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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(x) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
( ) TRANSITION REPORT, PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7801
ORION CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-6069054
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 Farm Springs Road, Farmington, Connecticut 06032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860)674-6600
Former name, former address and former fiscal year if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes(x) No ( )
27,672,300 shares of Common Stock, $1.00 par value, of the registrant were
outstanding on May 13, 1998.
Page 1 of 31
Exhibit Index Appears at Page 27
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ORION CAPITAL CORPORATION
FORM 10-Q INDEX
For the Quarter Ended March 31, 1998
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at March 31, 1998 (Unaudited)
and December 31, 1997 3 - 4
Consolidated Statement of Earnings for the three-months
ended March 31, 1998 and 1997 (Unaudited) 5
Consolidated Statement of Stockholders' Equity for the
three-months ended March 31, 1998 and 1997 (Unaudited),
and for the year-ended December 31, 1997 6
Consolidated Statement of Cash Flows for the three-months
ended March 31, 1998 and 1997 (Unaudited) 7 - 8
Notes to Consolidated Financial Statements (Unaudited) 9 -13
Independent Accountants' Review Report 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 24
PART II. OTHER INFORMATION 25
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, 1998 December 31,
(In millions) (Unaudited) 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments: -
Fixed maturities, at amortized cost
(market $322.7 - 1998 and $322.4 - 1997) $ 313.6 $ 312.8
Fixed maturities, at market (amortized cost
$1,396.9 - 1998 and $1,395.4 - 1997) 1,465.4 1,469.8
Common stocks, at market (cost $170.1 -
1998 and $163.0 - 1997) 259.8 245.4
Non-redeemable preferred stocks, at market
(cost $183.8 - 1998 and $183.6 - 1997) 200.6 193.1
Other long-term investments 111.3 94.3
Short-term investments 272.8 228.3
--------- ---------
Total investments 2,623.5 2,543.7
Cash 1.1 9.3
Accrued investment income 27.3 29.6
Investment in affiliate 30.7 31.3
Accounts and notes receivable 185.1 189.3
Reinsurance recoverables and prepaid reinsurance 699.1 622.2
Deferred policy acquisition costs 153.4 147.1
Property and equipment 71.2 70.8
Excess of cost over fair value of net assets acquired 139.2 140.0
Other assets 100.5 100.8
--------- ---------
Total assets $ 4,031.1 $ 3,884.1
========= =========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
3
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1998 December 31,
(In millions-- except for share data) (Unaudited) 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Policy liabilities: -
Losses $ 1,470.3 $ 1,476.4
Loss adjustment expenses 406.4 395.3
Unearned premiums 565.7 551.6
Policyholders' dividends 20.7 20.5
--------- ---------
Total policy liabilities 2,463.1 2,443.8
Notes payable 210.1 310.2
Other liabilities 347.1 282.0
--------- ---------
Total liabilities 3,020.3 3,036.0
--------- ---------
Contingencies (Note 6)
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
the junior subordinated debentures of the Company 250.0 125.0
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares; issued
and outstanding - none
Common stock, $1 par value; authorized 50,000,000
shares; issued 30,675,300 shares 30.7 30.7
Capital surplus 152.8 152.1
Retained earnings 507.3 469.5
Accumulated other comprehensive income 114.7 109.2
Treasury stock, at cost (3,145,435 shares -
1998 and 3,069,756 shares - 1997) (39.4) (34.3)
Deferred compensation on restricted stock (5.3) (4.1)
--------- ---------
Total stockholders' equity 760.8 723.1
--------- ---------
Total liabilities and stockholders' equity $ 4,031.1 $ 3,884.1
========= =========
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
4
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<CAPTION>
ORION CAPITAL CORPORATON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended March 31,
(In millions, except for per share data) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums earned $ 348.8 $ 324.0
Net investment income 41.4 40.2
Realized investment gains 29.0 15.8
Other income 5.6 4.9
------- -------
Total revenues 424.8 384.9
------- -------
Expenses:
Losses incurred 178.6 170.0
Loss adjustment expenses 53.7 49.0
Amortization of deferred policy acquisition costs 100.8 94.8
Other insurance expenses 6.9 6.1
Dividends to policyholders 6.4 5.1
Interest expense 5.8 6.1
Other expenses 11.1 11.0
------- -------
Total expenses 363.3 342.1
------- -------
Earnings before equity in earnings (loss) of
affiliate, federal income taxes and minority
interest expense 61.5 42.8
Equity in earnings (loss) of affiliate (0.6) 0.6
------- -------
Earnings before federal income taxes and
minority interest expense 60.9 43.4
Federal income taxes 16.0 10.7
Minority interest expense:
Subsidiary trust preferred securities, net
of federal income taxes 2.7 1.6
Subsidiary net earnings - 1.6
------- -------
Net earning $ 42.2 $ 29.5
======= =======
Net earnings per basic common share $ 1.54 $ 1.08
======= =======
Net earnings per diluted common share $ 1.50 $ 1.06
======= =======
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
5
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<CAPTION>
ORION CAPITAL CORPORATON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended Three Months Ended Year Ended
March 31, 1998 March 31, 1997 December 31, 1997
