<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 101,994
<EQUITIES> 15,659
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 123,880
<CASH> 3,193
<RECOVER-REINSURE> 8,935
<DEFERRED-ACQUISITION> 20,563
<TOTAL-ASSETS> 193,141
<POLICY-LOSSES> 41,934
<UNEARNED-PREMIUMS> 41,062
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 14,500
0
0
<COMMON> 34
<OTHER-SE> 56,184
<TOTAL-LIABILITY-AND-EQUITY> 193,141
23,736
<INVESTMENT-INCOME> 1,594
<INVESTMENT-GAINS> 1,044
<OTHER-INCOME> 17
<BENEFITS> 10,229
<UNDERWRITING-AMORTIZATION> 11,610
<UNDERWRITING-OTHER> 3,244
<INCOME-PRETAX> 723
<INCOME-TAX> 38
<INCOME-CONTINUING> 685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 685
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
<RESERVE-OPEN> 42,009
<PROVISION-CURRENT> 24,228
<PROVISION-PRIOR> 1,305
<PAYMENTS-CURRENT> 8,948
<PAYMENTS-PRIOR> 16,660
<RESERVE-CLOSE> 41,934
<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 September 30, 1997
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.)
5230 Las Virgenes Rd.
Calabasas, California 91302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 871-2000
---------------
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 12, 1997, 3,435,121 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
and six months ended June 30, 1997 and 1996 3
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 4
Consolidated Statements of Cash Flows for the three
and six months ended June 30, 1997 and 1996 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 13
Item 5
Other Information 13
Item 6
Exhibits and Reports on Form 8-K 13
<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,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Underwriting revenues:
Net premiums written $ 27,443 $ 22,461 $ 74,130 $ 65,905
Net change in unearned premiums (3,707) (222) (7,167) (296)
---------------- ---------------- ---------------- ----------------
Net premiums earned 23,736 22,239 66,963 65,609
---------------- ---------------- ---------------- ----------------
Underwriting expenses:
Losses and loss adjustment expenses 11,280 12,579 27,297 35,852
Reinsurance recoveries (1,051) (3,474) (2,018) (4,846)
---------------- ---------------- ---------------- ----------------
Net losses and loss adjustment expenses 10,229 9,105 25,279 31,006
Policy acquisition costs 11,610 10,389 32,583 28,945
General operating costs 3,244 2,600 9,416 9,715
---------------- ---------------- ---------------- ----------------
Total underwriting expenses 25,083 22,094 67,278 69,666
---------------- ---------------- ---------------- ----------------
Underwriting income (loss) (1,347) 145 (315) (4,057)
Interest expense (585) (522) (1,464) (1,714)
Merger expense - - - (710)
Lease termination expense - - - (1,300)
Net investment income 1,594 1,581 4,880 5,067
Net realized investment gains 1,044 326 2,029 1,867
Commissions and fees 17 - 22 223
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes 723 1,530 5,152 (624)
Provision (benefit) for income taxes:
Current 311 505 713 526
Deferred (273) (165) 655 (1,115)
---------------- ---------------- ---------------- ----------------
Total provision (benefit) for income taxes 38 340 1,368 (589)
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 685 $ 1,190 $ 3,784 $ (35)
================ ================ ================ ================
Earnings (loss) per common share:
Net income (loss) $ 0.20 $ 0.36 $ 1.11 $ (0.01)
================ ================ ================ ================
Weighted average shares outstanding 3,478 3,347 3,410 3,348
</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,
1997 1996
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Investments:
Fixedmaturities, available-for-sale (amortized cost of $99,928 and $101,799 at
September 30, 1997 and December 31, 1996,
respectively) $ 101,994 $ 102,494
Common equity securities, available-for-sale (cost of $7,135 and $7,217 at
September 30, 1997 and December 31, 1996,
respectively) 11,365 9,779
Preferred equity securities, available-for-sale (cost of $3,795 and $3,971 at
September 30, 1997 and December 31, 1996,
respectively) 4,294 4,253
Other invested assets (cost of $3,858 and $2,667 at September 30,
1997 and December 31, 1996, respectively) 4,493 2,849
Short-term investments 1,734 890
--------------------- ---------------------
Total investments 123,880 120,265
Cash and cash equivalents 3,193 6,434
Accrued investment income 1,444 1,399
Agents balances and premiums receivable (less allowance for doubtful accounts of
$467 at September 30, 1997 and $446 at
