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, 1998
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 Road
Calabasas, California 91302
(Address of principal executive offic (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 11, 1998, 3,916,539 shares of common stock, $.01 par
value, were outstanding.
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION:
Item 1
Consolidated Statements of Operations for the three months and nine
months ended September 30, 1998 and 1997 3
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows for the three months
and nine months ended September 30, 1998 and 1997 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 14
Item 3
Defaults Upon Senior Securities 14
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>
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,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Underwriting revenues:
Premiums written ........................ $ 34,687 $ 30,083 $ 99,073 $ 79,868
Premiums ceded .......................... (13,013) (2,640) (18,150) (5,738)
-------- -------- -------- --------
Net premiums written ............... 21,674 27,443 80,923 74,130
Change in unearned premiums
Direct ............................. (2,778) (4,439) (7,750) (7,124)
Ceded .............................. 6,737 732 6,832 (43)
-------- -------- -------- --------
Net premiums earned ................ 25,633 23,736 80,005 66,963
-------- -------- -------- --------
Underwriting expenses:
Losses and loss adjustment expenses ...... 12,090 11,280 35,338 27,297
Reinsurance recoveries ................... (2,139) (1,051) (5,291) (2,018)
-------- -------- -------- --------
Net losses and loss adjustment expenses 9,951 10,229 30,047 25,279
Policy acquisition costs ................. 12,072 11,593 39,254 32,561
General operating costs .................. 3,824 3,244 10,539 9,416
-------- -------- -------- --------
Total underwriting expenses ........... 25,847 25,066 79,840 67,256
-------- -------- -------- --------
Underwriting income (loss) ......... (214) (1,330) 165 (293)
Interest expense ............................. (475) (585) (1,386) (1,464)
Net investment income ........................ 1,733 1,594 4,870 4,880
Net realized gains ........................... 1,901 1,044 3,786 2,029
-------- -------- -------- --------
Income before income taxes ............... 2,945 723 7,435 5,152
Provision (benefit) for income taxes:
Current .................................... 1,691 311 2,687 713
Deferred ................................... (844) (273) (381) 655
-------- -------- -------- --------
Total provision for income taxes ......... 847 38 2,306 1,368
-------- -------- -------- --------
Net income ......................... $ 2,098 $ 685 $ 5,129 $ 3,784
======== ======== ======== ========
Earnings per common share:
Basic .................................... $ 0.54 $ 0.18 $ 1.33 $ 1.02
Diluted .................................. $ 0.53 $ 0.18 $ 1.30 $ 1.01
</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,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Investments:
Fixedmaturities, available-for-sale (amortized cost of $101,504 and $96,516 at
September 30, 1998 and December 31, 1997,
respectively) ............................................................. $ 104,123 $ 98,746
Common equity securities, available-for-sale (cost of $8,847
and $6,856 at September 30, 1998 and December 31, 1997,
respectively) ............................................................. 10,726 10,297
Preferred equity securities, available-for-sale (cost of $3,575
and $2,664 at September 30, 1998 and December 31, 1997,
respectively) ............................................................. 3,440 2,894
Other invested assets (cost of $5,778 and $5,816 at September 30,
1998 and December 31, 1997, respectively) ................................. 6,132 6,455
Short-term investments ......................................................... 2,212 2,281
--------- ---------
Total investments .............................................................. 126,633 120,673
Cash and cash equivalents ...................................................... 11,861 3,807
Accrued investment income ...................................................... 1,561 1,366
Agents balances and premiums receivable (less allowance
for doubtful accounts of$967 at September 30, 1998
and $467 at December 31, 1997) ............................................. 18,838 12,511
Reinsurance recoverable:
Paid loss and loss adjustment expenses .................................... 4,299 2,524
Unpaid loss and loss adjustment expenses .................................. 6,380 6,185
Ceded unearned premiums ........................................................ 8,871 2,039
Deferred policy acquisition costs .............................................. 19,354 21,299
Furniture, equipment and improvements, net ..................................... 5,741 5,355
Income taxes recoverable ....................................................... (932) 1,581
Other assets ................................................................... 13,177 13,179
--------- ---------
Total assets .......................................................... $ 215,783 $ 190,519
========= =========
