<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. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 101,055
<EQUITIES> 16,911
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 128,008
<CASH> 6,993
<RECOVER-REINSURE> 9,428
<DEFERRED-ACQUISITION> 23,455
<TOTAL-ASSETS> 205,812
<POLICY-LOSSES> 40,963
<UNEARNED-PREMIUMS> 48,064
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 14,500
0
0
<COMMON> 39
<OTHER-SE> 59,755
<TOTAL-LIABILITY-AND-EQUITY> 205,812
27,248
<INVESTMENT-INCOME> 1,560
<INVESTMENT-GAINS> 1,065
<OTHER-INCOME> 0
<BENEFITS> 11,188
<UNDERWRITING-AMORTIZATION> 13,036
<UNDERWRITING-OTHER> 3,560
<INCOME-PRETAX> 1,583
<INCOME-TAX> 608
<INCOME-CONTINUING> 975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 975
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<RESERVE-OPEN> 39,523
<PROVISION-CURRENT> 22,391
<PROVISION-PRIOR> 1,757
<PAYMENTS-CURRENT> 10,728
<PAYMENTS-PRIOR> 11,980
<RESERVE-CLOSE> 40,963
<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, 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 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 August 12, 1998, 3,893,155 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 June 30, 1998 and 1997 3
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows for the three months and six months
ended June 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 15
Item 6
Exhibits and Reports on Form 8-K 15
<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,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Underwriting revenues:
Premiums written $ 35,044 $ 28,174 $ 64,386 $ 49,784
Premiums ceded (2,739) (1,948) (5,137) (3,097)
-------- -------- -------- --------
Net premiums written 32,305 26,226 59,249 46,687
Change in unearned premiums
Direct (5,062) (4,329) (4,914) (2,685)
Ceded 5 (116) 37 (775)
-------- -------- -------- --------
Net premiums earned 27,248 21,781 54,372 43,227
-------- -------- -------- --------
Underwriting expenses:
Losses and loss adjustment expenses 13,756 9,364 23,248 16,017
Reinsurance recoveries (2,568) (1,382) (3,152) (967)
-------- -------- -------- --------
Net losses and loss adjustment expenses 11,188 7,982 20,096 15,050
Policy acquisition costs 13,036 10,147 27,182 20,968
General operating costs 3,560 3,269 6,715 6,172
-------- -------- -------- --------
Total underwriting expenses 27,784 21,398 53,993 42,190
-------- -------- -------- --------
Underwriting income (loss) (536) 383 379 1,037
Interest expense (506) (478) (911) (879)
Net investment income 1,560 1,605 3,137 3,286
Net realized investment gains 1,065 348 1,885 985
-------- -------- -------- --------
Income before income taxes 1,583 1,858 4,490 4,429
Provision (benefit) for income taxes:
Current 296 (122) 996 402
Deferred 312 666 463 928
-------- -------- -------- --------
Total provision for income taxes 608 544 1,459 1,330
-------- -------- -------- --------
Net income $ 975 $ 1,314 $ 3,031 $ 3,099
======== ======== ======== ========
Earnings per common share:
Basic $ 0.25 $ 0.36 $ 0.79 $ 0.84
======== ======== ======== ========
Diluted $ 0.25 $ 0.35 $ 0.77 $ 0.83
======== ======== ======== ========
</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,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Investments:
Fixedmaturities, available-for-sale (amortized cost of $99,019 and $96,516 at
June 30, 1998 and December 31, 1997,
respectively) $ 101,055 $ 98,746
Common equity securities, available-for-sale (cost of $8,184 and $6,856 at June
30, 1998 and December 31, 1997, respectively)
12,695 10,297
Preferred equity securities, available-for-sale (cost of $4,074 and $2,664 at
June 30, 1998 and December 31, 1997,
respectively) 4,216 2,894
Other invested assets (cost of $7,017 and $5,816 at June 30,
1998 and December 31, 1997, respectively) 7,831 6,455
Short-term investments 2,211 2,281
-------- --------
Total investments 128,008 120,673
Cash and cash equivalents 6,993 3,807
Accrued investment income 1,408 1,366
Agents balances and premiums receivable (less allowance for doubtful accounts of
$967 and $467 at June 30, 1998 and
December 31, 1997) 18,891 12,511
Reinsurance recoverable:
Paid loss and loss adjustment expenses 2,114 2,524
Unpaid loss and loss adjustment expenses 7,314 6,185
Ceded unearned premiums 2,134 2,039
Deferred policy acquisition costs 23,455 21,299
Furniture, equipment and improvements, net 5,474 5,355
Income taxes recoverable 542 1,581
Other assets 9,479 13,179
-------- --------
Total assets $205,812 $190,519
======== ========
</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,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses .............................................. $ 40,963 $ 39,523
Unearned premiums ....................................................................... 48,064 42,013
Funds held as collateral ................................................................ 27,431 23,116
Bank indebtedness ....................................................................... 14,500 14,500
Amounts due to reinsurers ............................................................... 888 455
