss and loss adjustment
expense reserves, net of reinsurance, is presented in the following table.
The current year provision for 1996 includes favorable loss development for
Guaranty National of $995,000 and current year payments for 1996 include
$144,775,000 attributable to periods prior to the consolidation of Guaranty
National's results in the Company's financial statements.
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Beginning of year ..................... $ 993,978 $ 891,542 $ 830,805
Consolidation of Guaranty National
reserves ............................ 286,339 - -
---------- ---------- ----------
1,280,317 891,542 830,805
---------- ---------- ----------
Provision:
Current year ........................ 874,123 500,514 480,826
Prior years ......................... 8,869 11,719 17,297
---------- ---------- ----------
882,992 512,233 498,123
---------- ---------- ----------
Payments:
Current year ........................ 499,176 146,540 134,120
Prior years ......................... 295,713 263,257 303,266
---------- ---------- ----------
794,889 409,797 437,386
---------- ---------- ----------
End of year ........................... $1,368,420 $ 993,978 $ 891,542
========== ========== ==========
<CAPTION>
Cumulative reserve development for the Company's majority-owned insurance
subsidiaries (including Guaranty National for 1996) as of December 31, 1996
for the calendar years 1992 through 1996 is shown in the table that follows:
December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C> <C>
Gross liability .. $1,081,396 $1,140,403 $1,181,329 $1,274,982 $1,785,664
Reinsurance
recoverable .... 335,098 309,598 289,787 281,004 417,244
---------- ---------- ---------- ---------- ----------
Net liability .... $ 746,298 $ 830,805 $ 891,542 $ 993,978 $1,368,420
========== ========== ========== ========== ==========
Gross re-estimated
liability ...... $1,091,963 $1,133,514 $1,184,498 $1,280,118 $ -
Re-estimated
recoverable .... 290,799 278,165 281,530 277,271 -
---------- ---------- ---------- ---------- ----------
Net re-estimated
liability ...... $ 801,224 $ 855,349 $ 902,968 $1,002,847 $ -
========== ========== ========== ========== ==========
Gross deficiency.. $ (68,898) $ (25,856) $ (15,597) $ (5,136) $ -
========== ========== ========== ========== ==========
-21
<PAGE>
<CAPTION>
Cumulative reserve development, net of reinsurance, for the Company's majority-owned insurance subsidiaries (including
Guaranty National for 1996) as of December 31, 1996 for the calendar years 1986 through 1996 is shown in the table that follows:
December 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for
unpaid loss and
loss adjustment
expenses.......... $359,623 $401,677 $520,304 $602,519 $595,455 $668,467 $746,298 $830,805 $891,542 $ 993,978 $1,368,420
Paid (cumulative)
as of:
One year later .... 211,102 178,100 236,657 281,224 261,464 240,318 249,583 303,266 263,257 295,713 -
Two years later.... 320,000 318,883 403,147 438,250 408,624 378,524 429,501 445,369 434,672 - -
Three years later.. 409,019 414,616 488,397 526,235 493,218 484,335 514,172 543,687 - - -
Four years later .. 468,971 457,182 544,449 581,880 567,068 540,325 577,547 - - - -
Five years later .. 494,838 490,973 582,527 633,413 605,039 580,117 - - - - -
Six years later ... 518,397 515,478 624,415 660,648 629,654 - - - - - -
Seven years later.. 537,567 551,055 643,447 676,869 - - - - - - -
Eight years later.. 566,205 563,977 653,826 - - - - - - - -
Nine years later .. 576,116 577,818 - - - - - - - - -
Ten years later ... 585,487 - - - - - - - - - -
Net liability
reestimated as of:
One year later .... 434,056 469,137 573,632 647,585 657,100 694,948 770,590 848,102 903,261 1,002,847 -
Two years later ... 486,631 504,814 624,337 695,154 685,692 714,953 782,348 854,998 902,969 - -
Three years later.. 517,476 548,883 658,024 722,626 705,516 732,047 785,995 855,349 - - -
Four years later .. 557,124 568,114 687,818 741,789 741,096 744,251 801,224 - - - -
Five years later .. 577,977 597,103 705,475 770,359 756,522 763,658 - - - - -
Six years later ... 604,056 610,086 733,836 788,288 786,616 - - - - - -
Seven years later.. 611,108 637,322 747,525 812,440 - - - - - - -
Eight years later.. 633,723 651,402 771,372 - - - - - - - -
Nine years later .. 650,303 677,310 - - - - - - - - -
Ten years later ... 677,387 - - - - - - - - - -
Net deficiency ...... (317,764) (275,633) (251,068) (209,922) (191,161) (95,192) (54,926) (24,544) (11,426) (8,869) -
</TABLE>
-22-
<PAGE>
The preceding loss reserve development tables indicate the aggregate
year-end liability for loss and loss adjustment expenses net of reinsurance,
the cumulative amounts paid attributable to those reserves through December
31, 1996, the re-estimate of the aggregate liability as of December 31 of each
subsequent year and the cumulative development of prior years' reserves.
Information is also provided on a gross basis for 1992 through 1996.
Consistent with industry practice, certain claims for long-term disability
workers compensation benefits are carried at discounted values. At December
31, 1996 and 1995, long-term disability workers compensation loss reserves are
carried at $54,832,000 and $56,603,000, respectively, in the consolidated
financial statements at net present value using a statutory interest rate of
3.5%.
The Company's IBNR loss and loss adjustment expense reserves and other
bulk reserves for losses and loss adjustment expenses for which claim files
have not been established, net of reinsurance, were $753,638,000, $508,872,000
and $438,194,000 as of December 31, 1996, 1995 and 1994, respectively. The
increase in IBNR for 1996 includes $195,345,000 from the consolidation of
Guaranty National's reserves.
During 1996, the Company strengthened loss reserves and experienced
development for prior years' business of $8,869,000. Adverse development for
various pools and associations (other than from the McGee operations),
reinsurance and certain program business in 1996 was partly offset by
favorable development from workers compensation and professional liability for
architects and engineers. Adverse development relating to the Company's pools
and associations business is based on their experience, which is generally
recorded as the information is reported to the Company. The development from
reinsurance relates to the Company's assumed reinsurance business. In 1996
the Company sold the renewal book of business of its reinsurance operations.
The favorable development from the workers compensation and professional
liability lines of business is the result of continued improvement from the
application of loss prevention and loss control procedures.
Loss reserve estimates are based on forecasts of the ultimate settlement
of claims and are subject to uncertainty with respect to future events. Loss
reserve amounts are based on management's informed estimates and judgments,
using data currently available. Reserve amounts and the underlying actuarial
factors and assumptions are regularly analyzed and adjusted to reflect new
information. The significantly decreased level of adverse development during
more recent years is consistent with the strengthening of loss reserves and
the strong performance of the Company's ongoing lines of business. Current
operations are more focused on underwriting risks where the Company has
specialized knowledge and can provide enhanced service to reduce loss costs.
This concentration, and the specialized knowledge and growing experience in
its selected lines of business arising from such concentration, have enabled
the Company to implement improvements in its claims administration and
underwriting procedures which have enhanced the Company's ability to analyze
data and project reserve trends.
-23-
<PAGE>
The following table presents the differences between loss and loss
adjustment expense reserves reported in the consolidated financial statements
in accordance with generally accepted accounting principles ("GAAP"), and
those reported in the combined annual statement filed with state insurance
departments in accordance with statutory accounting practices ("SAP"):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
(000s omitted)
<S> <C> <C>
Liability on SAP basis ...................... $1,363,741 $1,002,864
Estimated salvage and subrogation
recoveries recorded on a cash basis for
SAP in 1995 and on an accrual basis for
GAAP .................................... - (10,381)
GAAP Reinsurance payable included in SAP
reserves ................................ (5,928) (7,774)
Foreign subsidiary reserves ............... 10,607 9,269
---------- ----------
Liability on GAAP basis, net of reinsurance.. 1,368,420 993,978
Reinsurance on GAAP reserves ................ 417,244 281,004
---------- ----------
Liability on GAAP basis ..................... $1,785,664 $1,274,982
========== ==========
</TABLE>
-24-
<PAGE>
Investments
- -----------
The Company derives a significant part of its income from its
investments. The investment portfolio of the Company's insurance subsidiaries
must comply with applicable insurance laws and regulations of the respective
states in which such companies are domiciled and other jurisdictions in which
they conduct business. Neither Orion nor any of its non-insurance
subsidiaries is constrained by investment restrictions set forth in state
insurance laws.
The Company maintains a diversified portfolio representing a broad
spectrum of industries and types of securities. Investments are managed to
achieve a superior total return after taxes, while maintaining a proper
balance of safety, liquidity, maturity and marketability. Investments are
made based on long-term economic value rather than short-term market
conditions. Approximately 50% of the Company's fixed maturity portfolio is
invested in tax advantaged securities at December 31, 1996. Except for
investments in securities of the United States Government and its agencies,
the Company did not have any other investments in any one issuer that exceeded
$25,000,000 at December 31, 1996.
The Company has the ability to hold its fixed maturity investments to
term since its operating cash flow and its short-term investment portfolio
provide the Company with substantial liquidity. Fixed maturity investments
that the Company has the positive intent 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, with unrealized gains and losses reflected in
stockholders' equity. Equity securities are stated at market value. Both the
fixed maturities and the equity investments consist primarily of readily
marketable securities.
The following table shows the composition of the investment portfolio of
the Company as of December 31, 1996 and 1995, and the quality ratings for the
Company's fixed maturity investments. The investments shown below are listed
at their cost, market value and financial statement (book) values.
-25-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 Cost Market Value Book Value
- ----------------- ------------------ ------------------ ------------------
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
AAA ............. $ 610,930 27.7% $ 622,076 26.9% $ 618,338 26.8
AA .............. 369,190 16.8 385,071 16.6 381,548 16.5
A ............... 170,853 7.8 176,308 7.6 175,896 7.6
BBB ............. 133,756 6.1 137,135 5.9 136,894 5.9
BB .............. 76,156 3.5 77,348 3.3 77,348 3.4
B and Below ..... 102,080 4.6 107,122 4.6 107,122 4.6
Not Rated ....... 33,688 1.5 35,003 1.5 35,003 1.5
---------- ----- ---------- ----- ---------- -----
Sub-total ..... 1,496,653 68.0 1,540,063 66.4 1,532,149 66.3
Equity Securities.. 288,070 13.1 361,593 15.6 361,593 15.7
Other Long Term
Investments ..... 90,129 4.1 90,144 3.9 90,129 3.9
Short Term
Investments ..... 325,896 14.8 325,896 14.1 325,896 14.1
---------- ----- ---------- ----- ---------- -----
$2,200,748 100.0% $2,317,696 100.0% $2,309,767 100.0%
========== ===== ========== ===== ========== =====
December 31, 1995 Cost Market Value Book Value
- ----------------- ------------------ ------------------ ------------------
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
AAA ............. $ 403,434 26.5% $ 421,737 26.1% $ 415,460 25.9%
AA .............. 232,810 15.3 248,478 15.4 244,607 15.3
A ............... 148,950 9.8 155,697 9.7 154,801 9.7
BBB ............. 90,132 5.9 94,231 5.8 94,182 5.9
BB .............. 55,602 3.7 55,432 3.4 55,352 3.4
B and Below ..... 47,024 3.1 46,945 2.9 47,005 2.9
Not Rated ....... 35,225 2.3 36,631 2.3 36,631 2.3
---------- ----- ---------- ----- ---------- -----
Sub-total ..... 1,013,177 66.6 1,059,151 65.6 1,048,038 65.4
Equity Securities.. 257,378 16.9 304,885 18.9 304,885 19.0
Other Long Term
Investments ..... 62,925 4.2 62,925 3.9 62,925 3.9
Short Term
Investments ..... 187,013 12.3 187,013 11.6 187,013 11.7
---------- ----- ---------- ----- ---------- -----
$1,520,493 100.0% $1,613,974 100.0% $1,602,861 100.0%
========== ===== ========== ===== ========== =====
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Yield on average
investments:
Pre-tax ......... 6.9% 7.1%
=== ===
After-tax ....... 5.4% 5.5%
=== ===
</TABLE>
-26-
<PAGE>
Included in other long-term investments on December 31, 1996 were
investments in limited partnerships carried at $87,637,000. The assets of
these partnerships are managed by outside entities. Individual partnerships
may invest in a variety of investment vehicles, including but not limited to
U.S. and foreign bonds and equities, both public and private, and real estate.
Such partnerships are carried at the Company's interest in the underlying net
assets of the limited partnerships. The Company's portion of the
partnerships' earnings or losses are recorded in net investment income in the
Company's statement of earnings. Net investment income from these
partnerships was $15,954,000 (including $3,528,000 of earnings from
partnerships in which Guaranty National invested), $9,065,000 and $555,000 for
1996, 1995 and 1994, respectively.
The Company strives to enhance the average return of its portfolio by
investing a small percentage of it in a diversified group of non-investment
grade fixed maturity securities, or securities that are not rated. In the
non-investment grade segment of the investment portfolio, the Company
maintains a high degree of diversity, with an average investment per issuer of
approximately $1,535,000 at December 31, 1996.
The Company closely monitors the financial stability of issuers of
securities that it owns. When conditions are deemed appropriate, the Company
ceases to accrete discount, or accrue interest and dividends. In cases where
the value of investments are deemed to be other than temporarily impaired, the
Company recognizes losses. During 1996 provisions for such losses were
$315,000 for equity securities and $1,119,000 for fixed maturity investments.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Net Investment Income and Realized Investment Gains."
Reinsurance
- -----------
In the ordinary course of business, the Company's insurance subsidiaries
enter into reinsurance contracts with other insurers which serve to provide
greater diversification of business and to limit the Company's maximum loss
from catastrophes, large risks or unusually hazardous risks. Ceding
reinsurance reduces an insurer's operating leverage ratio.
A large portion of the Company's reinsurance protection is provided by
reinsurance contracts or treaties under which all risks meeting prescribed
criteria are automatically covered. In other instances, reinsurance is
obtained by negotiation for individual risks, or facultative reinsurance. The
Company's insurance subsidiaries have certain excess-of-loss and catastrophe
treaties with unaffiliated insurers or reinsurers which provide protection
against a specified part or all of certain types of losses over stipulated
dollar amounts arising from one or more occurrences. The amount of each risk
retained by an insurer is subject to maximum limits which vary by line of
business and type of coverage. Retention limits are periodically revised as
the capacity of the Company's insurance subsidiaries to retain risk varies and
as reinsurance prices change. Reinsurance contracts do not relieve the
Company of its obligation to the policyholders. The collectibility of
-27-
<PAGE>
reinsurance is subject to the solvency of the reinsurers. The Company is very
selective as to its reinsurers, placing reinsurance with only those reinsurers
considered to be in sound financial condition and having satisfactory
underwriting ability. Many of the Company's reinsurance agreements are
subject to annual renewal as to coverage, limits and price. The financial
strength of its reinsurers is continually monitored by the Company. The
Company's insurance subsidiaries, to their knowledge, have no material
exposure to potential unrecognized losses due to reinsurers that are in known
financial difficulties.
The Company's insurance subsidiaries have reinsurance protection for
workers compensation losses in excess of $1,500,000 up to $100,000,000. DPIC
has reinsurance for 85% of losses from architect and engineer liability in
excess of $1,000,000 up to $5,000,000. Most of the Company's program business
is protected by per event coverage for 85% of losses over $1,000,000 up to
$5,000,000 and 100% of losses above $5,000,000 up to $10,000,000. Certain
commercial auto and general liability program policies are also reinsured for
losses in excess of $500,000 up to $1,000,000. Guaranty National has
coverages for losses above $300,000 to $600,000, up to $6,000,000 per
occurrence, and an additional layer of coverage for 95% of losses from
$6,000,000 up to $20,000,000. In addition to the foregoing, the Company's
insurance subsidiaries also maintain other reinsurance arrangements in support
of their specific business needs.
Government Regulation
- ---------------------
The Company's insurance subsidiaries, in common with those of other
insurance companies, are subject to comprehensive regulation by insurance
authorities. In particular, the Company is subject to regulation by the
insurance departments of the states of incorporation of all of the Company's
insurance subsidiaries. These states include California, Connecticut,
Colorado, Oklahoma, Texas and Wisconsin . All insurance companies must file
annual statements and other reports with state regulatory agencies and are
subject to regular and special examinations by those agencies. A regular
periodic examination of the Company's insurance subsidiaries, covering their
operations and statutory financial statements are conducted on a regular basis
by the state of domicile of each insurance company. The last periodic
examinations of the Company's wholly-owned pooled insurance subsidiaries were
completed for the period ending December 31, 1991 and a regulatory examination
for all other insurance subsidiaries were completed for various periods, all
ending December 31, 1993. No significant adjustments resulted from the
examinations of any of the Company's subsidiaries. A regular periodic
examination covering the Company's wholly-owned insurance operations for the
three year period ended December 31, 1994 by the Insurance Department of
Connecticut is currently in process.
-28-
<PAGE>
Each of the Company's insurance subsidiaries is also subject to
regulation by other jurisdictions in which it sells insurance, including
Puerto Rico, certain Canadian provinces and Bermuda. States regulate the
insurance business through supervisory agencies which have broad
administrative powers, including powers relating to, among other things
- the standards of solvency which must be met and maintained;
- the licensing of insurers and their agents;
- restrictions on the amount of risk which may be insured under a
single policy;
- the approval of premium rates;
- the form and content of the insurance policy and sales literature;
- the form and content of financial statements;
- reserve requirements;
- the imposition of monetary penalties for rules violation; and
- the nature of and limitations on permitted investments.
In general, such regulations are for the protection of policyholders rather
than stockholders.
In some instances, particularly in connection with workers compensation
insurance, various states routinely require deposits of assets for the
protection of policyholders and their employee claimants located in those
states. As of December 31, 1996 and 1995, securities representing
approximately 10% and 15%, respectively, of the book value of the Company's
investment portfolio were on deposit with various state treasurers or
custodians. Such deposits consist of securities of the types which comply
with standards established by each state.
The Company is also subject to state laws regulating insurance holding
company systems. Most states have enacted legislation and adopted
administrative regulations affecting insurance holding companies and the
acquisition of control of insurance companies, as well as transactions between
insurance companies and their affiliates. The nature and extent of such
legislation and regulations currently in effect vary from state to state.
Most states currently require administrative approval of the acquisition of
10% or more of the outstanding shares of an insurance company incorporated in
the state or the acquisition of 10% or more of an insurance holding company
whose insurance subsidiary is incorporated in the state. The acquisition of
10% of such shares is deemed to be the acquisition of "control" for the
purpose of most holding company statutes and requires the filing of detailed
information concerning the acquiring parties and the plan of acquisition and
administrative approval prior to such acquisition. Material transactions
between insurance companies and affiliated members of the holding company
system are generally required to be "fair and reasonable" and in some cases
are subject to administrative approval.
Other states, in addition to an insurance company's state of domicile,
may regulate affiliated transactions and the acquisition of control of
licensed insurers. The State of California, for example, presently treats
certain insurance subsidiaries of the Company which are not domiciled in
-29-
<PAGE>
California as though they were domestic insurers for insurance holding company
purposes. Such subsidiaries are required to comply with the holding company
provisions of the California Insurance Code, certain of which provisions may
be more restrictive than the comparable laws of the insurance company's state
of domicile.
All state jurisdictions in which the Company is authorized to transact
business require participation in guaranty funds. Insurers authorized to
transact business in those jurisdictions can be assessed by a state guaranty
fund a percentage (usually from 1% to 2%) of direct premiums written in that
jurisdiction each year to pay claims on behalf of insolvent insurers. The
likelihood and amount of any future assessment cannot be estimated until after
an insolvency has occurred. For the years ended December 31, 1996 and 1995
the Company's insurance subsidiaries were assessed approximately $543,000 and
$222,000, respectively (net of estimated future recoveries) as a result of
known insolvencies. Insurance companies are required by certain states in
which they do business to participate in automobile insurance plans and
workers compensation plans. These plans provide insurance on risks which are
not written in the voluntary market. Participation in these plans has usually
been unprofitable for the Company.
A number of state legislatures and the United States Congress have for
years been considering, or have now enacted, some type of legislative
proposals which alter the rules for tort claims and increase the states'
authority to regulate insurance companies. These initiatives have expanded,
in some instances, the states' regulation over rates (See "Rates" below) and
also have increased data reporting requirements. In recent years the state
insurance regulatory framework has come under federal scrutiny, and certain
state legislatures have considered or enacted laws that alter, and in many
cases increase, state authority to regulate insurance companies and insurance
holding company systems.
The National Association of Insurance Commissioners ("NAIC") and state
regulators are re-examining existing laws and regulations relating to the
solvency of insurers. The NAIC has adopted risk based capital ("RBC")
requirements for property and casualty insurers. RBC refers to the
determination of the amount of statutory capital required for an insurer
based on the risks assumed by the insurer (including, for example, investment
risks, credit risks relating to reinsurance recoverables and underwriting
risks) rather than just the amount of net premiums written by the insurer. A
formula that applies prescribed factors to the various risk elements in an
insurer's business is used to determine the minimum statutory capital
requirement for the insurer. The statutory capital of each of the Company's
active insurance subsidiaries at December 31, 1996 exceeds the RBC
requirements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. There are various current, proposed and
tabled federal measures which may significantly affect the Company's insurance
business, including, among other proposals:
-30-
<PAGE>
- Superfund reform;
- tort liability reform, including limitation on punitive damages
and "loser pays" litigation expense costs;
- regulatory reform concerning financial services modernization;
- revocation of the antitrust exemption provided by the
McCarran-Ferguson Act and the ensuing federal regulation of
the business of insurance; and
- suggested changes of the nation's health care system that, if
enacted, might negatively affect the Company's workers
compensation and automobile liability businesses
The economic and competitive effects of any such proposals upon the Company
would depend upon the final form such legislation might take. The Company is
unable to predict what regulatory proposals may be adopted in the future or
the effect any such proposals might have on the Company's businesses if
adopted.
Limitations on Payments from Insurance Subsidiaries
- ---------------------------------------------------
The principal sources of cash available to Orion are dividends,
reimbursement of various administrative charges, and tax payments from its
subsidiaries. The payment of dividends to Orion by its insurance subsidiaries
is subject to state regulation. No state restricts dividend payments by Orion
or Guaranty National to its stockholders.
The ability of the Company's insurance subsidiaries to declare dividends
is governed primarily by the insurance laws of such subsidiaries state of
incorporation. Generally, such laws currently provide that, unless prior
approval is obtained, dividends of a property and casualty insurance company
in any consecutive 12-month period shall not exceed the greater of its net
income for the preceding calendar year or 10% of its policyholders' surplus as
of the preceding December 31, determined on a statutory accounting basis.
Dividends and distributions by the Company's insurance subsidiaries are also
subject to a requirement that statutory policyholders' surplus be reasonable
in relation to outstanding liabilities and adequate to meet the companies'
financial needs following the declaration of any dividends or distributions.
State insurance regulators, however, have broad discretionary authority with
respect to approving the payment of dividends by insurance companies. Under
current regulations, the maximum dividends permitted at December 31, 1996 for
the ensuing twelve months, without prior approval, aggregated $102,138,000,
including $25,307,000 from subsidiaries of Guaranty National. Orion received
$35,286,000 in the aggregate in dividends from its subsidiaries in 1996.
Since it is difficult to predict future levels of statutory policyholders'
surplus or earnings, the amount of dividends that could be paid in the future
without prior approval cannot be determined at this time.
-31-
<PAGE>
Rates
- -----
The Company's insurance subsidiaries are generally subject to regulation
as to rates. Most states have insurance laws requiring that rate schedules
and other information be filed with or made available to the state's
regulatory authority, either directly or through a rating organization with
which the insurer is affiliated. The regulatory authority may, in most
states, disapprove a rate filing if it finds that the rates are inadequate,
excessive or unfairly discriminatory. Rates, which are not necessarily
uniform for all insurers, vary by class of business, hazard assumed and size
of risk. Subject to regulatory requirements, the Company's management
determines the prices charged for its policies based on a variety of factors
including recent historical claims experience, inflation, competition, tax law
and anticipated changes in the legal environment, both judicial and
legislative. Methods for arriving at rates vary by type of business, exposure
assumed and size of risk. Underwriting profitability is affected by the
accuracy of these assumptions, by the willingness of insurance regulators to
approve changes in those rates which they control and by such other matters as
underwriting selectivity and expense control.
Some states have adopted open rating systems for workers compensation
which permit insurers to set premium rates independently without the prior
approval of the insurance commissioners. A number of other states permit
insurers to deviate from standard rates for workers compensation insurance
after receiving prior approval. In insuring professional liability risks DPIC
is generally not limited to the standard rates of a rating organization but
establishes its own rates because of the unique nature of the risks being
underwritten. Ocean marine insurance rates are exempt from regulation.
Nonstandard and special risks, including nonstandard automobile insurance
rates, are generally not limited to the standard rates of national rating
bureaus. The Guaranty National Companies are permitted to file rates which are
usually higher than those charged for standard risks, reflecting the higher
probability of loss. Several states have recently adopted laws or their
legislatures are considering proposed laws which, among other things, limit
the ability of insurance companies to effect rate increases and to cancel,
reduce or not renew coverage with respect to existing policies, particularly
personal auto insurance.
Competition
- -----------
The insurance industry is highly competitive. Over 3,200 property and
casualty insurance companies write business in the United States, but most of
the business is written by about 900 companies. No single company or group
has more than 10% of the market. The Company's insurance subsidiaries are in
competition with numerous stock and mutual property and casualty insurance
companies, as well as state run workers compensation insurance funds, many of
which are substantially larger and have significantly greater resources than
the Company. Guaranty National limits its business to the relatively small
market for nonstandard lines of insurance, and more recently to standard lines
of commercial insurance in a limited geographical area.
-32-
<PAGE>
Competition may take the form of lower premiums, specialized products,
more complete and complex product lines, greater pricing flexibility,
superior service, different marketing methods, higher policyholder dividend
rates or better agent compensation. Superior service and marketing methods
are of particular importance in workers compensation. Competition might also
come from service organizations which administer self-insured workers
compensation programs.
The Company's insurance subsidiaries sell their insurance principally
through independent agents, brokers and general agents, who typically also
represent one or more competing insurance companies. They are paid
commissions based on premiums collected from insureds. Commission rates vary
according to the type and amount of insurance sold. Some competitors in
certain lines obtain their business at a lower direct cost through the use of
salaried personnel rather than independent agents and brokers.
Rating
- ------
A.M. Best Company rates the Company's wholly-owned active insurance
subsidiaries "A (Excellent)," and it rates Guaranty National Insurance Company
and its subsidiaries as "A (Excellent)" and Viking Insurance Company of
Wisconsin and its affiliate as "A- (Excellent)." In general, A.M. Best
Company's ratings are based on an analysis of the financial condition and
operation of an insurance company as it relates to the industry. These
ratings are not primarily designed for investors and do not constitute
recommendations to buy, sell or hold any security. A.M. Best Company has
upgraded the ratings of the Company's wholly-owned subsidiaries three times in
the last seven years.
Management believes that a significant change in its A.M. Best ratings
could affect the business of the subsidiary where ratings were altered,
including its relationship with its independent agents, positive in the case
of an upgrade or negative in the case of a downgrade.
MISCELLANEOUS OPERATIONS
The Company's fourth business segment consists primarily of the
miscellaneous income and expense (principally interest and general and
administrative expenses) of Orion itself. For financial reporting purposes,
the Company applies federal income taxes and benefits, as if fully utilizable,
to its segments. Any consolidating elimination entries are accounted for in
this fourth segment.
ITEM 2. PROPERTIES
The Company's executive office is located at 600 Fifth Avenue, New York,
New York. Other executive offices and the home office of the wholly-owned
insurance operations of the Company is located in Farmington, Connecticut.
The Company's New York executive office facilities consist of approximately
12,000 square feet and are leased at an average annual rental, over ten years,
-33-
<PAGE>
of $465,000. The Farmington office consists of approximately 140,000 square
feet and is leased at an annual rental of $4,310,000. DPIC owns its office
building, which consists of approximately 42,000 square feet, in Monterey,
California. The Guaranty National Companies owns facilities in Englewood,
Colorado; Madison, Wisconsin; Salem, Oregon; and Freeport, Illinois. Those
facilities consist, in the aggregate, of approximately 272,000 square feet.
All of the other insurance operations of the Company are conducted from
leased premises in or adjacent to major urban centers throughout the United
States, Puerto Rico, Canada and in Bermuda. These operations, in the
aggregate, occupy approximately 623,000 square feet, at an annual rental of
approximately $11,540,000.
The Company believes that its current facilities are suitable and
adequate for their present use and anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely engaged in litigation incidental to its
businesses. In the judgment of the Company's management, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
INFORMATION CONCERNING EXECUTIVE OFFICERS OF THE COMPANY
The following is a summary of certain information regarding the current
executive officers of Orion. All officers of Orion and its subsidiaries serve
at the pleasure of their respective Boards of Directors.
W. Marston Becker, Chairman and Chief Executive Officer of Orion since
January 1, 1997; Vice Chairman of the Board from March 8, 1996 to December 31,
1996; Senior Vice President of Orion and President and Chief Executive
Officer of the DPIC Companies and Senior Vice President of the Orion Capital
Companies ("OC Companies") since July 1994; President and Chief Executive
Officer of McDonough Caperton Insurance Group, an insurance brokerage firm,
from March 1987 to July 1994; age 44.
Jonathan H. Gice - Vice President of Orion since January 1, 1997;
President and Chief Executive Officer of EBI since July 1996; President of EBI
from March 1996 to July 1996; Executive Vice President of EBI from November
1994 to March 1996; Senior Vice President of EBI from April 1993 to November
1994; and Vice President, Claims of EBI from September 1989 to April 1993; age
46.
Stephen M. Mulready - Vice President of Orion since January 1, 1997;
President of Connecticut Specialty since November 1996; Senior Vice President
- - Strategic Underwriting and Product Development of Travelers/Aetna Property
Casualty Corporation from January 1996 to November 1996; Senior Vice President
- - National Commercial Accounts of Aetna Life & Casualty from 1994 to 1996;
Vice President, Field Operations - National Commercial Accounts of Aetna Life
& Casualty from 1991 to 1994; age 47.