December 31, 1996) 15,140 10,882
Reinsurance recoverable:
Paid loss and loss adjustment expenses 2,092 2,749
Unpaid loss and loss adjustment expenses 6,843 6,443
Ceded unearned premiums 1,806 1,849
Deferred policy acquisition costs 20,563 16,101
Furniture, equipment and improvements, net 5,289 4,747
Income taxes recoverable 1,627 2,802
Other assets 11,264 7,747
--------------------- ---------------------
Total assets $ 193,141 $ 181,418
===================== =====================
</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,
1997 1996
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses $ 41,934 $ 42,009
Unearned premiums 41,062 33,939
Funds held as collateral 25,073 29,928
Bank indebtedness 14,500 12,500
Amounts due to reinsurers 605 345
Deferred Federal income taxes 3,707 1,842
Other liabilities 10,042 10,923
--------------------- ---------------------
Total liabilities 136,923 131,486
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: 3,421,350 at
September 30, 1997 and 3,326,002 at December 31, 1996 34 33
Additional paid-in capital 17,993 16,827
Net unrealized appreciation of investments carried at market,
net of income taxes 4,904 2,456
Retained earnings 33,287 30,616
--------------------- ---------------------
Total stockholders' equity 56,218 49,932
--------------------- ---------------------
Total liabilities and stockholders' equity $ 193,141 $ 181,418
===================== =====================
</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,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 685 $ 1,190 $ 3,784 $ (35)
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums
receivable and unearned premiums 4,274 684 2,865 (3,252)
Change in accrued investment income (110) (14) (45) 121
Change in unpaid losses and loss adjustment
expenses 2,330 (249) (75) 4,059
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses
and ceded unearned premiums (783) (1,490) 300 (3,951)
Change in amounts due to/from reinsurers 317 (559) 260 (1,070)
Change in other assets and other liabilities 1,177 2,846 (4,398) 6,590
Change in income taxes, net (82) 372 1,779 (1,536)
Change in deferred policy acquisition costs (1,725) 286 (4,462) (623)
Net realized gain on sale of investments (1,049) (326) (2,034) (1,983)
Net realized loss on sale of fixed assets 53 1 48 2
Provision for depreciation and amortization 336 262 997 917
----------------- --------------- --------------- -----------------
Net cash provided (used) by operating
activities 5,423 3,003 (981) (761)
Cash flows from investing activities:
Cash received from investments sold
prior to maturity 11,813 14,237 35,578 48,242
Cash received from investments
matured or called 2,014 2,323 6,611 3,623
Cash paid for investments acquired (15,390) (12,311) (39,969) (39,585)
Amortization of discount on bonds (60) 45 (88) 128
Capital expenditures, net (287) (460) (1,587) (1,765)
----------------- --------------- --------------- -----------------
Net cash provided (used) by investing activities (1,910) 3,834 545 10,643
</TABLE>
<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,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long term debt - - 2,000 -
Proceeds from issuance of common stock 776 - 1,166 265
Change in funds held as collateral (1,075) (422) (4,855) (6,396)
Dividends paid (376) (367) (1,116) (1,096)
----------------- --------------- --------------- -----------------
Net cash used by financing activities (675) (789) (2,805) (7,227)
----------------- --------------- --------------- -----------------
Net increase (decrease) in cash and cash equivalents
2,838 6,048 (3,241) 2,655
Cash and cash equivalents at beginning of period 355 1,839 6,434 5,232
----------------- --------------- --------------- -----------------
Cash and cash equivalents at end of period $ 3,193 $ 7,887 $ 3,193 $ 7,887
================= =============== =============== =================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 585 $ 522 $ 1,464 $ 1,714
Income taxes (29) (292) 227 1,020
</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, 1996.
(1) Acquisitions
On August 7, 1997, the Company acquired all of the outstanding shares
of Western States Bond Agency, Inc., a Denver, Colorado based insurance
agency specializing in surety bonds. In connection with the
acquisition, the Company issued 35,000 shares of its common stock. The
shares issued are part of the Company's 250,000 share shelf
registration statement (the"Registration Statement") declared effective
by the SEC on June 13, 1997.