(In millions) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance, beginning of period $ 30.7 $ 15.3 $ 15.3
Stock issued in 2-for-1
common stock split - - 15.4
------- ------- -------
Balance, end of period $ 30.7 $ 15.3 $ 30.7
======= ======= =======
Capital Surplus:
Balance, beginning of period $ 152.1 $ 158.6 $ 158.6
Exercise of stock options and net
issuance of restricted stock 0.7 - 0.5
Acquisition of Guaranty National - - 8.4
Stock issued in 2-for-1
common stock split - - (15.4)
------- ------- -------
Balance, end of period $ 152.8 $ 158.6 $ 152.1
======= ======= =======
Retained Earnings:
Balance, beginning of period $ 469.5 $ 370.8 $ 370.8
Net earnings 42.2 $ 42.2 29.5 $ 29.5 115.8 $ 115.8
------- ------- -------
Dividends declared (4.4) (3.9) (17.1)
------- ------- -------
Balance, end of period $ 507.3 $ 396.4 $ 469.5
======= ======= =======
Accumulated Other
Comprehensive Income:
Balance, beginning of period $ 109.2 $ 70.1 $ 70.1
Unrealized investment
gains (losses), net of taxes 5.5 (24.1) 41.3
Unrealized foreign exchange
translation losses, net of taxes - (0.4) (2.2)
------- ------- -------
Other comprehensive income (loss) 5.5 5.5 (24.5) (24.5) 39.1 39.1
------- ------- ------- ------- ------- -------
Comprehensive income $ 47.7 $ 5.0 $ 154.9
Balance, end of period $ 114.7 ======= $ 45.6 ======= $ 109.2 =======
======= ======= =======
Treasury Stock:
Balance, beginning of period $ (34.3) $ (35.0) $ (35.0)
Exercise of stock options and net
issuance of restricted stock 1.6 - 3.2
Acquisition of treasury stock (6.7) (0.7) (2.5)
------- ------- -------
Balance, end of period $ (39.4) $ (35.7) $ (34.3)
======= ======= =======
Deferred Compensation on
Restricted Stock:
Balance, beginning of period $ (4.1) $ (3.1) $ (3.1)
Net issuance of restricted stock (1.6) - (1.9)
Amortization of deferred
compensation on restricted stock 0.4 0.2 0.9
------- ------- -------
Balance, end of period $ (5.3) $ (2.9) $ (4.1)
======= ======= =======
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
6
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Premiums collected $ 386.1 $ 338.1
Net investment income collected 40.1 31.6
Losses and loss adjustment expenses paid (241.5) (206.7)
Policy acquisition costs paid (115.6) (108.6)
Dividends paid to policyholders (7.2) (6.8)
Interest paid (9.7) (10.3)
Payments on trust preferred securities (5.5) -
Federal income tax refunds (payments) (8.5) 0.1
Other payments (15.4) (13.4)
------- -------
Net cash provided by operating activities 22.8 24.0
------- -------
Cash flows from investing activities:
Maturities of fixed maturity investments 54.9 31.4
Sales of fixed maturity investments 198.8 67.6
Sales of equity securities 108.0 49.5
Investments in fixed maturities (240.5) (272.3)
Investments in equity securities (104.1) (49.3)
Net sales (purchases) of short-term investments (39.0) 15.1
Other receipts (payments) (20.1) 9.3
------- -------
Net cash used in investing activities (42.0) (148.7)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of trust preferred securities 121.9 123.2
Proceeds from exercise of stock options 0.7 0.2
Repayment of notes payable (100.2) (0.2)
Dividends paid to stockholders (4.4) (3.9)
Purchases of common stock (6.6) (0.3)
Other payments (0.4) (0.3)
------- -------
Net cash provided by financing activities 11.0 118.7
------- -------
Net decrease in cash (8.2) (6.0)
Cash balance, beginning of period 9.3 11.6
------- -------
Cash balance, end of period $ 1.1 $ 5.6
======= =======
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
7
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<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(UNAUDITED)
Three Months Ended March 31,
-----------------------------
(In millions) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 42.2 $ 29.5
------- -------
Adjustments:
Depreciation and amortization 3.6 3.1
Amortization of excess of cost over fair
value of net assets acquired 1.3 0.7
Deferred federal income taxes (0.9) (1.4)
Amortization of fixed maturity investments (0.6) (0.2)
Non-cash investment income (5.4) (4.8)
Equity in (earnings) loss of affiliate,
net of dividends received 0.6 (0.4)
Realized investment gains (29.0) (15.8)
Minority interest in subsidiary earnings - 1.6
Other - (0.1)
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 2.3 (2.5)
Decrease (increase) in accounts and notes receivable 4.1 (0.6)
Decrease (increase) in reinsurance recoverable
and prepaid reinsurance (76.9) 10.3
Increase in deferred policy acquisition costs (6.3) (3.3)
Increase in other assets (0.8) (1.1)
Increase (decrease) in losses (6.1) 0.2
Increase in loss adjustment expenses 11.1 9.0
Increase in unearned premiums 14.1 1.0
Increase (decrease) in policyholders' dividends 0.2 (1.7)
Increase in other liabilities 69.3 0.5
------- -------
Total adjustments and changes (19.4) (5.5)
------- -------
Net cash provided by operating activities $ 22.8 $ 24.0
======= =======
<FN>
See Notes to Consolidated Financial Statements (Unaudited)
</TABLE>
8
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ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements and notes thereto are prepared in
accordance with generally accepted accounting principles for property and
casualty insurance companies. The consolidated financial statements include
Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries
(collectively the "Company"). The Company's investment in its unconsolidated
affiliate is accounted for using the equity method. All material intercompany
balances and transactions have been eliminated.
