<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 101,348
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 12,906
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 117,550
<CASH> 7,887
<RECOVER-REINSURE> 12,292
<DEFERRED-ACQUISITION> 14,508
<TOTAL-ASSETS> 178,524
<POLICY-LOSSES> 35,974
<UNEARNED-PREMIUMS> 34,078
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 12,500
0
0
<COMMON> 33
<OTHER-SE> 51,941
<TOTAL-LIABILITY-AND-EQUITY> 178,524
22,239
<INVESTMENT-INCOME> 1,581
<INVESTMENT-GAINS> 326
<OTHER-INCOME> 0
<BENEFITS> 9,105
<UNDERWRITING-AMORTIZATION> 10,389
<UNDERWRITING-OTHER> 2,600
<INCOME-PRETAX> 1,530
<INCOME-TAX> 340
<INCOME-CONTINUING> 1,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,190
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<RESERVE-OPEN> 31,915
<PROVISION-CURRENT> 30,948
<PROVISION-PRIOR> 444
<PAYMENTS-CURRENT> 15,710
<PAYMENTS-PRIOR> 11,622
<RESERVE-CLOSE> 35,975
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON
NOVEMBER 15, 1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 1-9580
AMWEST INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2672141
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6320 Canoga Avenue, Suite 300
Woodland Hills, California 91367
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 704-1111
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 .
As of November 13, 1996, 3,321,957 shares of common stock, $.01 par
value, were outstanding.
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION:
Item 1
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1996 and 1995 3
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows for the three
months and nine months ended September 30, 1996 and 1995 6
Notes to Interim Consolidated Financial Statements 8
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION:
Item 1
Legal Proceedings 13
Item 2
Changes in Securities 13
Item 3
Defaults Upon Senior Securities 13
Item 4
Submission of Matters to a Vote of Security Ho1ders 14
Item 5
Other Information 14
Item 6
Exhibits and Reports on Form 8-K 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Underwriting revenues:
Premiums written ........................... $ 24,719 $ 24,721 $ 73,676 $ 71,853
Premiums ceded ............................. (2,258) (2,933) (7,771) (8,488)
-------- -------- -------- --------
Net premiums written .................... 22,461 21,788 65,905 63,365
Change in unearned premiums:
Direct .................................. (368) (702) (469) (968)
Ceded ................................... 146 236 173 1,310
-------- -------- -------- --------
Net premiums earned .................. 22,239 21,322 65,609 63,707
-------- -------- -------- --------
Underwriting expenses:
Losses and loss adjustment expenses ........ 12,579 14,505 35,852 31,121
Reinsurance recoveries ..................... (3,474) (5,341) (4,846) (5,314)
-------- -------- -------- --------
Net losses and loss adjustment expenses . 9,105 9,164 31,006 25,807
Policy acquisition costs ................... 10,389 9,911 28,945 28,694
General operating costs .................... 2,600 3,275 9,715 11,032
-------- -------- -------- --------
Total underwriting expenses ............. 22,094 22,350 69,666 65,533
-------- -------- -------- --------
Underwriting income (loss) ........... 145 (1,028) (4,057) (1,826)
Interest expense ............................... (229) (257) (774) (805)
Collateral interest expense .................... (293) (427) (940) (1,305)
Merger expense ................................. -- -- (710) --
Lease termination expense ...................... -- -- (1,300) --
Recovery on misappropriation of funds .......... -- -- -- 890
Net investment income .......................... 1,581 2,015 5,067 5,997
Net unrealized gain (loss) on trading securities -- -- -- 73
Net realized investment gains .................. 326 634 1,867 1,244
Commissions and fees ........................... -- 142 223 454
-------- -------- -------- --------
Income (loss) before income taxes .......... 1,530 1,079 (624) 4,722
Provision (benefit) for income taxes:
Current ...................................... 505 189 526 1,087
Deferred ..................................... (165) 103 (1,115) (91)
-------- -------- -------- --------
Total provision (benefit) for income taxes . 340 292 (589) 996
-------- -------- -------- --------
Net income (loss) .................... $ 1,190 $ 787 $ (35) $ 3,726
======== ======== ======== ========
Earnings (loss) per common share:
Net income (loss) .......................... $ 0.36 $ 0.23 $ (0.01) $ 1.11
======== ======== ======== ========
Weighted average shares outstanding ........ 3,347 3,360 3,348 3,358
</TABLE>
See accompanying notes to interim consolidated
financial statements.
