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<CIK> 0000780118
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 106,849
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,289
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 123,495
<CASH> 7,397
<RECOVER-REINSURE> 8,836
<DEFERRED-ACQUISITION> 13,691
<TOTAL-ASSETS> 179,558
<POLICY-LOSSES> 34,571
<UNEARNED-PREMIUMS> 32,082
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 12,500
0
0
<COMMON> 33
<OTHER-SE> 54,218
<TOTAL-LIABILITY-AND-EQUITY> 179,558
21,835
<INVESTMENT-INCOME> 646
<INVESTMENT-GAINS> 1,025
<OTHER-INCOME> 0
<BENEFITS> 10,071
<UNDERWRITING-AMORTIZATION> 9,487
<UNDERWRITING-OTHER> 3,828
<INCOME-PRETAX> 120
<INCOME-TAX> 34
<INCOME-CONTINUING> 86
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<RESERVE-OPEN> 31,915
<PROVISION-CURRENT> 7,191
<PROVISION-PRIOR> 3,075
<PAYMENTS-CURRENT> 2,240
<PAYMENTS-PRIOR> 5,370
<RESERVE-CLOSE> 34,571
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
UNITED STATES
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 March 31, 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 May 13, 1996, 3,320,057 shares of common stock, $.01 par value,
were outstanding.
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 300(d) OF REGULATION S-T
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION:
Item 1
Consolidated Statements of Operations for the three months ended
March 31, 1996 and 1995 3
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 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 Holders 14
Item 5
Other Information 14
Item 6
Exhibits and Reports on Form 8-K 14
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three months ended
March 31,
1996 1995
<S> <C> <C>
Unerwriting revenues:
Premiums written ................................... $ 23,208 $ 21,799
Premiums ceded ..................................... (2,743) (2,384)
-------- --------
Net premiums written ............................ 20,465 19,415
Change in unearned premiums:
Direct .......................................... 1,519 1,308
Ceded ........................................... (149) 510
-------- --------
Net premiums earned .......................... 21,835 21,233
-------- --------
Underwriting expenses:
Losses and loss adjustment expenses ................ 10,463 9,160
Reinsurance (recoveries) refunds ................... (392) (1,026)
-------- --------
Net losses and loss adjustment expenses ......... 10,071 8,134
Policy acquisition costs ........................... 9,487 9,115
General operating costs ............................ 3,828 4,139
-------- --------
Total underwriting expenses ..................... 23,386 21,388
-------- --------
Underwriting (loss) .......................... (1,551) (155)
Interest expense ....................................... (238) (280)
Collateral interest expense ............................ (356) (445)
Merger expense ......................................... (710) --
Net investment income .................................. 1,807 1,997
Net unrealized gain on trading securities .............. -- 31
Net realized investment gains .......................... 1,025 20
Commissions and fees ................................... 143 181
-------- --------
Income before income taxes ......................... 120 1,349
Provision for income taxes:
Current ............................................ 76 329
Deferred ........................................... (42) (239)
-------- --------
Total provision for income taxes ................ 34 90
-------- --------
Net income ................................... $ 86 $ 1,259
======== ========
Earnings per common share:
======== ========
Net income ......................................... $ 0.03 $ 0.38
======== ========
Weighted average number of common shares outstanding 3,343 3,319
</TABLE>
See accompanying notes to interim consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
Investments, available-for-sale:
Fixedmaturities, at market value (amortized cost of $106,393
and $114,793 at March 31, 1996 and December 31, 1995,
respectively) ....................................................... $106,849 $117,191
Common equity securities, at market value (cost of $7,933
and $7,268 at March 31, 1996 and December 31, 1995,
respectively) ........................................................ 9,968 8,689
Preferred equity securities, at market value (cost of $3,129
and $2,847 at March 31, 1996 and December 31, 1995,
respectively)
3,321 3,592
Other invested assets ($2,275 and $703 at March 31, 1996 and
December 31, 1995, respectively) .................................... 2,402 797
Short-term investments .................................................... 955 745
-------- --------
Total investments ......................................................... 123,495 131,014
Cash and cash equivalents ................................................. 7,397 5,232
Accrued investment income ................................................. 1,520 1,573
Agents balances and premiums receivable (less allowance for
doubtful accounts of $375 at March 31, 1996 and
December 31, 1995) ................................................... 11,516 9,356
Reinsurance recoverable:
Paid loss and loss adjustment expenses ............................... 955 865
Unpaid loss and loss adjustment expenses ............................. 7,881 7,669
Ceded unearned premiums ................................................... 2,804 2,941
Deferred policy acquisition costs ......................................... 13,691 13,885
Furniture, equipment and improvements, net ................................ 3,704 3,311
Current Federal income taxes .............................................. 513 7
Other assets .............................................................. 6,082 7,980
-------- --------
Total assets ..................................................... $179,558 $183,833