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<PAGE>
Thomas M. Okarma - Vice President of Orion since January 1, 1997;
President and Chief Executive Officer of DPIC Companies since July 1996; Chief
Claims Officer of DPIC Companies from December 1995 to June 1996; President of
Professional Concepts Insurance Agency and Executive Vice President of AVA
Insurance Agency Inc. from February 1984 to November 1995; age 47.
Vincent T. Papa, Senior Vice President of Orion since January 1, 1997;
Vice President and Treasurer of Orion from June 1985 to December 31, 1996;
Chairman of McGee since September 1995; Senior Vice President of OC Companies
since March 1987 and Treasurer from December 1990 to March 1996; age 50.
Daniel L. Barry, Senior Vice President and Chief Financial Officer of
Orion since January 1, 1997; Vice President and Controller of Orion from
October 1987 to December 31, 1996; Vice Chairman of SecurityRe Inc. from 1989
to March 1997; Senior Vice President of OC Companies since January 1989;
Controller of OC Companies from October 1986 to December 31, 1996; age 46.
Raymond W. Jacobsen, Senior Vice President of Orion since July 1994; Vice
President of Orion from March 1990 to July 1994; Chairman of EBI since July
1996; President and Chief Executive Officer of EBI from June 1, 1993 to July
1996; Acting President and Chief Executive Officer of Connecticut Specialty
from October 1995 to November 1996; Executive Vice President of EBI from
December 1989 to May 1993; Senior Vice President of the OC Companies since
March 1990; age 44.
Michael P. Maloney, Senior Vice President, General Counsel and Secretary
of Orion since January 1, 1997; Vice President, General Counsel and Secretary
from August 1979 to December 31, 1996; Senior Vice President of OC Companies
since March 1987; age 52.
Raymond J. Schuyler, Senior Vice President and Chief Investment Officer of
Orion since January 1, 1997; Vice President-Investments from June 1984 to
December 31, 1996; Senior Vice President of OC Companies since March 1986; age
61.
Angelica T. Cantlon, Vice President of Orion since January 1, 1997; Vice
President - Human Resources of OC Companies since October 1994; Director -
Human Resources of Avon Products from 1985 to 1994; age 45.
Robert T. Claiborne - Vice President, Portfolio Manager and Director of
Research of Orion since January 1, 1997; Assistant Vice President and
Portfolio Manager, Director of Research from March 1994 to December 31, 1996;
Investment Analyst from September 1990 to March 1994; age 41.
Claudia F. Lindsey - Vice President of Orion since January 1, 1997; Vice
President - Business Development of the OC Companies since September 1996;
President of Strategic Marketing & Research, Inc. from 1995 to 1996; Vice
President of Anthem Financial from 1994 to 1995; Managing Partner & Chief
Financial Officer of McDonough Caperton Insurance Group from 1985 to 1994; age
41.
Victor L. Matthews - Vice President and Controller of Orion since January
1, 1997; Assistant Vice President and Assistant Controller from July 1990 to
December 31, 1996; age 40.
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<PAGE>
William G. McGovern, Vice President and Chief Actuary of Orion since
March 1990; Senior Vice President and Chief Actuary of OC Companies since
October 1989; age 44.
Craig A. Nyman - Vice President and Treasurer of Orion since January 1,
1997; Assistant Vice President and Assistant Treasurer from June 1988 to
December 31, 1996; Vice President and Treasurer of OC Companies since March
1996; Vice President and Assistant Treasurer of OC Companies from January 1991
to March 1996; age 41.
David B. Semeraro - Vice President of Orion since January 1, 1997; Vice
President and Chief Information Officer of OC Companies since April 1996; Vice
President - Business & Technology Solutions of Connecticut Mutual Life
Insurance Company from November 1990 to April 1996; age 49.
Kevin W. Sullivan - Vice President and Assistant Chief Investment Officer
of Orion since January 1, 1997; Assistant Vice President and Assistant Chief
Investment Officer from 1989 to December 31, 1996; age 41.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market. The principal market on which Orion's Common
Stock is traded is the New York Stock Exchange.
(b) Stock Price and Dividend Information. The table below presents
the high and low market prices and dividend information for Orion's Common
Stock for 1996 and 1995.
Cash
Stock Prices Dividends
High Low Declared
---- --- ---------
1996:
Quarter Ended December 31........ $63.00 $50.25 $ .28
Quarter Ended September 30....... 51.875 47.875 .25
Quarter Ended June 30............ 51.00 42.625 .25
Quarter Ended March 31........... 47.75 42.50 .25
-----
Total........................ $1.03
=====
1995:
Quarter Ended December 31........ $45.125 $39.875 $ .23
Quarter Ended September 30....... 45.25 38.375 .23
Quarter Ended June 30............ 40.25 34.50 .20
Quarter Ended March 31........... 37.875 34.25 .20
-----
Total........................ $ .86
=====
Cash dividends have been paid on Orion's Common Stock in every quarter
since the fourth quarter of 1978, when dividends were first commenced.
(c) Approximate Number of Holders of Common Stock. The number of
holders of record of Orion's Common Stock as of March 19, 1997 was 1,836.
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<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations and
financial condition of Orion and its subsidiaries. Common stock and per common share data
have been restated to give effect to the 5-for-4 stock split paid on November 15, 1993.
All of Orion's $1.90 Preferred Stock, $2.125 Preferred Stock and Adjustable Rate Preferred
Stock were converted into common stock or redeemed during 1992 and 1993. The Company
owned slightly less than 50% of Guaranty National until the Company increased its
ownership to 81% in July 1996. Guaranty National is included in the financial statements
of the Company on a consolidated basis for all of 1996. For 1992 through 1995 the
Company's investment in Guaranty National was accounted for using the equity method. The
Company's consolidated financial statements and related notes thereto are furnished under
Item 8 of this report.
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(000s omitted-except for per share data)
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Total revenues ............. $1,493,449 $ 874,280 $ 780,947 $ 720,155 $ 647,718
After-tax investment gains . 13,687 7,708 2,427 5,888 3,113
Operating earnings ......... 72,944 59,914 52,818 51,100 42,679
Earnings before cumulative
effect of change in
accounting principles and
extraordinary loss ....... 86,631 67,622 55,245 56,988 45,792
Net earnings................ 86,631 67,622 55,245 68,813 42,872
Operating earnings per
common share ............. 5.25 4.22 3.68 3.47 3.33
Earnings per common share
before cumulative effect
of change in accounting
principles and
extraordinary loss ....... 6.24 4.77 3.85 3.88 3.62
Net earnings per common
share..................... 6.24 4.77 3.85 4.69 3.35
Dividends declared -
Adjustable rate preferred
share .................. - - - 1.10 4.16
$1.90 preferred share .... - - - - 1.43
$2.125 preferred share ... - - - .12 2.125
Common share ............. 1.03 .86 .76 .68 .60
Weighted average number of
common shares and
equivalents outstanding... 13,894 14,187 14,348 14,598 10,914
As of December 31:
Total cash and investments.. $2,321,374 $1,606,445 $1,325,241 $1,328,969 $1,169,379
Total assets ............... 3,464,357 2,473,588 2,112,761 2,117,454 1,937,408
Total policy liabilities ... 2,304,402 1,596,033 1,450,835 1,412,285 1,326,872
Notes payable and debentures 310,904 209,148 152,382 160,372 129,863
Adjustable rate preferred
stock..................... - - - - 18,705
Minority interest........... 45,231 - - - -
Stockholders' equity ....... 576,733 490,903 365,088 394,195 311,287
Common shares outstanding... 13,769 13,953 14,041 14,372 13,100
Book value per common share. $ 41.89 $ 35.18 $ 26.00 $ 27.43 $ 21.48
</TABLE>
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<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Orion Capital Corporation ("Orion") and its majority-owned subsidiaries
(collectively the "Company") operate principally in the property and casualty
insurance business. The Company reports its insurance operations in three
segments - Regional Operations, Special Programs and Guaranty National
Corporation. Regional Operations provides workers compensation insurance
products through EBI Companies. Special Programs includes (i) DPIC Companies
("DPIC"), which markets professional liability insurance, (ii) Connecticut
Specialty, which writes specialty insurance programs, (iii) Wm. H. McGee &
Co., Inc. ("McGee"), an underwriting management company that specializes in
ocean marine, inland marine and commercial property insurance and (iv) a 24.8%
interest in Intercargo Corporation ("Intercargo") which underwrites insurance
coverages for international trade. The third segment, Guaranty National
Corporation, ("Guaranty National"), specializes in nonstandard commercial and
personal automobile insurance. The miscellaneous income and expenses
(primarily interest, general and administrative expenses and other
consolidating elimination entries) of the parent company are reported as a
fourth segment.
On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National common stock. Together with the open-market
purchase of 120,000 additional shares on July 17, 1996, the Company has
increased its ownership of Guaranty National from 49.5% to 81.0%. The
aggregate purchase price, including expenses, of approximately $88,206,000 was
paid in cash. The Company increased its investment in Guaranty National as
management believes it will provide a favorable investment return. The
Company's increased ownership percentage allows the Company's management to
become more involved in setting the strategic direction of Guaranty National.
It will also allow the inclusion of Guaranty National in Orion's consolidated
federal income tax return.
The purchases of Guaranty National shares were recorded as of June 30,
1996. All revenues and expenses of Guaranty National for 1996 have been
consolidated with those of the Company, and minority interest expense has been
recorded for the portion of Guaranty National's 1996 earnings that was
attributable to the shares not owned by the Company. For 1994 and 1995 the
Company's investment in Guaranty National was accounted for using the equity
method.
On June 30, 1995, Orion purchased all of the capital stock of McGee for
$22,000,000 in cash. McGee specializes in underwriting ocean marine, inland
marine and property insurance through an underwriting pool in the United
States and one in Canada. The business is written by McGee on behalf of the
insurance companies that comprise the pools. Orion's subsidiary, Security
Insurance Company of Hartford, which has been a pool member for over 100
years, is a member of both the United States and Canadian pools. The
Company's participation in the United States pool was 7%, 14.5% and 37% in
1994, 1995 and 1996, respectively. Participation in the Canadian pool was 10%
in 1994, 15% in 1995 and approximately 49% in 1996. The Company has agreed to
increase its rate of participation for 1997 to 52% in the United States and
60.5% in Canada.
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<PAGE>
The Company's insurance operations have experienced favorable trends for
the past several years, as indicated by its combined ratio which has improved
from 105.4% in 1992 to 103.2% in 1993, 101.2% in 1994, 100.3% in 1995 and
99.8% in 1996. Operating earnings (earnings after taxes, excluding the
effects of the adoption of new accounting principles, extraordinary items and
after-tax realized investment gains) were $72,944,000, $59,914,000 and
$52,818,000, or $5.25, $4.22 and $3.68 per share, in 1996, 1995 and 1994,
respectively, based on weighted average shares outstanding of 13,894,000 in
1996, 14,187,000 in 1995 and 14,348,000 in 1994. For the five year period
ended December 31, 1996, the Company's return on equity from operating
earnings averaged 14.3% per year.
RESULTS OF OPERATIONS
Earnings (loss) by segment before federal income taxes and minority
interest expense are summarized as follows for the three years in the period
ended December 31, 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Regional Operations .................. $ 68,371 $ 57,830 $ 42,514
Special Programs ..................... 44,052 43,241 34,117
Guaranty National Corporation ........ 35,727 4,466 11,244
-------- -------- --------
Total ............................ 148,150 105,537 87,875
Other ................................ (20,794) (17,502) (16,329)
-------- -------- --------
$127,356 $ 88,035 $ 71,546
======== ======== ========
</TABLE>
REVENUES
Premiums
Net premiums written increased 76.1% ($576,685,000) to $1,334,121,000 in
1996 from $757,436,000 in 1995 and 6.4% ($45,381,000) in 1995 from
$712,055,000 in 1994. The consolidation of Guaranty National increased the
Company's 1996 net premiums written by $491,232,000. The results by segment
are as follows:
- Regional Operations' net premiums written increased 6.1% ($20,443,000) to
$353,041,000 in 1996 from $332,598,000 in 1995 and 18.9% ($52,860,000) in
1995 from $279,738,000 in 1994. The premiums written increases were
primarily attributable to EBI's program of selective geographic expansion
and penetration, which included the opening of 18 branch offices in 1995
and 1996. The offices were opened in territories where the Company
believes it will benefit from its service oriented approach. The
increases were partially offset by the impact of legislative reforms in
certain states which have led to an increasingly competitive workers
compensation insurance marketplace with lower premium rates and a
concomitant decrease in commission expenses as well as a reduction in
losses.
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<PAGE>
- - Special Programs' net premiums written increased 15.3% ($65,010,000) to
$489,848,000 in 1996 and decreased 1.7% ($7,479,000) to $424,838,000 in
1995 from $432,317,000 in 1994. Net premiums written by DPIC for
professional liability insurance, the largest special program, were
$195,546,000, $184,130,000 and $173,205,000 in 1996, 1995 and 1994,
respectively. The premium increases of 6.2% in 1996 and 6.3% in 1995
(15.4% excluding a $13,704,000 premium refund received in 1994 from the
discontinuation of a reinsurance contract) reflect both new business and
a continuation of a high level of policy renewals in a very competitive
market. Premium volume for Connecticut Specialty increased 28.0%
($47,037,000) to $215,299,000 in 1996 and decreased 8.3% ($15,165,000) to
$168,262,000 in 1995 from $183,427,000 in 1994. Connecticut Specialty's
premiums were increased in both 1996 and 1995 from greater participation
in the underwriting pools managed by McGee and from increased premiums
written in low exposure professional liability programs. The increase in
1996 was also impacted by higher retention for most programs after a
change in reinsurance in May 1996, and offset in part by lower premiums
from other marine coverages. The decrease in 1995 resulted from the
cancellation in the second half of 1994 of a personal injury protection
program in Florida and an automobile physical damage program in Texas,
where the Company had unfavorable loss experience. The percentage of
treaty and facultative reinsurance assumed to total net premiums written
for this segment amounted to 16.1%, 17.1% and 17.5% in 1996, 1995 and
1994, respectively. In November 1996, the Company sold the renewal book
of business of its reinsurance operations in order to concentrate on
businesses where the Company can better service specialized niche
markets.
- - Guaranty National's net premiums written of $491,232,000 for 1996 have
been included in the Company's financial statements. Net premiums
written for Guaranty National were $397,899,000 in 1995. Guaranty
National's net premiums written for its personal lines, commercial lines,
and collateral protection unit increased 30.4%, 5.9% and 46.3%,
respectively, for 1996 as compared to 1995. The increase for personal
lines was the result of Guaranty National's acquisition of Viking
Insurance Company of Wisconsin ("Viking") in July 1995. Commercial lines
premium increases, which resulted from the expansion of automobile
physical damage and property programs, were partially offset by a planned
reduction in commercial automobile liability premiums. The increase in
the collateral protection unit was primarily due to two new products,
automobile financing GAP and mortgage fire insurance.
Premiums earned increased 73.7% ($551,749,000) to $1,300,752,000 in 1996
from $749,003,000 in 1995 and 8.4% ($57,780,000) in 1995 from $691,223,000 in
1994. The 1996 increase was attributable to the inclusion of Guaranty
National's premiums earned of $481,648,000, as well as the recognition in
income of increased premium writings from other operations.
Net Investment Income
Pre-tax net investment income amounted to $145,391,000, $99,040,000 and
$84,915,000 in 1996, 1995 and 1994, respectively. The pre-tax yields on the
average investment portfolio were 6.9% in 1996, 7.1% in 1995 and 6.5% in 1994,
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<PAGE>
with after-tax yields of 5.4%, 5.5% and 5.0%, respectively. Net investment
income increased in 1996 by the inclusion of Guaranty National's net
investment income of $40,089,000, as well as by increased earnings on a higher
investment base, notwithstanding a growing portfolio of lower yielding tax-
advantaged securities and the cash outlay to acquire Guaranty National common
stock. The year-to-year changes in net investment income also reflect
increases in equity earnings from limited partnership investments of
$6,889,000 from 1995 to 1996 and $8,510,000 from 1994 to 1995. Approximately
one-half of the 1996 increase in limited partnership earnings is attributable
to the inclusion of Guaranty National's partnership earnings. Earnings from
limited partnership investments can vary considerably from year-to-year.
However, the Company's long-term experience with these investments has been
quite favorable. The increase in net investment income for 1995 is also
attributable to a higher average portfolio yield on a higher investment base.
Net investment income was increased in both years by income generated from the
deployment of operating cash flow of $167,741,000 in 1996 and $148,017,000 in
1995. The carrying value of the Company's investment portfolio amounted to
$2,309,767,000 at December 31, 1996 and $1,602,861,000 at December 31, 1995.
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
$1,858,045,000 and $1,235,051,000 at December 31, 1996 and 1995, respectively,
or approximately 80.0% and 76.9% of the Company's cash and investments.
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 December 31, 1996 and 1995, the
Company's investment in non-investment grade and unrated fixed maturity
securities were carried at $219,473,000 and $139,075,000, respectively. The
1996 increases reflect the inclusion of Guaranty National's portfolio. These
investments represented a total of 9.5% and 8.7% of cash and investments and
6.3% and 5.6% of total assets at December 31, 1996 and 1995, respectively.
The Company monitors the financial condition of the issuers of securities
that it owns. When conditions are deemed appropriate, the Company ceases to
accrete discount, or accrue interest and dividends, and, in cases where the
value of such investments is deemed to be other than temporarily impaired,
recognizes losses. The Company's non-investment grade investments are highly
diversified, with an average investment per issuer of approximately $1,535,000
at December 31, 1996. Only one non-investment grade investment of $12,415,000
was in excess of $10,000,000 at December 31, 1996.
-41-
<PAGE>
Realized Investment Gains
Net realized investment gains amounted to $24,180,000 in 1996,
$11,885,000 in 1995 and $3,437,000 in 1994. Sales of equity securities
resulted in net gains of $22,428,000, $16,531,000 and $3,845,000 and sales of
fixed maturities resulted in net gains (losses) of $2,067,000, $(311,000) and
$723,000 in 1996, 1995 and 1994, respectively. Realized investment gains were
reduced by provisions for losses on securities deemed to be other than
temporarily impaired. These provisions amounted to $315,000 in 1996, $285,000
in 1995 and $381,000 in 1994 for equity securities and $1,119,000, $4,050,000
and $750,000 in 1996, 1995 and 1994, respectively, for fixed maturity
investments. Such provisions, based on available information at the time,
were made in consideration of the decline in the financial condition of the
issuers of these securities.
The performance of the Company's investments, including net investment
income, net realized gains (losses) and unrealized appreciation (depreciation)
is as follows for the three most recent years:
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
Net investment income ..................... $145,391 $ 99,040 $ 84,915
-------- -------- --------
Net realized gains (losses):
Fixed maturities ........................ 2,067 (4,361) (27)
Equity securities ....................... 22,113 16,246 3,464
-------- -------- --------
24,180 11,885 3,437
-------- -------- --------
Net unrealized appreciation (depreciation):
Fixed maturities ........................ (16,414) 89,932 (92,325)
Equity securities ....................... 18,461 34,002 (18,827)
-------- -------- --------
2,047 123,934 (111,152)
-------- -------- --------
$171,618 $234,859 $(22,800)
======== ======== ========
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. At December 31, 1996 the Company held equity securities with
unrealized appreciation of $73,523,000, and the market value of the fixed
maturities portfolio exceeded amortized cost by $43,410,000. Such amounts can
vary significantly depending upon fluctuations in the financial markets.
Equity securities had unrealized appreciation of $18,461,000 for 1996, even
after taking $22,428,000 of realized gains, which was largely offset by the
impact of a rise in the interest rates resulting in unrealized depreciation of
$16,414,000 for fixed maturities. The rise in market values during 1995 is
primarily attributable to the decline in interest rates during the year. The
average maturity of the Company's fixed maturities has not varied
significantly in recent years.
-42-
<PAGE>
EXPENSES AND OTHER
Operating Ratios
The following table sets forth certain ratios of insurance operating
expenses to premiums earned for the Company:
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Loss and loss adjustment expenses ....... 67.9% 68.4% 72.1%
Policy acquisition and other insurance
expenses .............................. 30.1 29.0 27.0
----- ----- -----
Total before policyholders' dividends . 98.0 97.4 99.1
Policyholders' dividends ................ 1.8 2.9 2.1
----- ----- -----
Total after policyholders' dividends .. 99.8% 100.3% 101.2%
===== ===== =====
The ratio of loss and loss adjustment expenses to premiums earned (the
"loss ratio") was 67.9%, 68.4% and 72.1% in 1996, 1995 and 1994, respectively.
The decreases in the 1996 and 1995 loss ratios were attributable to
improvements in both the Regional Operations and Special Programs segments,
offset in part by the consolidation of Guaranty National in 1996. The
Company's efforts to reduce its loss costs have had a very positive impact on
the Company's profitability.
The loss ratio for Regional Operations was 58.8% in 1996, 62.4% in 1995
and 67.1% in 1994. The improvement in the loss ratio for Regional Operations
results from the very favorable loss development and loss experience achieved
by EBI through its service oriented approach of working with its customers to
prevent losses and reduce claim costs. EBI has also had growth in high-
deductible policies where experience has been favorable.
Special Programs' loss ratio was 72.6% in 1996, 72.9% in 1995 and 75.4%
in 1994. The improvement in the 1996 loss ratio for this segment is primarily
attributable to a lower loss ratio for Connecticut Specialty, both from the
change in its reinsurance during 1996 and the impact on 1995 results of
certain cancelled programs which had unfavorable loss experience in 1995 and
1994. These improvements were offset in part by reserve strengthening for the
Company's pools and associations and reinsurance businesses and higher initial
reserving for DPIC in 1996. The decrease in the 1995 loss ratio for this
segment was primarily the result of favorable loss experience for DPIC and the
cancellation of the personal injury protection and automobile physical damage
Connecticut Specialty programs.
Guaranty National's loss ratio for its personal lines book of business
improved to 71.3% for 1996 from 78.6% for 1995. The commercial lines loss
ratio also improved to 72.1% in 1996 from 78.0% in 1995. The lower loss
ratios for 1996 are primarily attributable to Guaranty National having
significantly strengthened its loss reserves for both personal and commercial
lines in 1995 in response to adverse claim trends during 1995. Also during
1996, personal lines experienced lower claims severity and commercial lines
had lower overall claims severity and frequency.
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<PAGE>
The ratio of deferred acquisition costs and other insurance expenses to
premiums earned (the "expense ratio") was 30.1%, 29.0% and 27.0% in 1996, 1995
and 1994, respectively. The increases in the expense ratio are attributable
to the Company's continued investment in building its loss prevention and
claims management competencies as well as the costs of opening EBI offices in
new territories. The increase for 1996 was also the result of the change in
Connecticut Specialty's reinsurance, providing for lower ceding commissions,
and the consolidation of Guaranty National. The 1994 expense ratio reflects a
low level of assessments from certain assigned risk pools. The ratio of
policyholders' dividends to premiums earned (the "dividend ratio") was 1.8%,
2.9% and 2.1% in 1996, 1995 and 1994, respectively. The decrease in the
dividend ratio for 1996 results from the consolidation of premiums from
Guaranty National, which does not have participating policies. The increase
in the dividend ratio for 1995 is reflective of the lower loss ratios on
workers compensation insurance coverages. The Company's combined ratio was
99.8% in 1996, 100.3% in 1995 and 101.2% in 1994.
Provisions for losses and loss adjustment expenses include development of
loss and loss adjustment expense reserves relating to prior accident years,
which increased the calendar year combined ratio by .7 percentage point in
1996, 1.6 percentage points in 1995 and 2.5 percentage points in 1994. The
loss ratios were adversely affected by loss development in the pool and
association and reinsurance businesses, as well as from discontinued lines and
certain program business. This adverse development was reduced for 1994
through 1996 by favorable development in the workers compensation insurance
and professional liability lines of business from the improved application of
loss prevention and loss control procedures.
The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations. Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information
reported to the Company by the managers of those pools and associations. The
Company discontinued its participation in these reinsurance pools and
associations in the mid 1980's.
Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult. Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies. The disposition of such claims often requires lengthy and costly
litigation. Uncertainties as to required clean-up remedies and difficulties
in identifying the responsible parties add further to the complexity of
reserve estimation for these claims. In recent years, the Company has
intensified its efforts to settle and close environmental claims. To help
minimize the cost of losses and claims, the Company maintains a dedicated
environmental claims staff which administers and continually evaluates each
claim and its defense and settlement possibilities. In 1996 (including
Guaranty National), 1995 and 1994, the Company paid $4,771,000, $5,675,000 and
$7,233,000, respectively, for the costs of defending and settling such claims.
Payments in 1996, 1995 and 1994 related to 160, 213 and 292 claims,
respectively, for the Company's direct business. Claim counts have been
aggregated by year of coverage for each occurrence for which policyholders are
being defended, and often include numerous claimants.
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<PAGE>
As of December 31, 1996 and 1995, the Company has environmental claims-
related loss and loss adjustment expense reserves, net of reinsurance
recoverables, of $57,028,000 (including Guaranty National) and $34,559,000,
respectively, which include 632 and 474 claims, respectively, for direct
business written by the Company. In estimating liabilities for environmental-
related claims, the Company considers all pertinent information as it becomes
available.
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. However, there can be no assurance
that changes in loss trends will not result in additional development of prior
years' reserves in the future. Variability in claim emergence and settlement
patterns and other trends in loss experience can result in future development
patterns different than expected. The Company believes that any such
development will continue at the low levels experienced in recent years,
considering actions that have been taken to increase reserving levels, improve
underwriting standards and emphasize loss prevention and control. The
Company's loss ratios in recent years, including development of prior years'
losses, have compared favorably with loss ratios experienced by the industry.
The Company limits both current losses and future development of losses
by ceding business to reinsurers. The Company continually monitors the
financial strength of its reinsurers and, to the Company's knowledge, has no
material exposure with regard to potential unrecognized losses due to
reinsurers having known financial difficulties.
Interest Expense
Interest expense was $24,687,000 in 1996, $15,943,000 in 1995 and
$13,597,000 in 1994, increasing 54.8% in 1996 and 17.3% in 1995. Interest
expense increased in 1996 from the inclusion of interest on Guaranty
National's $100,000,000 bank debt, and increased in both 1995 and 1996 due to
higher average debt outstanding after the issuance of $100,000,000 of Senior
Notes by Orion on July 17, 1995, offset in part by the repayment of Orion's
bank debt at that time.
Other Expenses
Other expenses were $42,932,000, $24,740,000 and $7,862,000 in 1996, 1995
and 1994, respectively. The increases in both other income and other expenses
for 1996 and 1995 are primarily attributable to the inclusion of McGee's pool
management revenue and expenses after it was acquired by the Company on June
30, 1995.
Equity in Earnings of Affiliates
Equity in earnings of affiliates for 1996 consists of a loss of $389,000
recorded from the Company's investment in Intercargo. The Company records its
share of Intercargo's results in the subsequent quarter, and the loss for 1996
reflects a loss reported by Intercargo in the fourth quarter of 1995.
Earnings of $1,038,000 and $342,000 were recorded from the Intercargo
investment in 1995 and 1994, respectively. In 1995 and 1994 Guaranty National
was a non-majority owned affiliate of the Company and was therefore accounted
for using the equity method. Included in equity in net earnings of affiliates
from Guaranty National were $4,466,000 in 1995 and $11,244,000 in 1994.
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<PAGE>
Guaranty National became a majority-owned subsidiary in July 1996, and its
results have been consolidated in the Company's financial statements for all
of 1996. Minority interest expense of $8,692,000 was recorded for the after-
tax portion of Guaranty National's 1996 earnings attributable to stockholders
of Guaranty National other than the Company.
In June 1995 Guaranty National sold 1,550,000 shares of its common stock
in an offering under Regulation S of the Securities Act of 1933, as amended,
at a net offering price of $15.76 per share. The Company converted
$20,896,000 of Guaranty National subordinated notes it held into 1,326,128
shares of Guaranty National common stock at the net price received by Guaranty
National from the offering. The sale of stock and conversion of the
subordinated notes increased the stockholders' equity of Guaranty National and
facilitated the procurement of bank financing for Guaranty National's
acquisition of Viking in July 1995.
Earnings Before Federal Income Taxes and Minority Interest Expense
Earnings before federal income taxes and minority interest expense were
$127,356,000, $88,035,000 and $71,546,000 for 1996, 1995 and 1994,
respectively. The increases in pre-tax earnings of 44.7% and 23.0% for 1996
and 1995 reflect improvement in insurance operations profitability of
$27,026,000 and $8,041,000 and increases in realized investment gains of
$12,295,000 and $8,448,000, respectively.
Federal Income Taxes
Federal income taxes on pre-tax operating results and the related
effective tax rates amounted to $32,033,000 (25.2%), $20,413,000 (23.2%) and
$16,301,000 (22.8%) in 1996, 1995 and 1994, respectively. The Company files
consolidated federal income tax returns. The Company's effective tax rates
for 1996, 1995 and 1994 are less than the statutory tax rate of 35% primarily
because of income derived from tax-advantaged securities.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination. Accordingly, the Company recorded a credit to capital surplus in
1996 for tax benefits of $11,900,000 with respect to the 1976 reorganization.
The recording of this credit had no impact on the Company's earnings.
The liability for deferred taxes established by the Company through June
30, 1996 for its share of Guaranty National's undistributed earnings has been
reversed, resulting in a reduction of $21,547,000 in the amount of goodwill
recorded from the purchase of Guaranty National shares, with no effect on net
income.