On November 4, 1997, the Company acquired all of the outstanding shares
of Surety Bond Writers, Inc., an Overland Park, Kansas insurance agency
specializing in surety bonds. In connection with the acquisition, the
Company issued 12,281 shares of its common stock. These shares
are also a part of the Registration Statement.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written increased 22% and 8% from $24,719,000 and $73,676,000
for the three months and nine months ended September 30, 1996,
respectively, as compared to $30,083,000 and $79,868,000 for the three
months and nine months ended September 30, 1997, respectively.
The Company believes that the growth in surety premiums written is
reflective of the impact the regionalization of its contract surety
underwriting operation has had on better serving its customers by
having more underwriters and authority in the field. Additionally,
written surety premium also benefited by approximately $750,000 due to
the acquisition of Western States Bond Agency in 1997. The Company also
experienced strong growth in commercial surety and probate operations.
Premiums for the property and casualty division also increased by 26%
for the three months ended September 30, 1997, primarily due to the
Company's Homeowners Programs in Hawaii and California, as well as
growth in the Arizona Private Passenger Automobile Program.
Net premiums earned increased 7% and 2% from $22,239,000 and
$65,609,000 for the three months and nine months ended September 30,
1996, respectively, as compared to $23,736,000 and $66,963,000 for the
three months and nine months ended September 30, 1997, 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 12% and decreased 19%
from $9,105,000 and $31,006,000 for the three months and nine months
ended September 30, 1996, respectively, to $10,229,000 and $25,279,000
for the three months and nine months ended September 30, 1997,
respectively. The loss ratio for the surety operations increased from
25% for the three months ended September 30, 1996 to 30% for the three
months ended September 30, 1997. This increase in the loss ratio is
primarily due to a loss of approximately $800,000 on an immigration
bond program written through an agent in the State of Texas. As is the
case with bail bonds, the agent is liable for all losses incurred on
this program. However, it currently does not appear that the agent is
likely to fully reimburse the Company for expected losses under this
program. Losses of this magnitude are unusual for the court division.
(The last occurrence of this magnitude was in 1987.) The loss ratio for
the property and casualty operations also increased from 70% for the
three months ended September 30, 1996 to 87% for the three months ended
September 30, 1997, primarily due to a recent unfavorable development
of bodily injury claims for the 1995 accident year for the commercial
trucking line.
Policy acquisition costs increased as a percentage of net premiums
earned from 47%, or $10,389,000, and 44%, or $28,945,000, for the three
months and nine months ended September 30, 1996, respectively, to 49%,
or $11,610,000, and 49%, or $32,583,000, for the three months and nine
months ended September 30, 1997, respectively. Such increase is
primarily attributable to a decline in contingent commissions earned by
the Company due to changes in its reinsurance treaties.
<PAGE>
General operating costs increased from $2,600,000 for the months ended
September 30, 1995 to $3,244,000 for the comparable 1997 period. The
increase in general operating costs is primarily reflective of reduced
bonus accruals in the comparable 1996 period, as well as costs incurred
by the Company in the quarter ended September 30, 1997 relating to the
development of a new surety bonding system.
The Company had underwriting income of $145,000 and an underwriting
loss of $4,057,000 for the three months and nine months ended September
30, 1996, respectively, compared with underwriting losses of $1,347,000
and $315,000 for the three months and nine months ended September 30,
1997, respectively. The combined ratio increased from 99% for the three
months ended September 30, 1996 to 106% for the three months ended
September 30, 1997 and decreased from 106% for the nine months ended
September 30, 1996 to 100% for the nine months ended September 30 1997,
due to the factors discussed above.
Interest expense increased 12% and decreased 15% from $522,000 and
$1,714,000 for the three months and nine months ended September 30,
1996, respectively, to $585,000 and $1,464,000 for the three months and
nine months ended September 30, 1997, respectively. The increase in the
three month amount is attributable to an increase in the outstanding
balance of bank indebtedness from $12,500,000 to $14,500,000 in June of
1997 as well as an increase in the interest rate on the bank
indebtedness from an average 7.3% for the three months ended September
30, 1996 to an average rate of 7.9% for the three months ended
September 30, 1997. This increase was partially offset by a reduction
in funds held as collateral from $26,148,000 to $25,073,000 on which
the Company pays interest at a rate of approximately 3.5%.