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses ............................. $ 34,571 $ 31,915
Unearned premiums ...................................................... 32,082 33,589
Funds held as collateral ............................................... 32,278 37,650
Bank indebtedness ...................................................... 12,500 12,500
Amounts due to reinsurers .............................................. 2,528 2,188
Deferred Federal income taxes .......................................... 1,822 2,497
Other liabilities ...................................................... 9,526 8,419
-------- --------
Total liabilities .................................................. 125,307 128,758
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: 3,320,057 at
March 31, 1996 and 3,286,942 at December 31, 1995
33 33
Additional paid-in capital ............................................. 17,775 17,204
Net unrealized appreciation of investments carried at market,
net of income taxes ................................................ 1,854 3,074
Retained earnings ...................................................... 34,589 34,764
-------- --------
Total stockholders' equity ......................................... 54,251 55,075
-------- --------
Total liabilities and stockholders' equity ................ $179,558 $183,833
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
Three months ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................................... $ 86 $ 1,259
Adjustments to reconcile net income to cash provided by operating
activities:
Change in agents' balances and premiums receivable and
unearned premiums ..................................................................... (3,667) (2,615)
Change in accrued investment income ........................................................... 53 135
Change in unpaid losses and loss adjustment expenses .......................................... 2,656 (4,020)
Change in reinsurance recoverable on paid and unpaid losses and loss
adjustment expenses and ceded unearned premiums
(165) 1,725
Change in amounts due to reinsurers ........................................................... 340 110
Change in reinsurance funds held, net ......................................................... -- (809)
Change in other assets and other liabilities .................................................. 3,005 (2,317)
Change in income taxes, net ................................................................... (553) (185)
Change in deferred policy acquisition costs ................................................... 194 531
Net realized (gain) on sale of fixed maturities ............................................... (596) (80)
Net realized (gain) loss on sale of equity securities ......................................... (556) 60
Net realized loss on sale of fixed assets ..................................................... 1 4
Equity securities, trading
Purchases ................................................................................... -- (2,106)
Sales ....................................................................................... -- 1,875
Net unrealized (gains) on trading securities .................................................. -- (32)
Provision for depreciation and amortization ................................................... 330 410
-------- --------
Net cash provided (used) by operating activities ........................................ 1,128 (6,055)
Cash flows from investing activities:
Cash received from investments sold, matured, called or repaid:
Investments held-to-maturity ................................................................. -- 32
Investments available-for-sale ............................................................... 22,420 14,135
Cash paid for investments acquired:
Investments available-for-sale ............................................................... (15,313) (7,896)
Amortization of discount on bonds ................................................................ 37 (646)
Capital expenditures, net ........................................................................ (720) (524)
-------- --------
Net cash provided by investing activities .................................................... $ 6,424 $ 5,101
Cash flows from financing activities:
Proceeds from issuance of common stock ........................................................... $ 246 $ 169
Change in funds held as collateral ............................................................... (5,372) (2,944)
Dividends paid ................................................................................... (261) (232)
-------- --------
Net cash (used) by financing activities ....................................................... (5,387) (3,007)
-------- --------
Net increase (decrease) in cash and cash equivalents .................................................. 2,165 (3,961)
Cash and cash equivalents at beginning of period ...................................................... 5,232 6,295
-------- --------
Cash and cash equivalents at end of period ............................................................ $ 7,397 $ 2,334
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................................... ................................ $ 594 $ 725
Income taxes ..................................................................................... 564 388
Cash received during the period on:
Investments sold prior to maturity ............................................................... $ 22,120 $ 13,835
Investments held to maturity ..................................................................... 300 332
</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 interests 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 ended March 31, 1996 and 1995 for both Amwest and Condor, as
separate entities.