The Company completed two tender offers, which increased its ownership
of Guaranty National Corporation ("Guaranty National") from 49.5% to 81% in July
1996 and to 100% in December 1997. A minority interest charge was recorded
for the portion of Guaranty National's earnings attributable to the shares not
owned by the Company in 1997 until it became a wholly-owned subsidiary.
As of January 1, 1998 the Company adopted Financial Accounting Standard
No. 130, "Reporting Comprehensive Income". This statement establishes standards
for the reporting and presentation of comprehensive income and its components in
financial statements. Comprehensive income encompasses all changes in
shareholders' equity (except those arising from transactions with shareholders)
and includes net income, net unrealized capital gains or losses on
available-for-sale securities and foreign currency translation adjustments. This
new standard requires additional disclosures and does not affect the Company's
financial position or results of operations.
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the Company's results of operations,
financial position and cash flows for all periods presented. Although these
consolidated financial statements are unaudited, they have been reviewed by the
Company's independent accountants, Deloitte & Touche LLP, for conformity with
accounting requirements for interim financial reporting. Their report on such
review is included herein. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K.
NOTE 2 - INVESTMENT IN AFFILIATE
As of March 31 1998 the Company owned 24.7% of the common stock of
Intercargo Corporation ("Intercargo"), a publicly held company. The Company
records its share of Intercargo's operating results on a quarterly lag, after
Intercargo has reported its financial results. Summarized financial information
of Intercargo reflected by the Company for the three months ended March 31, 1998
and 1997 is as follows:
9
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<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(In millions) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums earned $ 16.9 $ 16.4
Investment and other income 1.9 3.7
------- -------
18.8 20.1
------- -------
Expenses:
Insurance expenses 18.8 17.7
Interest - 0.3
------- -------
18.8 18.0
------- -------
Earnings (loss) before equity in earnings of
affiliate and federal income taxes - 2.1
Equity in earnings of affiliate - 1.0
Federal income taxes (2.1) (0.2)
------- -------
Net earnings (loss) $ (2.1) $ 2.9
======= =======
Company's proportionate share, including goodwill amortization $ (0.6) $ 0.6
======= =======
<CAPTION>
NOTE 3 - REINSURANCE
In the normal course of business, the Company's insurance subsidiaries
reinsure certain risks, generally on an excess-of-loss or pro rata basis, with
other companies to limit exposure to losses. Reinsurance does not discharge the
primary liability of the original insurer. The table below summarizes certain
reinsurance information.
Three Months Ended March 31,
-----------------------------
(In millions) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Direct premiums written $ 441.7 $ 371.5
Reinsurance assumed 14.1 25.2
------- -------
Gross premiums written 455.8 396.7
Reinsurance ceded (86.8) (62.5)
------- -------
Net premiums written $ 369.0 $ 334.2
======= =======
Direct premiums earned $ 435.6 $ 362.1
Reinsurance assummed 10.9 33.5
------- -------
Gross premiums earned 446.5 395.6
Reinsurance ceded (97.7) (71.6)
------- -------
Net premiums earned $ 348.8 $ 324.0
======= =======
Loss and loss adjustment expenses incurred
recoverable from reinsurers $ 70.4 $ 32.6
======= =======
</TABLE>
10
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NOTE 4 - TRUST PREFERRED SECURITIES
The Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely the junior subordinated debentures of the Company ("Trust
Preferred Securities") comprise the following:
Three Months Ended March 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
8.73% Trust Preferred Securities
due January 1, 2037 $ 125.0 $ 125.0
7.701% Trust Preferred Securities
due April 15, 2028 125.0 -
------- -------
$ 250.0 $ 125.0
======= =======
On February 2, 1998 Orion issued $125 million of 7.701% Junior
Subordinated Deferrable Interest Debentures due April 15, 2028 to Orion Capital
Trust II, a Delaware statutory business trust sponsored by the Company. Orion
Capital Trust II then sold $125 million of 7.701% capital securities, which
mature on April 15, 2028 ("Capital Securities") in a private placement.
Approximately $100 million of the net proceeds from the sale of the junior
subordinated debentures were used to retire bank indebtedness of Guaranty
National. Orion registered the Capital Securities under the Securities Act of
1933 pursuant to a exchange offer which expires on June 4, 1998. On January 13,
1997 Orion issued $125 million of 8.73% Trust Preferred Securities which may be
redeemed without premium on or after January 1, 2007.
The Trust Preferred Securities are subordinate to all liabilities of the
Company. The Company may defer interest distributions on the Trust Preferred
Securities; however during any period when such cumulative distributions have
been deferred, Orion may not declare or pay any dividends or distributions on
its common stock. The Trusts are consolidated in the Company's financial
statements because they are wholly-owned by the Company. The sole assets of the
Trusts are the Debentures issued by Orion. Orion has given its partial
guarantee, which when taken together with the Company's obligations under the
declaration of the Trusts, the Debentures, and the indentures pursuant to which
the Trust Preferred Securities are issued including its obligations to pay
costs, expenses, debts and liabilities of the Trusts (other than with respect to
the Trust Preferred Securities), provides a full and unconditional guarantee of
amounts due on the Trust Preferred Securities.
NOTE 5 - STOCKHOLDERS' EQUITY AND EARNINGS PER COMMON SHARE
The Company repurchased 134,377 shares of its common stock at an
aggregate cost of $6.7 million in the first quarter of 1998. The remaining
authorization from the Company's Board of Directors for the purchase of common
stock was $21.6 million as of March 31, 1998.