Net investment income increased 1% and decreased 4% from $1,581,000 and
$5,067,000 for the three months and nine months ended September 30,
1996, respectively, to $1,594,000 and $4,880,000 for the three months
and nine months ended September 30, 1997, respectively. The increase
for the three months ended September 30,1997 is primarily due to an
increase in the amount of average invested assets from $119,453,000 at
September 30, 1996 to $121,402,000 at September 30, 1997.
Net realized investment gains increased from $326,000 and $1,867,000
for the three months and nine months ended September 30, 1996,
respectively, to $1,044,000 and $2,029,000 for the three months and
nine months ended September 30, 1997, respectively. The investments
sold during the three months ended September 30, 1997 were primarily
equity securities and certain fixed income investments including
convertible bonds and municipal bond securities.
Income before income taxes increased from income of $1,530,000 and a
loss of $624,000 for the three months and nine months ended September
30, 1996, respectively, to income of $723,000 and $5,152,000 for the
three months and nine months ended September 30, 1997, respectively,
due to the factors outlined above.
The effective tax rate was 22% and a benefit of 94% for the three
months and nine months ended September 30, 1996, respectively, as
compared to an effective tax rate of 5% and 27% for the three months
and nine months ended September 30, 1997, respectively. The primary
reason for the variance from the corporate income tax rate of 34% for
the quarter ended September 30, 1997 is tax advantaged income received
on a portion of the Company's investment portfolio, as well as benefits
attributable to disqualifying incentive stock option dispositions in
the quarter ended September 30, 1997.
<PAGE>
Net income increased from net income of $1,190,000 and net loss of
$35,000 for the three months and nine months ended September 30, 1996,
respectively, to net income of $685,000 and $3,784,000 for the three
months and nine months ended September 30, 1997, respectively, due to
the factors outlined above.
Liquidity and Capital Resources
As of September 30, 1997, the Company held total cash and cash
equivalents and invested assets of $127,073,000. This amount includes
an aggregate of $25,073,000 in funds held as collateral which is shown
as a liability on the Company's consolidated balance sheets. As of
September 30, 1997, the Company's invested assets consisted of
$101,994,000 in fixed maturities, $11,365,000 in common equity
securities, $4,294,000 in preferred equity securities, $4,493,000 in
other invested assets and $1,734,000 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 loan was amended on
April 24, 1995 and again on July 10, 1996 to increase the amount
available under the revolving line of credit from $12,500,000 to
$15,000,000. The loan has a variable rate based upon fluctuations in
the London Interbank Offered Rate (LIBOR) with amortizing credit line
reduction each September 30, ultimately maturing on September 30, 2001.
On June 30, 1997, the Company increased its outstanding balance by
$2,000,000 to $14,500,000. On September 30, 1997, the agreement was
amended to update certain covenant calculations and to modify the
payment schedule. The next payment is scheduled for September 30, 1998.
The interest rate at September 30, 1997 was 7.9%. The credit agreement
contains certain financial covenants with respect to capital
expenditures, business acquisitions, liquidity ratio, leverage ratio,
tangible net worth, net profit and dividend payments.
The Company terminated a portion of its lease with Trillium/Woodland
Hills on June 30, 1997. The Company is still responsible for
rental p ayments associated with approximately 18,000 square feet
through July 31, 1998. The Company is also a party to a lease with
Ahmanson Commercial Development Company for its corporate
headquarters. The lease commenced on May 27, 1997.
This lease has a term of 15 years and contains provisions for scheduled
lease charges. The Company's minimum lease commitment for the remainder
of 1997 is approximately $298,000. The Company also has the option to
purchase this new building and land three years into the lease period
at a predetermined rate for the building, with the value of land based
on then existing market rates.
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
and lease expenses as noted above, the Company has no significant cash
commitments.
<PAGE>
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 1997.
The Company generated $3,003,000 and used $761,000 in cash from
operating activities for the three months and nine months ended
September 30, 1996 as compared to generating $5,423,000 and using
$981,000 for the three months and nine months ended September 30, 1997.
The Company generated $3,834,000 and $10,643,000 in cash from investing
activities for the three months and nine months ended September 30,
1996 as compared to using $1,910,000 and generating $545,000 for the
three months and nine months ended September 30, 1997. The Company used
$789,000 and $7,227,000 in cash from financing activities for the three
months and nine months ended September 30, 1996 as compared to using
$675,000 and $2,805,000 for the three months and nine months ended
September 30, 1997.