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------- ----------
(unaudited)
<S> <C> <C>
Investments:
Fixed maturities, available-for-sale (amortized cost of $101,482 and $114,793 at
September 30, 1996 and December 31, 1995,
respectively) ............................................................. $101,348 $117,191
Common equity securities, available-for-sale (cost of $6,878 and $7,268 at
September 30, 1996 and December 31, 1995,
respectively) ............................................................. 8,961 8,689
Preferred equity securities, available-for-sale (cost of $3,748 and $2,847 at
September 30, 1996 and December 31, 1995,
respectively) ............................................................. 3,945 3,592
Other invested assets (cost of $2,333 and $703 at September 30,
1996 and December 31, 1995, respectively) ................................. 2,481 797
Short-term investments ......................................................... 815 745
-------- --------
Total investments .............................................................. 117,550 131,014
Cash and cash equivalents ...................................................... 7,887 5,232
Accrued investment income ...................................................... 1,452 1,573
Agents balances and premiums receivable (less allowance for doubtful accounts of
$375 at September 30, 1996 and December
31, 1995) ................................................................. 13,097 9,356
Reinsurance recoverable:
Paid loss and loss adjustment expenses .................................... 3,643 865
Unpaid loss and loss adjustment expenses .................................. 8,649 7,669
Ceded unearned premiums ........................................................ 3,134 2,941
Deferred policy acquisition costs .............................................. 14,508 13,885
Furniture, equipment and improvements, net ..................................... 4,157 3,311
Current Federal income taxes ................................................... 440 7
Other assets ................................................................... 4,007 7,980
-------- --------
Total assets .......................................................... $178,524 $183,833
======== ========
</TABLE>
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses .................... $ 35,974 $ 31,915
Unearned premiums ............................................. 34,078 33,589
Funds held as collateral ...................................... 31,254 37,650
Bank indebtedness ............................................. 12,500 12,500
Amounts due to reinsurers ..................................... 1,118 2,188
Deferred Federal income taxes ................................. 590 2,497
Other liabilities ............................................. 11,036 8,419
-------- --------
Total liabilities ......................................... 126,550 128,758
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; issued and outstanding: none ........... -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
issued and outstanding: 3,321,957 at September 30, 1996 and
3,286,942 at December 31, 1995
33 33
Additional paid-in capital .................................... 16,794 17,204
Net unrealized appreciation of investments carried at market,
net of income taxes ....................................... 1,514 3,074
Retained earnings ............................................. 33,633 34,764
-------- --------
Total stockholders' equity ................................ 51,974 55,075
-------- --------
Total liabilities and stockholders' equity ....... $178,524 $183,833
======== ========
</TABLE>
See accompanying notes to interim consolidated
financial statements.