</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,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses .................. $ 40,719 $ 39,523
Unearned premiums ........................................... 50,842 42,013
Funds held .................................................. 32,325 23,116
Bank indebtedness ........................................... 14,500 14,500
Amounts due to reinsurers ................................... 4,282 455
Deferred Federal income taxes ............................... 2,925 3,925
Other liabilities ........................................... 9,327 9,808
-------- --------
Total liabilities ....................................... 154,920 133,340
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: 3,915,340 at
September 30, 1998 and 3,798,141 at December 31, 1997 ... 39 34
Additional paid-in capital .................................. 24,549 18,209
Net unrealized appreciation of investments carried at market,
net of income taxes ..................................... 3,113 4,316
Retained earnings ........................................... 33,162 34,620
-------- --------
Total stockholders' equity .............................. 60,863 57,179
-------- --------
Total liabilities and stockholders' equity ..... $215,783 $190,519
======== ========
</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,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 2,098 $ 685 $ 5,129 $ 3,784
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums
receivable and unearned premiums ............ 2,831 4,274 2,502 2,865
Change in accrued investment income ............. (153) (110) (195) (45)
Change in unpaid losses and loss adjustment
expenses .................................... (244) 2,330 1,196 (75)
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses
and ceded unearned premiums ................. (7,988) (783) (8,802) 300
Change in amounts due to/from reinsurers ........ 3,394 317 3,827 260
Change in other assets and other liabilities .... 900 1,699 4,026 (2,991)
Change in income taxes, net ..................... 736 (82) 2,133 1,779
Change in deferred policy acquisition costs ..... 4,101 (1,725) 1,945 (4,462)
Net realized gain on sale of investments ........ (1,901) (1,049) (3,786) (2,034)
Net realized loss on sale of fixed assets ....... -- 53 8 48
Provision for depreciation and amortization ..... 660 336 1,409 997
-------- -------- -------- --------
Net cash provided by operating activities .... 4,434 5,945 9,392 426
Cash flows from investing activities:
Cash received from investments sold
prior to maturity .............................. 20,998 11,813 52,965 35,578
Cash received from investments
Matured or called .............................. 5,076 2,014 11,984 6,611
Cash paid for investments acquired ................. (25,630) (15,390) (69,066) (39,969)
Amortization of discount on bonds .................. 45 (60) 120 (88)
Capital expenditures, net .......................... (927) (287) (1,803) (1,587)
Acquisition of agencies, net ....................... -- (522) (673) (897)
Mortgage and other loans, net ...................... -- -- -- (510)
-------- -------- -------- --------
Net cash used by investing activities .............. (438) (2,432) (6,473) (862)
Cash flows from financing activities:
Proceeds from issuance of long term debt ........... -- -- -- 2,000
Proceeds from issuance of common stock ............. 202 776 921 1,166
Change in funds held as collateral ................. 1,061 (1,075) 5,376 (4,855)
Dividends paid ..................................... (391) (376) (1,162) (1,116)
-------- -------- -------- --------
Net cash provided (used) by financing activities ... 872 (675) 5,135 (2,805)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents
4,868 2,838 8,054 (3,241)
Cash and cash equivalents at beginning of period ........ 6,993 355 3,807 6,434
-------- -------- -------- --------
Cash and cash equivalents at end of period .............. $ 11,861 $ 3,193 $ 11,861 $ 3,193
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................... $ 475 $ 585 $ 1,386 $ 1,464
Income taxes ....................................... 114 (29) 1,841 227
</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, 1997.
(2) Stock Dividend
On April 15, 1998, the Company paid a 10% stock dividend to
stockholders of record as of March 31, 1998. The dividend was charged
to retained earnings in the amount of $5,424,000, which was based on
the closing price of $15.625 per share of the Company's Common Stock on
the declaration date. All share and per share amounts included in the
accompanying consolidated financial statements and notes are based on
the increased number of shares giving retroactive effect to the stock
dividend.
(3) Comprehensive Income
SFAS No. 130 "Reporting Comprehensive Income" was adopted by the
Company effective January 1, 1998. Comprehensive Income represents a
measure of all changes in equity of enterprises that result from
recognized transactions and other economic events of the period other
than transactions with owners in their capacity as owners.
Comprehensive income for the quarterly periods ended September 30, 1998
and 1997 was $259,000 and $2,190,000 respectively. The Company's
Comprehensive Income is comprised of net income for the period plus the
tax effected increase or decrease in unrealized gains occurring during
the period.
