SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
September 30, 1997 No. 1-1569
AMERICAN PREMIER UNDERWRITERS, INC.
Incorporated under IRS Employer I.D.
the Laws of Pennsylvania No. 23-6000765
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-6600
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,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
As of November 1, 1997, there were 47,000,000 shares of the
Registrant's Common Stock outstanding, 38,000,000 of which were
owned by American Financial Corporation and 9,000,000 of which
were owned by American Financial Group, Inc.
Page 1 of 14
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
PART I
FINANCIAL INFORMATION
AMERICAN PREMIER UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Millions)
September 30, December 31,
1997 1996
Assets:
Cash and short-term investments $ 123.2 $ 68.5
Investments:
Bonds and redeemable preferred stocks:
Held to maturity - at amortized cost
(market - $246.0 and $292.0) 243.6 291.3
Available for sale - at market
(amortized cost - $1,454.0 and $1,454.6) 1,465.1 1,441.0
Other stocks - principally at market
(cost - $51.1 and $77.0) 60.5 76.3
Investment in investee 38.6 36.6
Loans receivable 24.5 30.8
Real estate and other investments 1.3 2.1
Total investments 1,833.6 1,878.1
Accrued investment income 25.4 29.0
Agents' balances and premiums receivable 317.4 269.1
Amounts due from affiliates 78.1 151.8
Recoverables from reinsurers and prepaid
reinsurance premiums 72.2 67.6
Other receivables 28.3 45.5
Deferred acquisition costs 89.7 76.3
Cost in excess of net assets acquired 372.3 378.2
Deferred tax asset 117.9 154.7
Other assets 147.0 150.4
$3,205.1 $3,269.2
<PAGE>
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment expenses $1,045.9 $1,048.8
Unearned premiums 441.8 379.8
Policyholder dividends 9.0 23.8
Long-term debt:
Parent Company 150.4 160.5
Subsidiaries 7.7 8.3
Amounts due to affiliates 115.1 178.0
Accounts payable and other liabilities 324.6 425.5
Total liabilities 2,094.5 2,224.7
Shareholders' Equity:
Common Stock, $1 par value
47,000,000 shares outstanding 47.0 47.0
Capital surplus 580.0 580.4
Retained earnings 470.3 426.3
Net unrealized gains (losses) on marketable
securities 13.3 (9.2)
Total shareholders' equity 1,110.6 1,044.5
$3,205.1 $3,269.2
2
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AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
AMERICAN PREMIER UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income:
Property and casualty insurance
premiums $338.6 $320.7 $ 990.9 $ 998.2
Net investment income 32.8 55.1 99.9 164.6
Realized gains (losses) on sales
of securities 18.3 (.1) 17.2 6.6
Equity in net earnings (losses)
of investee (1.8) (1.4) 2.5 1.6
Gain on sales of subsidiaries - - - 53.1
Other income 4.7 5.2 10.9 11.8
392.6 379.5 1,121.4 1,235.9
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 272.0 221.4 766.9 733.7
Commissions and other underwriting
expenses 76.6 69.8 217.7 231.4
Interest charges on borrowed money 6.1 9.2 20.5 29.6
Other operating and general expenses 21.4 12.7 45.7 35.5
376.1 313.1 1,050.8 1,030.2
Earnings before income taxes 16.5 66.4 70.6 205.7
Provision for income taxes 7.6 24.0 25.9 79.0
Earnings before extraordinary item 8.9 42.4 44.7 126.7
Extraordinary item - loss on prepayment
of debt, net of tax benefit (.7) - (.7) (4.6)
Net Earnings $ 8.2 $ 42.4 $ 44.0 $ 122.1
3
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
AMERICAN PREMIER UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
Nine months ended
September 30,
1997 1996
Operating Activities:
Net earnings $ 44.0 $122.1
Adjustments:
Deferred federal income tax 24.9 75.4
Extraordinary loss on prepayment of debt .7 4.6
Depreciation and amortization 21.1 22.0
Equity in net earnings of investee (2.5) (1.6)
Realized gains on investing activities (17.3) (61.6)
Decrease (increase) in receivables (39.1) 27.5
Decrease (increase) in other assets (14.4) 3.4
Decrease in unpaid losses and loss
adjustment expenses (2.9) (97.0)
Decrease in policyholder dividends (14.8) (26.5)