Deferred Federal income taxes ........................................................... 4,611 3,925
Other liabilities ....................................................................... 8,561 9,808
-------- --------
Total liabilities ................................................................... 145,018 133,340
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: 3,889,788 at
June 30, 1998 and 3,798,141 at December 31, 1997 .................................... 39 34
Additional paid-in capital .............................................................. 24,347 18,209
Net unrealized appreciation of investments carried at market,
net of income taxes ................................................................. 4,952 4,316
Retained earnings ....................................................................... 31,456 34,620
-------- --------
Total stockholders' equity .......................................................... 60,794 57,179
-------- --------
Total liabilities and stockholders' equity ................................. $205,812 $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 Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................................... $ 975 $ 1,314 $ 3,031 $ 3,099
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums
receivable and unearned premiums ....................................... 3,138 1,200 (329) (1,409)
Change in accrued investment income ........................................ 15 88 (42) 65
Change in unpaid losses and loss adjustment
expenses ............................................................... 1,907 582 1,440 (2,405)
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses
and ceded unearned premiums ............................................ (1,585) (288) (814) 1,083
Change in amounts due to/from reinsurers ................................... 289 (324) 433 (57)
Change in other assets and other liabilities ............................... 2,631 (2,472) 3,126 (4,690)
Change in income taxes, net ................................................ (451) 333 1,397 1,861
Change in deferred policy acquisition costs ................................ (1,852) (2,625) (2,156) (2,737)
Net realized gain on sale of investments ................................... (1,066) (348) (1,885) (985)
Net realized (gain)loss on sale of fixed assets ............................ 6 (7) 8 (5)
Provision for depreciation and amortization ................................ 356 316 749 661
-------- -------- -------- --------
Net cash provided (used) by operating activities ............................ 4,363 (2,231) 4,958 (5,519)
Cash flows from investing activities:
Cash received from investments sold prior to
maturity .................................................................. 15,214 13,594 31,967 23,765
Cash received from investments matured or called
3,347 1,710 6,908 4,597
Cash paid for investments acquired ............................................ (23,207) (12,335) (43,436) (24,579)
Amortization of discount on bonds ............................................. 42 (30) 75 (28)
Capital expenditures, net ..................................................... (488) (1,187) (876) (1,300)
Acquisition of agencies, net .................................................. (73) (375) (673) (375)
Mortgage and other loans, net ................................................. -- -- -- (510)
-------- -------- -------- --------
Net cash provided (used) by investing activities .............................. (5,165) 1,377 (6,035) 1,570
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long term debt ...................................... -- 2,000 -- 2,000
Proceeds from issuance of common stock ........................................ 540 164 719 390
Change in funds held as collateral ............................................ 940 (1,043) 4,315 (3,780)
Dividends paid ................................................................ (390) (371) (771) (740)
-------- -------- -------- ---------
Net cash provided (used) by financing activities .............................. 1,090 750 4,263 (2,130)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ............................... 288 (104) 3,186 (6,079)
Cash and cash equivalents at beginning of period ................................... 6,705 459 3,807 6,434
-------- -------- -------- --------
Cash and cash equivalents at end of period ......................................... $ 6,993 $ 355 $ 6,993 $ 355
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ...................................................................... $ 506 $ 478 $ 911 $ 879
Income taxes .................................................................. 1,565 212 1,727 256
</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 June 30, 1998 and
1997 was $220,000 and $3,569,000, respectively. The Company's
Comprehensive Income is comprised of net income for the period plus the
tax effected increase or decrease in unrealized gains occurring during
the period.