Earnings Per Common Share
Primary earnings per common share amounted to $6.24 in 1996, $4.77 in
1995 and $3.85 in 1994. Fully diluted earnings per share is not presented as
dilution is less than three percent for all periods.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased $19,724,000 to
$167,741,000 in 1996 from $148,017,000 in 1995 and increased $29,238,000 in
1995 from $118,779,000 in 1994. The increase for 1996 is attributable to
including Guaranty National's cash flow in the Company's consolidated
financial statements. The increase in operating cash flow for 1995 was the
result of an increase in premiums collected, net investment income received
and lower paid losses, offset in part by higher payments for policy
acquisition costs and federal income taxes. Cash flow for 1995 included a
disbursement of $7,800,000 under a retrospectively rated program written by
DPIC. In 1994 operating cash flow included a $10,223,000 receipt from DPIC's
discontinuation of a reinsurance contract.
Cash used in investment activities decreased $56,079,000 to $132,369,000
in 1996 from $188,448,000 in 1995 and increased $102,263,000 in 1995 from
$86,185,000 in 1994. Cash is used in investment activities primarily for
purchases of investments. The purchases are funded by maturities and sales of
investments, as well as by the net cash from positive operating cash flows
after cash provided by or used in financing activities. In July 1996 the
Company purchased Guaranty National common stock for cash of approximately
$88,206,000, including expenses. In June 1995 Orion paid $22,000,000 in cash
plus acquisition costs to acquire McGee.
Cash used in financing activities was $27,336,000 for 1996. Cash of
$37,778,000 was provided by financing activities in 1995 and cash of
$32,582,000 was used in 1994. Orion borrowed $12,000,000 under its bank line
of credit in June 1995 to finance part of the McGee acquisition. In July 1995
Orion issued $100,000,000 of senior debt and repaid all of its outstanding
bank debt. Cash used in financing activities includes dividend payments, debt
repayments and payments related to the Company's common stock repurchase
program. Orion increased the quarterly dividend rate on its common stock by
11.1% and 15.0% in the third quarters of 1994 and 1995, respectively, and by
an additional 8.7% and 12.0% in the first and fourth quarters of 1996,
respectively.
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. Orion received $35,286,000, $30,546,000 and
$30,013,000 in dividends, $7,410,000, $6,232,000 and $5,735,000 for overhead
expenses and federal tax payments of $7,455,000, $4,500,000 and $6,000,000
from its insurance subsidiaries in 1996, 1995 and 1994, respectively.
Payments of dividends by Orion's insurance subsidiaries must comply with
insurance regulatory limitations concerning stockholder dividends and capital
adequacy. State insurance regulators have broad discretionary authority with
respect to limitations on the payment of dividends by insurance companies.
Limitations under current regulations are well in excess of Orion's cash
requirements.
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<PAGE>
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
$293,477,000 and $123,457,000 at December 31, 1996 and 1995, respectively.
Orion's insurance subsidiaries had consolidated policyholders' surplus of
$670,572,000 on a combined basis with Guaranty National at December 31, 1996
and $521,510,000 including the market value of the Company's investment in
Guaranty National at December 31, 1995, and statutory operating leverage
ratios of net premiums written to policyholders' surplus of 2.0:1 and 1.5:1 at
December 31, 1996 and 1995, respectively.
On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 in a public offering pursuant to a shelf registration
filed with the Securities and Exchange Commission in 1994. The senior notes
issued are non-callable to maturity, and were sold at 99.23% of par to yield
7.36% per annum. The net proceeds from the offering were $98,113,000, of
which $46,500,000 was used to repay all of Orion's debt under its bank loan
agreement.
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 guarantees 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 December 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.
On June 2, 1995 Guaranty National entered into a $110,000,000 credit
agreement (the "Credit Agreement") with several participating banks. The
Credit Agreement provides for an unsecured reducing revolving credit facility,
which was used to fund the Viking acquisition, to retire the outstanding
balance of $29,000,000 under Guaranty National's previous revolving line of
credit, and for working capital and general corporate purposes. As of
December 31, 1996, the outstanding loan balance under the Credit Agreement was
$100,000,000, with an interest rate of 6.24%. Principal payments are due
beginning April 15, 1999, until the loan is retired in 2002. Guaranty
National has two interest rate swap agreements with banks which effectively
change the interest rate exposure on $80,000,000 of the loan to a fixed rate
of approximately 6.3% through March 16, 1998. Guaranty National is in
compliance with the various covenants and restrictions in the Credit
Agreement.
The Company repurchased 241,114 shares, 173,181 shares and 442,327 shares
of its common stock at an aggregate cost of $11,148,000, $7,183,000 and
$13,745,000 in 1996, 1995 and 1994, respectively. The Company's remaining
stock purchase authorization from its Board of Directors amounted to
$4,514,000 at December 31, 1996.
-48-
<PAGE>
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 January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Debentures due January 1, 2037 to Orion Capital Trust I, a
Delaware statutory business trust sponsored by Orion. Orion Capital Trust I
then sold $125,000,000 of 8.73% Capital Securities which mature on January 1,
2037 (the "Capital Securities") in a private placement. The net proceeds from
the sale of the Capital Securities will be used for general corporate
purposes. The Capital Securities are subordinate to all liabilities of the
Company, and may be redeemed without premium on or after January 1, 2007.
Orion agreed to register the Capital Securities under the Securities Act of
1933, and has accordingly filed a registration statement with the Securities
and Exchange Commission.
FORWARD-LOOKING STATEMENTS
All statements made in this Annual Report 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 factors include,
among other things, (i) general economic and business conditions; (ii)
interest rate changes; (iii) competition and regulatory environment in which
the Company operates; (iv) claims frequency; (v) claims severity; (vi) medical
cost inflation; (vii) increases in the cost of property repair; (viii) the
number of new and renewal policy applications submitted to the Company; and
(ix) other factors over which the Company has 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.
-49-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Orion Capital Corporation is responsible for the
consolidated financial statements and the information included therein. The
consolidated financial statements are fairly presented and have been prepared
in accordance with generally accepted accounting principles appropriate in the
circumstances, and, where necessary, include amounts based on management's
informed estimates and judgments.
The Company has a system of internal controls which it believes provides
reasonable assurance that assets are safeguarded from loss or unauthorized
use, that transactions are recorded in accordance with management's policies
and that the financial records are reliable for preparing financial
statements. The system of internal controls includes written policies and
procedures which are communicated to all appropriate personnel and updated as
necessary.
Compliance with the system of internal controls is continuously
maintained and monitored by management. The internal audit staff of the
Company evaluates and reports on the adequacy of and adherence to these
controls, policies and procedures. In addition, as part of its audit of the
consolidated financial statements, Deloitte & Touche LLP, the independent
auditors for the Company, perform an evaluation of the system of internal
controls to the extent they consider necessary to express an opinion on the
consolidated financial statements. Recommendations concerning the system of
internal controls are provided by both the internal auditors and Deloitte &
Touche LLP, and management takes actions which are believed to be appropriate
responses to these recommendations.
The Audit and Information Services Committee of the Board of Directors is
comprised of independent directors, and has general responsibility for
oversight of financial controls and audit activities of the Company and its
subsidiaries. The Audit and Information Services Committee, which reports to
the Board, annually reviews the qualifications of the independent auditors and
meets periodically with them, the internal auditors and management to review
the plans and results of the audits. Both internal and independent auditors
have free access to the Audit and Information Services Committee, without
members of management present, to discuss the adequacy of the system of
internal controls and any other matters which they believe should be brought
to the attention of the Committee.
W. Marston Becker Daniel L. Barry
Chairman & Chief Executive Officer Chief Financial Officer
-50-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orion Capital Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Orion
Capital Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a)2. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Orion Capital Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 14, 1997
-51-
<PAGE>
<TABLE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000s omitted)
ASSETS
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Investments:
Fixed maturities at amortized cost (market
$334,755 - 1996 and $276,282 - 1995) .......... $ 326,841 $ 265,169
Fixed maturities at market (amortized cost
$1,169,812 - 1996 and $748,008 - 1995) ........ 1,205,308 782,869
Common stocks at market (cost $136,631 - 1996
and $108,211 - 1995) .......................... 209,281 158,895
Non-redeemable preferred stocks at market (cost
$151,439 - 1996 and $149,167 - 1995) .......... 152,312 145,990
Other long-term investments ..................... 90,129 62,925
Short-term investments .......................... 325,896 187,013
---------- ----------
Total investments ............................ 2,309,767 1,602,861
Cash .............................................. 11,607 3,584
Accrued investment income ......................... 25,724 19,290
Investments in affiliates ......................... 22,170 125,731
Accounts and notes receivable (less allowance
for doubtful accounts $3,696 - 1996 and
$3,212 - 1995) .................................. 181,495 137,197
Reinsurance recoverables and prepaid reinsurance .. 517,209 360,052
Deferred policy acquisition costs ................. 136,168 77,673
Property and equipment (less accumulated
depreciation $33,953 - 1996 and $23,223 - 1995).. 68,763 34,009
Excess of cost over fair value of net assets
acquired (less accumulated amortization
$25,633 - 1996 and $19,119 - 1995) .............. 81,198 50,199
Deferred federal income taxes ..................... 23,554 8,726
Other assets ...................................... 86,702 54,266
---------- ----------
Total assets ................................. $3,464,357 $2,473,588
========== ==========
<FN>
See Notes to Consolidated Financial Statements
-52-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000s omitted - except for share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ........................................ $1,421,920 $1,007,016
Loss adjustment expenses ...................... 363,744 267,966
Unearned premiums ............................. 496,249 302,105
Policyholders' dividends ...................... 22,489 18,946
---------- ----------
Total policy liabilities .................... 2,304,402 1,596,033
Notes payable ................................... 310,904 209,148
Other liabilities ............................... 227,087 177,504
---------- ----------
Total liabilities ........................... 2,842,393 1,982,685
---------- ----------
Commitments and Contingencies (Notes J and K)
Minority interest ................................. 45,231 -
---------- ----------
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 ................................. 158,587 146,658
Net unrealized investment gains, net of federal
income taxes of $31,674 - 1996 and $26,691 -
1995 .......................................... 72,260 63,255
Net unrealized foreign exchange translation
losses, net of federal income taxes (benefits)
of $414 - 1996 and $(540) - 1995 .............. (2,164) (3,935)
Retained earnings ............................... 370,793 298,452
Treasury stock, at cost (1,569,115 shares - 1996
and 1,385,012 shares - 1995) .................. (34,980) (26,534)
Deferred compensation on restricted stock ....... (3,101) (2,331)
---------- ----------
Total stockholders' equity .................. 576,733 490,903
---------- ----------
Total liabilities and stockholders' equity... $3,464,357 $2,473,588
========== ==========
<FN>
See Notes to Consolidated Financial Statements
-53-<PAGE>
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(000s omitted - except for per share data)
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premiums earned ................................... $1,300,752 $749,003 $691,223
Net investment income ............................. 145,391 99,040 84,915
Realized investment gains ......................... 24,180 11,885 3,437
Other income ...................................... 23,126 14,352 1,372
---------- -------- --------
Total revenues .................................. 1,493,449 874,280 780,947
---------- -------- --------
Expenses:
Losses incurred ................................... 694,534 388,409 386,685
Loss adjustment expenses .......................... 188,458 123,824 111,438
Amortization of deferred policy acquisition costs . 363,547 195,481 165,108
Other insurance expenses .......................... 27,912 21,562 21,461
Dividends to policyholders ........................ 23,634 21,790 14,836
Interest expense .................................. 24,687 15,943 13,597
Other expenses .................................... 42,932 24,740 7,862
---------- -------- --------
Total expenses .................................. 1,365,704 791,749 720,987
---------- -------- --------
Earnings before equity in earnings of affiliates,
federal income taxes and minority interest expense 127,745 82,531 59,960
Equity in earnings (loss) of affiliates ............. (389) 5,504 11,586
---------- -------- --------
Earnings before federal income taxes and minority
interest expense .................................. 127,356 88,035 71,546
Federal income taxes ................................ 32,033 20,413 16,301
Minority interest expense ........................... 8,692 - -
---------- -------- --------
Net earnings ...................................... $ 86,631 $ 67,622 $ 55,245
========== ======== ========
Net earnings per common share ..................... $ 6.24 $ 4.77 $ 3.85
========== ======== ========
<FN>
See Notes to Consolidated Financial Statements
-54-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000s omitted)
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common Stock ................................ $ 15,338 $ 15,338 $ 15,338
======== ======== ========
Capital surplus:
Balance, beginning of year ................ $146,658 $147,598 $148,167
Issuance of common stock .................. - 152 -
Exercise of stock options and issuance /
cancellation of restricted stock ........ 29 (1,092) (569)
Recognition of pre-reorganization federal
income tax benefits ..................... 11,900 - -
-------- -------- --------
Balance, end of year ...................... $158,587 $146,658 $147,598
======== ======== ========
Net unrealized investment gains (losses):
Balance, beginning of year ................ $ 63,255 $(11,498) $ 49,566
Change in unrealized investment gains
(losses), net of taxes .................. 9,005 74,753 (61,064)
-------- -------- --------
Balance, end of year ...................... $ 72,260 $ 63,255 $(11,498)
======== ======== ========
Net unrealized foreign exchange translation
losses:
Balance, beginning of year ................ $ (3,935) $ (3,959) $ (3,665)
Change in unrealized foreign exchange
translation losses, net of taxes ........ 1,771 24 (294)
-------- -------- --------
Balance, end of year ...................... $ (2,164) $ (3,935) $ (3,959)
======== ======== ========
Retained earnings:
Balance, beginning of year ................ $298,452 $242,908 $198,491
Net earnings .............................. 86,631 67,622 55,245
Dividends declared ........................ (14,290) (12,078) (10,828)
-------- -------- --------
Balance, end of year ...................... $370,793 $298,452 $242,908
======== ======== ========
Treasury stock:
Balance, beginning of year ................ $(26,534) $(22,451) $(12,182)
Issuance of common stock .................. - 770 -
Exercise of stock options and issuance /
cancellation of restricted stock ........ 2,702 2,330 3,476
Acquisition of treasury stock ............. (11,148) (7,183) (13,745)
-------- -------- --------
Balance, end of year ...................... $(34,980) $(26,534) $(22,451)
======== ======== ========
Deferred compensation on restricted stock:
Balance, beginning of year ................ $ (2,331) $ (2,848) $ (1,520)
Issuance / cancellation of restricted stock (1,827) (517) (2,247)
Amortization of deferred compensation on
restricted stock ........................ 1,057 1,034 919
-------- -------- --------
Balance, end of year ...................... $ (3,101) $ (2,331) $ (2,848)
======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
-55-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000s omitted)
Year Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Premiums collected ........................ $1,330,319 $ 738,083 $ 696,735
Net investment income collected ........... 127,036 91,964 83,603
Losses and loss adjustment expenses paid .. (794,889) (409,797) (437,386)
Policy acquisition costs paid ............. (387,685) (204,319) (185,217)
Dividends paid to policyholders ........... (20,091) (15,495) (14,708)
Interest paid ............................. (24,071) (12,530) (12,931)
Federal income tax payments ............... (30,274) (18,756) (10,860)
Other payments ............................ (32,604) (21,133) (457)
---------- --------- ---------
Net cash provided by operating
activities ............................ 167,741 148,017 118,779
---------- --------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments
held-to-maturity ........................ 34,648 36,804 55,200
Maturities of fixed maturity investments
available-for-sale ...................... 144,231 12,640 28,839
Sale of fixed maturity held-to-maturity ... - - 1,155
Sales of fixed maturities
available-for-sale ...................... 250,858 184,501 88,804
Sales of equity securities................. 153,233 78,351 49,881
Investments in fixed maturities
held-to-maturity ........................ (8,609) (41,709) (53,230)
Investments in fixed maturities
available-for-sale ...................... (449,516) (278,173) (156,927)
Investments in equity securities .......... (83,427) (64,450) (84,582)
Purchase of Guaranty National common stock. (88,628) - -
Acquisition of McGee ...................... - (22,355) -
Effect on cash of consolidating Guaranty
National in 1996 and McGee in 1995....... 6,794 349 -
Net purchases of short-term investments ... (78,096) (83,617) (7,505)
Other payments ............................ (13,857) (10,789) (7,820)
---------- --------- ---------
Net cash used in investing activities ... (132,369) (188,448) (86,185)
---------- --------- ---------
<PAGE>
Cash flows from financing activities:
Proceeds from issuance of notes payable ... - 110,413 -
Proceeds from exercise of stock options ... 42 246 598
Repayment of notes payable ................ (1,313) (54,500) (8,000)
Dividends paid to stockholders ............ (13,648) (11,674) (10,609)
Dividends paid to minority stockholders.... (1,721) - -
Purchases of common stock ................. (10,743) (6,689) (14,220)
Other receipts (payments) ................. 47 (18) (351)
---------- --------- ---------
Net cash provided by (used in) financing
activities ............................ (27,336) 37,778 (32,582)
---------- --------- ---------
Effect of foreign exchange rate changes
on cash ................................... (13) 36 (244)
---------- --------- ---------
Net increase (decrease) in cash ......... 8,023 (2,617) (232)
Cash balance, beginning of year ............. 3,584 6,201 6,433
---------- --------- ---------
Cash balance, end of year ................... $ 11,607 $ 3,584 $ 6,201
========== ========= =========
<FN>
See Notes to Consolidated Financial Statements
-56-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(000s omitted)
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ................................. $ 86,631 $ 67,622 $ 55,245
-------- -------- --------
Adjustments:
Depreciation and amortization .............. 12,063 5,900 4,936
Amortization of excess of cost over fair
value of net assets acquired ............. 3,096 1,533 1,172
Deferred federal income taxes .............. 9,999 (5,165) 9,906
Amortization of fixed maturity investments . 1,432 815 1,700
Non-cash investment income ................. (17,778) (11,272) (2,840)
Equity in (earnings) loss of affiliates .... 389 (5,504) (11,586)
Dividends received from affiliates ......... 302 2,597 3,295
Realized investment gains .................. (24,180) (11,885) (3,437)
Minority interest expense .................. 8,692 - -
Foreign exchange transaction adjustment .... 1,083 163 257
Other....................................... 952 (43) (38)
Changes in assets and liabilities (net of
effects of acquiring Guaranty National in
1996 and McGee in 1995):
Decrease (increase) in accrued investment
income ................................... 1,179 (952) 259
Decrease (increase) in accounts and notes
receivable ............................... 7,497 (11,488) (13,593)
Decrease (increase) in reinsurance
recoverables and prepaid reinsurance ..... (77,999) (24,020) 57,277
Increase in deferred policy acquisition
costs .................................... (20,858) (7,536) (12,615)
Increase in other assets ................... (34,302) (18,405) (7,589)
Increase in losses ......................... 115,202 54,485 14,756
Increase in loss adjustment expenses ....... 32,363 39,168 26,170
Increase (decrease) in unearned premiums ... 58,906 45,250 (2,504)
Increase in policyholders' dividends ....... 3,543 6,295 128
Increase (decrease) in other liabilities ... (471) 20,459 (2,120)
-------- -------- --------
Total adjustments and changes ............ 81,110 80,395 63,534
-------- -------- --------
Net cash provided by operating activities .. $167,741 $148,017 $118,779
======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
-57-
/TABLE
<PAGE>
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
Note A - Significant Accounting Policies
Basis of Financial Statement Presentation - Orion Capital Corporation
("Orion") and its majority-owned subsidiaries (collectively the "Company")
operate principally in the property and casualty insurance business. The
Company reports its insurance operations in three segments - Regional
Operations, Special Programs and Guaranty National Corporation. Regional
Operations provides workers compensation insurance products through EBI
Companies. Special Programs includes (i) DPIC Companies ("DPIC"), which
markets professional liability insurance, (ii) Connecticut Specialty, which
writes specialty insurance programs, (iii) Wm. H. McGee & Co., Inc. ("McGee"),
an underwriting management company that specializes in ocean marine, inland
marine and commercial property insurance and (iv) a 24.8% interest in
Intercargo Corporation ("Intercargo") which underwrites insurance coverages
for international trade. The third segment, Guaranty National Corporation,
("Guaranty National"), specializes in nonstandard commercial and personal
automobile insurance. The miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment.
The consolidated financial statements and notes thereto are presented in
accordance with generally accepted accounting principles ("GAAP") for property
and casualty insurance companies and include the accounts of Orion and its
majority-owned subsidiaries. The Company's investments in unconsolidated
affiliates are accounted for using the equity method (See Note D). All
material intercompany balances and transactions have been eliminated. The
preparation of the Company's consolidated financial statements in conformity
with GAAP requires Company management to make estimates and assumptions that
affect the amounts reported in these consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Regulation - The Company's insurance subsidiaries are subject to
comprehensive regulation by various state insurance departments including
regulations limiting dividend payments to Orion and intercompany transactions.
Under these regulations, the maximum dividends permitted at December 31, 1996
for the ensuing twelve months, without prior approval, aggregated
$102,138,000, including $25,307,000 from subsidiaries of Guaranty National.
However, state insurance regulators have broad discretionary authority with
respect to approving the payment of dividends by insurance companies.
Policyholders' surplus of Orion's insurance subsidiaries determined in
accordance with prescribed statutory accounting practices amounted to
$670,572,000 on a combined basis with Guaranty National at December 31, 1996
and $521,510,000 including the market value of the Company's investment in
Guaranty National at December 31, 1995. Statutory net income amounted to
$107,866,000, $83,842,000 and $61,518,000 for 1996, 1995 and 1994,
respectively.
-58-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash - For purposes of the consolidated statement of cash flows, the
Company considers only demand deposit accounts to be cash.
Investments - Fixed maturity investments include bonds, preferred stocks
with mandatory redemption features, and certificates of deposit that mature
more than one year after the balance sheet date. Fixed maturity investments
that 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. Common stocks and non-
redeemable preferred stocks are also carried at market value. Fluctuations in
the market value of these available-for-sale securities are recorded as
unrealized investment gains or losses and credited or charged to stockholders'
equity. Other long-term investments principally include equity ownership
interests in limited partnerships, which are recorded using the equity method
of accounting. Short-term investments include certificates of deposit and
commercial paper which mature within one year of the balance sheet date, money
market accounts and United States Treasury Bills. Market values are generally
based on quoted market prices or dealer quotes. Realized investment gains and
losses, including provision for other than temporary impairment of investment
securities, are recognized on the specific identification method.
Deferred Policy Acquisition Costs - Costs that vary with, and are
directly related to, the production of new and renewal business are deferred
and amortized as the related premiums are earned. The test for recoverability
of such deferred costs includes the consideration of net investment income.
Excess of Cost Over Fair Value of Net Assets Acquired - The excess of the
cost of acquiring subsidiaries over the fair value of their net assets
("goodwill") is amortized on a straight-line basis over periods of 25 to 40
years. The Company evaluates the recoverability of goodwill from expected
future cash flows, and impairments would be recognized in operating results if
a permanent diminution in value were to occur.
Revenue Recognition - Premiums are earned on a daily pro rata basis over
the policy period. A provision is made for anticipated retrospective premium
adjustments and audit premiums. Direct and assumed premiums are reduced for
reinsurance ceded to other insurers.
-59-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Policy Liabilities and Reinsurance - Loss and loss adjustment expense
liabilities are established in consideration of individual cases for reported
losses and past experience for incurred but not yet reported losses ("IBNR").
Estimated reinsurance receivables are recognized in a manner consistent with
the liabilities relating to the underlying reinsured contracts. At December
31, 1996 and 1995, long-term disability workers compensation loss reserves are
carried at $54,832,000 and $56,603,000, respectively, in the consolidated
financial statements at net present value using a statutory interest rate of
3.5%. Policyholders' dividends on participating policies are accrued at
estimated payment rates as the related premiums are earned. Participating
business represented 17% and 24% of premiums in-force at December 31, 1996 and
1995, respectively. As a percent of premiums earned, participating business
amounted to 16% in 1996, 24% in 1995 and 21% in 1994.
Federal Income Taxes - The Company recognizes taxes payable or refundable
for the current year, and deferred taxes for the future tax consequences of
differences between the financial reporting and tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse.
Earnings Per Common Share - Earnings per common share is computed using
the weighted average common and dilutive common equivalent shares outstanding.
Reclassifications - The 1995 and 1994 consolidated financial statements
have been reclassified to conform to the classifications used in 1996.
Note B - Purchase of Guaranty National Corporation Common Stock
On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National common stock. Together with the open-market
purchase of 120,000 additional shares on July 17, 1996, the Company has
increased its ownership of Guaranty National from 49.5% to 81.0%. The
aggregate purchase price, including expenses, of approximately $88,206,000 was
paid in cash.
The purchases of Guaranty National shares were recorded as of June 30,
1996 using the purchase method of accounting. All revenues and expenses of
Guaranty National for 1996 have been consolidated with those of the Company,
and minority interest expense has been recorded for the portion of Guaranty
National's 1996 earnings that was attributable to the shares not owned by the
Company.
-60-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The increase in the Company's ownership to over 80% of Guaranty
National allows the inclusion of Guaranty National in Orion's consolidated
federal income tax return, as well as the reversal of a deferred tax
liability previously established by the Company for its share of the
undistributed earnings of Guaranty National. The excess of cost over the
estimated fair value of the 31.5% interest in Guaranty National's net
assets acquired during 1996 was $9,080,000, after the reversal of
$21,547,000 of deferred taxes, and will be amortized over 28 years, which
is the remaining amortization period for goodwill recorded upon Orion's
initial investment in Guaranty National.
On July 18, 1995 Guaranty National acquired Viking Insurance Holdings,
Inc., and its subsidiaries ("Viking"), in a business combination accounted
for as a purchase. Viking is a property and casualty insurance company
writing nonstandard personal automobile insurance, primarily in the state
of California. The results of operations of Viking are included in
Guaranty National's financial statements since the date of acquisition.
The total cost of the acquisition was $97,225,000, with total cash paid of
approximately $95,559,000, including acquisition expenses. The total
consideration exceeded the fair value of the net assets of Viking by
approximately $10,612,000, which is being amortized over 40 years.
Pro forma information as if the Guaranty National shares had been
purchased as of the beginning of each of the years ended December 31, 1996
and 1995, and as if the Viking acquisition had occured as of January 1,
1995, is as follows:
Year Ended
December 31,
----------------------
1996 1995
---- ----
(000s omitted)
Total revenues ................................ $1,491,212 $1,380,857
========== ==========
Net earnings .................................. $ 91,573 $ 67,447
========== ==========
Net earnings per common share ................. $ 6.59 $ 4.75
========== ==========
-61-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note C - Acquisition of Wm. H. McGee & Co., Inc.
On June 30, 1995, Orion purchased all of the capital stock of McGee
for $22,000,000 in cash, and incurred acquisition expenses of $355,000.
McGee specializes in underwriting ocean marine, inland marine and
commercial property insurance through an underwriting pool in the United
States and one in Canada. The business is written by McGee on behalf of
the insurance companies that comprise the pools. The Company's
participation in the United States pool was 7%, 14.5% and 37% in 1994, 1995
and 1996, respectively. Participation in the Canadian pool was 10% in
1994, 15% in 1995 and approximately 49% in 1996. The Company has agreed to
increase its rate of participation for 1997 to 52% in the United States and
60.5% in Canada. The acquisition has been accounted for by the purchase
method, and McGee's operations are included in the Company's results of
operations from July 1, 1995. The Company recorded $22,317,000 for the
excess of cost over the estimated fair value of the net assets acquired,
which is being amortized over a 30 year period. The proforma consolidated
results of the Company's operations, as if the purchase had been made as of
the beginning of 1995, would not be materially different than reported
herein.
Note D - Investments in Affiliates
Investments in affiliates include the Company's interest in Guaranty
National through December 31, 1995, and the Company's 24.8% interest in
Intercargo, both publicly-held companies. The Company's financial
statements include the portion of Guaranty National's and Intercargo's
results attributable to the Company's ownership on an equity accounting
basis. The Company records its share of Intercargo's operating results in
the subsequent quarter, after Intercargo has reported its financial
results. The carrying values of the Company's investments in affiliates
were $22,170,000 at December 31, 1996 and $125,731,000 at December 31,
1995, with market values of $16,262,000 and $128,120,000, respectively.
The carrying value of the Company's investment in Intercargo included
$11,022,000 of goodwill at December 31, 1996.
In June 1995 Guaranty National sold 1,550,000 shares of its common
stock in an offering under Regulation S of the Securities Act of 1933, as
amended, at a net offering price of $15.76 per share. The Company
converted $20,896,000 of Guaranty National subordinated notes it held into
1,326,128 shares of Guaranty National common stock at the net price
received by Guaranty National from the offering. The sale of stock and
conversion of the subordinated notes increased the stockholders' equity of
Guaranty National and facilitated the procurement of financing for Guaranty
National's acquisition of Viking in July 1995.
Transactions with Guaranty National for 1995 and 1994 reported in the
consolidated statement of earnings include interest income on the Guaranty
National subordinated notes of $1,101,000 and $1,640,000 and investment
management fee income of $595,000 and $550,000 respectively, and interest
expense on a mortgage participation loan of $407,000 in both years.