(4) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which requires the presentation of "basic" and "diluted"
earnings per share ("EPS") and is effective for periods ending after
December 15, 1997. Basic EPS is calculated based on the weighted
average number of common shares outstanding and diluted EPS includes
the effects of dilutive potential common shares. The effect of this
change on reported EPS data is as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
Income Shares Per-Share
(Numerator) (Denominator) Amount
($ in thousands) (Dollars)
-------------------------------------------------
<S> <C> <C> <C>
Basic EPS:
1998 $ 2,098 3,904,297 $ .54
1997 $ 685 3,741,539 $ .18
Effect of Dilutive Securities:
1998 45,045
1997 84,758
Diluted EPS:
1998 $ 2,098 3,949,342 $ .53
1997 $ 685 3,826,297 $ .18
</TABLE>
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written increased 15% and 24% from $30,083,000 and $79,868,000
for the three months and nine months ended September 30, 1997,
respectively, as compared to $34,687,000 and $99,073,000 for the three
months and nine months ended September 30, 1998, respectively.
The premium growth was primarily due to premium increases in the surety
product lines. Premiums for the surety business increased 15% and 26%
from $23,209,000 and $60,697,000 for the three months and nine months
ended September 30, 1997, respectively, to $26,594,000 and $76,437,000
for the three months and nine months ended September 30, 1998,
respectively. The increase is attributable to continued strong growth
in the commercial surety operations. The commercial surety product has
continued to show substantial increases in written premium, with the
gross written premium increasing 56% from $4,064,000 for the three
months ended September 30, 1997 to $6,336,000 for the comparable 1998
period.
Premiums for the property and casualty business also increased by 18%
from $6,874,000 and $19,171,000 for the three months and nine months
ended September 30, 1997, respectively, to $8,093,000 and $22,636,000
for the three months and nine months ended September 30, 1998,
respectively. The increase is primarily due to increased writings in
specialty transportation oriented business.
Net premiums earned increased 8% and 19% from $23,736,000 and
$66,963,000 for the three months and nine months ended September 30,
1997, respectively, as compared to $25,633,000 and $80,005,000 for the
three months and nine months ended September 30, 1998, respectively,
due to steady growth in the premium writings noted above. Additionally,
effective July 1, 1998, the Company entered into a quota share
reinsurance treaty, which cedes 15% of premiums written for its surety
lines of business, thereby partially offsetting the increases in gross
surety premium writings. The Company generally earns premiums ratably
over the assigned bond terms for the surety operations and the policy
term for the specialty property and casualty operations.
Net losses and loss adjustment expenses decreased 3% and increased 19%
from $10,229,000 and $25,279,000 for the three months and nine months
ended September 30, 1997, respectively, to $9,951,000 and $30,047,000
for the three months and nine months ended September 30, 1998,
respectively. The loss ratio for the surety operations increased from
30% to 32% for the three months ended September 30, 1997 and September
30, 1998, respectively, and the loss ratio remained constant at 28% for
each of the nine months ended September 30, 1997 and September 30,
1998. The loss ratio for the property and casualty operations decreased
from 87% to 63% for the three months ended September 30, 1997 and
September 30, 1998, respectively, and the loss ratio increased from 68%
to 73% for the nine months ended September 30, 1997 and September 30,
1998, respectively. The decreased loss ratio for the third quarter of
1998 is due to improved loss experience on the commercial auto
liability line of business.
Policy acquisition costs decreased as a percentage of net premiums
earned from 49%, or $11,593,000, to 47%, or $12,072,000, for the three
months ended September 30, 1997 and September 30, 1998, respectively.
The ratio remained constant at 49%, or $32,561,000 and $39,254,000, for
the nine months ended September 30, 1997 and September 30, 1998,
respectively.
<PAGE>
General operating costs increased as a percentage of net premiums
earned from 14%, or $3,244,000 to 15%, or $3,824,000, for the three
months ended September 30, 1997 and September 30, 1998, respectively,
and the ratio decreased from 14%, or $9,416,000 to 13%, or $10,539,000,
for the nine months ended September 30, 1997 and September 30, 1998,
respectively.
The Company had underwriting losses of $1,330,000 and $293,000 for the
three months and nine months ended September 30, 1997, respectively,
compared with an underwriting loss of $214,000 and underwriting income
of $165,000 for the three months and nine months ended September 30,
1998, respectively. The combined ratio decreased from 106% for the
three months ended September 30, 1997 to 101% for the three months
ended September 30, 1998, and it remained constant at 100% for the nine
months ended September 30, 1997 and September 30 1998, due to the
factors discussed above.
