UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report May 5, 1998
(Date of earliest event reported)
ALLIED Group, Inc.
(Exact name of registrant as specified in its chapter)
Iowa 0-14243 42-0958655
(State of other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) Fine Number) Identification No.)
701 Fifth Avenue, Des Moines, Iowa 50391-2000
(Address of principal executive offices) (Zip Code)
515-280-4211
(Registrant's telephone number including area code)
The total number of pages contained herein is 7.
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2
Item 5. Other Events.
Attached hereto and incorporated herein is the press release dated May 5, 1998
which is filed as Exhibit 20.4 to this Form 8-K announcing an amendment to the
Second Amended and Restated Reinsurance Pooling Agreement.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
10.65 Third Amendment to the Second Amended and Restated Reinsurance
Pooling Agreement, dated May 5, 1998.
20.4 Press release dated May 5,1998.
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.
ALLIED Group, Inc.
(Registrant)
/s/ Jamie H. Shaffer
--------------------------------------------------------------
Jamie H. Shaffer, Treasurer
(Principal Financial Officer and Principal Accounting Officer)
Date: May 5, 1998
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3
EXHIBIT 10.65
THIRD AMENDMENT
TO THE SECOND AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
WHEREAS, the undersigned parties (Participants) entered into the
above-captioned agreement (Agreement) on December 14, 1992 and executed
amendments thereto on February 18, 1993 and February 10, 1995;
WHEREAS, the Participants desire to enter into a third amendment to the
Agreement pursuant to Section 8.1 thereof; and
WHEREAS, the amendments set out hereinbelow were approved by the
Coordinating Committee and the board of directors of ALLIED Mutual Insurance
Company on May 4, 1998 and by the boards of directors of AMCO Insurance Company,
ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company
on May 5, 1998;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the Participants hereby agree as
follows;
1. Effective January 1, 1998, Section 3.8 of the Agreement is deleted
therefrom in its entirety;
2. Effective on the date of this amendment, Section 3.7 of the Agreement
is hereby amended by deleting therefrom in its entirety the final
sentence thereof, as added by the Second Amendment thereto;
3. Effective July 1, 1998, Exhibit C to the Agreement, which is
captioned "Administrative Fee" and which is incorporated by reference
into Section 3.7 thereof, is amended as follows:
A. Subsection 2 of Exhibit C is deleted in its entirety and replaced
with the following;
"7.5% of Adjusted Earned Premiums+ multiplied by its Applicable
Participation Percentage (6.75% for unallocated LAE and 0.75% for
investment expense)"
B. The following is added to the definitions of Adjusted Written
Premiums and Adjusted Earned Premiums by insertion at the end
thereof:
"and those premiums written by the Square Deal Division of
Mutual"
C. Subsections 3 and 4 of Exhibit C are deleted therefrom in their
entirety.
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4
4. Effective January 1, 1999, Exhibit C to the Agreement is amended as
follows:
A. Subsection 1 is deleted in its entirety and replaced with the
following:
"Commencing on January 1, 1999, its Applicable Participation
Percentage multiplied by that percentage of Adjusted Written
Premiums* which is the product of Adjusted Written Premiums* and
a percentage equaling the average underwriting expense (excluding
commissions and premiums taxes) incurred by the Participants and
the Square Deal Division of Mutual during the Annual Statement
years 1994 through 1998."
B. Subsection 2 is deleted in its entirety and replaced with the
following:
"Commencing on January 1, 1999, its Applicable Participation
Percentage multiplied by the total of (i) total unallocated loss
adjustment expense incurred by the Participants and the Square
Deal Division of Mutual for that Annual Statement year and (ii)
0.50% of Adjusted Earned Premiums+."
C. The following is added to the Exhibit as Subsection 3:
"The foregoing notwithstanding, for Annual Statement years 1998
through 2000, no Affiliated Company shall be required to pay the
Pool Administrator in any year an Administration Fee calculated
pursuant hereto which is greater than that it would have paid if
the Administrative Fee had been calculated pursuant to the terms
of the Agreement as they existed prior to execution of this Third
Amendment."
5. Effective January 1, 2000, Exhibit C to the Agreement is amended by
(i) striking the phrase "1994 through 1998" from the last line of
Subsection 1 and by replacing it with "1995 through 1999" and (ii)
striking the phrase "0.50% of Adjusted Earned Premiums+" from the last
line of Subsection 2 and by replacing it with "0.25% of Adjusted Earned
Premiums+."