-62-
<PAGE>
<TABLE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized financial information for the Company's affiliates is set
forth below:
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Revenues:
Premiums earned ................ $ 66,324 $ 474,534 $ 376,444
Realized investment gains ...... - 3,291 3,007
Investment and other income .... 5,688 38,422 28,090
---------- ---------- ----------
72,012 516,247 407,541
---------- ---------- ----------
Expenses:
Insurance expenses ............. 74,019 490,952 367,501
Interest and other ............. 785 7,452 5,428
---------- ---------- ----------
74,804 498,404 372,929
---------- ---------- ----------
Earnings (loss) before equity in
earnings of affiliate and
federal income taxes ........... (2,792) 17,843 34,612
Equity in earnings of affiliate .. 2,469 - -
Federal income (taxes) benefit ... 225 (1,482) (8,734)
---------- ---------- ----------
Net earnings (loss) ............ $ (98) $ 16,361 $ 25,878
========== ========== ==========
The Company's proportionate share,
including amortization of
goodwill ....................... $ (389) $ 5,504 $ 11,586
========== ========== ==========
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
(000s omitted)
<S> <C> <C>
Cash and investments ............................ $ 75,269 $ 714,584
Other assets .................................... 49,560 306,307
---------- ----------
124,829 1,020,891
Policy liabilities .............................. (57,608) (582,884)
Notes payable ................................... (9,735) (112,735)
Other liabilities ............................... (12,541) (63,341)
---------- ----------
Stockholders' equity ............................ $ 44,945 $ 261,931
========== ==========
-63-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note E - Investments
The amortized cost and estimated market values of investments in fixed
maturities, equity securities and short-term investments are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
- ----------------- ---------- ---------- ---------- ---------
(000s omitted)
<S> <C> <C> <C> <C>
Held-to-maturity securities:
United States Government
and government agencies
and authorities ........... $ 119,058 $ 1,917 $ (1,131) $ 119,844
States, municipalities and
political subdivisions .... 179,465 6,273 (172) 185,566
Foreign governments ......... 50 - - 50
Corporate securities ........ 28,268 1,030 (3) 29,295
---------- -------- -------- ----------
$ 326,841 $ 9,220 $ (1,306) $ 334,755
========== ======== ======== ==========
Available-for-sale securities:
United States Government
and government agencies
and authorities ........... $ 321,087 $ 9,553 $ (3,970) $ 326,670
States, municipalities and
political subdivisions .... 395,732 19,646 (524) 414,854
Foreign governments ......... 5,855 678 - 6,533
Corporate securities ........ 407,541 14,712 (5,240) 417,013
Mortgage-backed securities
(exclusive of government
agencies) ................ 39,597 747 (106) 40,238
Equity securities ........... 288,070 86,171 (12,648) 361,593
Short-term investments....... 325,896 - - 325,896
---------- -------- -------- ----------
$1,783,778 $131,507 $(22,488) $1,892,797
========== ======== ======== ==========
<PAGE>
December 31, 1995
- -----------------
Held-to-maturity securities:
United States Government
and government agencies
and authorities ........... $ 90,770 $ 3,363 $ (295) $ 93,838
States, municipalities and
political subdivisions .... 137,807 6,424 - 144,231
Foreign governments ......... 50 - - 50
Corporate securities ........ 36,542 1,638 (17) 38,163
---------- -------- -------- ----------
$ 265,169 $ 11,425 $ (312) $ 276,282
========== ======== ======== ==========
Available-for-sale securities:
United States Government
and government agencies
and authorities ........... $ 206,722 $ 13,054 $ (3,712) $ 216,064
States, municipalities and
political subdivisions .... 246,026 18,619 (157) 264,488
Foreign governments ......... 7,900 562 - 8,462
Corporate securities ........ 270,001 9,895 (3,647) 276,249
Mortgage-backed securities
(exclusive of government
agencies) ................ 17,359 282 (35) 17,606
Equity securities ........... 257,378 61,979 (14,472) 304,885
Short-term investments....... 187,013 - - 187,013
---------- -------- -------- ----------
$1,192,399 $104,391 $(22,023) $1,274,767
========== ======== ======== ==========
-64-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net investment income for the three years ended December 31, 1996 was as
follows:
Year Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Net investment income:
Fixed maturities ...................... $ 98,213 $ 69,453 $ 67,305
Equity securities ..................... 19,901 15,410 14,964
Other long-term investments ........... 16,084 9,125 685
Short-term investments ................ 13,224 6,311 2,902
Accounts and notes receivable ......... 309 113 134
Other ................................. 310 353 411
-------- -------- --------
Total investment income ............. 148,041 100,765 86,401
Less investment expenses .............. 2,650 1,725 1,486
-------- -------- --------
Net investment income ............... $145,391 $ 99,040 $ 84,915
======== ======== ========
<CAPTION>
Certain information concerning realized and unrealized gains (losses) for
fixed maturities and equity securities is set forth below:
Year Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Gross realized gains .................. $ 10,257 $ 7,891 $ 4,774
Gross realized losses ................. (7,045) (8,372) (4,267)
Provision for other than temporary
impairment .......................... (1,119) (4,050) (750)
-------- -------- --------
$ 2,093 $ (4,531) $ (243)
======== ======== ========
Change in unrealized gains (losses)
recorded in stockholders' equity .... $(11,089) $ 70,317 $(66,076)
======== ======== ========
Equity securities:
Gross realized gains .................. $ 29,007 $ 17,879 $ 5,319
Gross realized losses ................. (6,579) (1,348) (1,474)
Provision for other than temporary
impairment .......................... (315) (285) (381)
-------- -------- --------
$ 22,113 $ 16,246 $ 3,464
======== ======== ========
Change in unrealized gains (losses)
recorded in stockholders' equity .... $ 18,461 $ 34,002 $(18,827)
======== ======== ========
<CAPTION>
-65-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 1995 the Company reclassified investments with a market value
of $102,581,000 from fixed maturities recorded at amortized cost to fixed
maturities recorded at market, and recorded unrealized appreciation net of taxes
of $1,329,000. This one-time transfer from the held-to-maturity portfolio was
permitted by the implementation guide for Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." In 1994 the Company transferred securities of two issuers with an
amortized cost of $11,469,000 and a market value of $10,122,000 from the held-
to-maturity portfolio to the available-for-sale category due to a deterioration
in the creditworthiness of these issuers. The Company sold only one security
with an amortized cost of $991,000 from the held-to-maturity portfolio during
1994, resulting in a realized gain of $164,000.
The amortized cost and estimated market values of fixed maturity and short-
term investments at December 31, 1996, by contractual fiscal maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers of securities may have the right to call or prepay obligations with or
without call or prepayment penalties.
Fixed Maturities Fixed Maturities
Held-to-Maturity Available-for-Sale
------------------ -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- ---------- ----------
(000s omitted)
<S> <C> <C> <C> <C>
Due in one year or less .......... $ 8,280 $ 8,332 $ 375,782 $ 375,854
Due after one year through five
years .......................... 175,774 178,671 161,283 161,475
Due after five years through ten
years .......................... 80,226 82,017 204,462 213,931
Due after ten years .............. 62,561 65,735 525,376 548,910
--------- --------- ---------- ----------
326,841 334,755 1,266,903 1,300,170
Mortgage-backed securities ...... - - 228,805 231,034
--------- --------- ---------- ----------
$ 326,841 $ 334,755 $1,495,708 $1,531,204
========= ========= ========== ==========
</TABLE>
Other long-term investments had aggregate carrying values of $90,129,000 at
December 31, 1996 and $62,925,000 at December 31, 1995 including mortgage loans
on real estate of $1,187,000 and $1,979,000, respectively. Estimated market
values of mortgage loans and other long-term investments approximate their
carrying values. The carrying value of the Company's investments in principal-
only securities and interest-only securities totalled approximately $6,277,000,
or .3% of total invested assets, at December 31, 1996.
The carrying value of securities on deposit with state regulatory
authorities in accordance with statutory requirements totalled $236,328,000 and
$237,732,000 at December 31, 1996 and 1995, respectively. Excluding investments
in securities of the United States Government and its agencies, the Company did
not have any investments in securities of any one issuer that exceeded
$25,000,000. The Company had $2,227,000 and $1,441,000 of fixed maturity
investments for which it was not accruing income for the years ended December
31, 1996 and 1995, respectively.
-66-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note F - 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 in order to limit losses. Reinsurance does not discharge the
primary liability of the original insurer. As of December 31, 1996 and 1995,
recoverables for reinsurance ceded to the Company's four largest reinsurers
were an aggregate of $150,175,000 and $84,654,000, respectively, excluding
recoverables for reinsurance ceded to Phoenix Assurance Company of New York
("Phoenix"), the largest McGee pool member other than the Company in 1996 and
the clearing company for the McGee pool in 1995. As of December 31, 1996,
recoverables for reinsurance ceded to Phoenix were $85,105,000, versus
$60,745,000 for 1995, and the Company had ceded balances payable to Phoenix of
$19,042,000 and $22,660,000, respectively. The table below illustrates the
effect of reinsurance on premiums written and premiums earned:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
(000s omitted-except for percentages)
<S> <C> <C> <C>
Direct premiums written ................ $1,431,450 $ 799,284 $ 691,493
Reinsurance assumed .................... 174,681 127,445 120,851
---------- --------- ---------
Gross premiums written ................. 1,606,131 926,729 812,344
Reinsurance ceded ...................... (272,010) (169,293) (100,289)
---------- --------- ---------
Net premiums written ................... $1,334,121 $ 757,436 $ 712,055
========== ========= =========
Percentage of amount assumed to net .... 13.1% 16.8% 17.0%
========== ========= =========
Direct premiums earned ................. $1,388,893 $ 754,927 $ 685,110
Reinsurance assumed .................... 182,482 126,552 129,737
---------- --------- ---------
Gross premiums earned .................. 1,571,375 881,479 814,847
Reinsurance ceded ...................... (270,623) (132,476) (123,624)
---------- --------- ---------
Net premiums earned .................... $1,300,752 $ 749,003 $ 691,223
========== ========= =========
Loss and loss adjustment expenses
incurred recoverable from reinsurers.. $ 174,344 $ 70,872 $ 56,778
========== ========= =========
</TABLE>
Reinsurance recoverables and prepaid reinsurance includes prepaid
reinsurance of $86,916,000 at December 31, 1996 and $68,525,000 at December
31, 1995.
-67-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note G - Loss and Loss Adjustment Expense Reserves
An analysis of the Company's calendar year net loss and loss adjustment
expense reserves is summarized in the following table. The current year
provision and payments for 1996 include favorable loss development for
Guaranty National of $995,000 and payments of $144,775,000 attributable to
periods prior to the consolidation of Guaranty National's results in the
Company's financial statements.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Net balance, beginning of year ....... $ 993,978 $ 891,542 $ 830,805
Consolidation of Guaranty National
reserves ........................... 286,339 - -
---------- ---------- ----------
1,280,317 891,542 830,805
---------- ---------- ----------
Provision:
Current year ....................... 874,123 500,514 480,826
Prior years ........................ 8,869 11,719 17,297
---------- ---------- ----------
882,992 512,233 498,123
---------- ---------- ----------
Payments:
Current year ....................... 499,176 146,540 134,120
Prior years ........................ 295,713 263,257 303,266
---------- ---------- ----------
794,889 409,797 437,386
---------- ---------- ----------
Net balance, end of year ............. 1,368,420 993,978 891,542
Add reinsurance recoverables ....... 417,244 281,004 289,787
---------- ---------- ----------
Balance, end of year ................. $1,785,664 $1,274,982 $1,181,329
========== ========== ==========
</TABLE>
Loss reserve estimates are based on forecasts of the ultimate settlement
of claims and are subject to uncertainty with respect to future events. Loss
reserve amounts are based on management's informed estimates and judgments,
using data currently available. Reserve amounts and the underlying actuarial
factors and assumptions are regularly analyzed and adjusted to reflect new
information. Such reevaluation is a normal, recurring activity that is
inherent in the process of loss reserve estimation and therefore, no
assurances can be given that reserve development will not occur in the future.
A substantial portion of the loss development experienced by the Company
during the three years ended December 31, 1996 resulted from pools and
associations, reinsurance, certain discontinued lines and program business,
reduced by favorable development in workers compensation and professional
liability lines of insurance. Reserve strengthening, higher initial reserving
and increased stabilization in the Company's business have resulted in a
decreasing level of loss development.
-68-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An analysis of the Company's loss and loss adjustment expense
environmental reserves and related claim counts for the three years ended
December 31, 1996 is presented below. Claim counts have been aggregated by
year of coverage for each occurrence for which policyholders are being
defended, and often include numerous claimants.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Claim Claim Claim
Amount Counts Amount Counts Amount Counts
------ ------ ------ ------ ------ ------
(000s omitted for dollar amounts)
<S> <C> <C> <C> <C> <C> <C>
Net balance, beginning
of year ............. $34,559 474 $20,601 467 $17,189 512
Consolidation of
Guaranty National ... 2,817 70 - -
Provision ........... 24,423 19,633 10,645
Payments ............ (4,771) (5,675) (7,233)
------- ------- -------
Net balance, end of
year ................ 57,028 632 34,559 474 20,601 467
Add reinsurance
recoverables ...... 12,457 10,509 11,391
------- ------- -------
Balance, end of year .. $69,485 $45,068 $31,992
======= ======= =======
</TABLE>
The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations. Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information
reported to the Company by the managers of those pools and associations. In
view of the lines of insurance that the Company has traditionally written,
environmental claims have not represented, and are not expected to represent
in the future, a material portion of the Company's total claims.
Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult. Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies. The Company does not use discounting in determining its reserves
for environmental claims. IBNR of $38,699,000 and $21,739,000 is included in
net reserves for environmental claims at December 31, 1996 and 1995,
respectively.
-69-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note H - Notes Payable
On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 (the "7 1/4% Senior Notes") in a public offering. The
net proceeds from the offering were approximately $98,113,000, of which
$46,500,000 was used to repay Orion's debt under a bank loan agreement and the
balance was used for general corporate purposes. The indentures for the 7
1/4% Senior Notes and for Orion's 9 1/8% Senior Notes due 2002 limit the
amount of liens and guarantees by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes.
On June 2, 1995 Guaranty National entered into a $110,000,000 credit
agreement ("Credit Agreement") with several participating banks. The Credit
Agreement provides for an unsecured reducing revolving credit facility, which
was used to fund the Viking acquisition, to retire the outstanding balance of
$29,000,000 under Guaranty National's previous revolving line of credit, and
for working capital and general corporate purposes. As of December 31, 1996,
the outstanding loan balance under the Credit Agreement was $100,000,000, with
an interest rate of 6.24%. Principal payments are due beginning April 15,
1999, until the loan is retired in 2002. Guaranty National is in compliance
with the covenants in the Credit Agreement, including various financial
covenants and restrictions. Guaranty National has two interest rate swap
agreements with banks which effectively change the interest rate exposure on
$80,000,000 of the loan to a fixed rate of approximately 6.3% through March
16, 1998. The estimated fair value of these interest rate swap agreements is
a liability of $214,000 at December 31, 1996.
Maturities of the Company's notes payable are as follows: 1997 -
$562,500; 1998 - $750,000; 1999 - $22,375,000; 2000 - $24,000,000; 2001 -
$26,000,000; 2002 - $138,000,000; and 2005 - $100,000,000.
Notes payable are recorded at face value less unamortized discount. The
carrying value and estimated market value of notes payable consist of the
following:
<TABLE>
<CAPTION>
Estimated
Carrying Value Market Value
------------------ ------------------
December 31, 1996 1995 1996 1995
------------ ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C>
$110,000,000 face amount, 9 1/8% Senior
Notes, due September 1, 2002 ........ $109,906 $109,894 $120,703 $125,642
$100,000,000 face amount, 7 1/4% Senior
Notes, due July 15, 2005 ............ 99,310 99,254 97,660 104,160
Borrowings under loan agreement with
banks (variable interest rate) ...... 100,000 - 100,000 -
Collateralized term loan - 6.5% ....... 1,688 - 1,696 -
-------- -------- -------- --------
$310,904 $209,148 $320,059 $229,802
======== ======== ======== ========
-70-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note I - Federal Income Taxes
Orion and its majority-owned subsidiaries file consolidated federal
income tax returns, including Guaranty National from July 2, 1996. The
consolidated federal income tax current provisions for 1996 and 1995 were
based on the regular tax method. The current provision for 1994 was
computed by the alternative minimum tax method. Substantially all federal
income taxes incurred by Orion and its subsidiaries relate to domestic
operations.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination. Accordingly, the Company recorded a credit to capital surplus
in 1996 for tax benefits of $11,900,000 with respect to the 1976
reorganization. The recording of this credit had no impact on the
Company's earnings.
</TABLE>
<TABLE>
<CAPTION>
The components of the provision (benefit) for federal income taxes on
income from operations, and allocations of taxes (benefits) to other items
for the three years ended December 31, 1996 are as follows:
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Taxes on income from continuing
operations:
Current ............................... $ 22,034 $ 25,578 $ 6,395
Deferred .............................. 9,999 (5,165) 9,906
-------- -------- --------
32,033 20,413 16,301
Taxes allocated to other items:
Stockholders' equity, for unrealized
appreciation (depreciation) of
securities .......................... 1,971 40,837 (32,864)
Stockholders' equity, for foreign
exchange translation gains (losses).. 954 13 (159)
Stockholders' equity, for
pre-reorganization income tax
benefits ............................ (11,900) - -
Stockholders' equity, other ........... (386) - -
-------- -------- --------
$ 22,672 $ 61,263 $(16,722)
======== ======== ========
-71-
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of the temporary differences comprising the Company's net
deferred tax asset as of December 31, 1996 and 1995 are as follows:
December 31,
---------------------
1996 1995
---- ----
(000s omitted)
<S> <C> <C>
Deferred tax assets:
Loss reserve discounting ...................... $ 69,306 $ 55,512
Unearned premium reserves ..................... 28,183 16,609
Policyholders' dividends ...................... 7,830 6,596
Realized investment losses .................... 2,435 4,319
Deferred income ............................... 2,226 2,482
Retiree medical benefits ...................... 5,240 4,263
Deferred compensation ......................... 4,484 2,609
Other ......................................... 11,640 8,951
-------- --------
131,344 101,341
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs ............. 47,659 27,186
Investment in affiliates ...................... - 20,114
Investment income ............................. 12,798 9,933
Unrealized investment gains ................... 38,131 31,482
Other ......................................... 9,202 3,900
-------- --------
107,790 92,615
-------- --------
$ 23,554 $ 8,726
======== ========
<CAPTION>
A reconciliation of expected federal income tax expense on pre-tax
earnings at regular corporate rates to actual tax expense is as follows:
Year Ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(000s omitted-except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Expected income tax expense.. $44,575 35.0% $30,812 35.0% $25,041 35.0%
Dividends-received deduction. (6,509) (5.1) (5,601) (6.4) (5,830) (8.2)
Tax-exempt interest ......... (10,203) (8.0) (6,470) (7.3) (5,362) (7.5)
Amortization of goodwill .... 1,042 .8 536 .6 410 .6
Other ....................... 3,128 2.5 1,136 1.3 2,042 2.9
------- ---- ------- ---- ------- ----
Actual income tax expense ... $32,033 25.2% $20,413 23.2% $16,301 22.8%
======= ==== ======= ==== ======= ====
</TABLE>
-72-
<PAGE>
[CAPTION]
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note J - Commitments
Minimum lease commitments at December 31, 1996, with the majority having
initial lease periods from one to twenty-five years, are as follows:
(000s omitted)
1997 ....................................... $ 16,541
1998 ....................................... 14,433
1999 ....................................... 12,072
2000 ....................................... 8,941
2001 ....................................... 6,528
2002 and thereafter ........................ 55,051
--------
Minimum lease commitments ................ $113,566
========
Rent expense amounted to $19,824,000, $14,112,000 and $11,519,000 for
1996, 1995 and 1994, respectively, net of sublease rentals of $9,000 in
1994. Substantially all leases are for office space and equipment. A
number of lease commitments contain renewal options ranging from one to
thirty years.
Note K - 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 therefore, 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.
Note L - Stockholders' Equity and Earnings Per Common Share
During 1996, the Company repurchased 241,114 shares of its common
stock at an aggregate cost of $11,148,000. The Company repurchased 173,181
shares for $7,183,000 in 1995 and 442,327 shares for $13,745,000 in 1994.
Orion declared dividends on its common stock of $14,290,000,
$12,078,000 and $10,828,000, or $1.03, $.86 and $.76 per share in 1996,
1995 and 1994, respectively.
The weighted average common shares outstanding for purposes of
computing earnings per share amounted to 13,894,000, 14,187,000 and
14,348,000 shares for 1996, 1995 and 1994, respectively.
-73-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective as of September 11, 1996, Orion redeemed its old stockholder
rights plan and adopted a new Stockholder Rights Plan (the "Rights Plan").
Under the Rights Plan each outstanding share of common stock includes one
preferred stock purchase right (the "Rights"). The Rights Plan is designed to
assure stockholders that they will receive equitable treatment in the event of
a proposed takeover. Under the Rights Plan, each holder of a Right is
entitled to buy two-hundredth of a share of Series B Junior Participating
Preferred Stock. The Rights become exercisable (i) if an acquiror gains a 15%
or greater beneficial ownership interest in Orion's outstanding common stock,
on other than fair and favorable terms to all stockholders or (ii) following
the commencement of a tender offer or exchange offer that would result in an
acquiror owning 15% or more of Orion's outstanding common stock. Each Right
not owned by such acquiror will enable the holder to purchase, at an initial
purchase price of $200, common stock having a value of twice the Right's
purchase price. In addition, under certain circumstances if Orion is involved
in a merger each Right will entitle its holder to purchase, at the Right's
then current purchase price, common shares of such other company having a
value of twice the Right's purchase price.
Note M - Employee Benefit Plans
The Company maintains a Stock Savings and Retirement Plan (the "Plan"),
qualified under Internal Revenue Code Section 401(k), for eligible employees
of the Company (except for employees of Guaranty National and McGee).
Employee and employer matched contributions to the savings funds are limited
to the extent allowable under the Plan and federal income tax law. The Plan
also provides for defined contribution savings and retirement benefits that
allow the Company to make annual contributions to the Plan based on a
percentage of employees' compensation. Employees vest in the Company's
contributions over a six-year period. The Company has adopted a Surplus
Benefit Plan which provides deferred benefits for those employees who received
less than the full employer contribution to the Company's 401(k) plan as a
result of federal tax limitations on participation in the Plan.
Guaranty National has a defined contribution profit sharing plan (the
"Guaranty Plan"), which also qualifies under Section 401(k), for which
substantially all of its employees are eligible. Guaranty National makes
matching contributions to the Guaranty Plan in accordance with the limits of
the Guaranty Plan and federal income tax law. Guaranty National has a non-
qualified Supplemental Executive Retirement Plan ("SERP") for employees whose
compensation meets a minimum requirement. The SERP provides deferred benefits
for those employees who received less than the full employer contribution of
Guaranty National's defined contribution profit sharing plan as a result of
federal tax limitations on participation in the plan.
McGee maintains a Profit Sharing Plan (the "McGee Plan") which is also a
401(k) plan for eligible employees of McGee. Employee and employer
contributions are limited by the McGee Plan and federal income tax law.
Employer contributions vest over a seven-year period. McGee has
noncontributory defined benefit retirement plans covering all eligible
employees, and a nonqualified supplemental retirement plan for certain key
employees. At December 31, 1996 and 1995 the accumulated benefit obligation
of the defined benefit plans were approximately $20,620,000 and $20,205,000,
and plan assets for these plans were approximately $20,695,000 and
$19,233,000, respectively.
-74-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company maintains a number of incentive plans for key employees,
including the 1982 Long-Term Performance Incentive Plan (the "1982 Plan"), and
the Equity Incentive Plan (together the "Incentive Plans"). Orion has awarded
both stock options and restricted stock to members of the Company's management
under the Incentive Plans. All stock options are granted by Orion with
exercise prices at fair market value at date of grant, and are intended to
qualify to the maximum extent possible as incentive stock options. Stock
options become exercisable from the first through fourth anniversaries of the
date of grant, and expire ten years after the date of grant. Restricted stock
is considered issued and outstanding when awarded. There are restrictions as
to its transferability, which restrictions lapse in 25% increments over four
or five year periods from the date of grant. As of December 31, 1996, the
number of shares of stock reserved under the Incentive Plans is 1,114,534, of
which 446,859 are for outstanding stock options and 96,084 and 571,591 are
available for future awards under the 1982 Plan and the Equity Incentive Plan,
respectively. A summary of the status of Orion's stock option plans as of
December 31, 1996, 1995 and 1994 and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year .... 294,171 $24.80 348,802 $23.34 284,337 $17.05
Granted .............. 187,021 51.36 - - 129,800 32.89
Cancelled ............ (6,928) 34.27 (5,273) 23.92 (19,531) 16.06
Exercised ............ (27,405) 18.94 (49,358) 14.55 (45,804) 14.46
------- ------- -------
End of year .......... 446,859 36.13 294,171 24.80 348,802 23.34
======= ======= =======
Exercisable at end
of year ............ 201,007 22.96 175,180 20.33 173,064 15.89
======= ======= =======
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Options Exercise Remaining Options Exercise
Prices Outstanding Price Years Exercisable Price
- ------------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$10.16-$20.00 59,869 11.54 2.6 59,869 11.54
20.00- 35.00 200,397 29.30 6.9 141,138 27.80
35.00- 50.00 10,000 46.75 9.3 - -
50.00- 61.56 176,593 51.62 9.8 - -
------- -------
10.16- 61.56 446,859 36.13 7.5 201,007 22.96
======= =======
</TABLE>
-75-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average fair value of options granted during 1996 was
$14.58 per share. The fair value of options granted was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 1.9%, expected
volatility of 19.0%, risk free interest rate of 6.0% and expected life of
7.1 years.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for stock options granted under the
Incentive Plans. Accordingly, no compensation cost has been recognized for
stock options awarded to employees. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for the 1996 awards under those plans consistent with the
method of FASB Statement 123, the Company's net earnings and earnings per
share for the year ended December 31, 1996 would have been $86,477,000, or
$6.22 per share.
Orion granted 46,318 shares of restricted stock at a weighted average
fair value of $51.22 per share during 1996, 27,515 shares at $28.06 during
1995 and 70,015 shares at $32.86 for 1994. As of December 31, 1996, the
restrictions have not lapsed on 117,531 shares of restricted stock. The
fair market value of restricted stock on the date of issuance is amortized
over the vesting period during which the restrictions lapse.
Orion maintains a non-qualified defined benefit retirement plan for
members of the Board of Directors who are not employees. Benefits are
based on years of service and director fee levels at retirement. In 1995,
Orion's stockholders authorized 100,000 shares for a stock option plan for
non-employee directors. During 1996 and 1995 Orion granted 9,000 and
54,000 stock options, respectively, to directors at fair market value,
which become exercisable one year from the date of grant and expire in ten
years.
The total expense for 1996, 1995 and 1994 for the above savings,
retirement and pension benefit plans for employees and directors amounted
to $9,473,000, $6,588,000 and $4,659,000, respectively.
-76-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note N - Postretirement Medical Benefits
The Company provides postretirement medical benefits to full-time
employees (except for employees of Guaranty National and McGee), who have
attained age 55 and have 10 years of consecutive service immediately prior
to retirement. McGee employees that attain age 55 while in service with
McGee are eligible for postretirement medical benefits if they have 10
years of service, with an increasing level of benefits for additional
years of service up to 35. The postretirement health care plans are not
funded. The accumulated postretirement benefit obligation of these plans
included in other liabilities in the consolidated balance sheet is as
follows:
December 31,
----------------
1996 1995
---- ----
(000s omitted)
Retirees ................................. $ 3,864 $ 3,353
Fully eligible active plan participants .. 1,352 1,713
Other active plan participants ........... 3,510 3,585
Unrecognized net gains ................... 4,275 3,528
------- -------
$13,001 $12,179
======= =======
Net postretirement benefit cost for the years ended December 31, 1996,
1995 and 1994 was $1,072,000, $1,203,000 and $1,243,000 consisting of
service cost benefits earned of $953,000, $695,000 and $813,000 and
interest on the accumulated postretirement benefit obligation of $596,000,
$612,000 and $539,000, respectively, and amortization of unrecognized net
gains of $477,000 in 1996, $104,000 in 1995 and $109,000 in 1994.
The expected health care cost trend rate used as of December 31, 1996
was 15% for 1997 and 8.5% for 1998, decreasing linearly each year until it
reaches 5% for 2005 and future years. At December 31, 1995 the expected
health care cost trend rates used were 9% for 1996 and 1997, ratably
reduced to 5% for 2005 and later years. A one-percentage-point increase in
the assumed health care cost trend rate for each year would increase the
aggregate service cost and interest cost for 1996, 1995 and 1994 by
$265,000, $245,000 and $289,000, respectively, and increase the accumulated
postretirement benefit obligation as of December 31, 1996 and 1995 by
$1,075,000 and $1,304,000, respectively. A one-percentage-point decrease
in the health care cost rate would decrease service and interest costs and
the accumulated post retirement benefit obligation by similar amounts. The
assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% at December 31, 1996 and 7.0% at December 31,
1995.
-77-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note O - Industry Segment Information
The Company's industry segments are described above in Note A.
Guaranty National's results of operations are included on a consolidated
basis for 1996 and accounted for using the equity method for 1995 and 1994.
Identifiable assets of the Regional Operations and Special Programs
segments are primarily allocated based on the cash flows of these segments.
Financial information for the Company's segments for 1996, 1995 and 1994 is
shown below:
<TABLE>
<CAPTION>
Earnings (Loss)
Before Federal
Income Taxes
and Minority
Premiums Total Interest Identifiable
Earned Revenues Expense Assets
---------- ---------- --------------- ------------
(000s omitted)
<S> <C> <C> <C> <C>
1996:
Regional Operations ... $ 356,809 $ 402,015 $ 68,371 $ 910,579
Special Programs ...... 462,295 558,665 44,052 1,565,454
Guaranty National
Corporation ......... 481,648 529,542 35,727 921,852
Other ................. - 3,227 (20,794) 66,472
---------- ---------- ---------- ----------
Total ............... $1,300,752 $1,493,449 $ 127,356 $3,464,357
========== ========== ========== ==========
1995:
Regional Operations.... $ 322,098 $ 362,672 $ 57,830 $ 836,089
Special Programs ...... 426,905 507,834 43,241 1,460,435
Guaranty National
Corporation ......... - - 4,466 106,059
Other ................. - 3,774 (17,502) 71,005
---------- ---------- ---------- ----------
Total ............... $ 749,003 $ 874,280 $ 88,035 $2,473,588
========== ========== ========== ==========
1994:
Regional Operations ... $ 278,040 $ 308,812 $ 42,514 $ 748,680
Special Programs ...... 413,183 469,158 34,117 1,213,026
Guaranty National
Corporation ......... - - 11,244 89,760
Other ................. - 2,977 (16,329) 61,295
---------- ---------- ---------- ----------
Total ............... $ 691,223 $ 780,947 $ 71,546 $2,112,761
========== ========== ========== ==========
</TABLE>
-78-
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note P - Selected Quarterly Financial Data (Unaudited)
<TABLE>
Quarterly results of operations and earnings per common share for 1996 and 1995
are summarized as follows:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(000s omitted-except for per share data)
<S> <C> <C> <C> <C>
1996:
Premiums earned ......................... $302,402 $319,109 $332,936 $346,305
Net investment income ................... 34,502 36,291 36,028 38,570
Realized investment gains ............... 5,365 5,761 5,480 7,574
Other income ............................ 5,522 6,011 5,940 5,653
-------- -------- -------- --------
Total revenues ...................... $347,791 $367,172 $380,384 $398,102
======== ======== ======== ========
Net earnings ........................ $ 17,887 $ 20,573 $ 24,361 $ 23,810
======== ======== ======== ========
Net earnings per common share ........... $ 1.28 $ 1.49 $ 1.76 $ 1.72
======== ======== ======== ========
1995:
Premiums earned ......................... $175,058 $186,709 $183,902 $203,334
Net investment income ................... 23,853 24,435 25,572 25,180
Realized investment gains ............... 2,560 726 5,885 2,714
Other income ............................ 326 241 6,862 6,923
-------- -------- -------- --------
Total revenues ...................... $201,797 $212,111 $222,221 $238,151
======== ======== ======== ========
Net earnings ........................ $ 17,062 $ 16,049 $ 17,257 $ 17,254
======== ======== ======== ========
Net earnings per common share ........... $ 1.20 $ 1.13 $ 1.21 $ 1.22
======== ======== ======== ========
<FN>
The sum of quarterly per common share amounts may not agree with the
corresponding annual amounts due to rounding or antidilution during certain
quarters.