Increase (decrease) in unearned premiums 62.0 (44.2)
Decrease in other liabilities (103.0) (21.2)
Dividends from investee .5 .5
Other, net (.4) -
(41.2) 3.4
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (387.5) (210.8)
Equity securities (10.9) (.2)
Affiliates and subsidiaries (5.0) -
Property and equipment (7.7) (5.8)
Maturities and redemptions of fixed maturity
investments 114.2 74.7
Sales of:
Fixed maturity investments 337.3 165.5
Equity securities 56.4 1.0
Affiliates and subsidiaries - 66.2
Real estate, property and equipment 1.2 3.4
Cash of subsidiaries acquired (sold) .1 (4.6)
Decrease (increase) in other investments (1.2) .1
96.9 89.5
Financing Activities:
Reductions of debt (11.7) (146.0)
Issuance of debt - 74.0
Net advances (to) from affiliates 10.9 (32.7)
Other, net (.1) -
(.9) (104.7)
Net Increase (Decrease) in Cash and Short-term
Investments 54.7 (11.8)
Cash and short-term investments at beginning
of period 68.5 116.4
Cash and short-term investments at end of period $123.2 $104.6
4
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AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting Policies
Basis of Presentation In April 1995, American Premier Underwriters, Inc.
("APU") became a wholly-owned subsidiary of American Financial Group, Inc.
("AFG"), a new corporation formed by APU for the purpose of acquiring all
of the common stock of APU and American Financial Corporation (the
"Mergers"). As a result of the Mergers, all of the common stock of APU
and American Financial Corporation ("AFC") was owned by AFG and AFG became
APU's successor as the issuer of publicly held common stock. At the close
of business on December 31, 1996, AFG contributed to AFC 81% of the Common
Stock of APU.
The accompanying consolidated financial statements for APU are unaudited;
however, management believes that all adjustments (consisting only of
normal recurring accruals unless otherwise disclosed herein) necessary for
fair presentation have been made. The results of operations for interim
periods are not necessarily indicative of results to be expected for the
year. The financial statements have been prepared in accordance with
the instructions to Form 10-Q and therefore do not include all information
and footnotes necessary to be in conformity with generally accepted
accounting principles.
Certain reclassifications have been made to prior years to conform to the
current year's presentation. All significant intercompany balances and
transactions have been eliminated. All acquisitions have been treated as
purchases. The results of operations of companies since their formation or
acquisition are included in the consolidated financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Changes in circumstances could cause
actual results to differ materially from those estimates.
Investments Debt securities are classified as "held to maturity" and
reported at amortized cost if APU has the positive intent and ability to
hold them to maturity. Debt and equity securities are classified as
"available for sale" and reported at fair value with unrealized gains and
losses reported as a separate component of shareholders' equity if
the securities are not classified as held to maturity or bought and held
principally for selling in the near term. Only in certain limited
circumstances, such as significant issuer credit deterioration or if
required by insurance or other regulators, may a company change its intent
to hold a certain security to maturity without calling into question
its intent to hold other debt securities to maturity in the future.
<PAGE>
Premiums and discounts on mortgage-backed securities are amortized over
their expected average lives using the interest method. Gains or losses
on sales of securities are recognized at the time of disposition with the
amount of gain or loss determined on the specific identification basis.
When a decline in the value of a specific investment is considered to be
other than temporary, a provision for impairment is charged to earnings
and the carrying value of that investment is reduced.
