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
June 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 August 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)
June 30, December 31,
1997 1996
Assets:
Cash and short-term investments $ 102.9 $ 68.5
Investments:
Bonds and redeemable preferred stocks:
Held to maturity - at amortized cost
(market - $263.9 and $292.0) 264.2 291.3
Available for sale - at market
(amortized cost - $1,406.5 and $1,454.6) 1,392.3 1,441.0
Other stocks - principally at market
(cost - $83.1 and $77.0) 103.2 76.3
Investment in investee 40.6 36.6
Loans receivable 24.6 30.8
Real estate and other investments 1.5 2.1
Total investments 1,826.4 1,878.1
Accrued investment income 26.0 29.0
Agents' balances and premiums receivable 323.9 269.1
Amounts due from affiliates 78.8 151.8
Recoverables from reinsurers and prepaid
reinsurance premiums 67.4 67.6
Other receivables 23.7 45.5
Deferred acquisition costs 89.8 76.3
Cost in excess of net assets acquired 375.4 378.2
Deferred tax asset 147.6 154.7
Other assets 156.9 150.4
$3,218.8 $3,269.2
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment expenses $1,024.2 $1,048.8
Unearned premiums 446.8 379.8
Policyholder dividends 12.7 23.8
Long-term debt:
Parent Company 159.7 160.5
Subsidiaries 7.9 8.3
Amounts due to affiliates 132.5 178.0
Accounts payable and other liabilities 341.9 425.5
Total liabilities 2,125.7 2,224.7
Shareholders' Equity:
Common Stock, $1 par value
47,000,000 shares outstanding 47.0 47.0
Capital surplus 580.3 580.4
Retained earnings 462.0 426.3
Net unrealized losses on marketable securities 3.8 (9.2)
Total shareholders' equity 1,093.1 1,044.5
$3,218.8 $3,269.2
2
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
AMERICAN PREMIER UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
Income:
Property and casualty insurance
premiums $335.0 $337.7 $652.3 $677.5
Net investment income 33.0 55.7 67.1 109.5
Realized gains (losses) on sales
of securities (.2) 1.9 (1.1) 6.7
Equity in net earnings of investee 2.3 1.8 4.3 3.0
Gain on sales of subsidiaries - .1 - 53.1
Other income 4.7 2.7 6.2 6.6
374.8 399.9 728.8 856.4
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses 257.6 250.3 494.9 512.3
Commissions and other underwriting
expenses 69.4 82.1 141.1 161.6
Interest charges on borrowed money 6.6 10.6 14.4 20.4
Other operating and general expenses 14.6 13.1 24.3 22.8
348.2 356.1 674.7 717.1
Earnings before income taxes 26.6 43.8 54.1 139.3
Provision for income taxes 7.7 17.1 18.3 55.0
Earnings before extraordinary item 18.9 26.7 35.8 84.3
Extraordinary item - loss on prepayment
of debt, net of tax benefit - (2.7) - (4.6)
Net Earnings $ 18.9 $ 24.0 $ 35.8 $ 79.7
3
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
AMERICAN PREMIER UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
Six months ended
June 30,
1997 1996
Operating Activities:
Net earnings $ 35.8 $ 79.7
Adjustments:
Deferred federal income tax - 50.6
Extraordinary loss on prepayment of debt - 4.6
Depreciation and amortization 13.3 14.8
Equity in net earnings of investee (4.3) (3.0)
Realized (gains) losses on investing activities 1.0 (59.7)
Decrease (increase) in receivables (41.1) 23.9
Decrease (increase) in other assets (27.6) 5.5
Decrease in unpaid losses and loss
adjustment expenses (24.6) (62.0)
Decrease in policyholder dividends (11.0) (15.2)
Increase (decrease) in unearned premiums 67.0 (29.0)
Decrease in other liabilities (80.0) (14.4)
Dividends from investee .3 .3
Other, net (.3) (.1)
(71.5) (4.0)
Investing Activities:
Purchases of and additional investments in:
Fixed maturity investments (252.1) (194.9)
Equity securities (5.8) (.2)
Affiliates and subsidiaries (5.0) -
Property and equipment (4.8) (3.1)
Maturities and redemptions of fixed maturity
investments 55.2 57.5
Sales of:
Fixed maturity investments 291.1 134.0
Equity securities .1 1.0
Affiliates and subsidiaries - 66.2
Real estate, property and equipment 1.0 1.3
Cash of subsidiaries acquired (sold) .1 (4.6)
Increase in other investments (.1) (.1)
79.7 57.1
Financing Activities:
Reductions of debt (1.3) (123.4)
Issuance of debt - 52.0
Net advances (to) from affiliates 27.5 (24.8)
26.2 (96.2)
Net Increase (Decrease) in Cash and Short-term Investments 34.4 (43.1)
Cash and short-term investments at beginning of period 68.5 116.4
Cash and short-term investments at end of period $102.9 $ 73.3
4
<PAGE>
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
<PAGE>
AMERICAN PREMIER UNDERWRITERS, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APU's investment in investee corporation reflects APU's 6% 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 37% 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
$44.5 million at June 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.
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.
<PAGE>
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.
Benefit Plans APU provides retirement benefits to qualified
employees of participating companies through contributory and
noncontributory defined contribution plans. In addition, APU
sponsored employee savings plans under which APU matched a
specified portion of contributions made by eligible employees.
Contributions to benefit plans and savings plans are charged
against earnings in the year for which they are declared. APU
had Employee Stock Ownership Retirement Plans ("ESORP"). 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.
