<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> APR-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 104,723
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,283
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 121,356
<CASH> 1,839
<RECOVER-REINSURE> 10,949
<DEFERRED-ACQUISITION> 14,794
<TOTAL-ASSETS> 179,865
<POLICY-LOSSES> 36,223
<UNEARNED-PREMIUMS> 33,709
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 12,500
0
0
<COMMON> 33
<OTHER-SE> 51,010
<TOTAL-LIABILITY-AND-EQUITY> 179,865
21,535
<INVESTMENT-INCOME> 1,679
<INVESTMENT-GAINS> 516
<OTHER-INCOME> (1,818)
<BENEFITS> 11,830
<UNDERWRITING-AMORTIZATION> 9,069
<UNDERWRITING-OTHER> 3,287
<INCOME-PRETAX> (2,274)
<INCOME-TAX> (963)
<INCOME-CONTINUING> (1,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,311)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
<RESERVE-OPEN> 31,915
<PROVISION-CURRENT> 21,572
<PROVISION-PRIOR> 331
<PAYMENTS-CURRENT> 9,495
<PAYMENTS-PRIOR> 8,100
<RESERVE-CLOSE> 36,223
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
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 June 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 August 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 six
months ended June330, 1996 and 1995 3
Consolidated Balance Sheets as of June 30, 1996 and December 31,
1995 4
Consolidated Statements of Cash Flows for the three months and six
months ended June630, 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 14
Item 2
Changes in Securities 15
Item 3
Defaults Upon Senior Securities 15
Item 4
Submission of Matters to a Vote of Security Holders 15
Item 5
Other Information 16
Item 6
Exhibits and Reports on F16m 8-K 16
<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 Six months ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Underwriting revenues:
Premiums written $ 25,749 $ 25,333 $ 48,957 $ 47,132
Premiums ceded (2,770) (3,171) (5,513) (5,555)
---------------- ---------------- ---------------- ----------------
Net premiums written 22,979 22,162 43,444 41,577
Change in unearned premiums:
Direct (1,620) (1,574) (101) (266)
Ceded 176 564 27 1,074
---------------- ---------------- ---------------- ----------------
Net premiums earned 21,535 21,152 43,370 42,385
---------------- ---------------- ---------------- ----------------
Underwriting expenses:
Losses and loss adjustment expenses 12,810 7,456 23,273 16,616
Reinsurance (recoveries) refunds (980) 1,053 (1,372) 27
---------------- ---------------- ---------------- ----------------
Net losses and loss adjustment expenses 11,830 8,509 21,901 16,643
Policy acquisition costs 9,069 9,668 18,556 18,783
General operating costs 3,287 3,618 7,115 7,757
---------------- ---------------- ---------------- ----------------
Total underwriting expenses 24,186 21,795 47,572 43,183
---------------- ---------------- ---------------- ----------------
Underwriting (loss) (2,651) (643) (4,202) (798)
Interest expense (307) (268) (545) (548)
Collateral interest expense (291) (433) (647) (878)
Merger expense - - (710) -
Lease termination expense (1,300) - (1,300) -
Recovery on misappropriation of funds - 890 - 890
Net investment income 1,679 1,985 3,486 3,982
Net unrealized gain on trading securities - 44 - 75
Net realized investment gains 516 590 1,541 610
Commissions and fees 80 131 223 312
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes (2,274) 2,296 (2,154) 3,645
Provision (benefit) for income taxes:
Current (55) 569 21 898
Deferred (908) 45 (950) (194)
---------------- ---------------- ---------------- ----------------
Total provision (benefit) for income taxes (963) 614 (929) 704
---------------- ---------------- ---------------- ----------------
Net income (loss) $ (1,311) $ 1,682 $ (1,225) $ 2,941
================ ================ ================ ================
Earnings (loss) per common share:
Net income (loss) $ (0.39) $ 0.50 $ (0.37) $ 0.88
================ ================ ================ ================
Weighted average shares outstanding 3,353 3,368 3,348 3,357
</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>
June 30, December 31,
1996 1995
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Investments:
Fixed maturities, available-for-sale (amortized cost of $105,174 and
$114,793 at June 30, 1996 and December 31, 1995, respectively) 104,723 $ 117,191
Common equity securities, available-for-sale (cost of $7,092 and
$7,268 at June 30, 1996 and December 31, 1995, respectively) 9,365 8,689
Preferred equity securities, available-for-sale (cost of $3,744 and
$2,847 at June 30, 1996 and December 31, 1995, respectively) 3,918 3,592
Other invested assets (cost of $2,307 and $703 at June 30,
1996 and December 31, 1995, respectively) 2,445 797
Short-term investments 905 745
--------------------- ---------------------
Total investments 121,356 131,014
Cash and cash equivalents 1,839 5,232
Accrued investment income 1,438 1,573
Agents balances and premiums receivable (less allowance for doubtful
accounts of $375 at June 30, 1996 and December 31, 1995) 13,412 9,356