APU's investments in equity securities of companies that are
20%-to 50%-owned by AFG and its subsidiaries are carried at
cost, adjusted for a proportionate share of their undistributed
earnings or losses.
5
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AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APU's investment in investee corporation reflects APU's 5%
ownership (3.2 million shares) of the common stock of Chiquita
Brands International, Inc. which is accounted for under the
equity method. AFG and its other subsidiaries own an
additional 35% of the common stock of Chiquita. Chiquita is a
leading international marketer, producer and distributor of
bananas and other quality fresh and processed food products.
The market value of APU's investment in Chiquita was
approximately $52 million at September 30, 1997.
Short-term investments are carried at cost; loans receivable
are stated primarily at the aggregate unpaid balance.
Cost in Excess of Net Assets Acquired The excess of cost of
subsidiaries over APU's equity in the underlying net assets
("goodwill") is being amortized over 40 years.
APU's management continually monitors whether significant
changes in certain industry and regulatory conditions or
prolonged trends of declining profitability have occurred
which would lead APU to question the recoverability of the
carrying value of its goodwill. APU's evaluation of its
recorded goodwill would be based primarily on estimates of
future earnings, as well as all other available factors which
may provide additional evidence relevant to the assessment of
recoverability of its goodwill.
Insurance As discussed under "Reinsurance" below, unpaid
losses and loss adjustment expenses and unearned premiums have
not been reduced for reinsurance receivable.
Reinsurance In the normal course of business, APU's insurance
subsidiaries cede reinsurance to other companies to diversify
risk and limit maximum loss arising from large claims. To the
extent that any reinsuring companies are unable to meet
obligations under the agreements covering reinsurance ceded,
APU's insurance subsidiaries would remain liable. Amounts
recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the
reinsurance policies. APU's insurance subsidiaries report as
assets (a) the estimated reinsurance recoverable on unpaid
losses, including an estimate for losses incurred but not
reported, and (b) amounts paid to reinsurers applicable to the
unexpired terms of policies in force. APU's insurance
subsidiaries also assume reinsurance from other companies.
Income on reinsurance assumed is recognized based on reports
received from ceding reinsurers.
<PAGE>
Deferred Acquisition Costs Policy acquisition costs
(principally commissions, premium taxes and other underwriting
expenses) related to the production of new business are
deferred. The deferral of acquisition costs is limited based
upon their recoverability without any consideration for
anticipated investment income. Deferred policy acquisition
costs are charged against income ratably over the term of the
related policies.
Unpaid Losses and Loss Adjustment Expenses The net
liabilities stated for unpaid claims and for expenses of
investigation and adjustment of unpaid claims are based upon
(a) the accumulation of case estimates for losses reported
prior to the close of the accounting period on the direct
business written; (b) estimates received from ceding
reinsurers and insurance pools and associations; (c) estimates
of unreported losses based on past experience and (d)
estimates based on experience of expenses for investigating
and adjusting claims.
6
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
These liabilities are subject to the impact of changes in
claim amounts and frequency and other factors. In spite of
the variability inherent in such estimates, management
believes that the liabilities for unpaid losses and loss
adjustment expenses are adequate. Changes in estimates of the
liabilities for losses and loss adjustment expenses are
reflected in the Statement of Earnings in the period
determined.
Premium Recognition Premiums are earned over the terms of the
policies on a pro rata basis. Unearned premiums represent
that portion of premiums written which is applicable to the
unexpired terms of policies in force. On reinsurance assumed
from other insurance companies or written through various
underwriting organizations, unearned premiums are based on
reports received from such companies and organizations.
Policyholder Dividends Dividends payable to policyholders
represent management's estimate of amounts payable on
participating policies which share in favorable underwriting
results. The estimate is accrued during the period in which
the related premium is earned. Changes in estimates are
included in the Statement of Earnings in the period
determined. Policyholder dividends do not become legal
liabilities unless and until declared by the boards of
directors of the insurance companies.