<PAGE>
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):
June 30, December 31,
1997 1996
Parent Company:
Subordinated notes, 10-7/8%, due 2011 $ 16.8 $ 16.8
Subordinated notes, 10-5/8%, due 2000 51.7 52.0
Subordinated notes, 9-3/4%, due 1999 91.2 91.7
159.7 160.5
Subsidiaries:
Other 7.9 8.3
Total $167.6 $168.8
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 June 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
June 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 $252.0 $252.1
Maturities and redemptions 33.3 21.9 55.2
Sales - 291.1 291.1
1996
Purchases $11.6 $183.3 $194.9
Maturities and redemptions 25.2 32.3 57.5
Sales - 134.0 134.0
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.
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 13% at both June 30, 1997 and December 31, 1996.
APU's ratio of earnings to fixed charges on a total enterprise
basis was 4.06 for the first six months of 1997 compared to 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 $200 million available to each other.
In January 1997, the amount of available loans was increased to
$250 million. 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 $130.1 million (plus
$2.4 million of accrued interest) at June 30, 1997 and
$175.5 million (plus $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 $.1 million of accrued
interest) at June 30, 1997 and $96.5 million (plus $1.0 million
of accrued interest) at December 31, 1996.
<PAGE>
Through 1995, APU has filed consolidated federal income tax
returns and will do so again for 1996. APU's federal income
tax loss carryforward had been available to offset taxable
income and, as a result, APU's obligation to pay federal income
tax for 1996 is substantially eliminated. 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's insurance subsidiaries
generally compute tax provisions as if filing separate returns
with the resulting provision (or credit) currently payable to
(or receivable from) APU.
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 June 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 second quarter of 1997 were $26.6 million,
a decrease of $17.2 million from the comparable 1996 period. The decrease
is attributable to a $22.7 million decrease in investment income and a
decrease of $2.1 million in realized gains. These items were partially
offset by a reduction of $4.0 million in interest expense resulting from debt
retirements in 1996 and a $2.7 million improvement in underwriting profit.
Pretax earnings for the six months ended June 30, 1997 were $54.1 million,
a decrease of $85.2 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 $24.3 million due primarily to a
$42.4 million decrease in investment income, partially offset by a
$12.7 million improvement in underwriting results and a $6.0 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 Six months ended
June 30, June 30,
1997 1996 1997 1996
Net Written Premiums (GAAP)
NSA Group $302.2 $264.3 $606.3 $535.5
Republic Indemnity 55.0 55.3 112.9 114.7
$357.2 $319.6 $719.2 $650.2
Combined Ratios (GAAP)
NSA Group 96.8% 101.3% 97.0% 101.7%
Republic Indemnity 101.7% 84.4% 100.1% 88.3%
Aggregate 97.7% 98.4% 97.6% 99.5%
NSA Group For the second quarter and first six months of 1997,
net written premiums of the NSA Group increased 14% 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 six months of 1996. Underwriting results for the
second quarter and first six months of 1997 and 1996 included
reductions in loss, loss adjustment expense and policyholder
dividend reserves prompted by fundamental changes in the
California workers' compensation market and actuarial evaluations.
Excluding the effects of these reserve reductions, Republic
Indemnity's underwriting results for the second quarter and first
six months of 1997 decreased as compared to the comparable 1996
periods due primarily to an increase in the severity of claims.
Investment Income Investment income decreased $22.7 million (41%)
during the second quarter and $42.4 million (39%) during the first
half 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 $3.7 million
and $41.1 million earned during the first six 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 second quarter and six months ended June 30, 1997
decreased by $1.1 million (46%) and $7.0 million (45%), respectively,
from the comparable 1996 periods. The decreases reflect the repurchase
of subordinated notes during 1996. Interest on amounts due AFG was
$5.9 million and $4.9 million during the first six 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
NEW TAX LEGISLATION
New federal tax legislation was signed into law in August 1997.
Management believes the legislation will not have a material
effect on APU's financial condition or results of operations.
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.
August 12, 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 six months ended June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> $1,392,300
<DEBT-CARRYING-VALUE> 264,200
<DEBT-MARKET-VALUE> 263,900
<EQUITIES> 143,800<F1>
<MORTGAGE> 0
<REAL-ESTATE> 900
<TOTAL-INVEST> 1,826,400<F2>
<CASH> 102,900
<RECOVER-REINSURE> 5,500
<DEFERRED-ACQUISITION> 89,800
<TOTAL-ASSETS> 3,218,800
<POLICY-LOSSES> 1,024,200
<UNEARNED-PREMIUMS> 446,800
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 12,700
<NOTES-PAYABLE> 167,600
0
0
<COMMON> 47,000
<OTHER-SE> 1,046,100
<TOTAL-LIABILITY-AND-EQUITY> 3,218,800
652,300
<INVESTMENT-INCOME> 67,100
<INVESTMENT-GAINS> (1,100)
<OTHER-INCOME> 10,500<F3>
<BENEFITS> 494,900
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 141,100<F4>
<INCOME-PRETAX> 54,100<F5>
<INCOME-TAX> 18,300
<INCOME-CONTINUING> 35,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,800
<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 $40.6 million.
<F2>Includes loans receivable of $24.6 million and other investments of $.6
million.
<F3>Includes equity in net earnings of investee of $4.3 million and other income of
$6.2 million.
<F4>Includes policyholder dividends of ($5.3) million.
<F5>Includes interest charges on borrowed money of $14.4 million and other
operating and general expenses of $24.3 million.
<F6>Not applicable since all common shares are owned by American Financial
Corporation and American Financial Group, Inc.
</FN>
</TABLE>