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 1,190 $ 787 $ (35) $ 3,726
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums
receivable and unearned premiums ............ 684 1,069 (3,252) (1,663)
Change in accrued investment income ............. (14) 97 121 300
Change in unpaid losses and loss adjustment
expenses .................................... (249) (2,851) 4,059 (3,632)
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses
and ceded unearned premiums ................. (1,490) 803 (3,951) 249
Change in amounts due to reinsurers ............. (559) 727 (1,070) 868
Change in reinsurance funds held, net ........... -- -- -- 221
Change in other assets and other liabilities .... 2,846 2,908 6,590 (1,738)
Change in income taxes, net ..................... 372 (699) (1,536) (1,113)
Change in deferred policy acquisition costs ..... 286 416 (623) 825
Net realized (gain) on sale of fixed maturities
(71) (226) (956) (759)
Net realized (gain) on sale of equity securities (255) (393) (1,027) (570)
Net realized loss on sale of fixed assets ....... 1 133 2 170
Equity securities, trading
Purchases ................................. -- (8,435) -- (17,424)
Sales ..................................... -- 8,165 -- 17,339
Net unrealized (gains) losses on trading
securities .................................. -- 2 -- (73)
Provision for depreciation and amortization ..... 262 335 917 1,107
-------- -------- -------- --------
Net cash provided (used) by operating
activities ............................ 3,003 2,838 (761) (2,167)
Cash flows from investing activities:
Cash received from investments sold
prior to maturity .............................. 14,237 23,002 48,242 56,306
Cash received from investments
matured or called .............................. 2,323 4,623 3,623 19,102
Cash paid for investments acquired ................. (12,311) (29,482) (39,585) (66,356)
Amortization of discount on bonds .................. 45 24 128 (122)
Capital expenditures, net .......................... (460) (481) (1,765) (1,133)
-------- -------- -------- --------
Net cash provided (used) by investing activities
3,834 (2,314) 10,643 7,797
Cash flows from financing activities:
Proceeds from issuance of common stock ............. -- 137 265 (281)
Repurchase of common stock ......................... -- (90) -- (90)
Change in funds held as collateral ................. (422) (1,077) (6,396) (5,491)
Dividends paid ..................................... (367) (236) (1,096) (702)
------- -------- -------- --------
Net cash (used) by financing activities ......... (789) (1,266) (7,227) (6,564)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents
6,048 (742) 2,655 (934)
Cash and cash equivalents at beginning of period ........ 1,839 6,073 5,232 6,265
-------- -------- -------- --------
Cash and cash equivalents at end of period .............. $ 7,887 $ 5,331 $ 7,887 $ 5,331
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 522 $ 684 $ 1,714 $ 2,110
Income taxes (292) 880 1 1,848
</TABLE>
See accompanying notes to interim consolidated
financial statements.
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The interim consolidated financial statements presented herein are
unaudited and, in the opinion of management, reflect all adjustments
necessary for a fair presentation of results for such periods. All such
adjustments are of a normal, recurring nature. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(2) Merger
On March 14, 1996, the Company completed its previously announced
merger with Condor Services, Inc. ("Condor"). The merger has been
accounted for under the pooling of interest method. Accordingly, all
financial information presented herein for all periods includes Condor.
Additionally, share and per share data presented in these financial
statements reflect the retroactive effects of the merger with Condor.
The following table lists certain financial information for the three
months and nine months ended September 30, 1996 and 1995 for both
Amwest and Condor, as separate entities.
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
-------- -------- -------- --------
Amwest:
Total revenues ........... $ 17,863 $ 19,121 $ 55,096 $ 56,494
Underwriting income (loss) 845 (16) (1,812) (189)
Net income ............... 1,317 1,043 696 2,940
Condor:
Total revenues ........... 6,283 4,992 17,670 15,871
Underwriting (loss) ...... (700) (1,012) (2,245) (1,637)
Net income (loss) ........ $ (127) $ (256) $ (731) $ 786
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written remained stable at $24,719,000 for the three months
ended September 30, 1996 compared to $24,721,000 for the three months
ended September 30, 1995 and increased 3% from $71,853,000 for the nine
months ended September 30, 1995 to $73,676,000 for the nine months
ended September 30, 1996. The increase in premiums written for the nine
months ended September 30, 1996 is attributable to increased premiums
written by Condor Insurance Company.
Net premiums earned increased 4% and 3% from $21,322,000 and
$63,707,000 for the three months and nine months ended September 30,
1995, respectively, to $22,239,000 and $65,609,000 for the three months
and nine months ended September 30, 1996, respectively. The Company
generally earns premiums ratably over the assigned bond terms for the
surety operations and the policy term for the specialty property and
casualty operations.