</TABLE>
Note Q - Subsequent Events
On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Debentures due January 1, 2037 to Orion Capital Trust I, a
Delaware statutory business trust sponsored by Orion. Orion Capital Trust I
then sold $125,000,000 of 8.73% Capital Securities which mature on January 1,
2037 (the "Capital Securities") in a private placement. The Capital
Securities are subordinate to all liabilities of the Company, and may be
redeemed without premium on or after January 1, 2007. Orion agreed to
register the Capital Securities under the Securities Act of 1933, and has
accordingly filed a registration statement with the Securities and Exchange
Commission.
-79-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Pursuant to General Instruction G(3) to this form, the information
required by Part III (Items 10, 11, 12 and 13) hereof is incorporated by
reference from the Company's definitive proxy statement for its Annual Meeting
to be held on May 29, 1997. The Company intends to file the proxy material,
which involves the election of directors, not later than 120 days after the
close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) 1 Financial Statements:
The following financial statements are included in
Part II, Item 8.
Page
----
Report of Management................................. 50
Independent Auditors' Report......................... 51
Orion Capital Corporation and Subsidiaries:
December 31, 1996 and 1995
Consolidated Balance Sheet................. 52 - 53
For the years ended December 31, 1996, 1995 and
1994
Consolidated Statement of Earnings......... 54
Consolidated Statement of Stockholders'
Equity................................. 55
Consolidated Statement of Cash Flows....... 56 - 57
Notes to the Consolidated Financial Statements.. 58 - 79
(a) 2. Financial Statement Schedules:
Selected Quarterly Financial Data - for the years ended
December 31, 1996 and 1995 - Included in Part II, Item 8.
-80-
<PAGE>
Page
----
Schedule I Consolidated Summary of
Investments - Other than
Investments in Related
Parties - December 31,
1996............................ S-1
II Condensed Financial
Information of Registrant - S-2, S-3,
December 31, 1996, 1995 S-4, S-5,
and 1994........................ S-6
III Supplementary Insurance
Information - December 31,
1996, 1995 and 1994............. S-7
V Valuation and Qualifying
Accounts - December 31, 1996,
1995 and 1994................... S-8
VI Supplemental Information
For Property - Casualty
Insurance Underwriters -
December 31, 1996, 1995 and
1994............................ S-9
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown in the Financial Statements or notes thereto.
(a) 3. Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Orion,
as amended on June 3, 1993; filed as Exhibit
3(i) to the Company's Annual Report on Form 10-K
for 1993.
Exhibit 3(ii) By-Laws of Orion, as amended on September 11, 1996.
Exhibit 4(i) Certificate of Designation, Preferences and
Rights of Series B Junior Participating
Preferred Stock of Orion, dated September 17,
1996.
Exhibit 4(ii) Specimen certificate representing shares of
Orion's Common Stock (proof of March 27,
1989); filed as Exhibit 4(xii) to the
Company's Annual Report on Form 10-K for 1988.
-81-
<PAGE>
Exhibit 4(iii) Indenture, dated as of September 8, 1992,
between Orion and the Connecticut National
Bank (now known as Shawmut Bank Connecticut,
National Association), as Trustee of Orion's
9 1/8% Senior Notes due September 1, 2002;
filed as Exhibit 4(v) to the Company's Annual
Report on Form 10-K for 1992.
Exhibit 4(iv) Specimen certificate representing Orion's
9 1/8% Senior Notes; filed as Exhibit 4(vi)
to the Company's Annual Report on Form 10-K
for 1992.
Exhibit 4(v) Senior Debt Indenture, dated as of July 17, 1995,
between Orion and the State Street Bank and Trust
Company of Connecticut, National Association, as
Trustee of Orion's 7 1/4% Senior Notes due July 15,
2005; filed as Exhibit 4.9 to the Company's Current
Report on Form 8-K, filed on 7/14/95.
Exhibit 4(vi) First Supplemental Indenture to the Senior Debt
Indenture; filed as Exhibit 4.9(a) to the Company's
Current Report on Form 8-K, filed on 7/14/95.
Exhibit 4(vii) Specimen Certificate representing Orion's 7 1/4%
Senior Notes; filed as Exhibit 4.9(b) to the
Company's Current Report on Form 8-K, filed on
7/14/95.
Exhibit 4(viii) Indenture, dated as of January 13, 1997, between
Orion and the Bank of New York, as Trustee of
Orion's 8.73% Junior Subordinated Deferrable
Interest Debentures; filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (No. 333-
21205).
Exhibit 4(ix) Form of Exchange Debenture Certificate representing
Orion's 8.73% Junior Subordinated Deferrable
Interest Debentures; filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (No. 333-
21205), filed on February 5, 1997.
Exhibit 4(x) Certificate of Trust of Orion Capital Trust I, dated
as of January 3, 1997; filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (No. 333-
21205), filed on February 5, 1997.
Exhibit 4(xi) Declaration of Trust of Orion Capital Trust I, dated
as of January 3, 1997; filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-4 (No. 333-
21205), filed on February 5, 1997.
*Management contract or compensatory plan or arrangement.
-82-
<PAGE>
Exhibit 4(xii) Amended and Restated Declaration of Trust of Orion
Capital Trust I, dated as of January 13, 1997; filed
as Exhibit 4.5 to the Company's Registration
Statement on Form S-4 (No. 333-21205), filed on
February 5, 1997.
Exhibit 4(xiii) Form of Certificate evidencing 8.73% Exchange
Capital Securities of Orion Capital Trust I; filed
as Exhibit 4.6 to the Company's Registration
Statement on Form S-4 (No. 333-21205), filed on
February 5, 1997.
Exhibit 4(xiv) Capital Securities Guarantee Agreement, dated as of
January 13, 1997, delivered by Orion as Guarantor
and relating to the 8.73% Exchange Capital
Securities; filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (No. 333-21205),
filed on February 5, 1997.
Exhibit 10(i)* Orion's Deferred Compensation Plan, as
amended; filed as Exhibit 10(i) to the
Company's Annual Report on Form 10-K for
1991.
Exhibit 10(ii)* Orion's 1982 Long-Term Performance Incentive
Plan, as amended.
Exhibit 10(iii)* Orion's 1994 Stock Option Plan for Non-
Employee Directors; filed as Exhibit 10(iii)
to the Company's Annual Report on Form 10-K
for 1994.
Exhibit 10(iv)* Employment Agreement between Alan R. Gruber
and Orion, dated as of March 19, 1993; filed
as Exhibit 10(v) to the Company's Annual Report
on Form 10-K for 1992.
Exhibit 10(v)* Amendment to Employment Agreement between
Alan R. Gruber and Orion, dated as of January 1,
1997.
Exhibit 10(vi)* Employment Agreement between Robert B. Sanborn
and Orion, dated as of March 19, 1993; filed
as Exhibit 10(vi) to the Company's Annual Report
on Form 10-K for 1992.
Exhibit 10(vii)* Amendment to Employment Agreement between Robert B.
Sanborn and Orion, dated as of January 1, 1997.
Exhibit 10(viii)* Employment Agreement between Raymond W. Jacobsen
and Orion, as amended and restated as of December 6,
1995; filed as Exhibit 10(vii) to the Company's
Annual Report on Form 10-K for 1995.
*Management contract or compensatory plan or arrangement.
-83-
<PAGE>
Exhibit 10(ix)* Employment Agreement between W. Marston Becker and
Orion, dated as of October 31, 1995; filed as
Exhibit 10(viii) to the Company's Annual Report on
Form 10-K for 1995.
Exhibit 10(x)* Amendment to Employment Agreement between W. Marston
Becker and Orion, dated as of January 1, 1997.
Exhibit 10(xi) Lease Agreement between Connecticut UTF, Inc.,
as lessor, and Security Insurance Company of
Hartford ("Security"), as lessee, dated as of
December 19, 1984; filed as Exhibit 10(xxxiii)
to the Company's Annual Report on Form 10-K
for l984.
Exhibit 10(xii) Second Assignment of Lease and Agreement from
Connecticut UTF, Inc. to Security, dated as of
December 19, 1984; filed as Exhibit 10(xxxiv)
to the Company's Annual Report on Form 10-K
for 1984.
Exhibit 10(xiii) Purchase Money Second Mortgage from
Connecticut UTF, Inc., as mortgagor, to
Security, as mortgagee, dated as of
December 19, 1984; filed as Exhibit 10(xxxvi)
to the Company's Annual Report on Form 10-K
for 1984.
Exhibit 10(xiv) Purchase Money Note, in the face amount of
$2,800,000, from Connecticut UTF, Inc. to
Security, dated December 19, 1984; filed as
Exhibit 10(xxxvi) to the Company's Annual
Report on Form 10-K for l984.
Exhibit 10(xv) Guarantee from Orion to Connecticut UTF, Inc.,
dated as of December 19, 1984, guaranteeing
the performance of Security under its lease
with Connecticut UTF, Inc.; filed as Exhibit
10(xxxvii) to the Company's Annual Report on
Form 10-K for 1984.
Exhibit 10(xvi) Form of Indemnification Agreement, dated as of
June 3, 1987, between Orion and each of its
Directors and Executive Officers; filed as
Exhibit 10(xl) to the Company's Annual Report
on Form 10-K for l987.
Exhibit 10(xvii) Rights Agreement, dated as of September 11, 1996
between Orion and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent; filed as Exhibit 1
to the Company's Form 8-A filed on September 20,
1996.
*Management contract or compensatory plan or arrangement.
-84-
<PAGE>
Exhibit 10(xviii)* Retirement Plan for Directors of Orion,
as amended (September, 1994); filed as Exhibit
10(xvi) to the Company's Annual Report on Form 10-K
for 1994.
Exhibit 10(xix)* Orion Supplemental Benefits Plan, filed as
Exhibit 10(xxv) to the Company's Annual Report
on Form 10-K for 1991.
Exhibit 10(xx) Orion's Equity Incentive Plan, dated September 11,
1996.
Exhibit 10(xxi) Shareholder Agreement, dated as of November 7,
1991 by and among the Company, Guaranty
National Corporation and certain wholly-owned
subsidiaries of the Company; filed as Exhibit
10(xxv) to the Company's Annual Report on
Form 10-K for 1991.
Exhibit 10(xxii) Amendments to the Shareholder Agreement by and
among the Company, Guaranty National Corporation
and certain wholly-owned subsidiaries of the
Company made as of February 2, 1994 and March 2,
1995; filed as Exhibit 10(xix) to the Company's
Annual Report on Form 10-K for 1994.
Exhibit 10(xxiii) Letter Agreement, dated September 13, 1993, by
and between Orion and Intercargo Corporation;
filed as Exhibit 10(xxii) to the Company's
Annual Report on Form 10-K for 1993.
Exhibit 10(xxiv) Amendment, dated February 14, 1995, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation; filed as Exhibit
10(xxiii) to the Company's Annual Report on Form
10-K for 1994.
Exhibit 10(xxv) Purchase Agreement by and between Sun Alliance USA
Inc. and Orion, dated as of June 30, 1995; filed as
Exhibit 10(xxv) to the Company's Annual Report on
Form 10-K for 1995.
Exhibit 11 Statement re: computation of earnings
per common share.
Exhibit 21 Subsidiaries of Orion.
Exhibit 23 Consents of Deloitte & Touche LLP
Exhibit 27 Financial Data Schedule.
*Management contract or compensatory plan or arrangement.
-85-
<PAGE>
Copies of exhibits may be obtained upon payment of a $.50 per page fee.
Such requests should be made in writing to: Corporate Secretary, Orion Capital
Corporation, 600 Fifth Avenue, New York, New York 10020.
(b) Reports on Form 8-K:
None.
(c) Filed exhibits:
See Exhibit Index
-86-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ORION CAPITAL CORPORATION
By: /s/ W. Marston Becker March 27, 1997
----------------------
W. Marston Becker Chairman of the Board
(Principal Executive
Officer)
By: /s/ Daniel L. Barry March 27, 1997
----------------------
Daniel L. Barry Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
-87-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (including a majority of
the members of the Board of Directors of the Registrant) in the capacities and
on the dates indicated:
Signature and Title Date
- -------------------------- --------------
/s/ W. Marston Becker March 27, 1997
- --------------------------
W. Marston Becker
Chairman of the Board
/s/ Gordon F. Cheesbrough March 27, 1997
- --------------------------
Gordon F. Cheesbrough
Director
- --------------------------
Bertram J. Cohn
Director
/s/ John C. Colman March 27, 1997
- --------------------------
John C. Colman
Director
/s/ Victoria R. Fash March 27, 1997
- --------------------------
Victoria R. Fash
Director
/s/ Alan R. Gruber March 27, 1997
- --------------------------
Alan R. Gruber
Director
/s/ Robert H. Jeffrey March 27, 1997
- --------------------------
Robert H. Jeffrey
Director
/s/ Warren R. Lyons March 27, 1997
- --------------------------
Warren R. Lyons
Director
/s/ James K. McWilliams March 27, 1997
- --------------------------
James K. McWilliams
Director
-88-
<PAGE>
Signature and Title Date
- -------------------------- --------------
/s/ Ronald W. Moore March 27, 1997
- --------------------------
Ronald W. Moore
Director
- --------------------------
Robert B. Sanborn
Director
/s/ William J. Shepherd March 27, 1997
- --------------------------
William J. Shepherd
Director
/s/ John R. Thorne March 27, 1997
- --------------------------
John R. Thorne
Director
/s/ Roger B. Ware March 27, 1997
- --------------------------
Roger B. Ware
Director
-89-
<PAGE>
EXHIBIT INDEX
Exhibit 3(ii) By-Laws of Orion, as amended on September 11, 1996.
Exhibit 4(i) Certificate of Designation, Preferences and
Rights of Series B Junior Participating
Preferred Stock of Orion, dated September 17,
1996.
Exhibit 10(ii) Orion's 1982 Long-Term Performance Incentive
Plan, as amended.
Exhibit 10(v) Amendment to Employment Agreement between
Alan R. Gruber and Orion, dated as of January 1,
1997.
Exhibit 10(vii) Amendment to Employment Agreement between Robert B.
Sanborn and Orion, dated as of January 1, 1997.
Exhibit 10(x) Amendment to Employment Agreement between W. Marston
Becker and Orion, dated as of January 1, 1997.
Exhibit 10(xx) Orion's Equity Incentive Plan, dated September 11,
1996.
Exhibit 11 Statement re: computation of earnings
per common share.
Exhibit 21 Subsidiaries of Orion.
Exhibit 23 Consents of Deloitte & Touche LLP.
Exhibit 27 Financial Data Schedule.
-90-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1996
(000s omitted)
==============================================================================
Column A Column B Column C Column D
-------- -------- -------- --------
Amount Shown
on
Balance
Type of Investment Cost Value Sheet
______________________________________________________________________________
<S> <C> <C> <C>
Fixed maturities held-to-maturity:
Bonds -
United States Government and
government agencies and
authorities ............... $ 119,058 $ 119,844 $ 119,058
States, municipalities and
political subdivisions .... 179,465 185,566 179,465
Foreign governments ......... 50 50 50
All other corporate bonds ... 28,268 29,295 28,268
---------- ---------- ----------
326,841 334,755 326,841
---------- ========== ----------
Fixed maturities available-for-sale:
Bonds -
United States Government and
government agencies and
authorities ............... 321,087 326,670 326,670
States, municipalities and
political subdivisions .... 395,732 414,854 414,854
Foreign governments ......... 5,855 6,533 6,533
Public utilities ............ 15,679 16,350 16,350
All other corporate bonds ... 312,016 323,166 323,166
Redeemable preferred stocks ... 119,443 117,735 117,735
---------- ---------- ----------
1,169,812 1,205,308 1,205,308
---------- ========== ----------
Equity securities:
Common stocks -
Public utilities ............ 8,624 10,614 10,614
Banks, trusts and insurance
companies ................. 35,883 78,812 78,812
Industrial, miscellaneous and
all other ................. 92,124 119,855 119,855
Non-redeemable preferred stocks 151,439 152,312 152,312
---------- ---------- ----------
288,070 361,593 361,593
---------- ========== ----------
Mortgage loans on real estate ... 1,187 1,187
Other long-term investments ..... 88,942 88,942
Short-term investments .......... 325,896 325,896
---------- ----------
Total investments ......... $2,200,748 $2,309,767
========== ==========
S-1
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
BALANCE SHEET
(000s omitted)
ASSETS
December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Fixed maturities held at market (cost $347 - 1996 and
$666 - 1995) ........................................ $ 347 $ 666
Short-term investments ................................ 32,653 55,425
Cash .................................................. 320 3
Notes receivable and other assets ..................... 7,232 4,476
Deferred federal income taxes ......................... 23,544 8,739
Investment in subsidiaries ............................ 729,476 651,781
Excess of cost over fair value of net assets acquired.. 47,120 48,987
-------- --------
Total assets ........................................ $840,692 $770,077
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities ..................................... $ 35,902 $ 50,344
Due to affiliates ..................................... 18,841 19,682
Notes payable ......................................... 209,216 209,148
-------- --------
Total liabilities ................................... 263,959 279,174
Stockholders' equity .................................. 576,733 490,903
-------- --------
Total liabilities and stockholders' equity .......... $840,692 $770,077
======== ========
<FN>
See Notes to Condensed Financial Information of Registrant
S-2
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF EARNINGS
(000s omitted)
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income ....................... $ 1,898 $ 1,770 $ 396
Realized investment losses .................. (319) (800) -
Other income ................................ 650 595 550
-------- -------- --------
2,229 1,565 946
-------- -------- --------
Expenses:
Interest .................................... 17,835 15,537 13,190
General and administrative .................. 3,671 3,106 3,676
Amortization of excess of cost over fair
value of net assets acquired .............. 1,867 1,470 1,110
-------- -------- --------
23,373 20,113 17,976
-------- -------- --------
Loss before federal income taxes and equity in
net earnings of subsidiaries ................ (21,144) (18,548) (17,030)
Federal income taxes .......................... 30,059 20,284 16,301
-------- -------- --------
Loss before equity in net earnings of
subsidiaries ................................ (51,203) (38,832) (33,331)
Equity in net earnings of subsidiaries ........ 137,834 106,454 88,576
-------- -------- --------
Net earnings .................................. $ 86,631 $ 67,622 $ 55,245
======== ======== ========
<FN>
See Notes to Condensed Financial Information of Registrant
S-3
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
(000s omitted)
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends received from subsidiaries ...... $ 35,286 $ 30,546 $ 30,013
Net investment income collected ........... 1,919 1,737 212
Federal income taxes received from
subsidiaries ............................ 7,455 4,500 6,000
Interest paid ............................. (17,254) (12,123) (12,524)
Other expenses paid ....................... (2,046) (2,276) (2,454)
Other receipts ............................ 903 1,268 3,230
-------- -------- --------
Net cash provided by operating activities. 26,263 23,652 24,477
-------- -------- --------
Cash flows from investing activities:
Purchase of fixed maturities .............. - - (1,344)
Net sales (purchases) of short-term
investments ............................. 22,770 (42,587) (4,313)
Investments in subsidiaries ............... - 4,476 763
Purchase of Guaranty National common stock. (20,709) - -
Acquisition of McGee ...................... - (22,355) -
Other payments ............................ (2,588) (99) (795)
-------- -------- --------
Net cash used in investing activities ... (527) (60,565) (5,689)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable ... - 110,413 -
Proceeds from exercise of stock options ... 42 246 598
Repayment of notes payable ................ - (54,500) (8,000)
Dividends paid to stockholders ............ (14,886) (12,717) (11,263)
Purchases of common stock ................. (10,558) (6,689) (38)
Other payments ............................ (17) (17) (351)
-------- -------- --------
Net cash provided by (used in) financing
activities ............................ (25,419) 36,736 (19,054)
-------- -------- --------
Net increase (decrease) in cash ......... 317 (177) (266)
Cash balance, beginning of year ........... 3 180 446
-------- -------- --------
Cash balance, end of year ................. $ 320 $ 3 $ 180
======== ======== ========
<FN>
See Notes to Condensed Financial Statements of Registrant
S-4
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS - (Continued)
(000s omitted)
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ................................ $ 86,631 $ 67,622 $ 55,245
-------- -------- --------
Adjustments:
Equity in net earnings of subsidiaries .... (137,834) (106,454) (88,576)
Consolidating elimination of subsidiaries
income taxes ............................ 35,530 30,941 10,576
Dividends received from subsidiaries ...... 35,286 30,546 30,013
Depreciation and amortization ............. 3,016 2,594 2,064
Deferred federal income taxes (benefit) ... 10,022 (3,881) 9,906
Realized investment losses ................ 319 800 -
Amortization of discount on debt .......... 68 36 10
Change in assets and liabilities:
Decrease (increase) in notes receivable and
other assets ............................ (2,235) 90 (520)
Increase (decrease) in taxes payable and
other liabilities ....................... (3,746) 7,799 (1,668)
Increase (decrease) in due to affiliates .. (794) (6,441) 7,427
-------- -------- --------
Total adjustments and changes ........... (60,368) (43,970) (30,768)
-------- -------- --------
Net cash provided by operating activities.. $ 26,263 $ 23,652 $ 24,477
======== ======== ========
<FN>
See Notes to Condensed Financial Information of Registrant
S-5
</TABLE>
<PAGE>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Years Ended December 31, 1996, 1995 and 1994
Note A - Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
Estimated
Carrying Value Market Value
----------------- -----------------
December 31, 1996 1995 1996 1995
------------ ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C>
$110,000,000 face amount, 9 1/8% Senior
Notes, due September 1, 2002 .......... $109,906 $109,894 $120,703 $125,642
$100,000,000 face amount, 7 1/4% Senior
Notes, due July 15, 2005 .............. 99,310 99,254 97,660 104,160
-------- -------- -------- --------
$209,216 $209,148 $218,363 $229,802
======== ======== ======== ========
</TABLE>
As of December 31, 1996, $110,000,000 of the Registrant's debt is
scheduled to be repaid on September 1, 2002 and the remaining $100,000,000 is
due on July 15, 2005.
Note B - Expense Reimbursement and Management Fees
During 1994 through 1996, the Registrant was reimbursed for payroll,
office rental and other expenses incurred by it to support the operations of
its insurance subsidiaries. This reimbursement of $7,410,000, $6,232,000 and
$5,735,000 in 1996, 1995 and 1994, respectively, is accounted for as a
reduction of general and administrative expenses. The Registrant received an
investment management fee from Guaranty National of $650,000 in 1996, $595,000
in 1995 and $550,000 in 1994.
S-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
ORION CAPITAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(000s omitted)
- -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column J Column K
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Reserve
For Unpaid Dividends Amortization
Deferred Losses Payable Losses of Deferred Policy-
Policy and Loss to Net and Loss Policy Other holders'
Acquisition Adjustment Unearned Policy- Premiums Investment Adjustment Acquisition Insurance Dividend Premiums
Segment Costs Expenses Premiums holders Earned Income Expenses Costs Expenses Expenses Written
(a)
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Regional
Operations .. $ 33,160 $ 466,022 $ 83,920 $20,489 $ 356,809 $ 38,226 $209,705 $ 91,991 $11,244 $18,523 $ 353,041
Special
Programs .... 58,552 955,706 258,103 2,000 462,295 62,646 335,503 137,625 6,246 5,111 489,848
Guaranty
National .... 44,456 363,936 154,226 - 481,648 39,439 337,784 133,931 10,422 - 491,232
Other ......... - - - - - 5,080 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$136,168 $1,785,664 $496,249 $22,489 $1,300,752 $145,391 $882,992 $363,547 $27,912 $23,634 $1,334,121
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
1995:
Regional
Operations .. $ 29,516 $ 460,597 $ 84,360 $16,799 $ 322,098 $ 35,750 $201,054 $ 73,544 $11,302 $17,231 $ 332,598
Special
Programs .... 48,157 814,385 217,745 2,147 426,905 59,584 311,179 121,937 10,260 4,559 424,838
Other ......... - - - - - 3,706 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$ 77,673 $1,274,982 $302,105 $18,946 $ 749,003 $ 99,040 $512,233 $195,481 $21,562 $21,790 $ 757,436
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
1994:
Regional
Operations .. $ 21,313 $ 463,360 $ 62,431 $11,179 $ 278,040 $ 29,287 $186,437 $ 55,986 $ 9,871 $12,404 $ 279,738
Special
Programs .... 48,824 717,969 194,424 1,472 413,183 53,209 311,686 109,122 11,590 2,432 432,317
Other ......... - - - - - 2,419 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$ 70,137 $1,181,329 $256,855 $12,651 $ 691,223 $ 84,915 $498,123 $165,108 $21,461 $14,836 $ 712,055
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
<FN>
(a) Net investment income for Regional Operations and Special Programs is allocated on the basis of cash flow.
S-7
<PAGE>
<CAPTION>
SCHEDULE V
ORION CAPITAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(000s omitted)
===============================================================================
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Deductions End of
Description Period Expenses Accounts (a) Period
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
1996:
Allowance for
doubtful accounts-
Accounts and notes
receivable $3,212
Consolidation of
Guaranty
National 374
------
$3,586 $1,517 $ - $1,407 $3,696
====== ====== ====== ====== ======
1995:
Allowance for
doubtful accounts-
Accounts and notes
receivable $1,954 $1,689 $ - $ 431 $3,212
====== ====== ====== ====== ======
1994:
Allowance for
doubtful accounts-
Accounts and notes
receivable $1,859 $1,030 $ - $ 935 $1,954
====== ====== ====== ====== ======
<FN>
(a) Accounts written off
S-8
<PAGE>
<CAPTION>
SCHEDULE VI
ORION CAPITAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS
(000s omitted)
====================================================================================================================================
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Reserve Losses and
for Loss Adjustment
Unpaid Expenses Incurred Amortization Paid
Deferred Losses Discount Related to of Deferred Losses
Affiliation Policy and Loss Deducted Net (1) (2) Policy and Loss
with Acquisition Adjustment in Column Unearned Premiums Investment Current Prior Acquisition Adjustment Premiums
Registrant Costs Expenses (C) Premiums Earned Income Year Year Costs Expenses Written
(a)
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 (b):
Consolidated
property and
casualty
entities $136,168 $1,785,664 $4,100 $496,249 $1,300,752 $140,311 $874,123 $ 8,869 $363,547 $794,889 $1,334,121
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
1995:
Consolidated
property and
casualty
entities $ 77,673 $1,274,982 $4,100 $302,105 $ 749,003 $ 95,334 $500,514 $11,719 $195,481 $409,797 $ 757,436
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
1994:
Consolidated
property and
casualty
entities $ 70,137 $1,181,329 $4,100 $256,855 $ 691,223 $ 82,496 $480,826 $17,297 $165,108 $437,386 $ 712,055
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
<FN>
(a) Discount deducted in Column C is computed using a statutory interest rate of 3.5% for certain workers compensation losses.
(b) 1996 amounts include Guaranty National Corporation on a consolidated basis.
S-9
</TABLE>
Exhibit 3(ii)
BY-LAWS
OF
ORION CAPITAL CORPORATION
(a Delaware corporation)
ARTICLE I.
Offices
Section 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II.
Meetings of Stockholders
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
such time and such place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or a duly executed waiver of notice
thereof.
Section 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be
held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, for the purpose of
electing a Board of Directors, and for the transaction of such other business
as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Restated Certificate of Incorporation, may be called by the Chairman of the
Board and shall be called by the Chairman of the Board or Secretary at the
request in writing of a majority of the Board of Directors, or at the request
in writing of stockholders owning a majority in amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting, and the
business transacted at any such special meeting of stockholders shall be
limited to the purposes set forthin the notice.
Section 4. NOMINATIONS; INTRODUCTION OF BUSINESS AT A MEETING OF
STOCKHOLDERS.