<TABLE>
<CAPTION>
Three months ended
March 31,
Type (Dollars in thousands)
1996 1995
<S> <C> <C>
Amwest:
Total revenues $ 19,307 $ 18,377
Underwriting income (loss) (967) 3
Net income 286 927
Condor:
Total revenues 5,503 5,085
Underwriting income (loss) (584) 158
Net income (loss) $ (200) $ 332
</TABLE>
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written increased 6% from $21,799,000 for the three months
ended March 31, 1995 to $23,208,000 for the three months ended March
31, 1996. The increase in premiums written is primarily attributable to
increased premiums written by Condor Insurance Company.
Net premiums earned increased 3% from $21,233,000 for the three months
ended March 31, 1995 to $21,835,000 for the three months ended March
31, 1996. 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 increased 24% from $8,134,000
for the three months ended March 31, 1995 to $10,071,000 for the three
months ended March 31, 1996. The loss ratio for the surety operations
increased to 38% for the three months ended March 31, 1996 from 32% for
the corresponding 1995 period primarily due to a continuation of
increased loss severity in the contract performance product line. The
loss ratio for the property and casualty operations increased to 74%
for the three months ended March 31, 1996 from 61% for the
corresponding 1995 period primarily due to the results of the private
passenger automobile operations in the state of Arizona.
Policy acquisition costs remained stable as a percentage of net
premiums earned at 43%, or $9,487,000 and $9,115,000 for the three
months ended March 31, 1996 and 1995, respectively.
General operating costs decreased as a percentage of net premiums
earned from 19%, or $4,139,000 for the three months ended March 31,
1995 to 18%, or $3,828,000 for the three months ended March 31, 1996.
The improvement in the general and administrative expense ratio is
reflective of decreased bonus accruals during the first quarter of 1996
due to the significantly reduced earnings per share for the Company.
Underwriting results were a loss of $155,000 for the three months ended
March 31, 1995 and a loss of $1,551,000 for the three months ended
March 31, 1996. The combined ratio was 101% for the three months ended
March 31, 1995 as compared to 107% for the three months ended March 31,
1996, due to a combination of the factors cited above.
Interest expense decreased 15% from $280,000 for the three months ended
March 31, 1995 to $238,000 for the three months ended March 31, 1996.
This decrease is attributable to a decrease in the interest rate on the
bank indebtedness to an average of 7.5% for the three months ended
March 31, 1996 from an average rate of 8.3% for the three months ended
March 31, 1995. Collateral interest expense decreased 20% from $445,000
for the three months ended March 31, 1995 to $356,000 for the three
months ended March 31, 1996. Average funds held as collateral decreased
from $45,454,000 for the three months ended March 31, 1995 to
$34,964,000 for the three months ended March 31, 1996. Collateral rates
are adjusted at various times throughout the year in accordance with
general market conditions.
<PAGE>
Net investment income decreased 9% from $1,997,000 for the three months
ended March 31, 1995 to $1,807,000 for the three months ended March 31,
1996. The decrease is generally due to lower investment yields received
due to general decreases in interest rates during 1995. Net realized
investment gains increased from $51,000 for the three months ended
March 31, 1995 to $1,025,000 for the three months ended March 31, 1996.
The investments sold during the three months ended March 31, 1996 were
primarily equity securities and certain fixed income investments
including mortgage-backed and municipal bond securities.
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 have been expensed
during the first quarter. They have been separately reported as "merger
expense" to reflect their non-recurring nature on the Company's
operations.
Income before income taxes decreased from $1,349,000 for the three
months ended March 31, 1995 to $120,000 for the three months ended
March 31, 1996 due to the factors outlined above.
The effective tax rate was 7% for the three months ended March 31, 1995
as compared to an effective rate of 28% for the three months ended
March 31, 1996. The higher effective tax rate is reflective of the
Company's best estimate of its effective tax rate for the year ended
December 31, 1996.
Net income decreased from $1,259,000 for the three months ended March
31, 1995 to $86,000 for the three months ended March 31, 1996 due to
the factors outlined above.
Liquidity and Capital Resources
As of March 31, 1996, the Company held total cash and cash equivalents
and invested assets of $130,892,000. This amount includes an aggregate
of $32,278,000 in funds held as collateral which is shown as a
liability on the Company's consolidated balance sheets. As of March 31,
1996, the Company's invested assets consisted of $106,849,000 in fixed
maturities, held at market value, $9,968,000 in common equity
securities, $3,321,000 in preferred equity securities, $2,402,000 in
other invested assets and $955,000 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.