Net losses and loss adjustment expenses decreased 1% from $9,164,000
for the three months ended September 30, 1995 to $9,105,000 for the
three months ended September 30, 1996 and increased 20% from
$25,807,000 for the nine months ended September 30, 1995 to $31,006,000
for the nine months ended September 30, 1996. The loss ratio for the
surety operations decreased from 32% for the three months ended
September 30, 1995 to 25% for the three months ended September 30, 1996
and increased from 33% for the nine months ended September 30, 1995 to
36% for the nine months ended September 30, 1996. The increases in loss
severity on the contract performance and payment product line which
were noted during the first half of 1996 showed improvement during the
three months ended September 30, 1996. The loss ratio for the specialty
property and casualty operations remained stable at 84% for each of the
three months ended September 30, 1995 and 1996 and increased from 71%
for the nine months ended September 30, 1995 to 81% for the nine months
ended September 30, 1996. The increase is attributed to adverse results
from the private passenger automobile operations in the state of
Arizona and in particular for business written prior to May 1, 1996
noted during the first half of 1996. Effective May 1, 1996, the Company
implemented a rate increase averaging approximately 21.4% on the
Arizona private passenger automobile program.
Policy acquisition costs increased as a percentage of net premiums
earned from 46%, or $9,911,000 for the three months ended September 30,
1995 to 47%, or $10,389,000 for the three months ended September 30,
1996 and decreased from 45%, or $28,694,000 for the nine months ended
September 30, 1995 to 44%, or $28,945,000 for the nine months ended
September 30, 1996.
General operating costs decreased as a percentage of net premiums
earned from 15%, or $3,275,000, and 17%, or $11,032,000, for the three
months and nine months ended September 30, 1995, to 12%, or $2,600,000,
and 15%, or $9,715,000, for the three months and nine months ended
September 30, 1996. The improvement in the general and administrative
expense ratio is reflective of decreased bonus accruals associated with
the net loss during the nine months ended September 30, 1996, as well
as operational effeciencies associated with the merger.
The Company had an underwriting gain of $145,000 and an underwriting
loss of $4,057,000 for the three months and nine months ended September
30, 1996, respectively, as compared to underwriting losses of
$1,028,000 and $1,826,000 for the three months and nine months ended
September 30, 1995. The combined ratio decreased from 105% for the
three months ended September 30, 1995 to 99% for the three months ended
September 30, 1996 and increased from 103% for the nine months ended
September 30, 1995 to 106% for the nine months ended September 30 1996.
Interest expense decreased 11% and 4% from $257,000 and $805,000 for
the three months and nine months ended September 30, 1995,
respectively, to $229,000 and $774,000 for the three months and nine
months ended September 30, 1996, respectively due to fluctuations in
the interest rate on bank indebtedness. The average interest rate on
bank indebtedness was 8.6% for the nine months ended September 30, 1995
as compared to 8.3% for the corresponding 1996 period.
Collateral interest expense decreased from $427,000 and $1,305,000 for
the three months and nine months ended September 30, 1995,
respectively, to $293,000 and $940,000 for the three months and nine
months ended September 30, 1996, respectively. This decrease is
attributed to an overall reduction in average funds held as collateral
from $41,974,000 and $44,181,000 for the three months and nine months
ended September 30, 1995, respectively, to $31,465,000 and $34,452,000
for the three months and nine months ended September 30, 1996,
respectively. The decrease in collateral is attributed to competitive
market conditions in the underwriting of contract surety risks. Rates
of interest paid by the Company on funds held as collateral are
adjusted at various times throughout the year in accordance with
general market conditions.
The Company incurred a total of $710,000 in expenses related to the
merger with Condor Services, Inc. which was completed on March 14,
1996. The merger was accounted for as a pooling of interests and,
accordingly, the costs associated with the merger were expensed during
the first quarter of 1996. They have been separately reported as
"merger expense" to reflect their non-recurring nature on the Company's
operations.