(a) Only persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors. Nominations
of persons for election to the Board of Directors of the Corporation may be
made at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice provided for in this Section 4(a),
<PAGE>
who shall be entitled to vote for the election of directors at the meeting and
who complies with the notice procedures set forth in this Section 4(a). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered
to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting, regardless of any postponement, deferral or adjournment of
that meeting to a later date; provided, however, that in the event that less
than seventy (70) days' notice or public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting or such public
disclosure was made. Such stockholder's notice shall contain the written
consent of each proposed nominee to serve as a director if so elected and
shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director and as to each person,
acting alone or in conjunction with one or more other persons as a
partnership, limited partnership, syndicate or other group, who participates
or is expected to participate in making such nomination or in organizing,
directing or financing such nomination or solicitation of proxies to vote for
the nominee (w) the name, age, residence address, and business address of each
proposed nominee and of each such person; (x) the principal occupation or
employment, and the name, type of business and address of the corporation or
other organization in which such employment is carried on, of each proposed
nominee and of each such person; (y) the amount of stock of the Corporation
owned beneficially, either directly or indirectly, by each proposed nominee
and each such person; and (z) a description of any arrangement or
understanding of each proposed nominee and of each such person with each other
or any other person regarding future employment or any future transaction to
which the Corporation will or may be a party, and (ii) as to the stockholder
giving the notice (x) the name and address, as they appear on the
Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation which are beneficially owned by such stockholder.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. Subject to the rights of
holders of preferred stock, no person shall be eligible to serve as a director
of the Corporation unless nominated in accordance with the procedures set
forth in the By-Laws. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made
in accordance with the procedures prescribed by the By-Laws, and if he should
so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded. Notwithstanding the foregoing provisions of this
Section 4(a), a stockholder shall also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Section.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the annual meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 4(b), who shall be entitled to vote at such
annual meeting and who complies with the notice of procedures set forth in
this Section 4(b). For business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice
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thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the annual meeting, regardless of any
postponement, deferral or adjournment of that meeting to a later date;
provided, however, that in the event that less than seventy (70) days' notice
or prior public disclosure of the date of the annual meeting is given or made
to stockholders, notice by the stockholder to be timely must be received no
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at the stockholder meeting except in accordance with the procedures
set forth in this section 4(b).The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of the By-
Laws, and if he should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 4(b), a
stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.
Section 5. STOCKHOLDER LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period not less than ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be produced and kept at the
time and place of election during the whole time thereof and may be inspected
by any stockholder who is present.
Section 6. QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Restated Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting, at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
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more than thirty (30) days, or if after the adjournment a new date is set for
the determination of the stockholders entitled to vote at the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
Section 7. Voting. When a quorum is present at any meeting, in all
matters other than the election of Directors, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy, and entitled to vote, shall decide any question brought before such
meeting, or unless the question is one upon which by express provision of
statute or the Restated Certificate of Incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at such meeting
and entitled to vote on the election of directors.
Section 8. VOTING AND PROXIES. At all meetings of stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or
by proxy appointed by an instrument in writing subscribed by such stockholder
and bearing a date not more than one (1) year prior to said meeting, unless
said instrument shall provide for a longer period. Each stockholder entitled
to vote at such meeting shall have one vote for each share of stock entitled
to vote and registered in his name on the books of the Corporation. Except as
provided by statute, the vote at any meeting of stockholders need not be by
ballot unless so directed by the chairman of the meeting.
Section 9. STOCK LEDGER. The original or duplicate stock ledger shall
be the only evidence as to who are the stockholders entitled to examine the
list required under Article II, Section 5 of these By-Laws or the books of the
Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
Section 10. NOTICE. Written or printed notice of each meeting of the
stockholders, whether annual or special, stating the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes
thereof, shall be given to each stockholder of record of the Corporation
entitled to vote at such meeting, either personally by mail, not less than ten
(10) days or more than sixty (60) days prior to the meeting.
Section 11. RECORD DATE.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which shall not precede
the date such record date is fixed and shall not be more than sixty (60) days
nor less than ten (10) days before the date of such meeting. If no record
date is fixed, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be the close of business on
the day next preceding the day on which notice is given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
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Board of Directors, and which date shall not be more than ten (10) days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. Any stockholder of record seeking to have the
stockholders authorized or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of Directors to fix a
record date. The Board of Directors shall promptly, but in all events within
ten (10) days after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been fixed by the
Board of Directors within ten (10) days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date
thereafter on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of stockholders' meetings are recorded, to the attention of the
Secretary of the Corporation. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been
fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
In the event of the delivery to the Corporation of a written consent or
consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and any revocation thereof is referred
to in this Section 12 as a "Consent"), the Secretary of the Corporation shall
provide for the safekeeping of such Consents and shall as soon as practicable
thereafter conduct such reasonable investigation as he or she deems necessary
or appropriate for the purpose of ascertaining the validity of such Consents
and all matters incident thereto, including, without limitation, whether the
holders of shares having the requisite voting power to authorize or take the
action specified in the Consents have given consent; provided, however, that
if the corporate action to which the Consents relate is the removal or
election of one or more members of the Board of Directors, the Secretary of
the Corporation shall designate an independent, qualified inspector with
respect to such Consents and such inspector shall discharge the functions of
the Secretary of the Corporation under this Section 12. If after such
investigation the Secretary or the inspector (as the case may be) shall
determine that any action purportedly taken by such Consents has been validly
taken, that fact shall be certified on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of the stockholders and
the Consents shall be filed with such records. In conducting the
investigation required by this Section 12, the Secretary or the inspector may,
at the expense of the Corporation, retain to assist them special legal counsel
and any other necessary or appropriate professional advisors, and such other
personnel as they may deem necessary or appropriate.
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ARTICLE III.
Directors
Section 1. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
directors which shall constitute the whole Board shall not be less than five
(5) nor more than fifteen (15). The exact number shall be that number
specified from time to time by duly adopted resolutions of the Board. The
directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article III, and each director shall hold
office until his or her successor is duly elected and qualified or until his
or her earlier resignation or removal. No individual may run for election or
reelection to the Board or be appointed a director from and after the date he
or she reaches 72 years of age.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies caused
by death, resignation, removal or otherwise, and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders of the Corporation and each director so chosen
shall hold office until the next annual election of directors and until his or
her successor is duly elected and qualified or until his or her earlier
resignation or removal.
Section 3. POWERS. The business of the Corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Restated Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 4. PLACE OF MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, within or without the State of
Delaware.
Section 5. ORGANIZATIONAL MEETING. The organizational meeting of each
newly elected Board of Directors shall be held immediately after the annual
meeting of stockholders or at such time and place as shall be designated by
the Chairman of the Board or as may otherwise be fixed by the vote of the
stockholders at the annual meeting and if such meeting is held immediately
after the annual meeting of stockholders or if a majority of the whole Board
shall be present, no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting provided a quorum
shall be present; or they may meet at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of
the Board of Directors or as shall be specified in a written waiver signed by
all of the directors.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time
to time be determined by the Board.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may, at any time and for any purpose permitted by law, either be called by the
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Chairman of the Board or by the Secretary if the Secretary shall have received
written request therefor from any two directors, which meetings shall be held
at the time and place designated by the person or persons calling the meeting.
Notice of the time, place and purpose of such meeting shall be given to the
directors by the Secretary, or in case of his or her absence, refusal or
inability to act, by any other officer. Any such notice may be given by mail,
by telegraph, by telephone, by personal service or any means thereby as to
different directors. If the notice is by mail, then it shall be deposited in
the mail at least forty-eight hours before the time of the meeting; if by
telegram, by delivery of the message to the telegraph company at least twelve
(12) hours before the time of the meeting; if by telephone or personal
service, at least twelve (12) hours before the time of the meeting.
Section 8. QUORUM. At all meetings of the Board of Directors, a
majority of the whole Board shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Restated
Certificate of Incorporation or by these By-Laws. Any meeting of the Board of
Directors may be adjourned to meet again at a stated time and place. If a
quorum shall not be present at any meeting of the Board of Directors, a
majority of the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by the
Restated Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the Restated Certificate of Incorporation or these By-Laws,
members of the Board of Directors or any committee thereof may participate in
a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting in this
manner shall constitute presence in person at such meeting.
Section 11. COMMITTEES. There are hereby established an Executive
Committee, an Audit and Information Services Committee, a Compensation and
Nomination Committee and an Investment Committee, each of which shall have the
powers and functions set forth in the following paragraphs of this Section 11
and such additional powers as may be delegated to it by the Board of
Directors. The Board of Directors may, by resolution passed by a majority of
the whole Board, establish one or more additional standing committees or spe-
cial committees of the Board of Directors. Each committee of the Board of
Directors shall have such powers and functions as may be delegated to it by
the Board of Directors, except as limited by the General Corporation Law of
the State of Delaware. The Board of Directors may abolish any committee
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established by or pursuant to this Section 11 as it may deem advisable. Each
such committee shall consist of three or more members, the exact number to be
determined from time to time by the Board of Directors. Designation of
members of each such committee shall be made by the Board of Directors. The
Board may also designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or she or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
Each committee shall keep regular minutes of its meetings and report the same
to the Board of Directors when required.
The Executive Committee, during intervals between meetings of the Board
of Directors, shall have and may exercise, in the best interests of the
Corporation, all of the powers of the Board of Directors in the management and
control of the business of the Corporation, except as limited by the General
Corporation Law of the State of Delaware and except with respect to matters
within the powers of the Audit and Information Services Committee, the
Compensation and Nomination Committee or the Investment Committee. The powers
of the Executive Committee shall be exercised in a manner which is consistent
with any specific directions of the Board of Directors as to the conduct of
the Corporation's affairs. All action taken by the Executive Committee shall
be reported to the Board of Directors at the next meeting of the Board
following the Executive Committee meeting at which such action was taken.
The Audit and Information Services Committee, a majority of which shall
not be employees of the Corporation, shall confer periodically with the
Corporation's independent accountants in respect of the preparation of the
Corporation's financial statements and the maintenance of proper financial
records and controls, shall make such recommendations to the Board of
Directors with respect thereto as it shall deem advisable and shall bring to
the attention of the Board of Directors the criticisms and recommendations of
such independent accountants. The Audit and Information Services Committee
shall also be empowered to periodically review the adequacy, accuracy and
security of the Corporation's data processing and information systems and
establish such standards and procedures with respect thereto as the Committee
deems necessary and appropriate. The Audit Committee and Information Services
Committee shall also perform such other functions as may be delegated to it by
the Board of Directors.
The Compensation and Nomination Committee shall consist entirely of
members who are not officers or employees of the Corporation. The
Compensation and Nomination Committee shall be empowered to review the amount
and terms of compensation paid to the principal executive officers of the
Corporation and to the principal executive officers of the Corporation's
subsidiaries, and to authorize, or to recommend to the Board of Directors of
the Corporation and such subsidiaries the authorization of such salary levels
and employment agreements with respect to such officers as such Committee may
deem appropriate. The Compensation and Nomination Committee shall also be
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empowered to authorize, or recommend to the Board of Directors the
authorization of such general incentive compensation arrangements, including
any bonus, stock option or special compensation plans for the Corporation, as
such Committee may deem appropriate. The Compensation and Nomination
Committee shall also recommend to the Board of Directors annually a slate of
nominees to the Board of Directors to be proposed to the shareholders, and,
from time to time, to recommend persons to fill any vacancy on the Board, such
recommendation to be based on general criteria (as established by the full
Board of Directors) for the selection of members of the Board. The
Compensation and Nomination Committee shall also perform such other functions
as may be delegated to it by the Board of Directors.
The Investment Committee shall be empowered to establish and approve or
recommend to the Board of Directors the adoption of the Corporation's
investment policies and to review such policies for conformance to applicable
federal and state laws and regulations and for consistency with the
Corporation's objectives. The Investment Committee shall also be empowered to
review the Corporation's portfolio for compliance with approved policies and
to approve, where appropriate, exceptions to defined policies. The
Corporation's Chief Investment Officer shall serve as a non-voting member of
the Investment Committee. The Investment Committee shall also perform such
other functions as may be delegated to it by the Board of Directors.
Section 12. REMUNERATION. The directors may be paid for their expenses,
if any, including but not limited to those incurred in connection with
attendance at each meeting of the Board of Directors, and may be paid a fixed
sum for attendance at each meeting of the Board of Directors, a stated salary,
a fee as such director or any combination thereof. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
ARTICLE IV.
Notices
Section 1. MANNER OF NOTICES. Whenever under the provisions of statute
or of the Restated Certificate of Incorporation or of these By-Laws notice is
required to be given to any director, committee member, officer or
stockholder, it shall not be construed to mean personal notice, but such
notice may be given, in the case of stockholders, in writing, by mail, by
depositing the same in a post office or letter box, in a postpaid, sealed
wrapper, addressed to such stockholder, at such address as appears on the
books of the Corporation, or, in default of other address, to such stockholder
at the General Post Office in the City of Wilmington, Delaware, and, in the
case of directors, committee members and officers, by telephone or by mail or
telegram to the last business address known to the Secretary, and such notice
shall be deemed to be given at the time when the same shall be thus mailed or
telegraphed or telephoned.
Section 2. WAIVER. Whenever any notice is required to be given under
the provisions of statute or of the Restated Certificate of Incorporation or
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of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of any and all objections to the date, time, and
purposes of such meeting, and the sufficiency of notice thereof, except when
the person attends a meeting for the purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V.
Officers
Section 1. OFFICERS. The officers of the Corporation shall be appointed
by the Board of Directors and shall be a Chairman of the Board of Directors, a
President, a Vice Chairman of the Board of Directors who shall preside over
meetings of the Board of Directors in the absence of the Chairman, one or more
Vice Presidents (which term may include Executive Vice President, Senior Vice
President and any other title approved by the Board of Directors), a Secretary
and a Treasurer or a Chief Financial Officer who serves as the Treasurer. The
Board of Directors may also choose one or more assistant officers. Any two or
more offices may be held by the same person except for the offices of Chairman
of the Board and Secretary, which shall be held by two individuals.
Section 2. ELECTION. The Board of Directors at its first organizational
meeting after each annual meeting of stockholders, shall choose a Chairman of
the Board of Directors, a President, a Vice Chairman of the Board of
Directors, one or more Vice Presidents as set forth in Article V, Section 1, a
Secretary and a Treasurer.
Section 3. APPOINTMENT OF SUBORDINATE OFFICERS. The Board of Directors
may appoint or empower the Chairman of the Board to appoint, such other
officers and agents as deemed necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 4. SALARIES. The salaries of the Chairman of the Board,
President, all Vice Presidents, the Secretary and the Treasurer of the
Corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE: REMOVAL AND RESIGNATION. After his or her
appointment to an office of the Corporation an individual shall hold such
office until a new slate of officers is appointed by the Board of Directors at
an organizational meeting thereof, or until any other time that his or her
successor is chosen and has qualified, or until his or her earlier removal or
resignation. Any officer appointed by the Board of Directors may be removed
at any time by the affirmative vote of a majority of the entire Board of
Directors. Any officer at any time may resign from any or all of the offices
he or she holds, and his or her resignation may be either oral or written.
Unless otherwise specified in the form of resignation, the acceptance of the
resignation shall not be necessary to make it effective. Any vacancy
occurring in any office of the Corporation may be filled by appointment by the
Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation with the powers of general
manager, and he or she shall have supervision over and may exercise general
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executive powers concerning all of the operations and business of the
Corporation, with the authority from time to time to delegate to other
officers such executive and other powers and duties as he or she may deem
advisable. He or she shall preside at all meetings of the stockholders and
the Board of Directors.
Section 7. THE PRESIDENT. The President shall, in the absence of the
Chairman of the Board and the Vice-Chairman of the Board, preside at all
meetings of the stockholders and the Board of Directors. The President shall
have the same power as the Chairman of the Board to execute and deliver such
certificates, contracts, bonds, mortgages, notes and other instruments and
documents for and on behalf of the Corporation and under the seal of the
Corporation where so required. He shall have general responsibility for the
management of the operations of the Corporation and shall perform
such duties, in that regard, as are incident to his office or properly
required of him by the Chairman of the Board or by the Board of Directors.
Section 8. VICE PRESIDENT. The Vice President or Vice Presidents, as
the case may be, shall perform such duties and have such powers as the Board
of Directors may from time to time prescribe.
Section 9. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all of the
proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
committees when required. He or she shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or Chairman of the Board and have custody of the corporate
seal of the Corporation and he or she, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his or her signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary or, if there
be more than one, the Assistant Secretaries, in the order determined by the
Board of Directors (or in the absence of any such determination, then in the
order of their appointment), shall, in the absence or disability of the
Secretary or in the event of his or her inability or refusal to act, perform
the duties and exercise the powers of the Secretary and shall perform such
other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 11. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors.
Section 12. DISBURSEMENT OF FUNDS. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of
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the Board and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of his or her transactions as
Treasurer and of the financial condition of the Corporation.
Section 13. ASSISTANT TREASURER. The Assistant Treasurer or, if there
shall be more than one, the Assistant Treasurers, in the order determined by
the Board of Directors (or in the absence of any such determination, then in
the order of their appointment), shall, in the absence of the Treasurer or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time pre-
scribe.
ARTICLE VI.
Certificates of Stock
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or her in the Corporation. Such certificate shall be
signed by or in the name of the Corporation by the Chairman of the Board or
the President or a Vice President and also signed by the Treasurer or an
Assistant Treasurer, or the Secretary, or an Assistant Secretary of the
Corporation.
Section 2. SIGNATURES. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent, or registrar who
signed, or whose facsimile signature has been placed upon a certificate, shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent, or registrar at the
date of issue.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate
or certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his or her legal
representative, to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost, stolen
or destroyed.
Section 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, to cancel the old certificate and to record
the transaction upon its books.
- 12 -
<PAGE)
Section 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to treat the person registered on its books as the owner of any share or
shares of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person, whether or not it shall have actual
or other notice thereof, except as otherwise provided by applicable law.
ARTICLE VII.
General Provisions
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to applicable law. Dividends may be paid
in cash, in property, or in shares of the capital stock of the Corporation.
Section 2. CHECKS. All checks or demands for monies and notes of the
Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be on
a calendar year basis unless otherwise fixed by resolution of the Board of
Directors.
Section 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. It shall not be necessary to the validity
of any instrument executed by any authorized official of the Corporation that
the execution of such instrument be evidenced by the corporate seal, and all
documents, instruments, contracts and writings of all kinds signed on behalf
of the Corporation by any authorized officer or officers thereof shall be as
effectual and binding on the Corporation without the corporate seal as if the
execution of the same had been evidenced by affixing the corporate seal
thereto.
ARTICLE VIII.
Amendments
These By-Laws, or any of them, may be altered, amended or repealed, and
new By-Laws may be adopted either: (i) by the Board of Directors, by vote of a
majority of the directors present at any regular meeting of the Board and
without previous notice, or at any special meeting of the Board, provided that
notice of such proposed alteration, amendment, repeal or adoption of new By-
Laws is given in the notice of such special meeting, or by written consent
without a meeting signed by all directors; or (ii) by the stockholders, at any
annual meeting of stockholders and without previous notice, or at any special
meeting of stockholders, provided that notice of such proposed alteration,
amendment, repeal or adoption is given in the notice of special meeting.
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<PAGE>
ARTICLE IX.
Indemnification of Officers and Directors
Section 1. INDEMNITY FOR CERTAIN EXPENSES, JUDGMENTS, FINES AND
SETTLEMENTS. The Corporation shall indemnify and make whole any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation subsequent to March 30, 1976, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise subsequent to March 30, 1976, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit, or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendre or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
Section 2. INDEMNITY FOR CERTAIN DEFENSE AND SETTLEMENT EXPENSES --
COURT APPROVAL. The Corporation shall indemnify and make whole any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he or she is or was
a director, officer, employee or agent of the Corporation subsequent to March
30, 1976, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise subsequent to March 30, 1976, against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection with the defense or settlement of such action or suit if
he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that
no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. INDEMNITY FOR SUCCESSFUL DEFENSE OF CERTAIN MATTERS.
Notwithstanding the other provisions of this Article IX, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
- 14 -
<PAGE>
to in Section 1 or 2 of this Article IX, or in defense of any claim, issue or
matter therein, he or she shall be indemnified and made whole against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 4. DETERMINATION THAT STANDARD OF CONDUCT HAS BEEN MET. Any
indemnification under Sections 1 or 2 of this Article IX (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in said Sections 1 or 2. Such
determination shall be made (a) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders.
Section 5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by any
person who may have a right of indemnification under this Article IX in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article IX. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
Section 6. OTHER INDEMNIFICATION RIGHTS NOT AFFECTED BY THIS ARTICLE.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article IX shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office.
Section 7. INSURANCE. Upon resolution passed by the Board of Directors,
the Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of this
Article IX or the General Corporation Law of the State of Delaware, as
amended.
Section 8. INDEMNIFICATION TO THE FULLEST EXTENT PERMITTED BY LAW. The
Corporation shall, to the fullest extent permitted by applicable law from time
to time in effect, indemnify any and all persons who are or were directors,
officers, employees or agents of this Corporation subsequent to March 30,
- 15 -
<PAGE>
1976, or who are or were serving at the request of this Corporation as
directors, officers, employees or agents of another corporation, partnership,
joint venture, trust or other enterprise subsequent to March 30, 1976, from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said law.
Section 9. CONSTITUENT AND RESULTING CORPORATION. For the purposes of
this Article IX, references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation subsequent to March 30, 1976, or is or was serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
subsequent to March 30, 1976, shall stand in the same position under the
provisions of this Article IX with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued.
Section 10. OTHER ENTERPRISE. For the purposes of this Article IX,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation"
as reflected to in this Article IX.
Section 11. CONTINUING BENEFIT. The indemnification and advancement of
expenses provided by or granted pursuant to this Article IX shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE X.
Annual Reports
A periodic report, including profit and loss statements and balance
sheets, prepared in accordance with generally accepted accounting principles,
shall be made to stockholders at least once a year.
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Exhibit 4(i)
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES B JUNIOR
PARTICIPATING PREFERRED STOCK
OF
ORION CAPITAL CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Michael P. Maloney, Vice President, General
Counsel and Secretary of Orion Capital Corporation, a
corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance
with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon
the Board of Directors by the Restated Certificate of
Incorporation of the said Corporation, the said Board of
Directors on September 11, 1996, adopted the following
resolution creating a series of 1,000,000 shares of Pre-
ferred Stock designated as Series B Junior Participating
Preferred Stock:
RESOLVED, that pursuant to the authority vested
in the Board of Directors of this Corporation in accor-
dance with the provisions of its Restated Certificate of
Incorporation, a series of Preferred Stock of the Corpo-
ration be and it hereby is created, and that the designa-
tion and amount thereof and the voting powers, preferenc-
es and relative, participating, optional and other spe-
cial rights of the shares of such series, and the quali-
fications, limitations or restrictions thereof are as
follows:
Section 1. Designation and Amount. The shares
of such series shall be designated as "Series B Junior
Participating Preferred Stock" and the number of shares
constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights
of the holders of any shares of any series of Preferred
Stock ranking prior and superior to the shares of Series
B Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series B Junior Par-
ticipating Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly divi-
dends payable in cash on the first business day of Janu-
ary, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Pay-
ment Date after the first issuance of a share or fraction
of a share of Series B Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1.00 or (b) subject to
the provision for adjustment hereinafter set forth, 200
times the aggregate per share amount of all cash divi-
dends, and 200 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $1.00 per share,
of the Corporation (the "Common Stock") since the immedi-
ately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a
share of Series B Junior Participating Preferred Stock.
In the event the Corporation shall at any time after
September 11, 1996 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the
amount to which holders of shares of Series B Junior
Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend
or distribution on the Series B Junior Participating
Preferred Stock as provided in Paragraph (A) above im-
mediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares
of Common Stock); provided that, in the event no dividend
or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series
B Junior Participating Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series B Junior
Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such
shares of Series B Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determi-
nation of holders of shares of Series B Junior Partici-
pating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series B
Junior Participating Preferred Stock in an amount less
than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of
Series B Junior Participating Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of
shares of Series B Junior Participating Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series B Junior
Participating Preferred Stock shall entitle the holder
thereof to 200 votes on all matters submitted to a vote
of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declara-
tion Date (i) declare any dividend on Common Stock pay-
able in shares of Common Stock, (ii) subdivide the out-
standing Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which
holders of shares of Series B Junior Participating Pre-
ferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by
law, the holders of shares of Series B Junior Participat-
ing Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on
any Series B Junior Participating Preferred
Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occur-
rence of such contingency shall mark the begin-
ning of a period (herein called a "default
period") which shall extend until such time
when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the
current quarterly dividend period on all shares
of Series B Junior Participating Preferred
Stock then outstanding shall have been declared
and paid or set apart for payment. During each
default period, all holders of Preferred Stock
(including holders of the Series B Junior Par-
ticipating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly
dividends thereon, voting as a class, irrespec-
tive of series, shall have the right to elect
two (2) Directors.
(ii) During any default period, such
voting right of the holders of Series B Junior
Participating Preferred Stock may be exercised
initially at a special meeting called pursuant
to subparagraph (iii) of this Section 3(C) or
at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders,
provided that such voting right shall not be
exercised unless the holders of ten percent
(10%) in number of shares of Preferred Stock
outstanding shall be present in person or by
proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise
by the holders of Preferred Stock of such vot-
ing right. At any meeting at which the holders
of Preferred Stock shall exercise such voting
right initially during an existing default
period, they shall have the right, voting as a
class, to elect Directors to fill such vacan-
cies, if any, in the Board of Directors as may
then exist up to two (2) Directors or, if such
right is exercised at an annual meeting, to
elect two (2) Directors. If the number which
may be so elected at any special meeting does
not amount to the required number, the holders
of the Preferred Stock shall have the right to
make such increase in the number of Directors
as shall be necessary to permit the election by
them of the required number. After the holders
of the Preferred Stock shall have exercised
their right to elect Directors in any default
period and during the continuance of such peri-
od, the number of Directors shall not be in-
creased or decreased except by vote of the
holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securi-
ties ranking senior to or pari passu with the
Series B Junior Participating Preferred Stock.
(iii) Unless the holders of Pre-
ferred Stock shall, during an existing default
period, have previously exercised their right
to elect Directors, the Board of Directors may
order, or any stockholder or stockholders own-
ing in the aggregate not less than ten percent
(10%) of the total number of shares of Pre-
ferred Stock outstanding, irrespective of se-
ries, may request, the calling of special meet-
ing of the holders of Preferred Stock, which
meeting shall thereupon be called by the Presi-
dent, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any
annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each hold-
er of record of Preferred Stock by mailing a
copy of such notice to him at his last address
as the same appears on the books of the Corpo-
ration. Such meeting shall be called for a
time not earlier than 20 days and not later
than 60 days after such order or request or in
default of the calling of such meeting within
60 days after such order or request, such meet-
ing may be called on similar notice by any
stockholder or stockholders owning in the ag-
gregate not less than ten percent (10%) of the
total number of shares of Preferred Stock out-
standing. Notwithstanding the provisions of
this Paragraph (C)(iii), no such special meet-
ing shall be called during the period within 60
days immediately preceding the date fixed for
the next annual meeting of the stockholders.
(iv) In any default period, the
holders of Common Stock, and other classes of
stock of the Corporation if applicable, shall
continue to be entitled to elect the whole
number of Directors until the holders of Pre-
ferred Stock shall have exercised their right
to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Di-
rectors so elected by the holders of Preferred
Stock shall continue in office until their
successors shall have been elected by such
holders or until the expiration of the default
period, and (y) any vacancy in the Board of
Directors may (except as provided in Paragraph
(C)(ii) of this Section 3) be filled by vote of
a majority of the remaining Directors thereto-
fore elected by the holders of the class of
stock which elected the Director whose office
shall have become vacant. References in this
Paragraph (C) to Directors elected by the hold-
ers of a particular class of stock shall in-
clude Directors elected by such Directors to
fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration
of a default period, (x) the right of the hold-
ers of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any
Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may
be provided for in the certificate of incorpo-
ration or by-laws irrespective of any increase
made pursuant to the provisions of Paragraph
(C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any
manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provi-
sions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the
remaining Directors.
(D) Except as set forth herein, holders of
Series B Junior Participating Preferred Stock shall have
no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other
dividends or distributions payable on the Series B Junior
Participating Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not de-
clared, on shares of Series B Junior Participating Pre-
ferred Stock outstanding shall have been paid in full,
the Corporation shall not
(i) declare or pay dividends
on, make any other distributions on, or redeem
or purchase or otherwise acquire for consider-
ation any shares of stock ranking junior (ei-
ther as to dividends or upon liquidation, dis-
solution or winding up) to the Series B Junior
Participating Preferred Stock;
(ii) declare or pay dividends
on or make any other distributions on any
shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution
or winding up) with the Series B Junior Partic-
ipating Preferred Stock, except dividends paid
ratably on the Series B Junior Participating
Preferred Stock and all such parity stock on
which dividends are payable or in arrears in
proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or
otherwise acquire for consideration shares of
any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or
winding up) with the Series B Junior Partici-
pating Preferred Stock, provided that the Cor-
poration may at any time redeem, purchase or
otherwise acquire shares of any such parity
stock in exchange for shares of any stock of
the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or
winding up) to the Series B Junior Participat-
ing Preferred Stock; or
(iv) purchase or otherwise ac-
quire for consideration any shares of Series B
Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the
Series B Junior Participating Preferred Stock,
except in accordance with a purchase offer made
in writing or by publication (as determined by
the Board of Directors) to all holders of such
shares upon such terms as the Board of Direc-
tors, after consideration of the respective
annual dividend rates and other relative rights
and preferences of the respective series and
classes, shall determine in good faith will
result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise
acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Paragraph
(A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of
Series B Junior Participating Preferred Stock purchased
or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding
Up. (A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B
Junior Participating Preferred Stock unless, prior there-
to, the holders of shares of Series B Junior Participat-
ing Preferred Stock shall have received $100 per share,
plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the
date of such payment (the "Series B Liquidation Prefer-
ence"). Following the payment of the full amount of the
Series B Liquidation Preference, no additional distribu-
tions shall be made to the holders of shares of Series B
Junior Participating Preferred Stock unless, prior there-
to, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series
B Liquidation Preference by (ii) 200 (as appropriately
adjusted as set forth in subparagraph (C) below to re-
flect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Follow-
ing the payment of the full amount of the Series B Liqui-
dation Preference and the Common Adjustment in respect of
all outstanding shares of Series B Junior Participating
Preferred Stock and Common Stock, respectively, holders
of Series B Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number
to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of
the Series B Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series B Junior
Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquida-
tion preferences. In the event, however, that there are
not sufficient assets available to permit payment in full
of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common
Stock.
(C) In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In
case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other proper-
ty, then in any such case the shares of Series B Junior
Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set
forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the
event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstand-
ing Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares
of Series B Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of
Series B Junior Participating Preferred Stock shall not
be redeemable.