Interest expense decreased 19% and 5% from $585,000 and $1,464,000 for
the three months and nine months ended September 30, 1997,
respectively, to $475,000 and $1,386,000 for the three months and nine
months ended September 30, 1998, respectively. The decrease is
primarily attributable to a decrease in the interest rate on bank
indebtedness from an average rate of 7.9% for the three months ended
September 30, 1997 to an average rate of 7.4% for the three months
ended September 30, 1998.
Net investment income increased 9% from $1,594,000 for the three months
ended September 30, 1997 to $1,733,000 for the three months ended
September 30, 1998, and remained constant at $4,880,000 and $4,870,000
for the nine months ended September 30, 1997 and September 30, 1998,
respectively. The increase for the three months ended September 30,
1998 is primarily due to an increase in the amount of average invested
assets from $121,402,000 at September 30, 1997 to $127,321,000 at
September 30, 1998.
Net realized investment gains increased from $1,044,000 and $2,029,000
for the three months and nine months ended September 30, 1997,
respectively, to $1,901,000 and $3,786,000 for the three months and
nine months ended September 30, 1998, respectively. The increase is
primarily due to a realized gain of approximately $1,000,000 from the
sale of an investment property in the third quarter of 1998. Other
investments sold during the three months and six months ended September
30, 1998 were primarily equity securities and certain fixed income
investments including mortgage-backed and municipal bond securities.
Income before income taxes increased from income of $723,000 and
$5,152,000 for the three months and nine months ended September 30,
1997, respectively, to income of $2,945,000 and $7,435,000 for the
three months and nine months ended September 30, 1998, respectively,
due to the factors outlined above.
The effective tax rate was 5% and 27% for the three months and nine
months ended September 30, 1997, respectively, as compared to an
effective tax rate of 29% and 31% for the three months and nine months
ended September 30, 1998, respectively. The primary reason for the
variance from the corporate income tax rate of 34% is tax advantaged
income received on a portion of the Company's investment portfolio
partially offset by non-deductible expenses (primarily consisting of
goodwill amortization and meals and entertainment disallowances).
<PAGE>
Net income increased from $685,000 and $3,784,000 for the three months
and nine months ended September 30, 1997, respectively, to $2,098,000
and $5,129,000 for the three months and nine months ended September 30,
1998, respectively, due to the factors outlined above.
Liquidity and Capital Resources
As of September 30, 1998, the Company held total cash and cash
equivalents and invested assets of $138,494,000. This amount includes
an aggregate of $28,492,000 in funds held as collateral which is shown
as a liability on the Company's consolidated balance sheets. As of
September 30, 1998, the Company's invested assets consisted of
$104,123,000 in fixed maturities, $10,726,000 in common equity
securities, $3,440,000 in preferred equity securities, $6,132,000 in
other invested assets and $2,212,000 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 state of Nebraska 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, which refinanced a previous
loan. The debt agreement was amended on April 24, 1995, July 10, 1996
and again on September 30, 1997 to increase the amount available under
the revolving line of credit from $12,500,000 to $15,000,000 and to
change certain covenants and payment requirements. The bank loan has a
variable rate of interest based upon fluctuations in the London
Interbank Offered Rate (LIBOR) and has amortizing principal payments.
The annual interest rate at September 30, 1998 was 7.4%. 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 is a party to a lease with ACD2 for its corporate
headquarters. This lease has a term of 15 years and contains provisions
for scheduled lease charges. The Company's remaining minimum lease
commitment with respect to this lease in 1998 is approximately
$233,000. The Company also has the option to purchase this office
building during a six month period commencing in May 2000 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.
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 1998.
<PAGE>
The Company generated $5,945,000 and $426,000 in cash from operating
activities for the three months and nine months ended September 30,
1997, respectively, as compared to generating $4,434,000 and $9,392,000
for the three months and nine months ended September 30, 1998,
respectively. The Company used $2,432,000 and $862,000 in cash from
investing activities for the three months and nine months ended
September 30, 1997, respectively, as compared to using $438,000 and
$6,473,000 for the three months and nine months ended September 30,
1998. The Company used $675,000 and $2,805,000 in cash from financing
activities for the three months and nine months ended September 30,
1997, respectively, as compared to generating $872,000 and $5,135,000
for the three months and nine months ended September 30, 1998,
respectively.
Year 2000 Computer Matters
Since 1996, the Company has been in the process of developing a new
surety production computer system. Development is substantially
complete and implementation is currently in process. The Company has
tested the new surety system and believes it is year 2000 compliant.