The Company has entered into an agreement with its landlord at its
corporate headquarters to amend its current lease to accelerate the
lease termination date from July 31, 1998 to June 30, 1997. In
consideration for the early termination, the Company recorded lease
termination expense during the second quarter of 1996 in the amount of
$1,300,000.
Net investment income decreased 22% and 16% from $2,015,000 and
$5,997,000 for the three months and nine months ended September 30,
1995, respectively, to $1,581,000 and $5,067,000 for the three months
and nine months ended September 30, 1996, respectively. The decreases
noted are generally attributed to a reduction in overall invested
balances primarily caused by reduced funds held as collateral balances
coupled with a higher percentage of invested assets in convertible
bonds whose primary benefit is often derived from the underlying equity
security.
Net realized investment gains decreased from $634,000 for the three
months ended September 30, 1995 to $326,000 for the three months ended
September 30, 1996 and increased from $1,244,000 for the nine months
ended September 30, 1995 to $1,867,000 for the nine months ended
September 30, 1996. The investments sold during the three months and
nine months ended September 30, 1996 were primarily equity securities
and certain fixed income investments including mortgage-backed and
municipal bond securities.
Commissions and fees decreased 51% from $454,000 for the nine months
ended September 30, 1995 to $223,000 for the nine months ended
September 30, 1996. Commissions and fees include revenue earned from
independent third parties by the Company's claims adjustment
subsidiary, together with the monthly processing fee charged by the
Company to customers of Condor Insurance with monthly policies for
services involved in processing monthly premiums.
Income before income taxes decreased from $1,079,000 and $4,722,000 for
the three months and nine months ended September 30, 1995,
respectively, to income before income taxes of $1,530,000 and a loss
before income taxes of $624,000 for the three months and nine months
ended September 30, 1996, respectively, due to the factors outlined
above.
The effective tax rate was 27% and 21% for the three months and nine
months ended September 30, 1995 as compared to an effective tax rate of
22% and an effective tax benefit for the three months and nine months
ended September 30, 1996. The lower effective tax rate and effective
tax benefit rates are attributed to tax advantaged income earned by the
Company and a loss generated by the Company for the nine months ended
September 30, 1996.
Net income decreased from $787,000 and $3,726,000 for the three months
and nine months ended September 30, 1995, respectively, to net income
of $1,190,000 and a net loss of $35,000 for the three months and nine
months ended September 30, 1996, respectively, due to the factors
outlined above.
Liquidity and Capital Resources
As of September 30, 1996, the Company held total cash and cash
equivalents and invested assets of $125,437,000. This amount includes
an aggregate of $31,254,000 in funds held as collateral which is shown
as a liability on the Company's consolidated balance sheets. As of
September 30, 1996, the Company's invested assets consisted of
$101,348,000 in fixed maturities, held at market value, $8,961,000 in
common equity securities, $3,945,000 in preferred equity securities,
$2,481,000 in other invested assets and $815,000 in short-term
investments, including certificates of deposit with original maturities
less than one year.
Because the Company depends primarily on dividends from its insurance
subsidiaries for its net cash flow requirements, absent other sources
of cash flow, the Company cannot pay dividends materially in excess of
the amount of dividends that could be paid by the insurance
subsidiaries to the Company. The respective domicilary state of each of
the insurance subsidiaries regulates, through the Office of the
Insurance Commissioner, the amount of dividends which can be paid by a
domestic insurance company utilizing various formula methodology.
On August 6, 1993, the Company entered into a revolving credit
agreement with Union Bank for $12,500,000. The bank loan has a variable
rate based upon fluctuations in the London Interbank Offered Rate
("LIBOR"). The annual interest rate at September 30, 1996 was 7.0%. On
July 10, 1996, the agreement was amended to increase the amounts
available under the line of credit to $17,500,000. The amount available
was reduced by $2,500,000 on September 30, 1996 and will be further
reduced by $3,000,000 each September 30 thereafter with the final
payment due September 30, 2001. At September 30, 1996, $12,500,000 was
outstanding on the $15,000,000 line of credit.