Basic earnings per share computations are based on the weighted
average number of shares of common stock outstanding during the period and
excludes dilution. Diluted earnings per share reflects the potential dilution
that could occur if all stock options and other stock-based awards were
11
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exercised and converted into common stock, if their effect is dilutive. The
weighted average common shares were 27,400,000 and 27,304,000, and the weighted
average common shares and diluted equivalent shares were 28,130,000 and
27,798,000 for the quarters ended March 31, 1998 and 1997, respectively. The
1997 first quarter common stock shares and per common stock data presented
herein has been restated to give effect to the 2-for-1 stock split of the
Company's common stock issued on July 7, 1997.
NOTE 6- CONTINGENCIES
Orion and its subsidiaries are routinely engaged in litigation
incidental to their businesses. Management believes that there are no
significant legal proceedings pending against the Company which, net of reserves
established therefor, are likely to result in judgments for amounts that are
material to the financial condition, liquidity or results of operations of Orion
and its consolidated subsidiaries, taken as a whole.
NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income balances, net of taxes, are as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized Foreign Accumulated Other
Investment Gains Exchange Translation Comprehensive
(In millions) (Losses) Gains (Losses) Income (Loss)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarter ended March 31, 1998:
Balance, beginning of period $ 113.6 $ (4.4) $ 109.2
Current period change 5.5 - 5.5
------- ------- -------
Balance, end of period
$ 119.1 $ (4.4) $ 114.7
======= ======= =======
Quarter ended March 31, 1997:
Balance, beginning of period $ 72.3 $ (2.2) $ 70.1
Current period change (24.1) (0.4) (24.5)
------- ------- -------
Balance, end of period $ 48.2 $ (2.6) $ 45.6
======= ======= =======
Year ended December 31, 1997:
Balance, beginning of year $ 72.3 $ (2.2) $ 70.1
Current year change 41.3 (2.2) 39.1
------- ------- -------
Balance, end of year $ 113.6 $ (4.4) $ 109.2
======= ======= =======
</TABLE>
The pretax unrealized investment gains (losses) arising during the
period were $8.6 million and $(37.0) million for the three months ended March
31, 1998 and 1997, respectively, and $62.9 million for the year ended December
31, 1997. The pretax unrealized foreign exchange translation losses arising
12
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during the period were $0.6 million for the three months ended March 31, 1997
and $3.4 million for the year ended December 31, 1997.
NOTE 8 - SUBSEQUENT EVENT
On April 30, 1998, Guaranty National completed the previously announced
acquisition of the non-standard personal automobile insurance business of North
Carolina - based Strickland Insurance Group, Inc. ("SIG"). SIG reported
approximately $99 million of personal automobile gross premiums and $46 million
of net premiums in 1997. The purchase price was $42.6 million in cash. The
acquisition will be accounted as a purchase. Included in the acquisition are two
insurance companies, a premium finance company, a claim adjusting firm and a
general agency in Florida.
13
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INDEPENDENT ACCOUNTANT'S REVIEW REPORT
Board of Directors and Stockholders
Orion Capital Corporation
Farmington, Connecticut
We have reviewed the accompanying consolidated balance sheet of Orion
Capital Corporation and subsidiaries (the "Company") as of March 31, 1998, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for the three-month periods ended March 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Orion Capital Corporation
and subsidiaries as of December 31, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for the year then
ended; and in our report dated February 11, 1998, we expressed an unqualified
opinion on those consolidated financial statements. The consolidated statements
of earnings and cash flows for the year ended December 31, 1997 are not
presented herein. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1997 and related consolidated
statement of stockholders' equity for the year then ended is fairly stated, in
all material respects, in relation to the consolidated financial statements from
which it has been derived.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
April 30, 1998
14
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ORION CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL
Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries
(collectively the "Company") operate principally in the property and casualty
insurance business. The Company reports its insurance operations in three
segments. In addition, the miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment. The
three insurance segments as of March 31, 1998 are as follows:
REGIONAL OPERATIONS - this segment includes the workers compensation insurance
products and services sold by the EBI Companies ("EBI").
SPECIAL PROGRAMS - this segment comprises the following:
- DPIC Companies ("DPIC"), which markets professional liability insurance;
- Orion Specialty, which writes specialty insurance programs and commercial
non-standard automobile insurance;
- Wm. H. McGee ("McGee"), an underwriting management company that
specializes in ocean marine, inland marine and commercial property insurance;
and
- The Company's 24.7% interest in Intercargo Corporation ("Intercargo"),
which sells insurance coverages for international trade.
GUARANTY NATIONAL COMPANIES ("Guaranty National") - this segment specializes in
non-standard automobile insurance.
The Company increased its ownership of Guaranty National to 100% in December
1997. Beginning in 1998,the commercial business lines of Guaranty National were
consolidated with Connecticut Specialty to form a new company named Orion
Specialty. Orion Specialty focuses on specialty commercial insurance. Through
the integration of these operations, Orion Specialty gains additional
capabilities and efficiencies than could be provided separately. The 1997
segment disclosures have been revised to conform with the current basis of
presentation.
Following the formation of Orion Specialty, Guaranty National became
substantially a personal non-standard automobile insurance operation. The
Company increased its ownership in Guaranty National, in part, to provide
Guaranty National with additional financing options, on terms that may not be
available to it as an independent entity, so that it can continue its expansion
in the non-standard personal automobile insurance business.
15
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On April 30, 1998, Guaranty National completed the previously announced
acquisition of the non-standard personal automobile insurance business of North
Carolina - based Strickland Insurance Group, Inc. ("SIG"). SIG reported
approximately $99 million of personal automobile gross premiums and $46 million
of net premiums in 1997. The purchase price was $42.6 million in cash. The
acquisition will be accounted as a purchase. Included in the acquisition are two
insurance companies, a premium finance company, a claim adjusting firm and a
general agency in Florida.