Reinsurance recoverable:
Paid loss and loss adjustment expenses 1,708 865
Unpaid loss and loss adjustment expenses 9,241 7,669
Ceded unearned premiums 2,987 2,941
Deferred policy acquisition costs 14,794 13,885
Furniture, equipment and improvements, net 3,960 3,311
Current Federal income taxes 1,957 7
Other assets 7,173 7,980
--------------------- ---------------------
Total assets $ 179,865 $ 183,833
===================== =====================
</TABLE>
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses $ 36,223 $ 31,915
Unearned premiums 33,709 33,589
Funds held as collateral 31,676 37,650
Bank indebtedness 12,500 12,500
Amounts due to reinsurers 1,677 2,188
Deferred Federal income taxes 1,681 2,497
Other liabilities 11,356 8,419
--------------------- ---------------------
Total liabilities 128,822 128,758
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
June 30, 1996 and 3,286,942 at December 31, 1995 33 33
Additional paid-in capital 16,793 17,204
Net unrealized appreciation of investments carried at market,
net of income taxes 1,408 3,074
Retained earnings 32,809 34,764
--------------------- ---------------------
Total stockholders' equity 51,043 55,075
--------------------- ---------------------
Total liabilities and stockholders' equity $ 179,865 $ 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 Six months ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ (1,311) $ 1,682 $ (1,225) $ 2,941
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums
receivable and unearned premiums (269) (117) (3,936) (2,732)
Change in accrued investment income 82 68 135 203
Change in unpaid losses and loss adjustment
expenses 1,652 3,239 4,308 (781)
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses
and ceded unearned premiums (2,296) (2,279) (2,461) (554)
Change in amounts due to reinsurers (851) 31 (511) 141
Change in reinsurance funds held, net - 1,030 - 221
Change in other assets and other liabilities 739 (2,331) 3,744 (4,648)
Change in income taxes, net (1,355) (229) (1,908) (414)
Change in deferred policy acquisition costs (1,103) (122) (909) 409
Net realized (gain) on sale of fixed maturities
(289) (453) (885) (533)
Net realized (gain) on sale of equity securities
(216) (237) (772) (177)
Net realized loss on sale of fixed assets - 33 1 37
Equity securities, trading
Purchases - (6,883) - (8,989)
Sales - 7,299 - 9,174
Net unrealized (gains) on trading securities - (43) - (75)
Provision for depreciation and amortization 325 362 655 772
----------------- --------------- ---------------- -----------------
Net cash provided (used) by operating
activities (4,892) 1,050 (3,764) (5,005)
Cash flows from investing activities:
Cash received from investments sold, matured, called or repaid:
Investments held-to-maturity - 16 - 48
Investments available-for-sale 12,885 33,600 35,305 47,735
Cash paid for investments acquired:
Investments available-for-sale (11,961) (28,978) (27,274) (36,874)
Amortization of discount on bonds 46 500 83 (146)
Capital expenditures, net (585) (128) (1,305) (652)
----------------- --------------- ---------------- -----------------
Net cash provided by investing activities 385 5,010 6,809 10,111
<PAGE>
Cash flows from financing activities:
Proceeds from issuance of common stock 19 (587) 265 (418)
Change in funds held as collateral (602) (1,470) (5,974) (4,414)
Dividends paid (468) (234) (729) (466)
----------------- --------------- ---------------- -----------------
Net cash (used) by financing activities (1,051) (2,291) (6,438) (5,298)
----------------- --------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents
(5,558) 3,769 (3,393) (192)
Cash and cash equivalents at beginning of period 7,397 2,334 5,232 6,295
----------------- --------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 1,839 $ 6,103 $ 1,839 $ 6,103
================= =============== ================ =================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 598 $ 701 $ 1,192 $ 1,426
Income taxes 748 579 1,312 967
Cash received during the period on:
Investments sold prior to maturity $ 11,885 $ 19,819 $ 34,005 $ 33,654
Investments held to maturity 1,000 13,797 1,300 14,129
</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 six months ended June 30, 1996 and 1995 for both Amwest and
Condor, as separate entities.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Amwest:
Total revenues $ 17,926 $ 18,998 $ 37,233 $ 37,375
Underwriting (loss) (1,690) (176) (2,657) (173)
Net income (loss) (907) 972 (621) 1,899
Condor:
Total revenues 5,884 5,794 11,387 10,879
Underwriting (loss) (961) (467) (1,545) (625)
Net income (loss) $ (404) $ 710 $ (604) $ 1,042
</TABLE>
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written increased 2% and 4% from $25,333,000 and $47,132,000
for the three months and six months ended June 30, 1995, respectively,
to $25,749,000 and $48,957,000 for the three months and six months
ended June 30, 1996, respectively. The increase in premiums written is
attributable to increased premiums written by Condor Insurance Company.