(4) Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 ("FAS 128"),
"Earnings Per Share", which requires the presentation of "basic" and
"diluted" earnings per share("EPS") and is effective for periods
ending after December 15, 1997. Basic EPS is calculated based on the
weighted average number of common shares outstanding and diluted
EPS includes the effects of dilutive potential common shares. The
effect of this change on reported EPS data is as follows:
<TABLE>
<CAPTION>
Three months ended June 30,
Income Shares Per-Share
(Numerator) (Denominator) Amount
($ in thousands) (Dollars)
--------------------------------------------
<S> <C> <C> <C>
Basic EPS:
1998 $ 975 3,862,272 $ .25
1997 $ 1,314 3,700,290 $ .36
Effect of Dilutive Securities:
1998 100,559
1997 59,667
Diluted EPS:
1998 $ 975 3,962,831 $ .25
1997 $ 1,314 3,759,957 $ .35
</TABLE>
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Premiums written increased 24% and 29% from $28,174,000 and $49,784,000
for the three months and six months ended June 30, 1997, respectively,
to $35,044,000 and $64,386,000 for the three months and six months
ended June 30, 1998, respectively.
The premium growth was primarily due to premium increases in the surety
product lines. Premiums for the surety business increased 25% and 33%
from $21,778,000 and $37,488,000 for the three months and six months
ended June 30, 1997, respectively, to $27,209,000 and $49,843,000 for
the three months and six months ended June 30, 1998, respectively. The
increase is attributable to continued strong growth in the contract and
commercial surety operations and the impact of acquiring two small
surety agencies in August and October 1997, which the Company believes
increased premiums written by 5% for the three months ended June 30,
1998.
Premiums for the property and casualty business also increased 22% and
18% from $6,397,000 and $12,297,000 for the three months and six months
ended June 30, 1997, respectively, to $7,836,000 and $14,543,000 for
the three months and six months ended June 30, 1998, respectively. The
increase is primarily due to the commencement of one specialty
transportation oriented general agency program.
Net premiums earned increased 25% and 26% from $21,781,000 and
$43,227,000 for the three months and six months ended June 30, 1997,
respectively, to $27,248,000 and $54,372,000 for the three months and
six months ended June 30, 1998, respectively. The Company generally
earns premiums ratably over the assigned bond terms for the surety
business and the policy term for the specialty property and casualty
business.
Net losses and loss adjustment expenses increased 40% and 34% from
$7,982,000 and $15,050,000 for the three months and six months ended
June 30, 1997, respectively, to $11,188,000 and $20,096,000 for the
three months and six months ended June 30, 1998, respectively. The loss
ratio for the surety operations increased from 29% to 31% for the three
months ended June 30, 1997 and June 30, 1998, respectively, and the
loss ratio remained constant at 27% for the six months ended June 30,
1997 and June 30, 1998, respectively. The loss ratio for the property
and casualty operations also increased from 58% for each of the three
months and six months ended June 30, 1997 to 80% and 79% for the three
months and six months ended June 30, 1998, respectively, primarily due
to an increase in claims activity for commercial trucking and the
non-standard personal automobile program in Arizona.
Policy acquisition costs increased as a percentage of net premiums
earned from 47%, or $10,147,000, and 49%, or $20,968,000, for the three
months and six months ended June 30, 1997, respectively, to 48%, or
$13,036,000, and 50%, or $27,182,000, for the three months and six
months ended June 30, 1998, respectively. This increase is primarily
attributable to expenses incurred by the property and casualty business
in establishing specialty programs handled by its Interstate Program
Managers subsidiary as well as increased commission costs for the
Company's surety business. In addition, the Company has incurred
additional expenses to enhance its licensing in order to expand its
specialty commercial trucking product to other Western States outside
California.