In March 1998, Orion announced that a letter of intent had been signed under
which the Company would acquire Grocers Insurance Group ("Grocers") from United
Grocers, Inc. Grocers is an Oregon-based specialty insurance holding company
serving the grocery and food service industry. Grocers wrote approximately $23
million of net premiums in 1997, principally general liability, property and
workers compensation with the majority of its volume concentrated in the
northwestern states. A definitive agreement is expected during the second
quarter of 1998 with completion of the acquisition expected late in the third
quarter.
RESULTS OF OPERATIONS
OVERVIEW
Earnings (loss) by segment before federal income taxes and minority interest
expense are summarized as follows:
Three Months Ended March 31, Percentage
---------------------------- change
(In millions) 1998 1997
- ----------------------------------------------------------------------------
Regional Operations $ 28.4 $ 20.7 37.2%
Special Programs 29.7 21.1 40.8
Guaranty National 7.9 6.9 14.5
Other (5.1) (5.3) (3.8)
------ ------ ----
$ 60.9 $ 43.4 40.3%
====== ====== ====
The Company's operating earnings for the first quarter of 1998 increased 20.8%
to $23.4 million from $19.3 million in the same period last year. Operating
earnings comprises earnings after taxes, excluding net realized investment
gains. On a diluted per common share basis, operating earnings increased 18.6%
to $0.83 per common share in the first quarter of 1998 from $0.70 per common
share in the same 1997 period. The Company's results include after-tax realized
investment gains of $18.8 million, or $0.67 per diluted share, in the first
quarter of 1998, and $10.1 million, or $0.36 per diluted share, for the
corresponding prior year period. The strong performance from insurance
operations combined with a significant increase in quarter-to-quarter after-tax
realized investment gains resulted in a 43.1% increase in net earnings compared
to the prior year period. Net earnings were $42.2 million, or $1.50 per diluted
share, for the quarter ended March 31, 1998, up from $29.5 million, or $1.06 per
diluted common share for the same 1997 period. Weighted average common shares
and diluted equivalents outstanding were 28,130,000 for the first quarter of
1998 and 27,798,000 for the same 1997 period.
16
<PAGE>
REVENUES
Revenues are summarized as follows:
Three Months Ended
March 31,
------------------------- Percentage
(In millions) 1998 1997 Change
- ---------------------------------------------------------------------------
Premiums written $ 369.0 $ 334.2 10.4%
======= ======= =====
Premiums earned $ 348.8 $ 324.0 7.7%
Net investment income 41.4 40.2 2.9
Realized investment gains 29.0 15.8 83.4
Other 5.6 4.9 14.3
------- ------- -----
Total revenues $ 424.8 $ 384.9 10.4%
======= ======= =====
PREMIUMS WRITTEN
The Company's net premiums written by segment are as follows:
Three Months Ended
March 31,
------------------------- Percentage
(In millions) 1998 1997 Change
- ----------------------------------------------------------------------------
Regional Operations $110.7 $ 87.8 26.1%
Special Programs 162.3 164.3 (1.2)
Guaranty National 96.0 82.1 17.0
------ ------ -----
$369.0 $334.2 10.4%
====== ====== =====
In November 1996, the Company sold the renewal book of business of its assumed
reinsurance operation to concentrate on businesses where the Company can better
service its specialized niche markets. Excluding premiums from this operation,
the Company's net premiums written increased by 12.4% in the first quarter of
1998 over the prior year period.
Regional Operations
Net premiums written for Regional Operations increased by 26.1% in 1998
principally from growth generated by EBI's multi-state program established in
1997. Additionally, the increase in net premiums written in 1998 is attributed
to EBI's continued geographic expansion and penetration, partly offset by the
impact of statutory rate reductions of last year.
17
<PAGE>
Special Programs
Net premiums written from Special Programs are as follows:
Three Months Ended
March 31,
------------------------ Percentage
(In millions) 1998 1997 Change
- ------------------------------------------------------------------------------
Orion Specialty $ 103.5 $ 102.0 1.5%
DPIC 42.3 43.9 (3.7)
McGee 16.6 12.7 30.4
------- ------- -------
162.4 158.6 2.5
Assumed reinsurance (0.1) 5.7 (101.8)
------- ------- -------
$ 162.3 $ 164.3 (1.2)%
======= ======= =======
Excluding premiums from the assumed reinsurance business sold in November 1996,
this segment's net premiums written increased 2.5% for the 1998 period. Net
premiums written by DPIC for professional liability insurance, the largest
special program, decreased 3.7% in 1998, primarily as a result of rate
reductions in a very competitive professional liability insurance market offset
in part by continued high levels of policy renewals.
Orion Specialty's net premiums written increase of 1.5% is primarily
attributable to increases in net premiums from the contract and brokerage
division and standard commercial insurance operations, partly offset by lower
premiums from trucking liability and cancelled ocean marine programs.
McGee's net premiums written increased 30.4% for the 1998 period reflecting the
Company's greater participation in the underwriting pools managed by McGee. The
Company's participation in McGee's United States pool is approximately 71% and
52% in 1998 and 1997, respectively. Participation in McGee's Canadian pool is
approximately 72% and 61% in 1998 and 1997, respectively.