Income Taxes APU has filed consolidated federal income tax
returns which include all 80%-owned U.S. subsidiaries. As a
result of the Mergers, AFG (parent) has been included in APU's
consolidated return for 1995 and 1996. At the close of
business on December 31, 1996, AFG contributed 81% of the
common stock of APU to AFC. Accordingly, AFC and APU will
file a single consolidated return for 1997.
Deferred income taxes are calculated using the liability
method. Under this method, deferred income tax assets and
liabilities are determined based on differences between
financial reporting and tax bases and are measured using
enacted tax rates. Deferred tax assets are recognized if it
is more likely than not that a tax benefit will be realized.
<PAGE>
Benefit Plans APU provides retirement benefits to qualified
employees of participating companies through contributory and
noncontributory defined contribution plans. Contributions to
benefit plans and savings plans are charged against earnings
in the year for which they are declared. APU sponsored
contributory employee savings plans under which APU matched a
specified portion of contributions made by eligible employees.
APU also had Employee Stock Ownership Retirement Plans
("ESORP") under which contributions were invested in
securities of AFG and affiliates for the benefit of APU
employees. In 1997, these ESORP plans were combined into a
new plan. Like the ESORP plans, the new plan is a
noncontributory, qualified plan invested in securities of AFG
and affiliates for the benefit of employees.
APU and many of its subsidiaries provide health care and life
insurance benefits to eligible retirees. APU also provides
postemployment benefits to former or inactive employees
(primarily those on disability) who were not deemed retired
under other company plans. The projected future cost of
providing these benefits is expensed over the period the
employees qualify for such benefits.
7
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Capital Surplus Adjustments to claims and contingencies arising from
events or circumstances preceding APU's 1978 reorganization are reflected
in capital surplus if the adjustments are not clearly attributable to
post-reorganization events or circumstances. Such pre-reorganization
claims and contingencies consist principally of personal injury claims
by former employees of APU's predecessor and claims relating to the
generation, disposal or release into the environment of allegedly
hazardous substances arising out of railroad operations disposed of prior
to the 1978 reorganization.
Statement of Cash Flows For cash flow purposes, "investing activities"
are defined as making and collecting loans and acquiring and disposing of
debt or equity instruments and property and equipment. "Financing
activities" include obtaining resources from owners and providing them
with a return on their investments, borrowing money and repaying
amounts borrowed. All other activities are considered "operating".
Short-term investments having original maturities of three months or less
when purchased are considered to be cash equivalents for purposes of the
financial statements.
B. Divestitures
In March 1996, APU sold the stock of a subsidiary, Buckeye
Management Company ("Buckeye"), to an investment group
consisting of members of Buckeye's management and employees
for approximately $60 million in cash, net of transaction
costs. Buckeye held, directly and indirectly, a 2% general
partnership interest in Buckeye Partners, L.P. which, through
its subsidiary entities, was an independent pipeline common
carrier of refined petroleum products. APU recorded a pretax
gain of approximately $53 million from the sale. The
Chairman of the Board and Chief Executive Officer of Buckeye
was also a director of APU, until resigning in March 1996.
C. Long-term Debt
The carrying value of long-term debt consisted of the
following (in millions):
September 30, December 31,
1997 1996
Parent Company:
Subordinated notes, 10-7/8%, due 2011 $ 16.5 $ 16.8
Subordinated notes, 10-5/8%, due 2000 43.0 52.0
Subordinated notes, 9-3/4%, due 1999 90.9 91.7
150.4 160.5
Subsidiaries:
Other 7.7 8.3
Total $158.1 $168.8
<PAGE>
During the first nine months of 1997, APU repurchased $10.1 million of
its subordinated notes for approximately $11.1 million, resulting in an
extraordinary loss of $.7 million.
In 1995, Pennsylvania Company ("Pennco"), a wholly-owned subsidiary of
APU, entered into a collateralized five-year reducing revolving credit
agreement with several banks, under which it can borrow up to
$75 million. There were no borrowings outstanding under this agreement
at September 30, 1997 or December 31, 1996.