<PAGE>
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) with amortizing principal payments beginning July 15, 1995 and
maturing July 15, 1999. The annual interest rate at March 31, 1996 was
7.4%. On April 24, 1995, the debt agreement was amended to increase the
amount available under the revolving line of credit from $12,500,000 to
$15,000,000. The amounts available are reduced by $2,500,000 each year
beginning on July 15, 1995 and ending on July 15, 2000. Accordingly, at
March 31, 1996, $12,500,000 is available under the revolving line of
credit, all of which is currently utilized. The next principal payment
in the amount of $2,500,000 is due on July 15, 1996. Certain changes
were also made to the interest rate calculation as well as various
financial convenants of the debt agreement which are not currently
significant, but could ultimately result in a decrease in the margin
paid on the revolving 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 lease commitment for the remainder of 1996
is approximately $1,408,000. This lease expires in July 1998.
Other than the Company's obligations with respect to funds held as
collateral and the Company's obligation to pay claims as they arise,
the Company's commitments to pay principal and interest on the bank
debt and the payment of lease expenses as noted above, 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 for at
least the remainder of 1996.
The Company used $6,055,000 in cash from operating activities for the
three months March 31, 1995 as compared to generating $1,128,000 for
the three months ended March 31, 1996. The Company generated $5,101,000
in cash from investing activities for the three months ended March 31,
1995 as compared to $6,424,000 for the three months ended March 31,
1996. The Company used $3,007,000 in cash from financing activities for
the three months ended March 31, 1995 as compared to $5,387,000 for the
three months ended March 31, 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 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>
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE
(Dollars in thousands)
Three months ended Year ended
March 31, December 31,
Type .................................... 1996 1995 1995 1994
- ----------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Specialty Property and Casualty Operations
Gross premiums written ..................................... $ 7,317 $ 5,590 $24,101 $23,736
Net premiums earned ........................................ 4,934 4,514 17,872 19,460
Net losses and loss adjustment expenses .................... 3,634 2,745 13,131 14,633
Loss ratio ................................................. 74% 61% 73% 75%
Expense ratio .............................................. 38% 43% 41% 40%
Combined ratio ............................................. 112% 104% 114% 115%
Surety Operations
Contract performance
Gross premiums written ..................................... $11,600 $12,248 $54,039 $51,362
Net premiums earned ........................................ 12,042 12,556 49,736 43,353
Net losses and loss adjustment expenses .................... 5,639 4,913 20,044 11,250
Loss ratio ................................................. 47% 39% 40% 26%
Court
Gross premiums written ..................................... $ 2,584 $ 1,992 $ 8,571 $ 9,531
Net premiums earned ........................................ 2,677 1,984 8,749 9,183
Net losses and loss adjustment expenses .................... 549 19 467 1,114
Loss ratio ................................................. 21% 1% 5% 12%
Commercial Surety
Gross premiums written ..................................... $ 1,707 $ 1,969 $ 7,472 $ 9,592
Net premiums earned ........................................ 2,182 2,179 8,813 9,293
Net losses and loss adjustment expenses .................... 249 457 1,623 1,740
Loss ratio ................................................. 11% 21% 18% 19%
Total Surety
Gross premiums written ..................................... $15,891 $16,209 $70,082 $70,485
Net premiums earned ........................................ 16,901 16,719 67,298 61,829
Net losses and loss adjustment expenses .................... 6,437 5,389 22,134 14,104
Loss ratio ................................................. 38% 32% 33% 23%
Expense ratio .............................................. 68% 68% 70% 72%
Combined ratio ............................................. 106% 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, 1990, 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 21, 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, 1994, 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, the exact amount of which has
not yet been determined. Such estimate was based on a variety of
factors, including but not limited to. the profitability of the Company
in California during 1989 (the rollback period), a review of the
various regulations promulgated by the Department, and a review of
rollback obligations of other insurance companies, including a surety
company. Pursuant to the provisions of Proposition 103, the rollback
amount will ultimately be determined by complex Department formulas but
is statutorily limited to a maximum of 20% of California written
premiums during 1989, plus accrued interest thereon. In the event that
the Company's rollback obligation was eventually determined to be the
statutory maximum, it could approximate $7,500,000 which is $5,500,000
in excess of the Company's best estimate of its ultimate rollback
liability. While the current accrual represents management's best
estimate of the Company's Proposition 103 rollback obligations, no
assurance can be given that a final settlement with the Department will
not result in a rollback amount which could have a significant adverse
impact on the Company's future earnings, although it is not anticipated
that such result would materially adversely impact the Company's
financial position. Until a final settlement is reached with the
Department, no assurances can be given as to the ultimate amount of
premiums to be refunded to policyholders.