Guaranty National
The 17.0% net premiums written growth in the 1998 first quarter over the prior
year period is primarily due to continued growth in the monthly product business
in California, increases in premiums from the northwestern states and from
premium associated from the acquisition of Unisun Insurance Company in December
1997. Premium growth in California is attributed to enacted legislation
requiring all drivers to maintain liability insurance.
PREMIUMS EARNED
The Company's premiums earned increased 7.7% to $348.8 million in the first
quarter of 1998 from $324.0 million in the corresponding 1997 period. Premiums
earned reflect the recognition of income from the changing levels of net premium
writings.
18
<PAGE>
NET INVESTMENT INCOME
Pre-tax net investment income is $41.4 million and $40.2 million in 1998 and
1997, respectively. The pre-tax yields on the average investment portfolio are
7.0% in 1998 and 7.3% in 1997, with after-tax yields of 5.5% and 5.6%,
respectively. Net investment income increased 2.9% in 1998 primarily due to a
higher investment base and from limited partnership equity earnings offset in
part by slightly lower investment yields. The higher investment base for 1998
reflects the investment of proceeds from the issuance of $125 million 7.701%
trust preferred securities in February 1998 and the effects of positive
operating cash flow. These increases have been partly offset by cash used for
acquisitions of Guaranty National common shares and Unisun Insurance Company in
December 1997 as well as repayment of the $100 million bank indebtness of
Guaranty National.
Net investment income reflects increases from equity earnings in limited
partnership investments to $5.2 million in the first quarter of 1998 from $4.6
million for the same 1997 period. Over one-half of the equity earnings in 1998
resulted from three limited partnership investments. Earnings from limited
partnership investments can vary considerably from year-to-year. The Company's
long-term experience with limited partnership investments has been quite
favorable; however, they represent only 4.1% and 3.6% of total investments at
March 31, 1998 and December 31, 1997, respectively.
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 is $2,051.8 million at March
31, 1998 and $2,010.9 million at December 31, 1997, or approximately 78.2% and
78.8% of the Company's cash and investments, respectively.
The Company's investment philosophy is to achieve a superior rate of return
after taxes, while maintaining a proper balance of safety, liquidity, maturity
and marketability. The Company invests primarily in investment grade securities
and strives to enhance the average return of its portfolio through limited
investment in a diversified group of non-investment grade fixed maturity
securities or securities that are not rated. The risk of loss due to default is
generally considered greater for non-investment grade securities than for
investment grade securities because the former, among other things, are often
subordinated to other indebtedness of the issuer and are often issued by highly
leveraged companies. At March 31, 1998 and December 31, 1997, the Company's
investment in non-investment grade and non-rated fixed maturity securities were
carried at $262.0 million and $256.7 million, respectively. These investments
represented a total of 10.0% and 10.1% of cash and investments and 6.5% and 6.6%
of total assets at March 31, 1998 and December 31, 1997, respectively.
REALIZED INVESTMENT GAINS
Net realized investment gains are $29.0 million and $15.8 million for the three
months ended March 31, 1998 and 1997, respectively. Approximately one-half of
the first quarter 1998 net realized investment gains resulted from the sale of
two investments in entities which were acquired or taken public during the
quarter. Realized investment gains may
19
<PAGE>
be reduced by provisions for losses on securities deemed to be other-than-
temporarily impaired. An impairment provision was not recognized for the three
months ended March 31, 1998 and was $1.8 million for the three months ended
March 31, 1997. Any such provision is based on available information at the time
and is made in consideration of the decline in the financial condition of the
issuers of such securities. Realized investment gains (losses) vary from period
to period, depending on market conditions relative to the Company's investment
holdings, the timing of investment sales generating gains and losses, the
occurrence of events which give rise to other-than-temporary impairment of
investments, and other factors.
EXPENSES AND OTHER
OPERATING RATIOS
The following table sets forth certain ratios of insurance operating expenses to
premiums earned:
Three Months Ended
March 31,
1998 1997
- ----------------------------------------------------------------------------
Loss and loss adjustment expenses 66.5% 67.6%
Policy acquisition costs and
other insurance expenses 31.0 31.1
------ ------
Total before policyholders' dividends 97.5 98.7
Policyholders' dividends 1.8 1.6
------ ------
Combined ratio 99.3% 100.3%
====== ======
Loss and loss adjustment expenses ratio by segment:
Regional Operations 56.6% 58.5%
Special Programs 69.6 70.6
Guaranty National 72.0 71.4
The improvement in the loss ratio for Regional Operations results from the
favorable loss experience and lower loss expenses achieved by EBI through its
service-oriented approach offset in part by less favorable loss development
relating to prior accident years. EBI's service oriented approach is to work
with its customers to prevent losses and reduce claim costs.
The improvement in the 1998 loss ratio for Special Programs is mainly
attributable to lower losses from certain cancelled programs at Orion Specialty
offset in part by an increased unfavorable affect of the assumed reinsurance
business exited in late 1996. Net earned premiums from the exited reinsurance
business declined at a greater rate than losses in 1998 compared to 1997.
Guaranty National's loss ratio was slightly higher at 72.0% in the first quarter
of 1998 compared to 71.4% in the 1997 period.
The ratio of policy acquisition costs and other insurance expenses to premiums
earned (the "expense ratio") is 31.0 % and 31.1% for the three months ended
March 31, 1998 and 1997, respectively. Policy acquisition costs include direct
costs, such as commissions,
20
<PAGE>
premium taxes, and salaries that relate to and vary with the production of new
business. These costs are deferred and amortized as the related premiums are
earned, subject to a periodic test for recoverability.