The Company is a party to a lease with Trillium/Woodland Hills
regarding its corporate headquarters. Such lease contains provisions
for scheduled lease charges and escalations in base rent over the lease
term. The Company's minimum annual lease commitment for the remainder
of 1996 is approximately $515,000.
The Company has entered into an agreement with its landlord at its
corporate headquarters to amend its current lease to accelerate the
lease termination date from July 31, 1998 to June 30, 1997. In
consideration for the early termination, the Company accrued during the
second quarter of 1996 lease termination costs in the amount of
$1,300,000.
Additionally, the Company has entered into a new lease agreement for
approximately 63,000 square feet in a building currently under
construction in Calabasas, California. The new lease is anticipated to
commence on approximately May 1, 1997. The annual occupancy cost is
expected to approximate $1,150,000 with a minimum lease commitment of
$870,000. This represents a significant reduction from the current
annualized occupancy cost of approximately $2,500,000. In addition to
the new lease agreement, the Company has obtained a one-time six month
option to purchase the new Company headquarters building beginning
three years after lease commencement, subject to certain acceleration
provisions.
Other than the Company's obligations with respect to funds held as
collateral, the Company's obligation to pay claims as they arise, the
Company's commitments to pay principal and interest on the bank debt,
the payment of lease expenses as noted above and the payment of the
rollback obligations pursuant to Proposition 103 (see "Item 1 - Legal
Proceedings"), the Company has no significant cash commitments.
The Company believes that its cash flows from operations and other
present sources of capital are sufficient to sustain its needs through
1997.
The Company generated $2,838,000 and used $2,167,000 in cash from
operating activities for the three months and nine months ended
September 30, 1995 as compared to generating $3,003,000 and using
$761,000 for the three months and nine months ended September 30, 1996.
The Company used $2,314,000 and generated $7,797,000 in cash for
investing activities for the three months and nine months ended
September 30, 1995 as compared to generating $3,834,000 and $10,643,000
for the three months and nine months ended September 30, 1996. The
Company used $1,266,000 and $6,564,000 in cash from financing
activities for the three months and nine months ended September 30,
1995 as compared to using $789,000 and $7,227,000 for the three months
and nine months ended September 30, 1996.
The table on the next page shows, for the periods indicated, the gross
premiums written, net premiums earned, net losses and loss adjustment
expenses and loss, expense and combined ratios for the Company's
specialty property and casualty operations and surety operations. The
surety operations are detailed by the Company's three major types of
bonds:
<PAGE>
TABLE 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months end Nine months ended Year ended
September 30, September 30, December 31,
Type of Bond 1996 1995 1996 1995 1995 1994
- - ---------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Specialty Property and
Casualty Operations
Gross premiums written ....... $ 5,700 $ 5,895 $19,437 $17,551 $24,101 $23,736
Net premiums earned .......... 5,920 4,385 16,291 13,228 17,872 19,460
Net losses and loss adjustment
expenses .................. 4,971 3,672 13,201 9,367 13,131 14,633
Loss ratio ................... 84% 84% 81% 71% 73% 75%
Expense ratio ................ 28% 39% 33% 41% 41% 40%
Combined ratio ............... 112% 123% 114% 112% 114% 115%
Surety Operations
Contract Performance
Gross premiums written ....... $13,341 $13,648 $38,764 $41,179 $54,039 $51,362
Net premiums earned .......... 11,544 11,540 34,826 36,413 49,736 43,353
Net losses and loss adjustment
expenses .................. 3,407 4,843 15,457 14,831 20,044 11,250