Section 9. Ranking. The Series B Junior
Participating Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets,
unless the terms of such series shall provide otherwise.
Section 10. Amendment. The Restated Certifi-
cate of Incorporation of the Corporation shall not be
further amended in any manner which would materially
alter or change the powers, preferences or special rights
of the Series B Junior Participating Preferred Stock so
as to affect them adversely without the affirmative vote
of the holders of a majority or more of the outstanding
shares of Series B Junior Participating Preferred Stock,
voting separately as a class.
Section 11. Fractional Shares. Series B
Junior Participating Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights
of holders of Series B Junior Participating Preferred
Stock.<PAGE>
IN WITNESS WHEREOF, we have executed and
subscribed this Certificate and do affirm the foregoing
as true under the penalties of perjury this 17th day of
September, 1996.
/s/ Michael P. Maloney
Michael P. Maloney
Vice President
Exhibit 10(ii)
ORION CAPITAL CORPORATION
1982 LONG-TERM PERFORMANCE INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of the Orion Capital Corporation 1982 Long-Term
Performance Incentive Plan (the "Plan") is to further the interests
of Orion Capital Corporation (the "Company") and its shareholders by
providing long-term performance incentives to those key employees of
the Company and its subsidiaries who are largely responsible for the
management, growth and protection of the business of the Company and
its subsidiaries. To that end, the Company may, from time to time
during the effective period of the Plan, award to such employees as
may be selected in the manner provided below one or more of Incentive
Stock Options, Non-Qualified Stock Options, Restricted Stock and
Performance Units (each as hereinafter described), subject to the
conditions hereinafter set forth.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company as may from time
to time be designated by the Board of Directors (the "Committee").
No member of the Committee while serving as such shall be eligible
for participation in the Plan. A majority of the Committee shall
constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, in person or by
means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each
other, or acts approved in writing by all of the members, shall be
the acts of the Committee.
Subject to the provisions of the Plan, the Committee shall
have full and final authority in its discretion (a) to select the
employees who will participate in the Plan, (b) to determine the
amount and type of the awards to be made to each employee so
selected, (c) to determine the time or times at which awards will be
made, (d) to construe and interpret the Plan and to adopt, amend and
rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan and (e) to make all other
determinations as it may deem necessary or advisable for the
administration of the Plan.
3. PARTICIPATION IN THE PLAN
Participants in the Plan shall be selected by the Committee from
among the key employees of the Company and its subsidiaries. The
term "employees," as used herein, shall include officers of the
<PAGE>
Company or of a subsidiary of the Company, and shall include
directors who are also employees of the Company or of a subsidiary of
the Company. The term "subsidiary," as used herein, shall mean any
corporation of which 50% or more of the outstanding voting securities
are beneficially owned, directly or indirectly, now or hereafter, by
the Company.
No employee shall have any right to participate in the Plan
unless selected by the Committee and then only to the extent
determined by the Committee. In selecting the employees who may
become participants in the Plan, as well as in determining the
amount, type and terms and conditions of each award made under the
Plan, the Committee shall weigh such factors as it shall deem
relevant to accomplish the purposes of the Plan, and all actions
taken and determinations made by the Committee, in its sole
discretion, shall be final and binding and not subject to review.
An employee to whom an award has been made under the Plan
may receive one or more additional awards if the Committee shall so
determine. No employee shall be eligible to receive any stock option
or Restricted Stock if, at the time such award is made, such employee
owns stock possessing more than ten percent of the total combined
voting power of all classes of stock either of the Company or of any
subsidiary.
4. PLAN LIMITATIONS; SHARES SUBJECT TO THE PLAN
Subject to the provisions of Section 9 hereof, the
aggregate number of shares of Common Stock, $1.00 par value, of the
Company (the "Common Stock") for which options may be awarded, or
which may be issued as Restricted Stock, shall not exceed 800,000
shares. Such shares shall be made available, at the discretion of
the Board of Directors, either from the authorized but unissued
shares of Common Stock of the Company or from shares of Common Stock
held by the Company as treasury shares, including shares purchased in
the open market. If an option award under this Plan shall expire or
terminate or be surrendered to the Company (other than pursuant to
Section 5(g) unexercised as to any shares covered thereby, or if any
shares of Restricted Stock awarded under the Plan shall be forfeited
or surrendered to the Company, the shares represented thereby shall
thereafter again be available for other awards under the Plan.
However, if an option award under this Plan shall be accepted for
surrender pursuant to terms and conditions determined by the
Committee under Section 5(g) hereof, and shares covered thereby shall
not thereafter be available for other awards under the Plan.
Subject to the provisions of Section 9 hereof, the
aggregate number of Performance Units which may be awarded under the
Plan shall not exceed 350,000. If any Performance Units awarded
under the Plan shall be forfeited or cancelled, such Performance
Units shall thereafter be available for making of awards under the
Plan.
- 2 -
<PAGE>
5. STOCK OPTIONS
(a) Award of Options. Subject to the provisions of the Plan,
the Committee may from time to time, in its sole discretion, award to
employees who have been selected to participate in the Plan options
to purchase shares of Common Stock of the Company. In connection
therewith, the Committee shall have full and final authority in its
discretion, subject to the provisions of the Plan, (i) to determine
the employees to whom options are to be awarded, (ii) in the case
of each option awarded, to determine whether the same shall be an
incentive stock option pursuant to section 422 of the Internal
Revenue Code of 1986 (the "Code"), as the same may from time to time
be amended (an "Incentive Stock Option"), or an option which does not
qualify under such section 422 (a "Non-Qualified Option"), (iii) to
determine the number of shares subject to each option, (iv) to
determine the time or times at which options will be awarded, (v) to
determine the option price of the shares subject to each option,
which price shall not be less than the minimum specified in Section
5(c) hereof, (vi) to determine the time or times when each option
becomes exercisable and the duration of the exercise period, and
(vii) to prescribe the form or forms of the instruments evidencing
any options awarded under the Plan (which forms shall be consistent
with the Plan but need not be identical).
(b) Term of Options. The full term of each option awarded
hereunder shall be for such period as the Committee shall determine,
but not for more than ten years and one day from the date of awarding
of a Non Qualified Option and not more than ten years from the date
of awarding of an Incentive Stock Option. Each option shall be
subject to earlier termination as provided in paragraphs (f) and (g)
of this Section 5.
(c) Option Price. The option price shall be determined by the
Committee at the time any option is awarded, and shall be not less
than 100 percent of the fair market value (but in no event less than
par value) of the shares covered thereby at the time the option is
awarded. The option price shall be paid in cash or by the surrender,
at the fair market value thereof, of shares of Common Stock of the
Company, or by any combination of cash and such shares. For purposes
of this Plan, the "fair market value" of a share of Common Stock of
the Company shall be deemed to be, at any time, the mean of the high
and low selling prices of such Common Stock as reported on the New
York Stock Exchange, Inc.
(d) Non-Transferability of Options - Designation of
Beneficiary. (i) Except as provided in paragraph (ii) of this
Section, no option awarded under this Plan shall be transferred by
the holder thereof otherwise than to his designated beneficiary or
estate pursuant to Section 8 hereof, and such option may be exercised
during his or her lifetime only by him or her.
(ii) Notwithstanding the foregoing, the Committee may, in its
discretion, provide that options, restricted stock, performance units
or other rights or interests of an employee granted pursuant to this
Plan (other than an Incentive Stock Option) be transferable, without
consideration, to immediate family members (i.e., children,
- 3 -
<PAGE>
grandchildren or spouse), to trusts for the benefit of such immediate
family members and to partnerships in which such family members are
the only partners. The Committee may attach to such transferability
feature such terms and conditions as it deems advisable. In
addition, an employee may, in the manner established by the
Committee, designate a beneficiary (which may be a person or a trust)
to exercise the rights of the employee, and to receive any
distribution with respect to any award made under this Plan upon the
death of the employee. A beneficiary, guardian, legal
representative, or other person claiming any rights under the Plan
from or through any employee shall be subject to all terms and
conditions of the Plan and any Agreement applicable to such
participant, except as otherwise determined by the Committee, and to
any additional restrictions deemed necessary or appropriate by the
Committee.
(e) Limitations on Incentive Stock Options. In the case of any
Option which is intended to be an Incentive Stock Option, which is
awarded after January 1, 1987, the aggregate fair market value
(determined at the time the option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by an optionee during any calendar year (under all stock
option plans of the Company) shall not exceed one hundred thousand
dollars ($100,000).
(f) Exercise of Options. (i) Subject to the provisions of
Section 5(e) hereof, each option awarded under this Plan shall be
exercisable on such date or dates and during such period and for such
number of shares as shall be determined pursuant to the provisions of
the instrument evidencing such options.
(ii) A person electing to exercise an option shall give written
notice to the Company of such election and of the number of shares
such person has elected to purchase, and shall at the time of
exercise tender the full purchase price of the shares he has elected
to purchase. Until receipt by the Company of such full purchase
price, he shall possess no rights of a record holder with respect to
any of such shares. Upon the exercise of an option at a time when
there is not in effect a registration statement under the Securities
Act of 1933 relating to the shares issuable upon exercise of the
option, the optionee shall provide the Company with such
representations and warranties as may be required by the Company to
the effect that the shares to be purchased pursuant to the option are
being acquired for investment and not with a view to the distribution
thereof. Without limiting the Company's obligations with respect to
outstanding options, no shares shall be purchased upon the exercise
of any option unless all applicable requirements of the Securities
and Exchange Commission, and any other regulatory agencies having
jurisdiction and of any stock exchanges upon which the shares may be
listed have been fully complied with. The Company shall use its best
efforts to comply with all such regulations and appropriate
provisions may be made in the instruments evidencing options to
provide for suitable adjustments in the event that the Company is
unable to comply with such regulations.
- 4 -
<PAGE>
(iii) No option shall be affected by any change of duties or
position of the optionee (including transfer to or from a
subsidiary), so long as he continues to be an employee of the Company
or any of its subsidiaries. If an optionee shall cease to be such an
employee for any reason other than death, such option shall
thereafter be exercisable only to the extent of the purchase rights,
if any, which had accrued as of the date of such cessation, and such
remaining right to purchase shall in any event terminate upon the
earlier of (a) the expiration of the full term of the option or (b)
the expiration of three months from the date of such cessation of
employment. Nothing in this Plan or in any option awarded hereunder
shall confer upon any optionee any right to continue in the employ of
the Company or any of its subsidiaries or to interfere in any way
with the right of the Company or its subsidiaries to terminate his
employment at any time.
(iv) Should an optionee die while in the employ of the Company
or any of its subsidiaries, such optionee's designated beneficiaries
or such other persons as shall have acquired, by will or by the laws
of descent and distribution, the right to exercise any option
theretofore awarded such optionee may, in either case, exercise such
option at any time prior to expiration of its full term or the
expiration of one year from the date of death of the optionee,
whichever is earlier.
(v) Any exercise pursuant to subparagraphs (iii) or (iv) above
shall be limited to the purchase rights which shall have accrued as
of the date when the optionee ceased to be such an employee, whether
by death or otherwise, provided, however, that the Committee may
provide in the instrument evidencing any option, or any amendment
thereto, that all shares covered by such option shall become subject
to purchase immediately upon the death or cessation of employment of
the optionee.
(g) Surrender of Options. The Committee may, under such terms
and conditions as it deems appropriate, accept the surrender by an
optionee of a right to exercise an option to purchase shares of
Common Stock and authorize a payment in consideration therefor of an
amount equal to the difference obtained by subtracting the option
price from the fair market value on the date of such surrender, such
payment (net of any amount withheld pursuant to Section 12 hereof) to
be, in the sole discretion of the Committee, in shares of the Common
Stock of the Company valued at fair market value on the date of such
surrender, or in cash, or partly in such shares and partly in cash,
provided that the Committee shall have determined that such
settlement is consistent with the purposes set forth in Section 1
hereof.
(h) Stock Option Agreements. Each option awarded under the
Plan shall be evidenced by a stock option agreement (which need not
be identical with other stock option agreements) executed on behalf
of the Company by a member of the Committee or by an officer
designated by the Committee and by the optionee which shall set forth
the terms and conditions of the option (including, in the case of
Incentive Stock Options, such terms as shall be requisite in the
judgment of the Committee to provide that those options will be
"incentive stock options" within the meaning of Section 422 of the
- 5 -
<PAGE>
Code) either expressly or by reference to the Plan and which may
contain other provisions provided they are neither inconsistent with
nor prohibited by the Plan.
6. RESTRICTED STOCK
(a) Restricted Stock Awards. Subject to the provisions of the
Plan, the Committee may from time to time, in its sole discretion,
contingently award to employees who have been selected to participate
in the Plan shares of Common Stock of the Company upon the terms and
conditions, and subject to the restrictions set forth in this Section
6 ("Restricted Stock"). In connection therewith, the Committee shall
have full and final authority in its discretion, subject to the
provisions of the Plan, (i) to determine the employees to be awarded
Restricted Stock, (ii) to determine the number of shares of
Restricted Stock to be awarded to each such employee, (iii) to
determine the time or times at which awards of Restricted Stock shall
be made, (iv) to determine the Restricted Period (as hereinafter
defined) applicable to each award of Restricted Stock and (v) to
prescribe the form or forms of the agreements to be entered into
between the Company and each employee to whom Restricted Stock is
awarded (which agreements shall be consistent with the Plan but need
not be identical).
(b) Restricted Period. (i) Except as hereinafter expressly
provided, no shares of Restricted Stock awarded to an employee may be
sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the employee for such period, as shall be established
by the Committee in its sole discretion at the time of such award
(the "Restricted Period"). If at any time an employee to whom
Restricted Stock has been awarded is no longer employed by the
Company or any of its subsidiaries for any reason (other than death,
permanent and total disability, or retirement), all shares of
Restricted Stock theretofore awarded to him and as to which the
applicable Restricted Period has not expired shall immediately be
forfeited and returned to the Company, and all rights of such
employee with respect to such Restricted Stock shall terminate,
without payment of any consideration by the Company.
(ii) In the event that an employee to whom Restricted Stock has
been awarded is no longer employed by the Company or any of its
subsidiaries by reason of such employee's death, permanent and total
disability or retirement, the restrictions set forth in Section
6(b)(i) shall be deemed to have been satisfied as to the number of
full shares of such employee's Restricted Stock determined by
multiplying the total number of shares of Restricted Stock subject to
each Restricted Stock award by a fraction, the numerator of which
shall be the number of days between the date of such award and the
date of termination of employment, and the denominator of which shall
be the total number of days in the applicable Restricted Period.
Shares of Restricted Stock as to which restrictions have not so
lapsed shall be forfeited and returned to the Company as provided in
Section 6(b)(i).
(iii) Notwithstanding the terms of the foregoing sections, the
Committee shall have the authority, in its sole discretion, to
- 6 -
<PAGE>
accelerate the time at which restrictions will lapse or to remove any
such restrictions whenever it may determine that, by reason of
changes in applicable tax or other laws or any other changes in
circumstances arising after the date of award, such action is in the
best interests of the Company and equitable to the employee or his or
her heirs or designated beneficiaries.
(c) Legend: Deposit of Certificates. Each certificate issued
in respect of shares of Restricted Stock awarded under the Plan shall
be registered in the name of the employee and deposited by the
employee, together with a stock power endorsed in blank, with the
Company, and shall bear the following (or a similar) legend, and any
other legend required by law:
The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Orion
Capital Corporation 1982 Long-Term Performance Incentive Plan,
as amended, and an agreement between the registered owner and
Orion Capital Corporation. Copies of such plan and agreement
are on file in the offices of the Secretary of Orion Capital
Corporation, 600 Fifth Avenue, New York, New York 10020.
Upon the expiration of the Restricted Period, or the earlier lapse
of restrictions pursuant to Section 6(b)(ii) or (iii) hereof, the
Company shall deliver to the employee (or to his or her heir,
designated beneficiary or legal representative) a certificate or
certificates not bearing the legend required by this paragraph.
(d) Rights as a Shareholder. Except for the restrictions set
forth herein and subject to the terms and conditions of the agreement
between the Company and the employee to whom Restricted Stock has
been awarded, the employee shall have all the rights of a stockholder
with respect to shares of Restricted Stock awarded to him or her,
including, without limitation, the right to vote such shares and the
right to receive all dividends or other distributions made with
respect to such shares.
7. PERFORMANCE UNITS
(a) Award of Performance Units. Subject to the provisions of
the Plan, the Committee may from time to time, in its sole
discretion, award "Performance Units" to employees who have been
selected to participate in the Plan. In connection therewith, the
Committee shall have full and final authority in its discretion,
subject to the provisions of the Plan, (i) to determine, from time to
time, the employees to whom Performance Units are to be awarded, (ii)
to determine the number of Performance Units to be awarded to each
such employee, (iii) to determine the time or times at which awards
of Performance Units shall be made, (iv) to determine the Performance
Period, Performance Target and Applicable Percentages (each as
hereinafter defined) applicable to each award of Performance Units,
and (v) to prescribe the form or forms of the agreements to be
entered into between the Company and each employee to whom
Performance Units may be awarded (which agreements shall be
consistent with the Plan but need not be identical).
- 7 -
<PAGE>
(b) Performance Period. (i) At the time it makes an award of
Performance Units, the Committee shall determine the Performance
Period applicable to the Performance Units so awarded. If at any
time an employee to whom Performance Units have been awarded is no
longer employed by the Company or any of its subsidiaries for any
reason (other than death, permanent and total disability, or
retirement), all Performance Units theretofore awarded to him and as
to which the applicable Performance Period has not expired shall
immediately be forfeited, and all rights of such employee with
respect to such Performance Units shall terminate, without payment of
any consideration by the Company.
(ii) In the event that an employee to whom Performance Units have
been awarded is no longer employed by the Company or any of its
subsidiaries prior to the expiration of the Performance Period by
reason of such employee's death, permanent and total disability or
retirement, such employee (or his or her heirs, designated
beneficiaries or legal representative) shall be entitled, following
the expiration of such Performance Period, to a payment in an amount
equal to the payment, if any, which would have been made pursuant to
Section 7(f) hereof if such termination of employment had not
occurred times a fraction, the numerator of which shall be the number
of days between the date of award of the outstanding Performance
Units and the date of termination of employment, and the denominator
of which shall be the total number of days in the applicable
Performance Period.
(iii) Notwithstanding the terms of the foregoing sections, the
Committee shall have the authority, in its sole discretion, to
accelerate the time at which any Performance Period will expire or
declare the Performance Units of any employee or employees
immediately payable in such amounts as the Committee may determine as
being in the best interest of the Company and equitable to the
employee or his or her heirs or designated beneficiaries.
(c) Performance Target. At the time of each award of
Performance Units, the Committee shall determine the Performance
Target which shall be applicable to the Performance Units so awarded.
The Performance Target shall be a goal, expressed in terms of growth
in book value, earnings per share, return on equity or any other
financial or other measurement deemed appropriate by the Committee,
to be attained by the conclusion of the Performance Period, failing
which attainment the Performance Units subject to the Performance
Target shall lapse or be subject to adjustment by an Applicable
Percentage as and to the extent determined by the Committee. At the
discretion of the Committee, the Performance Target for any such
award may relate to the results of operations or other measurable
progress of either the Company as a whole or the employee's
subsidiary, division or department. The Performance Target need not
be identical for all Performance Units awarded at any time or from
time to time.
(d) Applicable Percentages. At the time of each award of
Performance Units, the Committee shall determine the Applicable
Percentages which shall be applicable to the Performance Units so
awarded. The Applicable Percentages shall consist of such range of
percentages as the Committee shall determine at the time of each a
- 8 -
<PAGE>
ward, as shall be applicable to the total number of Performance Units
awarded to an employee at any one time and which shall be applied to
the total number of Performance Units so awarded to reflect, in such
manner as the Committee may determine to be appropriate, the degree
to which the Performance Target shall have been met or exceeded. The
Applicable Percentages need not be identical for all Performance
Units granted at any time or from time to time.
(e) Value of Performance Units. The value of each Performance
Unit at any time shall equal the book value per share of the
Company's Common Stock as such value appears on the consolidated
balance sheet of the Company and its subsidiaries as of the end of
the fiscal quarter immediately preceding the date of valuation;
provided, however, that Performance Units shall not be or be deemed
to be shares of capital stock of the Company and the award of
Performance Units under the Plan shall not entitle the employee to
whom Performance Units have been awarded to any dividend, voting or
other rights of a stockholder. Prior to the availability of a
definitive balance sheet for a particular quarter the Committee shall
make a good faith estimate of such book value and any payment during
such period shall be subject to adjustment when a definitive balance
sheet shall be available.
(f) Payment of Performance Units. Subject to the provisions of
the Plan and the terms of each employee's award, each employee
awarded Performance Units shall be entitled to payment in respect
thereof as soon as practicable after the close of the Performance
Period applicable to such award. Such payment shall be made in cash,
in an amount equal to the value of all such vested Performance Units
then held by the employee (determined in accordance with Section 7(e)
hereof), times the Applicable Percentage. The Committee may also
make adjustments, to the extent it deems appropriate at the
conclusion of the Performance Period, in the Performance Target or
Applicable Percentages for any Performance Units awarded to
compensate for, or to reflect, any material changes which may have
occurred in accounting practices, tax laws or other laws or
regulations which alter or affect the computation of such Performance
Target, or any unusual circumstances outside of management's control
which materially affect the performance of the Company or any
relevant subsidiary, division or department. Notwithstanding the
foregoing, no adjustments shall be made in any outstanding
Performance Units to the extent that such adjustment would adversely
affect the status of that Performance Units as "performance-based
compensation" under Section 162(m) of the Code.
8. DESIGNATION OF BENEFICIARY
An employee who has received an award under this Plan may, with the
consent of the Committee, designate a person or persons to be his or
her designated beneficiaries under this Plan. Such designation shall
be made upon forms supplied by and delivered to the Company and may
be revoked in writing. If an employee fails effectively to designate
a beneficiary, then his or her estate will be deemed to be the
beneficiary.
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<PAGE>
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; ACCELERATION
IN CERTAIN EVENTS.
(a) Any instruments evidencing options awarded hereunder, and
any agreements entered into between the Company and an employee in
connection with any award hereunder, may contain such provisions as
the Committee may determine for adjustment of the number and classes
of shares covered thereby, the purchase price of options, the lapsing
of the restrictions on exercise of options or on Restricted Stock,
the number and method of valuation of Performance Units covered
thereby, or the like, in the event of changes in the outstanding
Common Stock of the Company by reason of any stock dividend, stock
split-up, recapitalization, reorganization, merger, consolidation,
combination or exchange of shares or the like, of or by the Company.
In the absence of any such provision, the Board of Directors of the
Company, in the event of any such change, may make such adjustments
as it may, in its sole discretion, deem equitable; provided, however,
in each case, no adjustment shall be made which would cause the Plan
to violate Section 422(b)(1) of the Code with respect to Incentive
Stock Options or would adversely affect the status of options or
Restricted Stock intended to be "performance-based compensation as
such under Section 162(m) of the Code. In addition, in the event of
any such change the Board of Directors may make such change as it may
deem appropriate in the aggregate number and classes of shares for
which options may thereafter be awarded, or which may thereafter be
issued as Restricted Stock, or in the aggregate number and method of
valuation of Performance Units which may thereafter be awarded.
(b) Notwithstanding the foregoing, in the event of any of the
following occurs: (i) the acquisition, in one or more transactions,
of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) by any person or entity or any group of persons or
entities who constitute a group (within the meaning of Section 13(d)3
of the Exchange Act) other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a
Subsidiary, of any securities of the Company such that, as a result
of such acquisition, such person, entity or group either (A),
beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, more than 20% of the Company's
outstanding voting securities entitled to vote on a regular basis for
a majority of the members of the Board of (B) otherwise has the
ability to elect, directly or indirectly, a majority of the members
of the Board; (ii) a change in the composition of the Board such that
a majority of the members of the Board are not directors who were
nominated for election or elected to the Board by stockholders of the
Company during the preceding twelve months and who were not members
of the Board twelve months prior to that time ("Continuing
Directors"); or (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
80% of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement
- 10 -
<PAGE>
for the sale or disposition by the Company of (in one or more
transactions) all or substantially all the Company's assets,
(collectively (i) to (iii), "Change of Control"), then (x) all stock
options theretofore awarded under the Plan shall become immediately
exercisable as to all shares of Common Stock covered thereby, and all
restrictions on all shares of Restricted Stock theretofore awarded
under the Plan shall immediately lapse, in each case from such date,
and for such period, as may be necessary to enable the holders
thereof to obtain the benefits of such offer, merger or
consolidation, and (y) the Performance Periods applicable to all
Performance Units theretofore awarded under the Plan will immediately
expire and the Committee may, in its sole discretion, declare the
Performance Units of any employee or employees immediately payable in
such amounts as the Committee may determine.
Notwithstanding the foregoing, the preceding events shall not
be deemed to be a Change of Control if prior to any transaction or
transactions causing such change a majority of the Continuing
Directors shall have voted not to treat such transaction or
transactions as resulting in a Change of Control.
10. NO ASSIGNMENT
Except as provided in Section 5 hereof, an employee's rights and
interests under the Plan may not be assigned or transferred except,
in the event of an employee's death, to his or her designated
beneficiary or to his estate pursuant to Section 8 hereof.
11. NO RIGHT TO AWARD OR EMPLOYMENT
No employee or other person shall have any claim or right to
receive an award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee any right
to be retained in the employ of the Company or any subsidiary.
12. WITHHOLDING
The Company or any subsidiary shall have the right to deduct
from all payments made under the Plan any taxes required to be
withheld in connection therewith under the applicable laws or
regulations of any governmental authority, whether Federal, state or
local and whether domestic or foreign, and, in the case of any shares
of stock transferred pursuant to the Plan, the person receiving such
shares shall be required to pay to the Company or such subsidiary, in
cash or by surrender, at the fair market value thereof, of shares of
Common Stock of the Company, or by any combination of cash or such
shares, the amount of any such taxes which the Company or such
subsidiary is required to withhold with respect to such stock.
13. AMENDMENT, SUSPENSION OR TERMINATION
The Board of Directors of the Company may at any time terminate
or from time to time amend or suspend (and if suspended, may
reinstate) the Plan; provided, however, that except as provided in
Section 9 hereof, no such amendment shall, without the approval of
the shareholders of the Company, (a) increase the aggregate number of
Performance Units which may be awarded or the number of shares as to
- 11 -
<PAGE>
which options may be awarded or which may be awarded as Restricted
Stock under the Plan, either to all employees or any one employee,
(b) change the minimum exercise price of options awarded hereunder,
(c) extend the maximum period during which options may be exercised,
or (d) materially modify the requirements as to eligibility for
participation in the Plan or permit the making of awards to members
of the Committee. No amendment, suspension or termination shall
adversely affect any right or obligation with respect to any award
theretofore made without the consent of the employee so affected.
The right to make awards under the Plan shall terminate
automatically at the close of business on December 31, 2002 and
thereafter the function of the Committee will be limited to
supervising the administration of awards previously made.
14. EFFECTIVE DATE
The effective date of the Plan is August 25, 1982. The Plan, as
amended, was approved by the Company's shareholders in 1983, 1987
and 1992.
- 12 -
Exhibit 10(v)
Amendment to Employment Agreement of Alan R. Gruber
---------------------------------------------------
THIS AMENDMENT ("Amendment"), dated as of January 1, 1997, amends the
Employment Agreement, dated as of March 19, 1993 (the "Agreement"), between
Orion Capital Corporation, a Delaware corporation (the "Company"), and Alan R.
Gruber ("Executive");
W I T N E S S E T H:
The Agreement is amended as set forth below.
1. The penultimate sentence 1(b) of the Agreement is amended in its
entirety to read as follows:
"Until December 31, 1998, Executive shall be an employee
of the Company and during that period the Company shall
make available to Executive appropriate quarters and
secretarial assistance at an office location of the
Company reasonably satisfactory to Executive."
2. Paragraph 7(a) of the Agreement is renumbered to 7(a)(i) and a
new paragraph 7(a)(ii) is added to the Agreement to read, in its entirety, as
follows:
"In addition to the compensation to be paid to Executive
pursuant to 7(a)(i) above, during the period from
January 1, 1997 to December 31, 1997, the Company shall
pay to Executive an
<PAGE>
amount of $100,000, payable in semi-monthly
installments, as a fee for his special services as
Chairman of the Investment Committee of the Company's
Board of Directors."
3. Except as expressly amended hereby, the Agreement shall continue
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date hereinabove set forth.
ORION CAPITAL CORPORATION
By:/s/ Michael Pl Maloney
--------------------------
Michael P.Maloney
Senior Vice President
EXECUTIVE
/s/ Alan R. Gruber
-------------------------
Alan R. Gruber
- 2 -
Exhibit 10(vii)
Amendment to Employment Agreement of Robert B. Sanborn
------------------------------------------------------
THIS AMENDMENT ("Amendment"), dated as of January 1, 1997, amends the
Employment Agreement, dated as of March 19, 1993 (the "Agreement"), between
Orion Capital Corporation, a Delaware corporation (the "Company"), and Robert
B. Sanborn ("Executive");
W I T N E S S E T H:
The Agreement is amended as set forth below.
1. The last sentence of Section 1(b) of the Agreement is amended in
its entirety to read as follows:
"Until June 30, 1998 Executive shall be an employee of the
Company and, after that date, for the balance of the
Successive Term, Executive shall continue to serve as a
Senior Executive Consultant but shall no longer be an
employee of the Company."
2. The first sentence of Section 7(a) of the Agreement is amended
in its entirety to read as follows:
"Effective on and after March 1, 1997, during the Successive
Term,
<PAGE>
the Company shall pay to Executive a salary of not less than
$137,500 per annum, payable in semi-monthly installments on
the same payment date as other senior officers of the
Company receive their regular salary payments and subject
to such increases as may from time to time be approved by
the Company."
3. Except as expressly amended hereby, the Agreement shall continue
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date hereinabove set forth.