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. 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 1.2
percentage points in the first quarter of 1998 and 0.5 percentage points in the
same period of 1997. 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 variability or
development will generally 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 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 is $5.8 million and $6.1 million for the first quarters of 1998
and 1997, respectively. Interest expense declined in 1998 as a result of the
repayment of the $100 million bank indebtedness of Guaranty National in February
1998 with proceeds from the issuance of the Company's 7.701% trust preferred
securities.
OTHER EXPENSES
Other expenses are $11.1 million and $11.0 million for the first quarters of
1998 and 1997, respectively.
EQUITY IN EARNINGS (LOSS) OF AFFILIATE
Equity in earnings (loss) of affiliate consists of earnings (loss) of $(0.6)
million and $0.6 million for the first quarters of 1998 and 1997, respectively
from the Company's 24.7% investment in Intercargo. The Company records its share
of Intercargo's results in the subsequent quarter.
EARNINGS BEFORE FEDERAL INCOME TAXES AND MINORITY INTEREST EXPENSE
Earnings before federal income taxes and minority interest expense are $60.9
million and $43.4 million for the first quarters of 1998 and 1997, respectively.
The increase in pretax earnings for the three months ended March 31, 1998
reflects improvement in insurance operations profitability and an increase in
realized investment gains.
21
<PAGE>
FEDERAL INCOME TAXES
Federal income taxes (including tax benefits from trust preferred securities)
and the related effective tax rates are $14.5 million (25.6%) and $9.9 million
(22.9%) for the first quarters of 1998 and 1997, respectively. The Company's
effective tax rates for 1998 and 1997 are less than the statutory tax rate of
35% primarily because of income derived from tax-advantaged securities.
MINORITY INTEREST EXPENSE
Minority interest expense in subsidiary trust preferred securities of $2.7
million and $1.6 million for the first quarters of 1998 and 1997, respectively,
represents the financing cost, after the federal income tax deduction, on
Orion's 8.73% and 7.701% trust preferred securities. The increase in 1998
reflects minority interest expense associated with the issuance of $125 million
7.701% trust preferred securities in February 1998.
Minority interest expense of $1.6 million was recorded for the after-tax portion
of Guaranty National's 1997 first quarter earnings attributable to stockholders
of Guaranty National other than the Company. Guaranty National became a
wholly-owned subsidiary of the Company in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased by $1.2 million to $22.8 million
in the first quarter of 1998 from $24.0 million in the first quarter of 1997.
The decrease in operating cash flow for 1998 is the result of higher payments
for losses, policy acquisition costs, policyholders' dividends, federal income
taxes and minority interest from subsidiary trust preferred securities,
consistent with the Company's growth in recent years and includes the payment of
losses for the assumed reinsurance business the Company exited in November 1996.
Partially offsetting these increased cash outflows are higher premiums
collected, reflective of the Company's current rate of growth, as well as higher
investment income collected.
Cash used in investment activities decreased by $106.7 million in the first
quarter of 1998 to $42.0 million from $148.7 million in the first quarter of
1997. Cash is used in investment activities primarily for purchases of
investments and acquisition activities. Investment purchases are funded by
maturities and sales of investments, as well as by the net cash from operating
cash flows after cash provided by or used in financing activities.
Cash provided by financing activities is $11.0 million for 1998 and $118.7
million for 1997. The net proceeds from the issuance of trust preferred
securities by the Company provided $121.9 million and $123.2 million of cash in
the first quarters of 1998 and 1997, respectively. Net proceeds from the
issuance of the 7.701% trust preferred securities were used to repay the $100
million bank indebtedness of Guaranty National in February 1998. Cash used in
financing activities also includes dividend payments, scheduled debt repayments
and payments related to the Company common stock repurchase program. Orion
increased the quarterly dividend rate on its common stock by 14.3% in the second
quarter of 1997.
22
<PAGE>
Orion's uses of cash consist of debt service, dividends to stockholders and
overhead expenses. These cash uses are funded from existing available cash,
financing transactions and receipt of dividends, reimbursement of overhead
expenses and amounts in lieu of federal income taxes from Orion's insurance
subsidiaries. Payments of dividends by Orion's insurance subsidiaries must
comply with insurance regulatory limitations concerning stockholder dividends
and capital adequacy. State insurance regulators have broad discretionary
authority with respect to limitations on the payment of dividends by insurance
companies. Limitations under current regulations are well in excess of Orion's
cash requirements.
Orion's insurance subsidiaries maintain liquidity in their investment portfolios
substantially in excess of that required to pay claims and expenses. The
insurance subsidiaries held cash and short-term investments of $195.7 million
and $160.4 million at March 31, 1998 and December 31, 1997, respectively. The
consolidated policyholders' surplus of Orion's insurance subsidiaries is $835.6
million and $789.0 million at March 31, 1998 and December 31, 1997,
respectively. The Company's statutory operating leverage ratios of trailing
twelve months net premiums written to policyholders' surplus is 1.7:1 and 1.8:1
at March 31, 1998 and December 31, 1997, respectively.
The terms of Orion's indentures for its $100 million of 7.25 % Senior Notes due
2005 and its $110 million of 9.125% 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 March 31, 1998 the
Company is 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 January 13, 1997 Orion issued $125 million of 8.73% Junior Subordinated
Deferrable Interest Debentures due January 1, 2037 (the "Debentures") to Orion
Capital Trust I (the "Trust"), a Delaware statutory business trust sponsored by
Orion. The Trust simultaneously sold $125 million of 8.73% Capital Securities
(the "Trust Preferred Securities") which have substantially the same terms as
the Debentures. The net proceeds from the sale of the Trust Preferred Securities
were used in part for the acquisition of Guaranty National common stock in
December 1997. The Trust Preferred Securities may be redeemed without premium on
or after January 1, 2007.