Loss ratio ................... 29% 42% 44% 41% 40% 26%
Court
Gross premiums written ....... $ 3,502 $ 2,333 $ 9,962 $ 6,396 $ 8,571 $ 9,531
Net premiums earned .......... 3,227 2,327 9,290 6,461 8,749 9,183
Net losses and loss adjustment
expenses .................. 473 231 1,269 338 467 1,114
Loss ratio ................... 15% 10% 14% 5% 5% 12%
Commercial Surety
Gross premiums written ....... $ 2,176 $ 2,845 $ 5,513 $ 6,727 $ 7,472 $ 9,592
Net premiums earned .......... 1,548 3,070 5,202 7,605 8,813 9,293
Net losses and loss adjustment
expenses .................. 254 418 1,079 1,271 1,623 1,740
Loss ratio ................... 16% 14% 21% 17% 18% 19%
Total Surety
Gross premiums written ....... $19,019 $18,826 $54,239 $54,302 $70,082 $70,485
Net premiums earned .......... 16,319 16,937 49,318 50,479 67,298 61,829
Net losses and loss adjustment
expenses .................. 4,134 5,492 17,805 16,440 22,134 14,104
Loss ratio ................... 25% 32% 36% 33% 33% 23%
Expense ratio ................ 70% 68% 68% 67% 70% 72%
Combined ratio ............... 95% 100% 104% 100% 103% 95%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
Item 1: LEGAL PROCEEDINGS
California voters passed Proposition 103, an insurance
initiative which required a rollback in insurance rates for
policies (and bonds) written or renewed during the twelve
month period beginning November 8, 1988 and provided that
changes in insurance premiums after November 8, 1988 must be
submitted for approval of the California Insurance
Commissioner prior to implementation. While the Proposition
has the most significant impact on automobile insurance, its
provisions, as written, also apply to other property and
casualty insurers including surety insurers.
On August 26, 1991, The State of California enacted Insurance
Code Section 1861.135 ("Section 1861.135") exempting surety
insurance from the rate rollback and prior approval provisions
of Proposition 103. Section 1861.135 does not affect
Proposition 103's prohibition against excessive, inadequate or
discriminatory rates. Due to the enactment of Section
1861.135, the Company terminated a previously established
reserve for potential premium rebates.
Subsequently, the Department of Insurance ("Department") and
Voter Revolt brought a motion for writ of mandate challenging
the validity of Section 1861.135. On March 31, 1992, the Los
Angeles Superior Court concluded that Section 1861.135 did not
violate the California Constitution or the provisions of
Proposition 103. The Department and Voter Revolt appealed. On
December 7, 1993, the Second District Court of Appeal
overturned Section 1861.135 by a 2-1 vote. On February 24,
1994, the California Supreme Court agreed to hear the
Company's petition for review, thereby staying the Court of
Appeals opinion. On December 14, 1995, the California Supreme
Court affirmed the decision of the Second District Court of
Appeal. Accordingly, the surety insurance industry will no
longer be exempted from the rate rollback and prior approval
provisions contained in Proposition 103.
The Company accrued $2,000,000 during the quarter ended
December 31, 1995 representing the Company's best estimate of
its rollback obligations pursuant to Proposition 103. On
August 19, 1996, the Company entered into a Stipulation and
Consent Order with the California Department of Insurance
settling the Proposition 103 rollback obligations of its
wholly-owned subsidiaries, Amwest Surety Insurance Company and
Far West Insurance Company for an aggregate amount of
$1,928,370. Due to the previously established reserves in the
amount of $2,000,000, this settlement did not have any further
affect on the Company's earnings.
Items 2-5: CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES,
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS,
OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index on page 17.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three months ended September 30, 1996.
<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.
AMWEST INSURANCE GROUP, INC.