Certain statements contained in this Form 10-Q regard matters which are
not historical facts and are forward looking statements. Because such
forward looking statements include risks and uncertainties, actual
results may differ materially from those expressed in or implied by
such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to: a decline
in demand for surety bonds or specialty property and casualty
insurance, the ineffectiveness of certain management and reorganization
changes made, a deterioration in results of any of the Company's
product lines, adverse loss development and associated expense incurred
by the Company due to the severity or frequency of claims filed with
respect to the Company's insurance products, or a general
economic decline. The Company undertakes no obligation to
release publicly the results of any revisions to these forward looking
statements that may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
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>
TABLE 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended Year ended
September 30, September 30, December 31,
Type of Bond 1997 1996 1997 1996 1996 1995
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Contract
Gross premiums written $ 16,205 $ 13,341 $ 40,883 $ 38,764 $ 49,782 $ 54,039
Net premiums earned 11,785 11,544 33,553 34,826 46,158 49,736
Net losses and loss adjustment
expenses 3,397 3,403 10,956 15,453 24,430 20,044
Loss ratio 29% 29% 33% 44% 53% 40%
Court
Gross premiums written $ 2,940 $ 2,705 $ 8,036 $ 7,877 $ 11,197 $ 7,669
Net premiums earned 2,932 2,640 7,926 7,766 10,897 7,816
Net losses and loss adjustment
expenses 1,356 258 1,363 992 835 323
Loss ratio 46% 10% 17% 13% 8% 4%
Commercial Surety
Gross premiums written $ 4,064 $ 2,973 $ 11,778 $ 7,598 $ 11,191 $ 8,374
Net premiums earned 3,443 2,136 9,001 6,727 8,407 9,746
Net losses and loss adjustment
expenses 604 469 1,719 1,356 2,553 1,767
Loss ratio 18% 22% 19% 20% 30% 18%
Total Surety
Gross premiums written $ 23,209 $ 19,019 $ 60,697 $ 54,239 $ 72,170 $ 70,082
Net premiums earned 18,159 16,320 50,479 49,318 65,462 67,298
Net losses and loss adjustment
expenses 5,357 4,130 14,038 17,801 27,818 22,134
Loss ratio 30% 25% 28% 36% 42% 33%
Property & Casualty
Gross premiums written $ 6,874 $ 5,700 $ 19,171 $ 19,437 $ 25,172 $ 24,101
Net premiums earned 5,577 5,919 16,484 16,291 22,421 17,872
Net losses and loss adjustment
expenses 4,871 4,975 11,240 13,205 18,830 13,131
Loss ratio 87% 84% 68% 81% 84% 73%
Total Company
Gross premiums written $ 30,083 $ 24,719 $ 79,868 $ 73,676 $ 97,342 $ 94,183
Net premiums earned 23,736 22,240 66,963 65,609 87,883 85,170
Net losses and loss adjustment
expenses 10,229 9,105 25,279 31,006 46,648 35,265
Loss ratio 43% 41% 38% 47% 53% 41%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
Items 1-5: LEGAL PROCEEDINGS, 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 16.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three months ended September 30, 1997.