<PAGE>
General operating costs decreased as a percentage of net premiums
earned from 15%, or $3,269,000, and 14%, or $6,172,000, for the three
months and six months ended June 30, 1997, respectively, to 13%, or
$3,560,000, and 12%, or $6,715,000, for the three months and six months
ended June 30, 1998, respectively. The improvement in general and
administrative ratio is attributable to increased net premiums earned.
Underwriting results were income of $383,000 and $1,037,000 for the
three months and six months ended June 30, 1997, respectively, and a
loss of $536,000 and income of $379,000 for the three months and six
months ended June 30, 1998, respectively. The combined ratio increased
from 98% for each of the three months and six months ended June 30,
1997, to 102% and 99% for the three months and six months ended June
30, 1998, respectively, due to a combination of the factors discussed
above.
Interest expense increased 6% and 4% from $478,000 and $879,000 for the
three months and six months ended June 30, 1997, respectively, to
$506,000 and $911,000 for the three months and six months ended June
30, 1998, respectively. The increase is attributable to an increase in
the outstanding balance of bank indebtedness from $12,500,000 to
$14,500,000 in June 1997 as well as an increase in the interest rate on
the bank indebtedness from an average rate of 7.1% for the six months
ended June 30, 1997 to an average rate of 7.5% for the six months ended
June 30, 1998.
Net investment income and realized investment gains increased 34% and
18% from $1,953,000 and $4,271,000 for the three months and six months
ended June 30, 1997, respectively, to $2,625,000 and $5,022,000 for the
three months and six months ended June 30, 1998, respectively. The
increase is primarily due to an increase in realized gains from
$348,000 and $985,000 for the three months and six months ended June
30, 1997, respectively, to $1,065,000 and $1,885,000 for the three
months and six months ended June 30, 1998, respectively. The
investments sold during the three months and six months ended June 30,
1998 were primarily equity securities and certain fixed income
investments including mortgage-backed and municipal bond securities.
Income before income taxes decreased from $1,858,000 to $1,583,000 for
the three months ended June 30, 1997 and June 30, 1998, respectively,
and income before income taxes increased from $4,429,000 to $4,490,000
for the six months ended June 30, 1997 and June 30, 1998, respectively,
due to the factors outlined above.
The effective tax rate was 29% and 30% for the three months and six
months ended June 30, 1997 as compared to an effective tax rate of 38%
and 32% for the three months and six months ended June 30, 1998. 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 offset by non-deductible expenses (primarily
consisting of goodwill amortization and meals and entertainment
disallowances). The Company has recorded for the six months ended June
30, 1998 its estimated effective tax rate for the year based on current
underwriting and investment income recorded. Changes to the Company's
effective tax rate estimates are recorded quarterly.
Net income decreased from $1,314,000 and $3,099,000 for the three
months and six months ended June 30, 1997, respectively, to $975,000
and $3,031,000 for the three months and six months ended June 30, 1998,
respectively, due to the factors outlined above.
<PAGE>
Liquidity and Capital Resources
As of June 30, 1998, the Company held total cash and cash equivalents
and invested assets of $135,001,000. This amount includes an aggregate
of $27,431,000 in funds held as collateral which is shown as a
liability on the Company's consolidated balance sheets. As of June 30,
1998, the Company's invested assets consisted of $101,055,000 in fixed
maturities, $12,695,000 in common equity securities, $4,216,000 in
preferred equity securities, $7,831,000 in other invested assets and
$2,211,000 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 interest rate at June 30, 1998 was 7.5%. 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
$466,000. The Company also has the option to purchase this office
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.
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.