6. Effective January 1, 2001, the Agreement shall be amended by deleting
Section 3.7 and Exhibit C therefrom in their entirety and by replacing
Section 3.7 with the following:
"For each Annual Statement year commencing on or after January 1,
2001, the Pool Administrator shall be reimbursed by each
Affiliated Company for those Company Specific Expenses and
Non-Pooled Items paid by the Pool Administrator on its behalf. In
addition thereto, each Affiliated Company shall pay to the Pool
Administrator an amount equaling its Applicable Participation
Percentage of the Participants', including Square Deal Division
of Mutual, total Administrative Expenses."
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IN WITNESS HEREOF, the undersigned parties hereto have executed this
amendment on the 5th day of May, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
ALLIED Mutual Insurance Company AMCO Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
--------------------------------------- ---------------------------------------
Its: President and Chief Executive Officer Its: President and Chief Executive Officer
------------------------------------- -------------------------------------
ALLIED Property and Casualty Depositors Insurance Company
Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
--------------------------------------- ---------------------------------------
Its: President and Chief Executive Officer Its: President and Chief Executive Officer
------------------------------------- -------------------------------------
</TABLE>
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6
EXHIBIT 20.4
ALLIED GROUP, INC.
ANNOUNCES BOARD ACTIONS
Des Moines, Iowa, May 5, 1998--ALLIED Group, Inc. (NYSE symbol GRP) today
announced three actions by its Board of Directors. The first was an amendment to
the pool administration provisions of the pooling agreement between the
Company's property-casualty segment and ALLIED Mutual Insurance Company; the
amendment was also approved by the Board of Directors of ALLIED Mutual. The
second was the approval of a stock repurchase program. The third was declaring a
second-quarter dividend of $0.13 per share that will be payable June 26, 1998 to
stockholders of record on June 12, 1998.
The pooling agreement provides that pool participants cede to AMCO Insurance
Company, the ALLIED Group, Inc. subsidiary named as pool administrator,
premiums, losses, and certain expenses and assume from AMCO an amount of the
pooled property-casualty business equal to their participation percentage (64%
for the Company's property-casualty segment, 36% for ALLIED Mutual). Prior to
the amendment, AMCO paid certain underwriting, unallocated loss settlement, and
premium collection expenses for the pool participants and was reimbursed on a
set percentage-of-premiums basis. Having AMCO assume the risk of expense
volatility rewarded the Company if efficiencies were achieved and allowed ALLIED
Mutual to benefit from a stable, predictable expense ratio.
As the Company's operations became more efficient, the difference between its
expense ratio and ALLIED Mutual's widened. Recently, the gap began closing. The
amended agreement accelerates movement toward convergence and eliminates any
difference in expense ratios by 2001. The amendment is effective in 1998 and was
filed on a Form 8-K with the SEC. The two Boards acted to phase out the
difference in expense ratios so all parties to the pooling agreement would
continue to qualify for a pooled rating from A.M. Best.
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7
To estimate the impact on future earnings per share, Company management assumed
third and fourth quarter 1998 earnings will be the same as first quarter's and
calculated the effect of the amended agreement to be a $0.01 per share per
quarter reduction. Using the same assumption and calculation, Company management
estimated the amended agreement will reduce 1999 earnings by $0.04 per share
each quarter.
The ALLIED Group, Inc. Board also approved a stock repurchase program to acquire
up to 250,000 shares of Company common stock over the next twelve months. The
repurchases will be made from time to time in compliance with Rule 10b-18 of the
Securities Exchange Act of 1934. Completion of the program will depend on market
conditions. The program is not a request or an offer for or in response to a
tender offer or any other offer for Company shares. The Company may terminate
the program at any time. As of April 30, 1998, the Company had 30.6 million
shares of common stock outstanding.
At the 1998 ALLIED Group, Inc. Annual Meeting of Stockholders held today, three
members were elected to the Board of Directors: James W. Callison, Richard O.
Jacobson, and John P. Taylor. They will serve until the 2001 Annual Meeting.
The estimates of reductions in future earnings discussed in this press release
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (Reform Act). These forward-looking statements are
made pursuant to the safe harbor provisions of the Reform Act. Investors are
cautioned that there are important factors that could cause actual results to
differ materially from those in these forward-looking statements. These factors
include, but are not limited to, (1) heightened competition--particularly
intensified price competition, (2) adverse state and federal legislation and
regulations, (3) changes in interest rates causing a reduction of investment
income, (4) general economic and business conditions that are less favorable
than expected, (5) unanticipated changes in industry trends, (6) adequacy of
loss reserves, (7) catastrophic events or the occurrence of a significant number
of storms and wind and hail losses, and (8) other risks detailed from time to
time in the Company's reports.
ALLIED Group, Inc. is a regional property-casualty insurance holding company
specializing in personal lines. The Company's property-casualty subsidiaries use
independent agencies, exclusive agencies, and direct response marketing in
central and western states.