8
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. Common Stock
APU is authorized to issue 200,000,000 shares of Common Stock. At
September 30, 1997, there were 47,000,000 shares of Common Stock
outstanding, 38,000,000 of which were owned by AFC and 9,000,000 of
which were owned by AFG.
E. Cash Flows - Fixed Maturity Investments
"Investing activities" related to fixed maturity investments in
APU's Statement of Cash Flows consisted of the following (in millions):
Held to Available
1997 Maturity For Sale Total
Purchases $ .1 $387.4 $387.5
Maturities and redemptions 52.7 61.5 114.2
Sales - 337.3 337.3
1996
Purchases $11.6 $199.2 $210.8
Maturities and redemptions 39.1 35.6 74.7
Sales - 165.5 165.5
F. Contingencies
There have been no significant changes to the matters discussed in
Note K - "Contingencies" in APU's Annual Report on Form 10-K for 1996.
G. Subsequent Event
On October 22, 1997, APU announced that it has agreed to sell the
assets of its software solutions and consulting services
subsidiary, Millennium Dynamics, Inc., to a subsidiary of Peritus
Software Services, Inc. APU is to receive $30 million in cash
and 2,175,000 shares of Peritus common stock on the sale which is
expected to close in the fourth quarter of 1997. APU estimates
that its basis in the subsidiary, plus fees and expenses related
to the sale, will be approximately $15 million to $20 million.
9
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
ITEM 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Ratios The ratio of APU's (parent-only) long-term debt to total capital was
12% at September 30, 1997 and 13% at December 31, 1996. APU's ratio of
earnings to fixed charges on a total enterprise basis was 3.92 for the first
nine months of 1997 and 8.92 for the entire year of 1996.
Sources of Funds APU is organized as a holding company with almost all
of its operations being conducted by subsidiaries. The parent corporation,
however, has continuing cash needs for administrative expenses, the payment
of principal and interest on borrowings and dividends on Common Stock. Thus,
APU relies primarily on dividends and tax payments from its subsidiaries for
funds to meet its obligations.
Management believes APU has sufficient resources to meet its liquidity
requirements through operations in the short-term and long-term future. If
funds generated from operations, including dividends from subsidiaries, are
insufficient to meet fixed charges in any period, APU would be required to
generate cash through borrowings, sales of securities or other assets, or
similar transactions.
APU has a credit agreement with AFG under which APU and AFG could make loans
of up to $250 million available to each other. The balance outstanding under
the credit line bears interest at a variable rate of one percent over LIBOR
and is payable on December 31, 2010. Principal amounts payable to AFG under
the credit agreement totaled $113.1 million (excluding $2.0 million of
accrued interest) at September 30, 1997 and $175.5 million (excluding
$2.5 million of accrued interest) at December 31, 1996.
APU and Pennco also have separate revolving credit agreements with two AFC
subsidiaries under which aggregate loans are available to those subsidiaries
of up to $170 million. Loans made under the credit lines bear interest at
floating rates based on prime or LIBOR. Aggregate amounts outstanding under
the credit lines totaled $21.7 million (plus $.4 million of accrued
interest) at September 30, 1997 and $96.5 million (plus $1.0 million of
accrued interest) at December 31, 1996.
Through 1996, APU has filed consolidated federal income tax returns. At the
close of business on December 31, 1996, AFG contributed 81% of the common
stock of APU to AFC. Accordingly, beginning with the 1997 federal tax
return, APU and its 80%-owned U.S. subsidiaries will join AFC's
consolidated federal tax return. Under tax allocation agreements, APU
and its insurance subsidiaries generally compute tax provisions as if
filing separate returns with the resulting provision (or credit) currently
payable to (or receivable from) AFC.