Items 2-3: CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES
None
<PAGE>
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders was held on March
14, 1996.
(b) A proposal to approve and adopt an Agreement and Plan
of Merger between the Company and Condor Services,
Inc. pursuant to which each outstanding share of
Condor common stock, $.01 par value per share will be
converted into the right to receive 0.5 of a share of
the Company's common stock, $.01 par value per share,
subject to certain adjustment, including the
corresponding percentage of rights to purchase the
Company's Series A Junior Participating Preferred
Stock was approved and adopted by a vote of 1,830,382
for, 61,933 against and 670 abstain.
(c) A proposal to amend and ratify the Company's Stock
Option Plan regarding the permitted exercise price of
Non-Incentive Options under the plan was approved and
ratified by a vote of 1,966,435 for, 142,480 against
and 1,980 abstain.
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index on page 16.
(b) Reports on Form 8-K
The Company filed three Form 8-K reports during
the three months ended March 31, 1996:
The report dated January 30, 1996 included an
Item 7 matter in which the Company, pursuant to
the merger announcement, were required to file
certain financial statements of Condor pursuant
to Regulation 3.05(b) of Regulation S-X.
The report dated March 12, 1996 included an Item
5 matter and Press Release announcing an
agreement to purchase 100% of the stock of
Southern California Bonding Services, Inc.
The report dated March 19, 1996 included an Item
5 matter and Press Release announcing the
completion of the merger of Condor Services, Inc.
into the Company, following approval of the terms
of the transaction by the stockholders of each of
the two companies.
<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: May 13, 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 security
holders, including indentures Not required
11 Statement re computation of per share earnings Page 17
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
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
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 March 31, 3,297,521 3,264,745 3,297,521 3,264,745
Incremental shares resulting from
conversion of common stock equivalents:
Options to purchase shares of common
stock at an exercise price of
$5.37- $15.675 (268,280 and 358,880
options at March 31, 1995 and 1996,
respectively) (1) 45,897 53,877 45,897 60,870
Total incremental shares resulting from
conversion of common stock equivalents
at March 31, 45,897 53,877 45,897 60,870
Total shares and incremental shares resulting
from conversion of common stock equivalents at
March 31, 3,343,418 3,318,622 3,343,418 3,325,615
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at
March 31, 1.37% 1.62% 1.37% 1.83%
========= ========= ========= =========
</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 March 31, 1996 and
1995, respectively:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Grant price: $ 5.37 - 11,000
Grant price: $ 6.14 3,025 3,025
Grant price: $ 6.82 1,650 1,650
Grant price: $ 8.375 32,250 39,250
Grant price: $ 9.00 6,450 -
Grant price: $ 9.10 5,005 5,005
Grant price: $ 9.213 8,500 8,500
Grant price: $ 9.375 - 1,125
Grant price: $ 9.875 10,500 10,750
Grant price: $ 9.90 1,650 -
Grant price: $ 10.375 3,000 3,000
Grant price: $ 10.50 5,850 5,850
Grant price: $ 10.625 12,750 13,250
Grant price: $ 10.75 27,000 34,875
Grant price: $ 11.125 13,000 14,750
Grant price: $ 11.375 - 7,500
Grant price: $ 11.55 1,650 1,650
Grant price: $ 14.825 10,000 10,000
Grant price: $ 12.75 4,000 4,000
Grant price: $ 13.875 68,700 70,200
Grant price: $ 14.02 1,650 1,650
Grant price: $ 14.25 126,250 12,750
Grant price: $ 14.875 7,500 -
Grant price: $ 15.675 8,500 8,500
------- ------
358,880 268,280
======= =======
</TABLE>
(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 ended March 31, 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 March 31, 1996 and
1995, as reported on the American Stock Exchange.