On February 2, 1998 Orion issued $125 million of 7.701% Junior Subordinated
Deferrable Interest Debentures due April 15, 2028 to Orion Capital Trust II
("Trust II"), a Delaware statutory business trust sponsored by Orion. Trust II
then sold $125 million of 7.701% Capital Securities, which have substantially
the same terms as the 7.701% Debentures, in a private placement. The net
proceeds from the sales of these securities were used to repay $100 million bank
indebtness of Guaranty National in February 1998. Orion registered the capital
securities under the Securities Act of 1933, pursuant to an exchange offer which
expires on June 4, 1998.
The 8.73% and 7.701% Capital Securities are subordinated to all liabilities of
the Company. The Company may defer interest distributions on these Capital
Securities; however, during any period when such cumulative distributions have
been deferred, Orion may not declare or pay any dividends or distributions on
its common stock.
23
<PAGE>
The Company issued a 2-for-1 split on its common stock on July 7, 1997. The 1997
first quarter common stock shares and per common share data presented in this
document has been restated to give effect to this stock split. The Company has
repurchased 134,377 shares of its common stock at an aggregate cost of $6.7
million in the first quarter of 1998. In February 1998, the Board of Directors
increased the authorization for purchases of the Company's common stock by an
additional $25 million. At March 31, 1998, the Company's remaining stock
purchase authorization from its Board of Directors amounted to $21.6 million.
LEGAL PROCEEDINGS
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.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information",
which changes the way public companies report information about segments. This
statement will be adopted by the Company in the fourth quarter of 1998.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. The
adoption of this standard will have no impact on the Company's consolidated
results of operation, financial position or cash flows.
FORWARD-LOOKING STATEMENTS
All statements made in this quarterly 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.
24
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 - 5.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11: Computation of Earnings Per Common Share.
Exhibit 15: Deloitte & Touche LLP Letter re:unaudited interim
financial information.
Exhibit 27: Financial Data Schedule.
(b) Report on Form 8-K
None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORION CAPITAL CORPORATION
Date: May 13, 1998 By: /s/ W. Marston Becker
--------------------------
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1998 By: /s/ Donald W. Ebbert, Jr.
-----------------------------
Executive Vice President and
Chief Financial Officer
26
<PAGE>
EXHIBIT INDEX
Page
Exhibit 11: Computation of Earnings Per Common Share 28
Exhibit 15: Deloitte & Touche LLP Letter
Re:unaudited interim financial information 29
Exhibit 27: Financial Data Schedule 30-31
27
<TABLE>
<CAPTION>
Exhibit 11
ORION CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
Three Months Ended March 31,
(In thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC:
Weighted average number of shares outstanding 27,400 27,304
======= =======
Net earnings attributable to common stockholders $42,189 $29,478
======= =======
Net earnings per basic common shares $ 1.54 $ 1.08
======= =======
DILUTED:
Computation of weighted average number of common
and diluted equivalent shares outstanding: -
Weighted average number of shares outstanding 27,400 27,304
Dilutive effect of stock options and stock awards 730 494
------- -------
Weighted average number of common and
diluted equivalent shares 28,130 27,798
======= =======
Net earnings attributable to common stockholders $42,189 29,478
======= =======
Net earnings per diluted common shares $ 1.50 $ 1.06
======= =======
28
</TABLE>
Exhibit 15
April 30, 1998
Orion Capital Corporation
Farmington, Connecticut
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Orion Capital Corporation and subsidiaries for the periods ended
March 31, 1998 and 1997, as indicated in our report dated April 30, 1998;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated 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. 333-44901 on Form S-8 relating to the
Wm. H. McGee & Co., Inc. 401(k) and Profit Sharing Plan .
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
29
<TABLE> <S> <C>
<ARTICLE> 7 Exhibit 27
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,465,410
<DEBT-CARRYING-VALUE> 313,657
<DEBT-MARKET-VALUE> 322,748
<EQUITIES> 460,343
<MORTGAGE> 2,242
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,623,499
<CASH> 1,140
<RECOVER-REINSURE> 567,942
<DEFERRED-ACQUISITION> 153,392
<TOTAL-ASSETS> 4,031,114
<POLICY-LOSSES> 1,876,701
<UNEARNED-PREMIUMS> 565,666
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,744
<NOTES-PAYABLE> 210,059
<COMMON> 183,458
0
0
<OTHER-SE> 577,357
<TOTAL-LIABILITY-AND-EQUITY> 4,031,114
348,812
<INVESTMENT-INCOME> 41,385
<INVESTMENT-GAINS> 28,959
<OTHER-INCOME> 5,644
<BENEFITS> 232,326
<UNDERWRITING-AMORTIZATION> 100,779
<UNDERWRITING-OTHER> 13,349
<INCOME-PRETAX> 60,905
<INCOME-TAX> 15,987
<INCOME-CONTINUING> 42,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,189
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.50
<PAGE>
<RESERVE-OPEN> 1,390,727
<PROVISION-CURRENT> 228,115
<PROVISION-PRIOR> 4,211
<PAYMENTS-CURRENT> 92,540
<PAYMENTS-PRIOR> 149,003
<RESERVE-CLOSE> 1,381,512
<CUMULATIVE-DEFICIENCY> 4,211
</TABLE>