10
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Investments Approximately 94% of the bonds and redeemable
preferred stocks held by APU were rated "investment grade"
(credit rating of AAA to BBB) by nationally recognized rating
agencies at September 30, 1997. Investment grade securities
generally bear lower yields and lower degrees of risk than
those that are unrated and non-investment grade. Management
believes that the high quality investment portfolio should
generate a stable and predictable investment return.
RESULTS OF OPERATIONS
General Pretax earnings for the third quarter of 1997 were
$16.5 million, a decrease of $49.9 million from the comparable 1996
period. The decrease is attributable to a $39.5 million decrease in
underwriting results and a $22.3 million decrease in investment income.
These items were partially offset by an increase of $18.4 million in
realized gains and a reduction of $3.1 million in interest expense
resulting from debt retirements in 1996.
Pretax earnings for the nine months ended September 30, 1997 were
$70.6 million, a decrease of $135.1 million from the comparable
1996 period. Results for 1996 include a $53 million gain from
the sale of Buckeye Management Company. Excluding the Buckeye
gain and net gains and losses realized on sales of securities,
pretax earnings decreased $92.6 million due primarily to a
$64.7 million decrease in investment income and a $26.8 million
decrease in underwriting results, partially offset by a
$9.1 million decrease in interest expense.
Property and Casualty Insurance APU manages and operates its
property and casualty business as two major sectors. The
nonstandard automobile insurance companies ("NSA Group") insure
risks not typically accepted for standard automobile coverage
because of the applicant's driving record, type of vehicle, age
or other criteria. Republic Indemnity is engaged in the sale
of workers' compensation insurance in California and, to a
lesser extent, in Arizona. Workers' compensation policies
provide coverage for prescribed benefits that employers are
required to pay employees who are injured in the course of
employment and for an employer's liability for losses suffered
by its employees which are not included within the prescribed
workers' compensation coverage.
Underwriting profitability is measured by the combined ratio
which is a sum of the ratios of underwriting losses, loss
adjustment expenses, underwriting expenses and policyholder
dividends to premiums. When the combined ratio is under 100%,
underwriting results are generally considered profitable; when
the ratio is over 100%, underwriting results are generally
considered unprofitable. The combined ratio does not reflect
investment income, other income or federal income taxes.
11
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Net written premiums and combined ratios for APU's insurance
subsidiaries are as follows (dollars in millions):
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Net Written Premiums (GAAP)
NSA Group $277.2 $248.0 $ 883.5 $783.5
Republic Indemnity 56.6 54.6 169.5 169.3
$333.8 $302.6 $1,053.0 $952.8
Combined Ratios (GAAP)
NSA Group 96.9% 98.1% 97.0% 100.5%
Republic Indemnity 132.4% 56.3% 111.2% 77.8%
Aggregate 102.9% 90.8% 99.3% 96.7%
NSA Group For the third quarter and first nine months of 1997,
net written premiums of the NSA Group increased 12% and 13%,
respectively, from the comparable 1996 periods due primarily to
volume increases in California resulting from enactment of
legislation requiring drivers to provide proof of insurance
coverage in order to obtain a valid permit. The improvement in
the combined ratio reflects rate increases in various states over
the last couple of years.
Republic Indemnity Following significant declines during 1995 and 1996
as a result of mandatory premium rate reductions and an extremely
competitive pricing environment in the California workers' compensation
market, net written premiums for Republic Indemnity have stabilized in
1997 at approximately the same level as in the first nine months of 1996.
Underwriting results for the third quarter and first nine months of 1997
declined due primarily to (i) 1996 reductions in reserves for business
written primarily prior to 1995 in response to fundamental changes in the
California workers' compensation market and actuarial evaluations, and (ii)
increased losses during the third quarter of 1997 relating to deteriorating
underwriting margins in business written in 1996 and 1997.
Investment Income Investment income decreased $22.3 million (40%) during
the third quarter and $64.7 million (39%) during the first nine months of
1997 due primarily to a decrease in funds advanced to affiliates and a
decrease in average investments held resulting from debt repurchases in 1996.