Net premiums earned increased 2% from $21,152,000 and $42,385,000 for
the three months and six months ended June 30, 1995, respectively, to
$21,535,000 and $43,370,000 for the three months and six months ended
June 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 increased 39% and 32% from
$8,509,000 and $16,643,000 for the three months and six months ended
June 30, 1995, respectively, to $11,830,000 and $21,901,000 for the
three months and six months ended June 30, 1996, respectively. The loss
ratio for the surety operations increased from 33% for each of the
three months and six months ended June 30, 1995 to 45% and 41% for the
three months and six months ended June 30, 1996, respectively,
primarily due to a continuation of increased loss severity in the
contract performance and payment product line. The loss ratio for the
property and casualty operations increased from 68% and 64% for the
three months and six months ended June 30, 1995, respectively, to 85%
and 79% for the three months and six months ended June 30, 1996,
respectively, primarily due to adverse results from the private
passenger automobile operations in the state of Arizona. Effective May
1, 1996, the Company implemented a rate increase averaging
approximately 21.4% on the Arizona private passenger automobile
program.
Policy acquisition costs decreased as a percentage of net premiums
earned from 46%, or $9,668,000, and 44%, or $18,783,000, for the three
months and six months ended June 30, 1995, respectively, as compared to
42%, or $9,069,000, and 43%, or $18,556,000, for the three months and
six months ended June 30, 1996, respectively.
General operating costs decreased as a percentage of net premiums
earned from 17%, or $3,618,000, and 18%, or $7,757,000, for the three
months and six months ended June 30, 1995, to 15%, or $3,287,000, and
16%, or $7,115,000, for the three months and six months ended June 30,
1996. The improvement in the general and administrative expense ratio
is reflective of decreased bonus accruals associated with the net loss
during the first half of 1996.
The Company's underwriting loss increased from $643,000 and $798,000
for the three months and six months ended June 30, 1995, respectively,
to $2,651,000 and $4,202,000 for the three months and six months ended
June 30, 1996, respectively. The combined ratio increased from 103% and
102% for the three months and six months ended June 30, 1995,
respectively, to 112% and 110% for the three months and six months
ended June 30 1996, respectively.
<PAGE>
Interest expense increased 15% and decreased 1% from $268,000 and
$548,000 for the three months and six months ended June 30, 1995,
respectively, to $307,000 and $545,000 for the three months and six
months ended June 30, 1996, respectively due to fluctuations in the
interest rate on bank indebtedness. The average interest rate on bank
indebtedness was 8.7% for each of the six months ended June 30, 1995
and 1996.
Collateral interest expense decreased from $433,000 and $878,000 for
the three months and six months ended June 30, 1995, respectively, to
$291,000 and $647,000 for the three months and six months ended June
30, 1996, respectively. This decrease is attributed to an overall
reduction in average funds held as collateral from $43,247,000 and
$44,719,000 for the three months and six months ended June 30, 1995,
respectively, to $31,977,000 and $34,663,000 for the three months and
six months ended June 30, 1996, respectively. Collateral rates 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 interest 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.
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 has recorded lease
termination expense during the second quarter in the amount of
$1,300,000.
Net investment income decreased 13% and 11% from $1,985,000 and
$3,982,000 for the three months and six months ended June 30, 1995,
respectively, to $1,679,000 and $3,486,000 for the three months and six
months ended June 30, 1996, respectively. The decreases are primarily
attributed to lower investment yields received on investment purchased
due to general decreases in interest rates during 1995.