Date: November 14, 1996 by: /s/ JOHN E. SAVAGE
---------------------------
John E. Savage
President, Co-Chief Executive
Officer
and Chief Operating Officer
(Principal Executive Officer)
by: /s/ STEVEN R. KAY
Steven R. Kay
Senior Vice-President,
Chief Financial Officer,
Treasurer and Director
(Principal Financial and
Principal Accounting Officer)
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description Location
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession ............................ None
4 Instruments defining the rights of securityholders,
including indentures ................................. Not required
11 Statement re computation of per share earnings ....... Page 18
15 Letter re unaudited interim financial information .... None
18 Letter re change in accounting principles ............ None
19 Previously unfiled documents ......................... None
20 Report furnished to security holders ................. None
23 Published report regarding matters submitted to vote
of security holders .................................. None
24 Consents of experts and counsel ...................... None
25 Power of attorney .................................... None
28 Additional exhibits .................................. None
EXHIBIT 11
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Primary (2) Fully diluted (3)
earnings per share earnings per share
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Average shares outstanding for the nine month
period ending September 30, .................................................... 3,313,520 3,285,286 3,313,520 3,285,286
Incremental shares resulting from conversion of common stock equivalents:
Options to purchase shares of common stock at an exercise price of $3.64
- $15.675 (376,605 and 449,430 options at September 30, 1995 and 1996,
respectively) (1)....................................................... 34,232 72,809 34,232 76,500
--------- --------- --------- ---------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, .................................................... 34,232 72,809 34,232 76,500
--------- --------- --------- ---------
Total shares and incremental shares resulting from
conversion of common stock equivalents at September
30, ............................................................................ 3,347,752 3,358,095 3,347,752 3,361,786
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at September
30, ............................................................................ 1.02% 2.17% 1.02% 2.28%
========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 11 (continued)
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Primary (2) Fully diluted (3)
earnings per share earnings per share
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Average shares outstanding for the three month
period ending September 30, .................................................... 3,321,957 3,286,736 3,321,957 3,286,736
Incremental shares resulting from conversion of common stock equivalents:
Options to purchase shares of common stock at an exercise price of $3.64
- $15.675 (376,605 and 449,430 options at September 30, 1995 and 1996,
respectively) (1)....................................................... 25,020 72,963 25,020 76,362
--------- --------- --------- ---------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, .................................................... 25,020 72,963 25,020 76,362
--------- --------- --------- ---------
Total shares and incremental shares resulting from
conversion of common stock equivalents at September
30, ............................................................................ 3,346,977 3,359,699 3,346,977 3,363,098
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at September
30, ............................................................................ 0.75% 2.17% 0.75% 2.27%
========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 11, (continued)
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(1) Outstanding options and warrants to purchase common stock.
Options to purchase shares of common stock as of September 30, 1996 and
1995, respectively:
September 30, 1996 September 30, 1995
Grant price: $3.64 - 3,300
Grant price: $6.14 3,025 6,325
Grant price: $6.82 1,650 6,600
Grant price: $7.75 - 6,600
Grant price: $8.375 32,250 33,250
Grant price: $9.00 5,550 8,100
Grant price: $9.10 5,005 5,005
Grant price: $9.213 8,500 8,500
Grant price: $9.875 10,500 10,500
Grant price: $9.90 1,650 -
Grant price: $10.375 3,000 3,000
Grant price: $10.50 4,850 12,450
Grant price: $10.625 12,750 12,750
Grant price: $10.75 27,000 27,000
Grant price: $11.125 12,000 13,000
Grant price: $11.375 - 7,500
Grant price: $11.55 1,650 1,650
Grant price: $11.825 10,000 10,000
Grant price: $12.50 17,500 -
Grant price: $12.75 4,000 10,600
Grant price: $13.375 100,200 -
Grant price: $13.875 67,200 69,075
Grant price: $14.02 1,650 1,650
Grant price: $14.25 112,000 111,250
Grant price: $14.875 7,500 -
Grant price: $15.675 - 8,500
--------- ---------
449,430 376,605
========= =========
(2) Calculation of incremental shares resulting from conversion of common
stock equivalents, using the Treasury Stock Method for calculating
primary earnings per share, is based on the average of the closing
prices, for the three months and nine months ended September 30, 1996
and 1995, as reported on the American Stock Exchange.
(3) Calculation of incremental shares resulting from conversion of common
stock equivalents, using the Treasury Stock Method for calculating
fully diluted earnings per share, is based on the greater of the
average ending ask price or the closing ask price on September 30, 1996
and 1995, as reported on the American Stock Exchange.