In December 1996, APU paid a dividend to AFG of $675 million consisting of
amounts then outstanding under APU's credit line with AFC. Investment income
includes $4.2 million and $61.8 million earned during the first nine months
of 1997 and 1996, respectively, on amounts due from affiliates.
<PAGE>
Investee Corporations Equity in net earnings of investee corporations
represents APU's proportionate share of the earnings of Chiquita Brands
International, Inc. Interest on Borrowed Money Excluding interest on
amounts due to AFG, interest expense for the third quarter and nine months
ended September 30, 1997 decreased by $2.7 million (40%) and
$9.7 million (44%), respectively, from the comparable 1996 periods. The
decreases reflect the repurchase of subordinated notes during 1996. Interest
on amounts due AFG was $7.9 million and $7.3 million during the first nine
months of 1997 and 1996, respectively.
12
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Other Operating and General Expenses Other operating and general
expenses increased $8.7 million (69%) during the third quarter
and $10.2 million (29%) during the first nine months of 1997 due
primarily to costs incurred by APU's software solutions and
consulting services operations which were purchased from a
subsidiary of AFC at the end of the first quarter of 1997.
New Accounting Standards to be Implemented During 1997, the
Financial Accounting Standards Board issued the following
Statement of Financial Accounting Standards ("SFAS"); the
implementation of these standards will not have a significant
effect on APU's financial position or results of operations.
SFAS # Subject of Standard Period to be Implemented
129 Capital Structure 4th quarter of 1997
130 Comprehensive Income 1st quarter of 1998
131 Segment Information 4th quarter of 1998
13
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
PART II
OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
27 Financial Data Schedule - Included in Report filed
electronically with the Securities and Exchange
Commission.
(b) Report on Form 8-K: None
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, American Premier Underwriters, Inc. has duly caused this
Report to be signed on its behalf by the undersigned duly
authorized.
American Premier Underwriters, Inc.
November 13, 1997 BY: /s/ Fred J. Runk
Fred J. Runk
Senior Vice President and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from American
Premier Underwriters, Inc. 10-Q for the nine months ended September 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> $1,465,000
<DEBT-CARRYING-VALUE> 243,600
<DEBT-MARKET-VALUE> 246,000
<EQUITIES> 99,100<F1>
<MORTGAGE> 0
<REAL-ESTATE> 700
<TOTAL-INVEST> 1,833,600<F2>
<CASH> 123,200
<RECOVER-REINSURE> 7,800
<DEFERRED-ACQUISITION> 89,700
<TOTAL-ASSETS> 3,205,100
<POLICY-LOSSES> 1,045,900
<UNEARNED-PREMIUMS> 441,800
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 9,000
<NOTES-PAYABLE> 158,100
0
0
<COMMON> 47,000
<OTHER-SE> 1,063,600
<TOTAL-LIABILITY-AND-EQUITY> 3,205,100
990,900
<INVESTMENT-INCOME> 99,900
<INVESTMENT-GAINS> 17,200
<OTHER-INCOME> 13,400<F3>
<BENEFITS> 766,900
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 217,700<F4>
<INCOME-PRETAX> 70,600<F5>
<INCOME-TAX> 25,900
<INCOME-CONTINUING> 44,700
<DISCONTINUED> 0
<EXTRAORDINARY> (700)
<CHANGES> 0
<NET-INCOME> 44,000
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<RESERVE-OPEN> 1,049,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes an investment in investee of $38.6 million.
<F2>Includes loans receivable of $24.5 million and other investments of $.6
million.
<F3>Includes equity in net earnings of investee of $2.5 million and other income of
$10.9 million.
<F4>Includes policyholder dividends of ($7.6) million.
<F5>Includes interest charges on borrowed money of $20.5 million and other
operating and general expenses of $45.7 million.
<F6>Not applicable since all common shares are owned by American Financial
Corporation and American Financial Group, Inc.
</FN>
</TABLE>