The Company used $2,231,000 and $5,519,000 in cash from operating
activities for the three months and six months ended June 30, 1997 as
compared to generating $4,363,000 and $4,958,000 for the three months
and six months ended June 30, 1998. The Company generated $1,377,000
and $1,570,000 in cash from investing activities for the three months
and six months ended June 30, 1997 as compared to using $5,165,000 and
$6,035,000 for the three months and six months ended June 30, 1998. The
Company generated $750,000 and used $2,130,000 in cash from financing
activities for the three months and six months ended June 30, 1997 as
compared to generating $1,090,000 and $4,263,000 for the three months
and six months ended June 30, 1998.
<PAGE>
Other Matters
Since 1996, the Company has been in the process of implementing a new
surety production computer system. Implementation is currently in
process. This new surety production system is year 2000 compliant. The
property and casualty operating computer systems are currently running
in a version that is not year 2000 complaint. The Company is working to
install and test the year 2000 compliant version by October 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. The cost of achieving year 2000
compliance is not expected to have a materially adverse effect on the
consolidated financial position of the Company.
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 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 Six months ended Year ended
June 30, June 30, December 31,
Type of Bond 1998 1997 1998 1997 1997 1996
- ---------------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract
Gross premiums written .................... $ 17,471 $ 15,059 $ 29,945 $ 24,678 $ 54,808 $ 49,782
Net premiums earned ....................... 13,453 10,691 26,841 21,768 46,741 46,158
Net losses and loss adjustment
expenses ............................... 4,715 4,103 8,450 7,559 15,738 24,430
Loss ratio ................................ 35% 38% 31% 35% 34% 53%
Commercial Surety
Gross premiums written .................... $ 6,742 $ 4,454 $ 14,019 $ 7,714 $ 16,694 $ 11,192
Net premiums earned ....................... 5,183 3,253 10,940 5,558 12,786 8,446
Net losses and loss adjustment
expenses ............................... 1,708 547 2,677 1,115 2,873 2,571
Loss ratio ................................ 33% 17% 24% 20% 22% 30%
Court
Gross premiums written .................... $ 2,996 $ 2,265 $ 5,879 $ 5,096 $ 11,109 $ 11,196
Net premiums earned ....................... 2,995 2,255 5,781 4,994 11,038 10,897
Net losses and loss adjustment
expenses ............................... 266 73 470 7 1,403 835
Loss ratio ................................ 9% 3% 8% 0% 13% 8%
Total Surety
Gross premiums written .................... $ 27,209 $ 21,778 $ 49,843 $ 37,488 $ 82,611 $ 72,335
Net premiums earned ....................... 21,631 16,199 43,562 32,320 70,566 65,501
Net losses and loss adjustment
expenses ............................... 6,689 4,723 11,597 8,681 20,013 27,836
Loss ratio ................................ 31% 29% 27% 27% 28% 42%
Property & Casualty
Gross premiums written .................... $ $ $ 14,543 $ 12,296 $ 25,481 $ 25,072
7,835 6,396
Net premiums earned ....................... 5,617 5,582 10,810 10,907 21,585 22,382
Net losses and loss adjustment
expenses ............................... 4,499 3,259 8,499 6,369 14,644 18,811
Loss ratio ................................ 80% 58% 79% 58% 68% 84%
Total Company
Gross premiums written .................... $ 35,044 $ 28,174 $ 64,386 $ 49,784 $108,091 $ 97,242
Net premiums earned ....................... 27,248 21,781 54,372 43,227 92,151 87,883
Net losses and loss adjustment
Expenses .............................. 11,188 7,982 20,096 15,050 34,657 46,647
Loss ratio ................................ 41% 37% 37% 35% 38% 53%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
Items 1-3: LEGAL PROCEEDINGS, 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 22, 1998.