The property and casualty computer operating systems are currently
running in a version that is not year 2000 compliant. In connection
with improving the operational effectiveness of the property and
casualty computer systems, the Company is in the process of installing
an updated version of its property and casualty operating system which
has been certified as Year 2000 compliant by the software vendor. The
Company expects to be substantially complete with this implementation
by December 31, 1998. Additionally, the Company has tested and/or
received certification from its vendors that the financial and
corporate computer and communication systems are year 2000 compliant.
While the Year 2000 considerations are not expected to materially
impact the Company's internal operations, they may have an effect on
some of the Company's agents and brokers, suppliers, financial
institutions and others with whom the Company conducts business, and
thus indirectly affect the Company. It is not possible to quantify the
aggregate cost to the Company with respect to external Year 2000
problems, if any, although the Company does not presently anticipate it
will have a material adverse impact on its business. The Company's
contingency plans with respect to problems associated with Year 2000
non-compliance of specific internal and external applications are
currently being evaluated.
Other Matters
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, other expenses, underwriting income (loss), and 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 1998 1997 1998 1997 1997 1996
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Court
Gross premiums written ....... $ 3,201 $ 2,940 $ 9,079 $ 8,036 $ 11,109 $ 11,196
Net premiums earned .......... 3,501 2,932 9,282 7,926 11,038 10,897
Net losses and loss adjustment
expenses .................. (214) 1,356 257 1,363 1,403 835
Loss ratio ................... -6% 46% 3% 17% 13% 8%
Contract
Gross premiums written ....... $ 17,057 $ 16,205 $ 47,003 $ 40,883 $ 54,808 $ 49,782
Net premiums earned .......... 11,246 11,784 38,086 33,552 46,741 46,158
Net losses and loss adjustment
expenses .................. 5,695 3,397 14,145 10,956 15,738 24,430
Loss ratio ................... 51% 29% 37% 33% 34% 53%
Commercial Surety
Gross premiums written ....... $ 6,336 $ 4,064 $ 20,355 $ 11,778 $ 16,694 $ 11,357
Net premiums earned .......... 5,140 3,443 16,081 9,001 12,786 8,446
Net losses and loss adjustment
expenses .................. 827 605 3,503 1,720 2,873 2,571
Loss ratio ................... 16% 18% 22% 19% 22% 30%
Total Surety
Gross premiums written ....... $ 26,594 $ 23,209 $ 76,437 $ 60,697 $ 82,611 $ 72,335
Net premiums earned .......... 19,887 18,159 63,449 50,479 70,565 65,501
Net losses and loss adjustment
expenses ................. 6,308 5,358 17,905 14,039 20,014 27,836
Other expenses ............... 13,934 12,500 43,451 35,338 49,184 43,721
Underwriting income (loss) ... (355) 301 2,093 1,102 1,367 (6,056)
Loss ratio ................... 32% 30% 28% 28% 28% 42%
Expense ratio ................ 70% 69% 68% 70% 70% 67%
Combined ratio ............... 102% 98% 97% 98% 98% 109%
Property & Casualty
Gross premiums written ....... $ 8,093 $ 6,874 $ 22,636 $ 19,171 $ 25,481 $ 25,006
Net premiums earned .......... 5,746 5,577 16,556 16,484 21,585 22,382
Net losses and loss adjustment
expenses .................. 3,643 4,871 12,142 11,240 14,644 18,811
Other expenses ............... 1,962 2,337 6,342 6,639 8,802 7,344
Underwriting income (loss) ... 141 (1,631) (1,928) (1,395) (1,861) (3,773)
Loss ratio ................... 63% 87% 73% 68% 68% 84%
Expense ratio ................ 34% 42% 38% 40% 41% 33%
Combined ratio ............... 98% 129% 112% 108% 109% 117%
Total Company
Gross premiums written ....... $ 34,687 $ 30,083 $ 99,073 $ 79,868 $ 108,092 $ 97,341
Net premiums earned .......... 25,633 23,736 80,005 66,963 92,150 87,883
Net losses and loss adjustment
expenses ................. 9,951 10,229 30,047 25,279 34,658 46,647
Other expenses ............... 15,896 14,837 49,793 41,977 57,986 51,065
Underwriting income (loss) ... (214) (1,330) 165 (293) (494) (9,829)
Loss ratio ................... 39% 43% 38% 38% 38% 53%
Expense ratio ................ 62% 63% 62% 63% 63% 58%
Combined ratio ............... 101% 106% 100% 100% 101% 111%
</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, 1998.