<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, 1997 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 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
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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Average shares outstanding for the nine month
period ending September 30, 3,366,445 3,313,520 3,366,445 3,313,520
Incremental shares resulting from conversion
of common stock equivalents:
Options to purchase shares of common stock
at an exercise price of $6.14
- $14.875 (464,310 and 449,430 options
at September 30, 1997 and 1996,
respectively) (1) 43,601 34,232 51,467 34,232
----------------- ------------------ ------------------ -----------------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, 43,601 34,232 51,467 34,232
----------------- ------------------ ------------------ -----------------
Total shares and incremental shares resulting from
conversion of common stock equivalents at September
30, 3,410,046 3,347,752 3,417,912 3,347,752
================= ================== ================== =================
Percentage of incremental shares resulting from
conversion of common stock equivalents at
September 30, 1.28% 1.02% 1.51% 1.02%
================= ================== ================== =================
</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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Average shares outstanding for the three month
period ending September 30, 3,401,399 3,321,957 3,401,399 3,321,957
Incremental shares resulting from conversion
of common stock equivalents:
Options to purchase shares of common stock
at an exercise price of $6.14
- $14.875 (464,310 and 449,430 options
at September 30, 1997 and 1996,
respectively) (1) 77,053 25,020 77,053 25,020
----------------- ------------------ ------------------ -----------------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, 77,053 25,020 77,053 25,020
----------------- ------------------ ------------------ -----------------
Total shares and incremental shares resulting from
conversion of common stock equivalents at September
30, 3,478,452 3,346,977 3,478,452 3,346,977
================= ================== ================== =================
Percentage of incremental shares resulting from
conversion of common stock equivalents at
September 30, 2.22% 0.75% 2.22% 0.75%
================= ================== ================== =================
</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, 1997 and
1996, respectively:
September 30, 1997 September 30, 1996
Grant price: $6.14 3,025 3,025
Grant price: $6.82 - 1,650
Grant price: $8.375 - 32,250
Grant price: $9.00 5,050 5,550
Grant price: $9.10 4,785 5,005
Grant price: $9.213 - 8,500
Grant price: $9.875 10,250 10,500
Grant price: $9.90 - 1,650
Grant price: $10.375 3,000 3,000
Grant price: $10.50 4,550 4,850
Grant price: $10.625 11,500 12,750
Grant price: $10.75 16,250 27,000
Grant price: $11.125 11,000 12,000
Grant price: $11.55 - 1,650
Grant price: $11.825 10,000 10,000
Grant price: $12.125 75,500 -
Grant price: $12.50 17,500 17,500
Grant price: $12.75 4,000 4,000
Grant price: $13.375 93,300 100,200
Grant price: $13.875 60,450 67,200
Grant price: $14.02 1,650 1,650
Grant price: $14.125 17,500 -
Grant price: $14.25 107,500 112,000
Grant price: $14.875 7,500 7,500
------------- --------------
464,310 449,430
============= ==============
(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, 1997
and 1996, 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, 1997
and 1996, as reported on the American Stock Exchange.
Waiver and Amendment No. 1
This Waiver and Amendment No. 1 dated as of September 30, 1997 (the
"Waiver and Amendment") to the Restated Revolving Credit
Agreement dated as of July 10, 1996 (the "Credit Agreement") between Amwest
Insurance Group, Inc. (the "Borrower") and Union Bank of
California, N.A. (the "Bank") is entered into between Borrower and Bank.
WHEREAS, the Borrower desires, and the Bank is willing upon the terms and
conditions hereinafter set forth, to
(a) waive
(i) compliance with Section 5.12 Net Profit of the
Credit Agreement for the period of January 1, 1996 through December 31, 1996,and
(ii) compliance with Section 5.13 Policyholders' Surplus
for the quarterly accounting period ended September 30, 1996, the fiscal year
ended December 31, 1996, and the quarterly accounting period ended March 31,
1997, and
(b) amend the Credit Agreement to
(i) clarify the definition of "Applicable Base Rate
Margin" and "Applicable Eurodollar Rate Margin",
(ii) delete the definition of "Interest Rate Leverage
Ratio", (iii) reset Section 5.13 Policyholders' Surplus,
(iv) modify Section 2.12 Mandatory Commitment Reductions,
(v) correct references to the Compliance Certificate in
Section 5.2(c) and Section 5.2(f), and
(vi) add calculation detail to Exhibit 4 Compliance
Certificate.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
Section 1. Definitions.
(a) Delete the definition of "Applicable Base Rate Margin" and
"Applicable Eurodollar Rate Margin" in its entirety, and replace with the
following:
<PAGE>
Amwest Insurance Group, Inc.
Waiver and Amendment No. I dated as of September 30, 1997 Page 2
- -------------------------------------------------------------------------------
"Applicable Base Rate Margin" and "Applicable
Eurodollar Rate Margin" means the percentage per annum set
forth in the table below opposite the Leverage Ratio for the
most recently ended four fiscal quarters for which Financial
Statements have been delivered to Bank pursuant to Sections
5.2(a) or 5.2(b). The Applicable Base Rate Margin and
Applicable Eurodollar Rate Margin shall be increased or
decreased, as appropriate, based on the Leverage Ratio as of
the end of each fiscal quarter, each such increase or decrease
to become effective on the date 61 days after the end of such
fiscal quarter (or, if such fiscal quarter is the last fiscal
quarter of a fiscal year, 121 days after the last day of such
fiscal quarter).