(b) (i) The following directors were elected to serve
until the 2001 Annual Meeting of Stockholders or
until their successors have been duly elected and
qualified:
Bruce A. Bunner
Robert W. Kleinschmidt
Arthur F. Melton
Roland D. Miller
(ii) The following director was elected to serve
until the 2000 Annual Meeting of Stockholders or
until his successor has been duly elected and
qualified:
Neil F. Pont
(iii) The other directors whose terms of office
continued after the meeting are:
Richard H. Savage
John E. Savage
Guy A. Main
Steven R. Kay
Thomas R. Bennett
Jonathan K. Layne
Charles L. Schultz
(c) (i) Of the 3,339,761 shares represented at the
meeting, the directors named in (b) (i) and (ii)
above were elected by the following votes:
No. of Votes Received
Withhold
Name For Authority
Bruce A. Bunner 3,337,893 1,868
Robert W. Kleinschmidt 3,337,893 1,868
Arthur F. Melton 3,337,882 1,879
Roland D. Miller 3,337,893 1,868
Neil F. Pont 3,337,893 1,868
(d) (i) A proposal to approve and adopt the 1998 Stock
Incentive Plan was approved and adopted by a vote of
2,488,731 for, 515,312 against and 335,718 abstaining.
<PAGE>
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index on page 16.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three months ended June 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: August 13, 1998 by: /s/ JOHN E. SAVAGE
---------------------------
John E. Savage
President, Co-Chief Executive
Officer
and Chief Operating Officer
(Principal Executive Officer)
by: /s/ STEVEN R. KAY
---------------------------
Steven R. Kay
Senior Vice-President,
Chief Financial Officer,
Treasurer and Director
(Principal Financial and
Principal Accounting Officer)
<PAGE>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description Location
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession None
4 Instruments defining the rights of securityholders,
including indentures Not required
11 Statement re computation of per share earnings Page 18
15 Letter re unaudited interim financial informatio 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 six month period
ending June 30, 3,832,004 3,683,866 3,832,004 3,683,866
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
(499,461 and 444,495 options at June 30, 1998
and 1997, respectively)(1) 90,075 42,541
--------- --------- --------- ---------
Total incremental shares resulting from
conversion of common stock equivalents
at June 30, 90,075 42,541
--------- --------- --------- ---------
Total shares and incremental shares resulting
from conversion of common stock equivalents at
June 30, 3,832,004 3,683,866 3,922,079 3,726,407
========= ========= ========= =========
Percentage of incremental shares resulting from
conversion of common stock equivalents at June 30, 2.30% 1.14%
========= ========= ========= =========
</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 June 30, 3,862,272 3,700,290 3,862,272 3,700,290
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
(499,461 and 444,495 options at June 30, 1998
and 1997,respectively) (1) 100,559 59,667
---------- ---------- --------- ----------
Total incremental shares resulting from
conversion of common stock equivalents
at June 30, 100,559 59,667
---------- ---------- --------- ----------
Total shares and incremental shares resulting
from conversion of common stock eqivalents at
June 30, 3,862,272 3,700,290 3,962,831 3,759,957
========== ========== ========= ==========
Percentage of incremental shares resulting from 2.54% 1.59%
conversion of common stock equivalents at June 30, ========== ========== ========= ==========
</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, 1998 and
1997, respectively:
June 30, 1998 June 30, 1997
------------- -------------
Grant price: $ 5.58 ..................... 2,722 3,328
Grant price: $ 8.18 ..................... 4,565 5,555
Grant price: $ 8.27 ..................... 4,537 5,264
Grant price: $ 8.977..................... -- 11,550
Grant price: $ 9.43 ..................... 3,300 3,300
Grant price: $ 9.54 ..................... 4,015 5,005
Grant price: $ 9.659..................... -- 14,025
Grant price: $ 9.773..................... -- 28,050
Grant price: $ 10.11 ..................... 11,000 13,200
Grant price: $ 10.750..................... -- 11,000
Grant price: $ 11.02 ..................... 77,550 --
Grant price: $ 11.36 ..................... 19,250 19,250
Grant price: $ 11.59 ..................... 2,805 4,400
Grant price: $ 12.15 ..................... 89,672 104,033
Grant price: $ 12.61 ..................... 60,345 68,970
Grant price: $ 12.745..................... -- 1,815
Grant price: $ 12.84 ..................... 19,250 19,250
Grant price: $ 12.951..................... 14,950 118,250
Grant price: $ 13.52 ..................... 8,250 8,250
Grant price: $ 16.37 ..................... 77,250 --
------- -------
499,461 444,495
======= =======
(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 June 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.