<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 13, 1998 by: /s/ JOHN E. SAVAGE
---------------------------
John E. Savage
President, Co-Chief Executive
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
EXHIBIT 11
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Basic Diluted (2)
earnings per share earnings per share
1998 1997(3) 1998 1997(3)
<S> <C> <C> <C> <C>
Average shares outstanding for the nine month
period ending September 30, 3,856,101 3,703,090 3,856,101 3,703,090
Incremental shares resulting from
conversion of common stock equivalents:
Options to purchase shares of common
stock at an exercise price of $5.582-
$16.375(486,967 and 510,742 options at
September 30, 1998 and 1997,
respectively) (1) 75,065 56,614
--------- --------- --------- ---------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, 75,065 56,614
--------- --------- --------- ---------
Total shares and incremental shares resulting
from conversion of common stock equivalents
at September 30, 3,856,101 3,703,090 3,931,166 3,759,704
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at
September 30, 1.91% 1.51%
========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 11 (continued)
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Basic Diluted(2)
earnings per share earnings per share
1998 1997(3) 1998 1997(3)
<S> <C> <C> <C> <C>
Average shares outstanding for the three month
period ending September 30, 3,904,297 3,741,539 3,904,297 3,741,539
Incremental shares resulting from
conversion of common stock equivalents:
Options to purchase shares of common
stock at an exercise price of $5.582 -
$16.375 (486,967 and 510,742 options
at September 30, 1998 and 1997,
respectively) (1)
45,045 84,758
--------- --------- --------- ---------
Total incremental shares resulting from
conversion of common stock equivalents
at September 30, 45,045 84,758
--------- --------- --------- ---------
Total shares and incremental shares resulting
from conversion of common stock equivalents
at September 30, 3,904,297 3,741,539 3,949,342 3,826,297
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at
September 30, 1.14% 2.22%
========= ========= ========= =========
</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, 1998 and
1997, respectively:
September 30, September 30,
1998 1997
Grant price: $5.582 2,722 3,328
Grant price: $8.182 3,848 5,555
Grant price: $8.273 3,748 5,264
Grant price: $8.977 - 11,275
Grant price: $9.432 - 3,300
Grant price: $9.545 3,326 5,005
Grant price: $9.659 - 12,650
Grant price: $9.773 - 17,875
Grant price: $10.114 11,000 12,100
Grant price: $10.375 1,578 -
Grant price: $10.750 - 11,000
Grant price: $11.023 75,350 83,050
Grant price: $11.364 19,250 19,250
Grant price: $11.591 2,288 4,400
Grant price: $12.159 86,677 102,630
Grant price: $12.614 59,879 66,495
Grant price: $12.745 - 1,815
Grant price: $12.841 19,250 19,250
Grant price: $12.955 113,551 118,250
Grant price: $13.523 8,250 8,250
Grant price: $16.375 76,250 -
------- --------
486,967 510,742
======= ========
(2) Calculation of incremental shares resulting from conversion of common
stock equivalents, using the Treasury Stock Method for calculating
diluted earnings per share, is based on the greater of the average
ending ask price or the closing ask price on September 30, 1998 and
1997, as reported on the American Stock Exchange.
(3) 1997 amounts are restated to reflect the 10% stock dividend paid to
stockholders of record as of March 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000780118
<NAME> SIOBHAN K. HORTON
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 104,123
<EQUITIES> 14,166
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 126,633
<CASH> 11,861
<RECOVER-REINSURE> 10,679
<DEFERRED-ACQUISITION> 19,354
<TOTAL-ASSETS> 215,783
<POLICY-LOSSES> 40,719
<UNEARNED-PREMIUMS> 50,842
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 14,500
0
0
<COMMON> 39
<OTHER-SE> 60,824
<TOTAL-LIABILITY-AND-EQUITY> 215,783
25,633
<INVESTMENT-INCOME> 1,733
<INVESTMENT-GAINS> 1,901
<OTHER-INCOME> 0
<BENEFITS> 9,951
<UNDERWRITING-AMORTIZATION> 12,072
<UNDERWRITING-OTHER> 3,824
<INCOME-PRETAX> 2,945
<INCOME-TAX> 847
<INCOME-CONTINUING> 2,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,098
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
<RESERVE-OPEN> 39,523
<PROVISION-CURRENT> 34,211
<PROVISION-PRIOR> 346
<PAYMENTS-CURRENT> 18,450
<PAYMENTS-PRIOR> 14,911
<RESERVE-CLOSE> 40,719
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