<TABLE>
<CAPTION>
Interest Rate Applicable
Leverage Ratio Applicable Base Lending Applicable Eurodollar
Rate Margin Lending Margin
<S> <C> <C> <C>
0.30 less than x 0.50% 2.00%
0.25 less than x less than 0.30 0.25% 1.75%
0.20 less than x less than 0.25 0.00% 1.50%
0.15 less than x less than 0.20 0.00% 1.25%
x less than 0.15 0.00% 1.00%
</TABLE>
(b) Delete the definition of "Interest Rate Leverage Ratio" in its
entirety.
Section 2. Waiver of Section 5.12 of the Credit Agreement. The Bank
hereby waives compliance with Section 5.12 Net Profit of the Credit Agreement
provided that the foregoing waiver shall be effective only during the fiscal
year ended December 31, 1996. The Borrower explicitly acknowledges that, except
as set forth in the preceding sentence, Section 5.12 Net Profit of the Credit
Agreement is in full force and effect.
Section 3. Waiver of Section 5.13 of the Credit Agreement. The Bank
hereby waives compliance with Section 5.13 Policyholders' Surplus of the Credit
Agreement provided that the foregoing waiver shall be effective only during the
quarterly accounting period ended September 30, 1996, the fiscal year ended
December 31, 1996, and the quarterly accounting period ended March 31, 1997. The
Borrower explicitly acknowledges that, except as set forth in the preceding
sentence, Section 5.13 Policyholders' Surplus of the Credit Agreement is in full
force and effect.
<PAGE>
Amwest Insurance Group, Inc.
Waiver and Amendment No. I dated as of September 30, 1997 Page 3
- -------------------------------------------------------------------------------
Section 4. Amendment to Section 5.13 of the Credit Agreement. Delete "90%
of the Capital Surplus as reported as of March 31, 1996" from the third line of
Section 5.13 Policyholders' Surplus and replace it with "$30,000,000".
Section 5. Amendment to Section 2.12 of the Credit Agreement. Delete the
table contained in Section 2.12 Mandatory Commitment Reductions in its entirety
and replace it with the following table:
Revolving
Commitment Reduction Date Commitment Reduction
September 30, 1996 $ 2,500,000
September 30, 1997 0
September 30, 1998 3,000,000
September 30, 1999 3,500,000
September 30, 2000 4,000,000
September 30, 2001 4,500,000
(The Revolving Commitment shall be reduced to Zero Dollars ($0) on
September 30, 2001.)
Section 6. Amendment to Section 5.2(c) of the Credit Agreement. Delete
"Exhibit 5" from the third line of Section 5.2(c) and replace it with "Exhibit
4".
Section 7. Amendment to Section 5.2(f) of the Credit Agreement. Delete
"Exhibit 5" from the third line of Section 5.2(f) and replace it with "Exhibit
4".
Section 8. Amendment to Exhibit 4 of the Credit Agreement.
(a) After the word "Agreement" in the second line of the second
paragraph of Section I Compliance with Financial Covenants, insert the words
"(the details of which are explained in the attached covenant calculations)".
(b) In reference to Section 5.2 (f) Financial Statements and
Reports, Exhibit I hereto sets forth the templates providing sufficient detail
for calculation and reporting of the quantitative financial covenants
contemplated by Sections 5.9, 5.11, and 5.14.
Section 9. Representations and Warranties. The Borrower represents and
warrants to the Borrower that:
(a) Before and after giving effect to this Waiver and Amendment,
the representations and warranties set forth in Article III of the Credit
Agreement are true
<PAGE>
Amwest Insurance Group, Inc.
Waiver and Amendment No. I dated as of September 30, 1997 Page 4
- ------------------------------------------------------------------------------
and correct in all material respects with the same effect as if made on the date
hereof, except to the extent such representations and warranties expressly
relate to an earlier date.
(b) Before (other than in connection with (i) Section 5.12 Net
Profit of the Credit Agreement with respect to the period described in Section 2
of this Waiver and Amendment, and (ii) Section 5.13 Policyholders' Surplus of
the Credit Agreement with respect to the periods described in Section 3 of this
Waiver and Amendment) and after giving effect to this Waiver and Amendment, no
Event of Default or Default has occurred and is continuing.
Section 10. Condition to Effectiveness. This Waiver and Amendment shall
become effective as of the date first written above when the Bank shall have
received the counterpart of this Waiver and Amendment that bears the signature
of the Borrower.