ORION CAPITAL CORPORATION
By: /s/ Michael P. Maloney
-------------------------------
Michael P. Maloney
Senior Vice President
EXECUTIVE
/s/ Robert B. Sanborn
-------------------------
Robert B. Sanborn
- 2-
Exhibit 10(x)
Amendment to Employment Agreement of W. Marston Becker
------------------------------------------------------
THIS AMENDMENT ("Amendment"), dated as of January 1, 1997,
amends the Employment Agreement, dated as of October 31, 1995 (the
"Agreement"), between Orion Capital Corporation, a Delaware corporation
(the "Company"), and W. Marston Becker ("Executive");
W I T N E S S E T H:
The Agreement is amended as set forth below.
1. Paragraph 6(b)(v) of the Agreement is amended in its entirety
to read as follows:
"(v) pursuant to an election by the Company or by Executive under
Section 6(a)(v) during the twelve month period following the month
in which a change in the effective voting control of the Company
shall have occurred, Executive (or his successors, representatives
or beneficiaries if Executive shall die or become incapacitated)
shall be entitled to receive his base salary (at the level in
effect on the giving of notice pursuant to Section 6(a)(v) for the
greater of (1) the remaining portion of the unexpired Term or (3)
three years after the date of such termination. In addition,
Executive shall be entitled to receive a pro rata portion of such
bonus which would be payable to Executive, in respect of the year
in which notice shall have been given, if Executive had achieved
target performance for Executive's salary grade, as applied to
Executive's base salary on the date of the giving of notice by the
Company or Executive, as the case may be, plus such other
<PAGE>
benefits, if any, as may be provided to him or his successors,
representatives or beneficiaries under the terms of benefit,
incentive, option, stock award and other programs of the Company
in which he may be or have been a participant.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date hereinabove set forth.
ORION CAPITAL CORPORATION
By:
/s/ Michael P. Maloney
---------------------------
Michael P. Maloney
Senior Vice President
EXECUTIVE
/s/ W. Marston Becker
-----------------------------------
W. Marston Becker
Chairman and Chief Executive Officer
- 2 -
Exhibit 10(xx)
ORION CAPITAL CORPORATION
EQUITY INCENTIVE PLAN
------------------------
Section 1. Purpose of the Plan
The purpose of the Orion Capital Corporation Equity Incentive Plan
(the "Plan") is to further the interests of Orion Capital Corporation (the
"Company") and its shareholders by providing long-term performance incentives
to those key employees of the Company and its Subsidiaries who are largely
responsible for the management, growth and protection of the business of the
Company and its Subsidiaries.
Section 2. Definitions
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Award" means any Option, Performance Unit, SAR (including a Limited
SAR), Restricted Stock, Stock granted as a bonus or in lieu of other awards,
other Stock-Based Award, Tax Bonus or other cash payments granted to a
Participant under the Plan.
(b) "Award Agreement" shall mean the written agreement, instrument or
document evidencing an Award.
(c) Change of Control" means and includes each of the following: (i)
the acquisition, in one or more transactions, of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) by any person or entity or
any group of persons or entities who constitute a group (within the meaning
of Section 13(d)(3) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
a Subsidiary, of any securities of the Company such that, as a result of such
acquisition, such person, entity or group either (A) beneficially owns (within
the meaning of Rule l3d-3 under the Exchange Act), directly or indirectly,
more than 20% of the Company's outstanding voting securities entitled to vote
on a regular basis for a majority of the members of the Board of Directors of
the Company or (B) otherwise has the ability to elect, directly or indirectly,
a majority of the members of the Board; (ii) a change in the composition of
the Board of Directors of the Company such that a majority of the members of
the Board of Directors of the Company are not Continuing Directors; or (iii)
the stockholders of the Company approve a merger or
<PAGE>
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one or more transactions)
all or substantially all of the Company's assets.
Notwithstanding the foregoing, the preceding events shall not be
deemed to be a Change of Control if, prior to any transaction or transactions
causing such change, a majority of the Continuing Directors shall have voted
not to treat such transaction or transactions as resulting in a Change of
Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(e) A "Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board on the effective date of the Plan or (ii) was nominated for election or
elected to such Board with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee in good faith and in accordance with applicable law.
Unless otherwise determined by the Committee, the Fair Market Value of Stock
shall mean the mean of the high and low sales prices of Stock on the relevant
date as reported on the stock exchange or market on which the Stock is
primarily traded, or if no sale is made on such date, then the Fair Market
Value is the weighted average of the mean of the high and low sales prices of
the Stock on the next preceding day and the next succeeding day on which such
sales were made, as reported on the stock exchange or market on which the
Stock is primarily traded.
- 2 -
<PAGE>
(h) "ISO" means any Option designated as an incentive stock option
within the meaning of Section 422 of the Code.
(i) "Limited SAR" means an SAR exercisable only for cash upon a Change
of Control or other event, as specified by the Committee.
(j) "Option" means a right granted to a Participant pursuant to Section
6(b) to purchase Stock at a specified price during specified time periods.
An Option may be either an ISO or a nonstatutory Option (an Option not
designated as an ISO).
(k) "Performance Unit" means a right granted to a Participant pursuant
to Section 6(c) to receive a payment in cash equal to the increase in the book
value of the Company during specified time periods if specified performance
goals are met.
(l) "Restricted Stock" means Stock awarded to a Participant pursuant to
Section 6(d) that may be subject to certain restrictions and to a risk of
forfeiture.
(m) "Stock-Based Award" means a right that may be denominated or payable
in, or valued in whole or in part by reference to the market value of, Stock,
including, but not limited to, any Option, SAR (including a Limited SAR),
Restricted Stock, Stock granted as a bonus or Awards in lieu of cash
obligations.
(n) "SAR" or "Stock Appreciation Right" means the right granted to a
Participant pursuant to Section 6(e) to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock or as
specified in the Award, as determined by the Committee.
(o) "Subsidiary" shall mean any corporation, partnership, joint venture
or other business entity of which 50% or more of the outstanding voting power
is beneficially owned, directly or indirectly, by the Company.
(p) "Tax Bonus" means a payment in cash in the year in which an amount
is included in the gross income of a Participant in respect of an Award of an
amount equal to the federal, foreign, if any, and applicable state and local
income and employment tax liabilities payable by the Participant as a result
of (i) the amount included in gross
- 3 -
<PAGE>
income in respect of the Award and (ii) the payment of the amount in clause
(i) and the amount in this clause (ii). For purposes of determining the
amount to be paid to the Participant pursuant to the preceding sentence, the
Participant shall be deemed to pay federal, foreign, if any, and state and
local income taxes at the highest marginal rate of tax imposed upon ordinary
income for the year in which an amount in respect of the Award is included in
gross income, after giving effect to any deductions therefrom or credits
available with respect to the payment of any such taxes.
Section 3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee"). No member of the
Committee while serving as such shall be eligible for participation in the
Plan. Any action of the Committee in administering the Plan shall be final,
conclusive and binding on all persons, including the Company, its
Subsidiaries, employees, Participants, persons claiming rights from or through
Participants and stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have full
and final authority in its discretion (a) to select the key employees who will
receive Awards pursuant to the Plan ("Participants"), (b) to determine the
type or types of Awards to be granted to each Participant, (c) to determine
the number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
restrictions as to transferability or forfeiture, exercisability or settlement
of an Award and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in each
case on such considerations as the Committee shall determine) and all other
matters to be determined in connection with an Award; (d) to determine
whether, to what extent, and under what circumstances an Award may be settled,
or the exercise price of an Award may be paid, in cash, Stock, other Awards
or other property, or an Award may be cancelled, forfeited, or surrendered;
(e) to determine whether, and to certify that, performance goals to which the
settlement of an Award is subject are satisfied; (f) to correct any defect or
supply any omission or reconcile any inconsistency in the Plan, and to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan; and (g) to make all other
determinations as it may deem necessary or advisable for the administration
of the Plan. The Committee may delegate to officers or managers of the
Company or any Subsidiary or to
- 4-
<PAGE>
unaffiliated service providers the authority, subject to
such terms as the Committee shall determine, to perform administrative
functions and to perform such other functions as the Committee may determine,
to the extent permitted under Rule 16b-3, Section 162(m) of the Code and
applicable law.
Section 4. Participation in the Plan
Participants in the Plan shall be selected by the Committee from
among the key employees of the Company and its Subsidiaries.
Section 5. Plan Limitations; Shares Subject to the Plan
(a) Subject to the provisions of Section 8(a) hereof, the aggregate
number of shares of common stock, $1.00 par value, of the Company (the
"Stock") available for issuance as Awards under the Plan shall not exceed
700,000 shares.
No Award may be granted if the number of shares to which such Award
relates, when added to the number of shares previously issued under the Plan
and the number of shares which may then be acquired pursuant to other
outstanding, unexercised Awards, exceeds the number of shares available for
issuance pursuant to the Plan. If any shares subject to an Award are
forfeited or such Award is settled in cash or otherwise terminates for any
reason whatsoever without an actual distribution of shares to the Participant,
any shares counted against the number of shares available for issuance
pursuant to the Plan with respect to such Award shall, to the extent of any
such forfeiture, settlement, or termination, again be available for Awards
under the Plan; provided, however, that the Committee may adopt procedures for
the counting of shares relating to any Award to ensure appropriate counting,
avoid double counting, and provide for adjustments in any case in which the
number of shares actually distributed differs from the number of shares
previously counted in connection with such Award.
(b) Subject to the provisions of Section 8(a) hereof, the aggregate
number of Performance Units which may be awarded under the Plan shall not
exceed 350,000. If any Performance Units awarded under the Plan shall be
forfeited or cancelled, such Performance Units shall thereafter be available
for award under the Plan.
Section 6. Awards
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the
- 5-
<PAGE>
Committee may impose on any Award or the exercise thereof, at the date of
grant or thereafter (subject to Section 8(a)), such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of Awards in the event
of termination of employment by the Participant; provided, however, that the
Committee shall retain full power to accelerate or waive any such additional
term or condition as it may have previously imposed. All Awards shall be
evidenced by an Award Agreement.
(b) Options. The Committee may grant Options to Participants on the
following terms and conditions:
(i) Exercise Price. The exercise price of each Option shall be
determined by the Committee at the time the Option is granted, but (except as
provided in Section 7(a)) the exercise price of any Option shall not be less
than the Fair Market Value of the shares covered thereby at the time the
Option is granted.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part,
whether the exercise price shall be paid in cash or by the surrender at Fair
Market Value of Stock, or by any combination of cash and shares of Stock,
including, without limitation, cash, Stock, other Awards, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise" arrangements,
to the extent permitted by applicable law), and the methods by which Stock
will be delivered or deemed to be delivered to Participants.
(iii) Incentive Stock Options. The terms of any Option granted
under the Plan as an ISO shall comply in all respects with the provisions of
Section 422 of the Code, including, but not limited to, the requirement that
no ISO shall be granted more than ten years after the effective date of the
Plan.
(c) Performance Units. The Committee is authorized to grant Performance
Units to Participants on the following terms and conditions:
(i) Performance Criteria and Period. At the time it makes an award
of Performance Units, the Committee shall establish both the performance goal
or goals and the performance period or periods applicable to the Performance
Units so awarded. A performance goal shall be a goal, expressed in terms of
growth in book value, earnings per
- 6 -
<PAGE>
share, return on equity or any other financial or other measurement deemed
appropriate by the Committee, or may relate to the results of operations or
other measurable progress of either the Company as a whole or the
Participant's Subsidiary, division or department. The performance period will
be the period of time over which one or more of the performance goals must be
achieved, which may be of such length as the Committee, in its discretion,
shall select. Neither the performance goals nor the performance periods need
be identical for all Performance Units awarded at any time or from time to
time. The Committee shall have the authority, in its discretion, to
accelerate the time at which any performance period will expire or waive or
modify the performance goals of any Participant or Participants. The Committee
may also make such adjustments, to the extent it deems appropriate, to the
performance goals for any Performance Units awarded to compensate for, or to
reflect, any material changes which may have occurred in accounting practices,
tax laws, other laws or regulations, the financial structure of the Company,
acquisitions or dispositions of business or Subsidiaries or any unusual
circumstances outside of management's control which, in the sole judgment of
the Committee, alters or affects the computation of such performance goals or
the performance of the Company or any relevant Subsidiary, division or
department.
(ii) Value of Performance Units. The value of each Performance
Unit at any time shall equal the book value per share of the Company's Stock,
as such value appears on the consolidated balance sheet of the Company as of
the end of the fiscal quarter immediately preceding the date of valuation.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Restricted Period. Restricted Stock awarded to a Participant
shall be subject to such restrictions on transferability and other
restrictions for such periods as at the time of such Award, which restrictions
may lapse separately or in combination at such times, under such
circumstances, or otherwise, as the Committee may determine.
(ii) Forfeiture. Restricted Stock shall be forfeitable to the
Company upon termination of employment during the applicable restricted
periods. The Committee, in its discretion, whether in an Award Agreement or
anytime after an Award is made, may accelerate the time at which
- 7 -
<PAGE>
restrictions or forfeiture conditions will lapse or remove any such
restrictions, including upon death, disability or
retirement, whenever the Committee determines that such action is in the best
interests of the Company.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock.
(iv) Rights as a Shareholder. Subject to the terms and conditions
of the Award Agreement, the Participant shall have all the rights of a
stockholder with respect to shares of Restricted Stock awarded to him or her,
including, without limitation, the right to vote such shares and the right to
receive all dividends or other distributions made with respect to such shares.
If any such dividends or distributions are paid in Stock, the Stock shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which the Stock has been distributed.
(e) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise over
(B) the grant price of the SAR as determined by the Committee as of the date
of grant of the SAR, which grant price (except as provided in Section 7(a))
shall not be less than the Fair Market Value of one share of Stock on the date
of grant.
(ii) Other Terms. The Committee shall determine the time or times
at which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any other
terms and conditions of any SAR. Limited SARs may be granted on such terms,
not inconsistent with this Section 6(e), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Stock as
- 8 -
<PAGE>
bonus, or to grant Stock or other Awards in lieu of Company or Subsidiary
obligations to pay cash or deliver other property under other plans or
compensatory arrangements; provided that, in the case of Participants subject
to Section 16 of the Exchange Act, such cash amounts are determined under such
other plans in a manner that complies with applicable requirements of Rule
16b-3 so that the acquisition of Stock or Awards hereunder shall be exempt
from Section 16(b) liability. Stock or Awards granted hereunder shall be
subject to such other terms as shall be determined by the Committee.
(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Stock-Based Awards in addition to those provided in Sections 6(b) and (d)
through (e) hereof, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions
of such Awards. Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 6(g) shall be purchased for such
consideration and paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, or other property,
as the Committee shall determine.
(h) Cash Payments. The Committee is authorized, subject to limitations
under applicable law, to grant to Participants Tax Bonuses and other cash
payments, whether awarded separately or as a supplement to any Stock-Based
Award. The Committee shall determine the terms and conditions of such Awards.
Section 7. Additional Provisions Applicable to Awards
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan
of the Company or any Subsidiary, or any business entity acquired by the
Company or any Subsidiary, or any other right of a Participant to receive
payment from the Company or any Subsidiary. If an Award is granted in
substitution for another Award or award, the Committee shall require the
surrender of such other Award or award in consideration for the grant of the
new Award. Awards granted in addition to, or in tandem with other Awards or
awards may be granted either as of the same time as, or a different time from,
the grant of such other Awards or awards. The per share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award
conferring a right to purchase Stock:
- 9 -
<PAGE>
(i) granted in substitution for an outstanding Award or award,
shall be not less than the lesser of (A) the Fair Market Value of a share of
Stock at the date such substitute Award is granted or (B) such Fair Market
Value at that date, reduced to reflect the Fair Market Value at that date of
the Award or award required to be surrendered by the Participant as a
condition to receipt of the substitute Award; or
(ii) retroactively granted in tandem with an outstanding Award or
award, shall not be less than the lesser of the Fair Market Value of a share
of Stock at the date of grant of the later Award or at the date of grant of
the earlier Award or award.
(b) Exchange and Buy Out Provisions. The Committee may at any time
offer to exchange or buy out any previously granted Award for a payment in
cash, Stock, other Awards (subject to Section 7(a)), or other property based
on such terms and conditions as the Committee shall determine and communicate
to a Participant at the time that such offer is made.
(c) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
(d) Term of Awards. The term of each Award shall, except as provided
herein, be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any ISO, or any SAR granted in
tandem therewith, exceed a period of ten years from the date of its grant (or
such shorter period as may be applicable under Section 422 of the Code).
(e) Form of Payment. Subject to the terms of the Plan and any
applicable Award Agreement, payments or transfers to be made by the Company
or a Subsidiary upon the grant or exercise of an Award may be made in such
forms as the Committee shall determine, including, without limitation, cash,
Stock, other Awards, or other property (and may be made in a single payment
or transfer, in installments, or on a deferred basis), in each case determined
in accordance with rules adopted by, and at the discretion of, the Committee.
(Such payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installments or deferred payments.) The
Committee, in its discretion, may accelerate any payment or transfer upon a
change in control as defined by the Committee. The Committee may also
authorize payment upon
- 10 -
<PAGE>
the exercise of an Option by net issuance or other cashless exercise methods.
(f) Loan Provisions. With the consent of the Committee, and subject at
all times to laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due
in connection with any Award. Subject to such limitations, the Committee
shall have full authority to decide whether to make a loan or loans hereunder
and to determine the amount, terms, and provisions of any such loan or loans,
including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against
the borrower, the terms on which the loan is to be repaid and the conditions,
if any, under which the loan or loans may be forgiven.
(g) Awards to Comply with Section 162(m). The Committee may (but is not
required to) grant an Award pursuant to the Plan to a Participant who, in the
year of grant, may be a "covered employee," within the meaning of Section
162(m) of the Code, which is intended to qualify as "performance-based
compensation" under Section 162(m) of the Code (a "Performance-Based Award").
The right to receive a Performance-Based Award, other than Options and SARs
granted at not less than Fair Market Value, shall be conditional upon the
achievement of performance goals established by the Committee in writing at
the time such Performance-Based Award is granted. Such performance goals,
which may vary from Participant to Participant and Performance-Based Award to
Performance-Based Award, shall be based upon the attainment by the Company or
any Subsidiary, division or department of specific amounts of, or increases
in, one or more of the following, any of which may be measured either in
absolute terms or as compared to another company or companies: revenues,
earnings, cash flow, net worth, book value, stockholders' equity, financial
return ratios, market performance or total stockholder return, and/or the
completion of certain business or capital transactions. Before any
compensation pursuant to a Performance-Based Award is paid, the Committee
shall certify in writing that the performance goals applicable to the
Performance-Based Award were in fact satisfied.
The maximum amount which may be granted as Performance-Based Awards
to any Participant in any calendar year shall not exceed (i) Stock-Based
Awards for 100,000
- 11 -
<PAGE>
shares of Stock (whether payable in cash or stock), subject
to adjustment as provided in Section 8(a) hereof, (ii) 100,000 Performance
Units, (iii) a Tax Bonus payable with respect to the Stock-Based Awards
described in clause (i) and Performance Units described in clause (ii), and
(iv) cash payments (other than Tax Bonuses) of $1,000,000.
(h) Change of Control. In the event of a Change of Control of the
Company, all Awards granted under the Plan (including Performance-Based
Awards) that are still outstanding and not yet vested or exercisable or which
are subject to restrictions shall become immediately 100% vested in each
Participant or shall be free of any restrictions, as of the first date that
the definition of Change of Control has been fulfilled, and shall be
exercisable for the remaining duration of the Award. All Awards that are
exercisable as of the effective date of the Change of Control will remain
exercisable for the remaining duration of the Award.
Section 8. Adjustments upon Changes in Capitalization;
Acceleration in Certain Events
(a) In the event that the Committee shall determine that any stock
dividend, recapitalization, forward split or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase or share exchange,
or other similar corporate transaction or event, affects the Stock or the book
value of the Company such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and kind of shares of Stock which may thereafter be
issued in connection with Awards, (ii) the number and kind of shares of Stock
issuable in respect of outstanding Awards, (iii) the aggregate number and kind
of shares of Stock available under the Plan, (iv) the number of Performance
Units which may thereafter be granted and the book value of the Company with
respect to outstanding Performance Units, and (v) the exercise price, grant
price, or purchase price relating to any Award or, if deemed appropriate, make
provision for a cash payment with respect to any outstanding Award; provided,
however, in each case, that no adjustment shall be made which would cause the
Plan to violate Section 422(b)(1) of the Code with respect to ISOs or would
adversely affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
(b) In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Awards in recognition
of unusual or
- 12 -
<PAGE>
nonrecurring events (including, without limitation, events
described in the preceding paragraph) affecting the Company or any Subsidiary,
or in response to changes in applicable laws, regulations, or accounting
principles. Notwithstanding the foregoing, no adjustment shall be made in any
outstanding Performance-Based Awards to the extent that such adjustment would
adversely affect the status of that Performance-Based Award as
"performance-based compensation" under Section 162(m) of the Code.
Section 9. General Provisions
(a) Changes to the Plan and Awards. The Board of Directors of the
Company may amend, alter, suspend, discontinue, or terminate the Plan or the
Committee's authority to grant Awards under the Plan without the consent of
the Company's stockholders or Participants, except that any such amendment,
alteration, suspension, discontinuation, or termination shall be subject to
the approval of the Company's stockholders within one year after such Board
action if such stockholder approval is required by any federal or state law
or regulation or the rules of any stock exchange or automated quotation system
on which the Stock may then be listed or quoted, and the Board may otherwise,
in its discretion, determine to submit other such changes to the Plan to the
stockholders for approval; provided, however, that without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation,
or termination of the Plan may materially and adversely affect the rights of
such Participant under any Award theretofore granted and any Award Agreement
relating thereto. The Committee may waive any conditions or rights under, or
amend, alter, suspend, discontinue, or terminate, any Award theretofore
granted and any Award Agreement relating thereto; provided, however, that
without the consent of an affected Participant, no such amendment, alteration,
suspension, discontinuation, or termination of any Award may materially and
adversely affect the rights of such Participant under such Award.
The foregoing notwithstanding, any performance condition specified
in connection with an Award shall not be deemed a fixed contractual term, but
shall remain subject to adjustment by the Committee, in its discretion at any
time in view of the Committee's assessment of the Company's strategy,
performance of comparable companies, and other circumstances, except to the
extent that any such adjustment to a performance condition would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
- 13 -
<PAGE>
Notwithstanding the foregoing, if the Plan is ratified by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders, then unless approved by the stockholders of the Company, no
amendment will: (i) change the class of persons eligible to receive Awards;
(ii) materially increase the benefits accruing to Participants under the Plan,
or (iii) increase the number of shares of Stock or the number of Performance
Units subject to the Plan.
(b) No Right to Award or Employment. No employee or other person shall
have any claim or right to receive an Award under the Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee any
right to be retained in the employ of the Company or any Subsidiary.
(c) Taxes. The Company or any Subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including
from a distribution of Stock or any payroll or other payment to a Participant
amounts of withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock
or other property and to make cash payments in respect thereof in satisfaction
of a Participant's tax obligations.
(d) Limits on Transferability; Beneficiaries. No Award or other right
or interest of a Participant under the Plan shall be pledged, encumbered, or
hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant
or his or her guardian or legal representative. Notwithstanding the foregoing,
the Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO)
be transferable, without consideration, to immediate family members (i.e.,
children, grandchildren or spouse), to trusts for the benefit of such
immediate family members and to partnerships in which such family members are
the only partners. The Committee may attach to such transferability feature
such terms and conditions as it deems advisable. In addition, a Participant
may, in the manner established by the Committee, designate a
- 14 -
<PAGE>
beneficiary (which may be a person or a trust) to exercise the rights of the
Participant, and to receive any distribution, with respect to any Award upon
the death of the Participant. A beneficiary, guardian, legal representative
or other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and any
Award Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional restrictions deemed necessary or
appropriate by the Committee.
(e) No Rights to Awards; No Stockholder Rights. No Participant shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants. No Award shall confer
on any Participant any of the rights of a stockholder of the Company unless
and until Stock is duly issued or transferred to the Participant in accordance
with the terms of the Award.
(f) Discretion. In exercising, or declining to exercise, any grant of
authority or discretion hereunder, the Committee may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems
appropriate and without regard to the affect such exercise, or declining to
exercise such grant of authority or discretion, would have upon the affected
Participant, any other Participant, any employee, the Company, any Subsidiary,
any stockholder or any other person.
(g) Effective Date. The effective date of the Plan is September 11,
1996.
(h) Shareholder Approval. Unless and until the Plan is approved by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders, no Stock-Based Award may be granted to any officer of the
Company.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
ORION CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(000s omitted-except for per common share data)
Year Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computation of weighted average
number of common and equivalent
shares outstanding:
PRIMARY -
Weighted average number of shares
outstanding ............................. 13,700 14,055 14,249
Dilutive effect of stock options and
stock awards ............................ 194 132 99
------- ------- -------
Weighted average number of common and
equivalent shares ....................... 13,894 14,187 14,348
======= ======= =======
Net earnings attributable to common
stockholders ............................ $86,631 $67,622 $55,245
======= ======= =======
Net earnings per common share ............. $ 6.24 $ 4.77 $ 3.85
======= ======= =======
FULLY DILUTED -
Weighted average number of shares
outstanding ............................. 13,700 14,055 14,249
Dilutive effect of stock options and
stock awards ............................ 204 139 118
------- ------- -------
Weighted average number of common and
equivalent shares ....................... 13,904 14,194 14,367
======= ======= =======
Net earnings attributable to common
stockholders ............................ $86,631 $67,622 $55,245
======= ======= =======
Net earnings per common share ............. $ 6.23 $ 4.76 $ 3.85
======= ======= =======
</TABLE>
Exhibit 21
SUBSIDIARIES*
OF
ORION CAPITAL CORPORATION
State or Other
Jurisdiction
Subsidiary of Incorporation
- ------------ -----------------
Clarke & Towner, Inc. Connecticut
Connecticut Specialty Group, Inc. Connecticut
Connecticut Specialty Insurance Company Connecticut
Connecticut Specialty Insurance Group, Inc. Connecticut
Design Professionals Administration Corporation California
Design Professionals Insurance Company Connecticut
Dimock & Associates, Inc. Insurance Brokers California
DPIC Companies, Inc. California
DPIC Management Services Corp. Connecticut
EBI Companies, Inc. Connecticut
EBI Consulting Services, Inc. California
EBI Indemnity Company Connecticut
EFC Property Management, Inc. California
Employee Benefits Insurance Company Connecticut
Independent Financial Planners Corporation New Jersey
Jabawwat, Inc. Delaware
Wm. H. McGee & Co., Inc. New York
Wm. H. McGee & Co. (Bermuda) Ltd Bermuda
Wm. H. McGee & Co. of Canada, Ltd. Canada
Wm. H. McGee & Co. of Puerto Rico, Inc. Puerto Rico
Wm. H. McGee Services, Inc. New York
Nations' Care, Inc. Connecticut
Orion Capital Companies, Inc. Connecticut
Orion Properties Corporation Delaware
Peninsula Excess Insurance Brokers, Inc. California
Security Insurance Company of Hartford Connecticut
Security Insurance Company (U.K.) Limited United Kingdom
SecurityRe, Inc. Connecticut
Security Reinsurance Company Connecticut
Security Warranty Association of Florida, Inc. Florida
The Connecticut Indemnity Company Connecticut
The Fire and Casualty Insurance Company of Connecticut Connecticut
- --------------------------------------------------------------------------------
*The listed subsidiaries are wholly-owned by Orion Capital
Corporation (the "Company") as of December 31, 1996. The
Company owns 81% of Guaranty National Corporation of
Englewood, Colorado and 24.8% of Intercargo Corporation of
Schaumburg, Illinois.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 2-65348 on Forms 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, No. 33-59847 on
Form S-8 relating to the Orion Capital Corporation 1994 Stock Option Plan
for Non-Employee Directors and No. 333-21205 on Form S-4 relating to
Orion Capital Trust I Exchange Capital Securities of our report dated
February 14, 1997, appearing in this Annual Report on Form 10-K of Orion
Capital Corporation for the year ended December 31, 1996.
Deloitte & Touche LLP
Hartford, Connecticut
March 26, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Orion Capital Corporation for the year ended December 31,
1996 of our reports dated February 14, 1997, appearing in the Annual
Report on Form 10-K of Guaranty National Corporation for the year ended
December 31, 1996.
Deloitte & Touche LLP
Denver, Colorado
March 26, 1997
<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 YEAR ENDED DECEMBER 31,
1996, 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-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,205,308
<DEBT-CARRYING-VALUE> 326,841
<DEBT-MARKET-VALUE> 334,755
<EQUITIES> 361,593
<MORTGAGE> 1,187
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,309,767
<CASH> 11,607
<RECOVER-REINSURE> 430,293
<DEFERRED-ACQUISITION> 136,168
<TOTAL-ASSETS> 3,464,357
<POLICY-LOSSES> 1,785,664
<UNEARNED-PREMIUMS> 496,249
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 22,489
<NOTES-PAYABLE> 310,904
<COMMON> 173,925
0
0
<OTHER-SE> 402,808
<TOTAL-LIABILITY-AND-EQUITY> 3,464,357
1,300,752
<INVESTMENT-INCOME> 145,391
<INVESTMENT-GAINS> 24,180
<OTHER-INCOME> 23,126
<BENEFITS> 882,992
<UNDERWRITING-AMORTIZATION> 363,547
<UNDERWRITING-OTHER> 51,546
<INCOME-PRETAX> 127,356
<INCOME-TAX> 32,033
<INCOME-CONTINUING> 86,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,631
<EPS-PRIMARY> 6.24
<EPS-DILUTED> 6.23
<RESERVE-OPEN> 1,280,317
<PROVISION-CURRENT> 874,123
<PROVISION-PRIOR> 8,869
<PAYMENTS-CURRENT> 499,176
<PAYMENTS-PRIOR> 295,713
<RESERVE-CLOSE> 1,368,420
<CUMULATIVE-DEFICIENCY> 8,869
</TABLE>