Net realized investment gains decreased from gains of $590,000 for the
three months ended June 30, 1995 to gains of $516,000 for the three
months ended June 30, 1996 and increased from gains of $610,000 for the
six months ended June 30, 1995 to gains of $1,541,000 for the six
months ended June 30, 1996. The investments sold during the three
months and six months ended June 30, 1996 were primarily equity
securities and certain fixed income investments including
mortgage-backed and municipal bond securities.
Commissions and fees decreased 39% and 29% from $131,000 and $312,000
for the three months and six months ended June 30, 1995, respectively,
to $80,000 and $223,000 for the three months and six months ended June
30, 1996, respectively. Commissions and fees include revenue earned
from independent third parties by the Company's 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 $2,296,000 and $3,645,000 for
the three months and six months ended June 30, 1995, respectively, to a
loss before income taxes of $2,274,000 and $2,154,000 for the three
months and six months ended June 30, 1996, respectively, due to the
factors outlined above.
The effective tax rate was 27% and 19% for the three months and six
months ended June 30, 1995 as compared to an effective tax benefit of
42% and 43% for the three months and six months ended June 30, 1996.
The lower effective tax rate and higher effective tax benefit rates are
attributed to tax advantaged income earned by the Company.
<PAGE>
Net income decreased from $1,682,000 and $2,941,000 for the three
months and six months ended June 30, 1995, respectively, to a net loss
of $1,311,000 and $1,225,000 for the three months and six months ended
June 30, 1996, respectively, due to the factors outlined above.
Liquidity and Capital Resources
As of June 30, 1996, the Company held total cash and cash equivalents
and invested assets of $123,195,000. This amount includes an aggregate
of $31,676,000 in funds held as collateral which is shown as a
liability on the Company's consolidated balance sheets. As of June 30,
1996, the Company's invested assets consisted of $104,723,000 in fixed
maturities, held at market value, $9,365,000 in common equity
securities, $3,918,000 in preferred equity securities, $2,445,000 in
other invested assets and $905,000 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 June 30, 1996 was 7.2%. On July
10, 1996, the agreement was amended to increase the amounts available
under the line of credit to $17,500,000. The amounts available will be
reduced by $2,500,000 on September 30, 1996 and by $3,000,000 each
September 30 thereafter with the final payment due September 30, 2001.
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 $1,250,000.
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 has accrued during
the second quarter 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 April 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.
<PAGE>
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
potential 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 for at
least the remainder of 1996.
The Company generated $1,050,000 and used $5,005,000 in cash from
operating activities for the three months and six months ended June 30,
1995 as compared to using $4,892,000 and $3,764,000 for the three
months and six months ended June 30, 1996. The Company generated
$5,010,000 and $10,111,000 in cash for investing activities for the
three months and six months ended June 30, 1995 as compared to
generating $385,000 and $6,809,000 for the three months and six months
ended June 30, 1996. The Company used $2,291,000 and $5,298,000 in cash
from financing activities for the three months and six months ended
June 30, 1995 as compared to using $1,051,000 and $6,438,000 for the
three months and six months ended June 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 ended Six months ended Year ended
June 30, June 30, December 31,
Type of Bond 1996 1995 1996 1995 1995 1994
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Specialty Property and
Casualty Operations
Gross premiums written $ 6,420 $ 6,066 $ 13,737 $ 11,656 $ 24,101 $ 23,736
Net premiums earned 5,437 4,330 10,371 8,843 17,872 19,460
Net losses and loss adjustment
expenses 4,596 2,951 8,230 5,695 13,131 14,633
Loss ratio 85% 68% 79% 64% 73% 75%
Expense ratio 33% 43% 36% 43% 41% 40%
Combined ratio 118% 111% 115% 107% 114% 115%
Surety Operations
Contract Performance
Gross premiums written $ 13,823 $ 15,283 $ 25,423 $ 27,531 $ 54,039 $ 51,362
Net premiums earned 11,240 12,008 23,283 24,873 49,736 43,353
Net losses and loss adjustment
expenses 6,411 4,878 12,050 9,988 20,044 11,250
Loss ratio 57% 41% 52% 40% 40% 26%
Court
Gross premiums written $ 3,876 $ 2,071 $ 6,460 $ 4,063 $ 8,571 $ 9,531
Net premiums earned 3,386 2,150 6,063 4,134 8,749 9,183
Net losses and loss adjustment
expenses 247 88 796 107 467 1,114
Loss ratio 7% 4% 13% 3% 5% 12%
Commercial Surety
Gross premiums written $ 1,630 $ 1,913 $ 3,337 $ 3,882 $ 7,472 $ 9,592
Net premiums earned 1,472 2,664 3,654 4,535 8,813 9,293
Net losses and loss adjustment
expenses 576 592 825 853 1,623 1,740
Loss ratio 39% 22% 23% 19% 18% 19%
Total Surety
Gross premiums written $ 19,329 $ 19,267 $ 35,220 $ 35,476 $ 70,082 $ 70,485
Net premiums earned 16,098 16,822 32,999 33,542 67,298 61,829
Net losses and loss adjustment
expenses 7,234 5,558 13,671 10,948 22,134 14,104
Loss ratio 45% 33% 41% 33% 33% 23%
Expense ratio 65% 68% 67% 68% 70% 72%
Combined ratio 110% 101% 108% 101% 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 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, 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, 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.
<PAGE>
Items 2-3: CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on
May 31, 1996.
(b) (i) The following directors were elected to serve
until the 1999 Annual Meeting of Stockholders or
until their successors have been duly elected and
qualified:
John E. Savage
Guy A. Main
Thomas R. Bennett
Jonathan K. Layne
(ii) The following director was elected to serve
until the 1997 Annual Meeting of Stockholders or
until his successor has been duly elected and
qualified:
Charles L. Schultz
(iii) The following director was elected to serve
until the 1998 Annual Meeting of Stockholders or
until his successor has been duly elected and
qualified:
Bruce A. Bunner
(iv) The other directors whose terms of office
continued after the meeting are:
Richard H. Savage
Steven R. Kay
Arthur F. Melton
Neil F. Pont
Edgar L. Fraser
(c) (i) Of the 3,010,195 shares represented at the
meeting, the directors named in (b) (i),(ii) and
(iii) above were elected by the following votes:
No. of Votes Received
Withhold
Name For Authority
John E. Savage 3,006,214 3,981
Guy A. Main 3,006,226 3,969
Thomas R. Bennett 3,004,426 5,769
Jonathan K. Layne 3,005,226 4,969
Charles L. Schultz 3,002,126 8,069
Bruce A. Bunner 3,002,126 8,069
(d) (i) A proposal to approve and adopt the Employee
Stock Purchase Plan was approved and adopted by a
vote of 2,459,505 for, 129,871 against and 420,819
abstaining.
<PAGE>
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index on page 18.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three months ended June 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: August 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 19
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 six month period
ending June 30, 3,309,301 3,284,562 3,309,301 3,284,562
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
(399,230 and 451,355 options at June 30,
1995 and 1996, respectively) (1) 38,839 72,733 38,839 76,569
----------------- ------------------ ------------------ -----------------
Total incremental shares resulting from
conversion of common stock equivalents
at June 30, 38,839 72,733 38,839 76,569
----------------- ------------------ ------------------ -----------------
Total shares and incremental shares resulting
from conversion of common stock equivalents at
June 30, 3,348,140 3,357,295 3,348,140 3,361,131
================= ================== ================== =================
Percentage of incremental shares resulting from
conversion of common stock equivalents at June 30, 1.16% 2.17% 1.16% 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 June 30, 3,321,080 3,288,107 3,321,080 3,288,107
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
(399,230 and 451,355 options at June 30,
1995 and 1996, respectively) (1) 31,780 79,744 31,780 79,744
----------------- ------------------ ------------------ -----------------
Total incremental shares resulting from
conversion of common stock equivalents
at June 30, 31,780 79,744 31,780 79,744
----------------- ------------------ ------------------ -----------------
Total shares and incremental shares resulting
from conversion of common stock equivalents at
June 30, 3,352,860 3,367,851 3,352,860 3,367,851
================= ================== ================== =================
Percentage of incremental shares resulting from
conversion of common stock equivalents at June 30, 0.95% 2.37% 0.95% 2.37%
================= ================== ================== =================
</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 June 30, 1996 and
1995, respectively:
June 30, 1996 June 30, 1995
------------- -------------
Grant price: $3.64 - 3,000
Grant price: $5.37 - 11,000
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 36,250
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 10,750
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 13,250
Grant price: $10.75 27,000 33,000
Grant price: $11.125 12,000 13,750
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: $13.375 101,000 -
Grant price: $13.875 67,950 70,200
Grant price: $14.02 1,650 1,650
Grant price: $14.25 112,375 111,250
Grant price: $14.875 7,500 -
Grant price: $15.675 - 8,500
------- -------
451,355 399,230
======= =======
(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 six months ended June 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 June 30, 1996 and
1995, as reported on the American Stock Exchange.