Section 11. Credit Agreement. Except as specifically stated herein, the
provisions of the Credit Agreement are and shall remain in full force and effect
Section 12. Applicable Law. This Waiver and Amendment shall be governed
by, and construed in accordance with, the laws of the State of California.
Section 13. Counterparts. This Waiver and Amendment may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract.
Section 14. Expenses. The Borrower agrees to reimburse the Bank for its
out-of-pocket expenses in connection with this Waiver and Amendment.
<PAGE>
Amwest Insurance Group, Inc.
Waiver and Amendment No. I dated as of September 30, 1997 Page 5
- ------------------------------------------------------------------------------
In witness whereof, the parties hereto have caused this Waiver and Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
AMWEST INSURANCE GROUP, INC.
by:
Name: Steven Kay
Title: Senior Vice President
Chief Financial Officer
UNION BANK OF CALIFORNIA, N.A.
by:
Name: James R. Fothergill
Title: Vice President
<PAGE>
Exhibit I
Section 5.9 Fixed-Charge Coverage Ratio Calculation
($000)
Through the fiscal quarter ending Required to be not less than 1.10 to 1.00
- -------------------------------------------------------------------------------
1. Numerator:
(a) Cash, cash equivalents, and investments (at market value) of
Borrower on a non-consolidated GAAP basis: $
(b) Reasonably estimated cash interest expense related to the Capital
Surplus Note over the subsequent four (4)quarters: $
(c) Reasonably estimated cash principal payments related to the Capital
Surplus Note over the subsequent four (4)quarters: $
(d) Reasonably estimated maximum ordinary dividends allowable for
Amwest for the four (4) consecutive fiscal quarters ending on
such day: $
(e) Reasonably estimated maximum ordinary dividends allowable for
Condor for the four (4) consecutive fiscal quarters ending on
such day: $
(f) Cash received from stock options exercised for the four(4) previous
consecutive fiscal quarters ending on such day: $
(g) Unused amounts available to be drawn under this Credit Facility: $
(h) Sum of 1 (a) through 1 (g): $
2. Denominator:
(a) Reasonably estimated aggregate cash payments of principal on all
Debt of the Borrower and subsidiaries on a consolidated basis
for the following four (4) fiscal quarters: $
(b) Reasonably estimated aggregate cash payments of interest on all
Debt of the Borrower and subsidiaries on a consolidated basis
for the following four (4) fiscal quarters: $
(c) Reasonably estimated aggregate cash common stock dividends to be
paid over the next four (4) consecutive fiscal quarters: $
(d) Reasonably estimated aggregate cash expenditures to repurchase or
redeem common shares over the next four (4) fiscal quarters: $
(e) Reasonably estimated total cash capital expenditures (inclusive
of permitted acquisition payments made) over the next four (4)
fiscal quarters: $
(f) Sum of 2(a) through 2(e): $
3. Fixed-Charge Coverage Ratio: l(h) divided by 2(f):
<PAGE>
Exhibit I
Section 5.11 Tangible Net Worth Calculation
($000)
Through the fiscal quarter ending Required to be not less than 90%
of Tangible Net Worth Reported at 3/31/96
plus 50% of net income for each year
thereafter plus proceeds of Initial Public Offering
1. Covenant Calculation
(a) Stockholders' equity of Borrower and its Subsidiaries as
determined in accordance with GAAP consistently applied: $
(b) Effect of FASB 115: $
(c) Debt subordinated to Bank: $
(d) Licenses: $
(e) Trademarks: $
(f) Trade names: $
(g) Goodwill: $
(h) Organization expenses: $
(i) Other intangible assets excluding deferred policy
acquisition costs: $
(j) Sum of l(d) through 1 (i): $
(k) Tangible Net Worth: 1(a) minus 1(b) plus 1(c) minus 1(j): $
2. Covenant Requirement:
(a) 90% of Tangible Net Worth as reported at 3/31/96: $
(b) 50% of Borrower's net income each fiscal year thereafter: $
(c) Proceeds of any initial public offering: $
(d) Covenant Requirement: Sum of 2(a) through 2(b): $
Section 5.14 Operating Leverage Ratio Calculation ($000)
Through the fiscal quarter ending Required to be not more than 3.00 to 1.00
1. Net Premiums Written for the four (4) consecutive fiscal quarters
ending on such day: $
2. Capital Surplus as of such day: $
3. Operating Leverage Ratio: 1 divided by 2:
