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, 2000
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 10, 2000, 4,322,555 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, 2000
and 1999 (unaudited) 3
Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 4
Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 2000
and 1999 (unaudited) 6
Notes to Interim Consolidated Financial Statements 8
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3
Quantitative and Qualitative Disclosures about Market Risk
No significant changes from the Company's Annual Report
on Form 10-K for the year ended December 31, 1999
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
<TABLE>
<CAPTION>
Item 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS
Gross premiums written $ 43,275 $ 36,042 $ 79,947 $ 68,177
---------------- ---------------- ----------------- ----------------
Net premiums earned $ 27,170 $ 26,986 $ 57,907 $ 53,979
Net investment income 1,575 1,705 3,452 3,474
Net realized investment gain (loss) (244) 1,297 911 2,037
Commissions and fees 481 522 1,324 1,129
---------------- ---------------- ----------------- ----------------
Total revenues 28,982 30,510 63,594 60,619
---------------- ---------------- ----------------- ----------------
Net losses and loss adjustment expenses 28,243 10,003 41,791 19,089
Policy acquisition costs 13,807 12,736 29,061 25,923
General operating costs 3,761 4,558 7,814 8,497
Interest expense 630 493 1,250 1,047
---------------- ---------------- ----------------- ----------------
Total expenses 46,441 27,790 79,916 54,556
---------------- ---------------- ----------------- ----------------
Income (loss) before income taxes (17,459) 2,720 (16,322) 6,063
Provision (benefit) for income taxes (5,467) 980 (5,133) 1,958
---------------- ---------------- ----------------- ----------------
Net income (loss) $ (11,992) $ 1,740 $ (11,189) $ 4,105
================ ================ ================= ================
Earnings (loss) per common share:
Basic $ (2.77) $ 0.40 $ (2.58) $ 0.95
================ ================ ================= ================
Diluted $ (2.77) $ 0.40 $ (2.58) $ 0.95
================ ================ ================= ================
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (11,992) $ 1,740 $ (11,189) $ 4,105
Other comprehensive income (loss):
Unrealized gains(losses) on securities,
net of income taxes of $(440) and $397
for the three months ended June 30,
2000 and 1999, and $(246) and $804
for the six months ended June 30, 2000
and 1999, respectively 856 (771) 478 (1,560)
Reclassification adjustment for gains
included in net income, net of income
taxes of $(28) and $280 for the three
months ended June 30, 2000 and 1999,
and $269 and $467 for the six months
ended June 30, 2000 and 1999,
respectively 55 (542) (523) (907)
---------------- ---------------- ----------------- ----------------
Comprehensive income (loss) $ (11,081) $ 427 $ (11,234) $ 1,638
================ ================ ================= ================
See accompanying notes to interim consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30, December 31,
2000 1999
-------------------- ---------------------
(unaudited)
<S> <C> <C>
Investments:
Fixedmaturities, available-for-sale (amortized cost of $89,578 and $104,193 at
June 30, 2000 and December 31, 1999 respectively) $86,751 $100,892
Common equity securities, available-for-sale (cost of $3,855 and $2,886 at June
30, 2000 and December 31, 1999, respectively) 5,134 4,199
Preferred equity securities, available-for-sale (cost of $3,826 and $4,905 at
June 30, 2000 and December 31, 1999, respectively) 3,390 5,073
Other invested assets (cost of $7,858 and $7,725 at June 30,
2000 and December 31, 1999, respectively) 7,977 7,749
Short-term investments 3,226 2,691
-------------------- ---------------------
Total investments 106,478 120,604
Cash and cash equivalents 5,070 15,821
Accrued investment income 1,585 1,654
Agents balances and premiums receivable (less allowance for doubtful accounts of
$1,260 at June 30, 2000 and December 31, 1999,
respectively) 21,711 15,365
Contract settlement funds and collateral receivable 22,234 16,270
Reinsurance recoverable:
Paid loss and loss adjustment expenses 6,089 5,401
Unpaid loss and loss adjustment expenses 28,021 21,903
Ceded unearned premiums 16,633 6,747
Deferred policy acquisition costs 19,411 22,147
Furniture, equipment and improvements, net 5,144 5,635
Income taxes recoverable 4,684 1,472
Other assets 11,164 8,676
-------------------- ---------------------
Total assets $248,224 $241,695
==================== =====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
-------------------- ---------------------
(unaudited)
<S> <C> <C>
Liabilities:
Unpaid losses and loss adjustment expenses $ 68,767 $ 56,466
Unearned premiums 61,511 51,736
Funds held 43,986 50,271
Bank indebtedness 14,500 14,500
Amounts due to reinsurers 4,305 2,181
Deferred Federal income taxes (535) 494
Other liabilities 10,166 9,245
-------------------- ---------------------
Total liabilities 202,700 184,893
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: 4,319,498 at June
30, 2000 and 4,328,592 at December 31, 1999 43 43
Additional paid-in capital 19,680 19,724
Accumulated other comprehensive income (1,231) (1,186)
Retained earnings 27,032 38,221
-------------------- ---------------------
Total stockholders' equity 45,524 56,802
-------------------- ---------------------
Total liabilities and stockholders' equity $248,224 $241,695
==================== =====================
See accompanying notes to interim consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in thousands)
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,992) $ 1,740 $ (11,189) $ 4,105
Adjustments to reconcile net income to cash provided
by operating activities:
Change in agents' balances and premiums receivable
and unearned premiums 3,911 (699) 3,429 (3,776)
Change in accrued investment income 65 58 69 (87)
Change in unpaid losses and loss adjustment expenses
13,941 (110) 12,301 (3,312)
Change in reinsurance recoverable on paid and
unpaid losses and loss adjustment expenses and
ceded unearned premiums (16,448) 2,854 (16,692) (234)
Change in amounts due to/from reinsurers 7,541 (6,250) 2,124 (4,062)
Change in other assets and other liabilities (6,844) (1,988) (7,531) (3,011)
Change in income taxes, net (5,617) 326 (4,218) 1,327
Change in deferred policy acquisition costs 5,739 (1,565) 2,736 (2,065)
Net realized gain (loss) on sale of investments
244 (1,297) (911) (2,037)
Net realized (gain)loss on sale of fixed assets 3 (1) 8 (5)
Provision for depreciation and amortization 443 454 904 947
---------------- ------------- ---------------- --------------
Net cash used by operating activities (9,014) (6,478) (18,970) (12,210)
Cash flows from investing activities:
Cash received from investments sold prior to
maturity 13,727 12,489 25,003 27,418
Cash received from investments matured or called
1,852 3,613 3,371 6,374
Cash paid for investments acquired (5,531) (13,907) (13,400) (30,928)
Amortization of discount on bonds (5) 47 (5) 93
Capital expenditures, net (191) (495) (421) (1,150)
Acquisition of agencies, net - - - 256
---------------- ------------- ---------------- --------------
Net cash provided by investing activities 9,852 1,747 14,548 2,063
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (continued)
(Dollars in thousands)
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock 22 51 52 409
Repurchase of common stock (96) - (96) -
Change in funds held (2,736) 2,566 (6,285) 9,863
Dividends paid - (389) - (777)
------------- ----------------
---------------- --------------
Net cash provided (used) by financing activities (2,810) 2,228 (6,329) 9,495
---------------- ------------- ---------------- --------------
Net decrease in cash and cash equivalents (1,972) (2,503) (10,751) (652)
Cash and cash equivalents at beginning of period 7,042 4,282 15,821 2,431
---------------- ------------- ---------------- --------------
Cash and cash equivalents at end of period $ 5,070 $ 1,779 $5,070 $1,779
================ ============= ================ ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 630 $493 $1,250 $1,047
Income taxes 150 654 152 655
See accompanying notes to interim consolidated financial statements.
</TABLE>
<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, 1999.
(2) Bank Covenant
The Company has entered into a revolving credit agreement, as amended,
with Union Bank for $15,000,000. At June 30, 2000, $14,500,000 of the
$15,000,000 line is currently utilized. 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 first
installment is due September 30, 2001. The interest rate at June 30,
2000 was 8.4%. 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 currently in violation of Section
5.13 of the revolving credit agreement pertaining to a minimum of
$32,500,000 in policyholders' surplus as well as Section 5.14
pertaining to a maximum operating leverage ratio of 3:1 for Amwest
Surety Insurance Company and its subsidiaries. The Company has provided
Union Bank with pertinent information regarding an action plan and is
currently seeking a waiver and amendment regarding this covenant.
Should the Company be unsuccessful in obtaining a waiver and amendment
regarding this covenant, the Company would be deemed to be in default
and all sums then owing would be due and immediately payable. In such
case, The Company would attempt to refinance the amounts owed to Union
Bank, however, no assurances can be given that the Company would be
successful in doing so.
(3) Earnings Per Share
Basic EPS is calculated based on the weighted average number of common
shares outstanding and diluted EPS includes the effects of dilutive
potential common shares. The calculation of basic and diluted EPS for
the three months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three months ended June 30,
Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount
($ in thousands) (Dollars)
------------------- -------------------- -------------------
<S> <C> <C> <C>
Basic EPS:
2000 $ (11,992) 4,332,889 $ (2.77)
1999 $ 1,740 4,318,254 $ .40
Effect of Dilutive Securities:
2000 0
1999 6,910
Diluted EPS:
2000 $ (11,992) 4,332,889 $ (2.77)
1999 $ 1,740 4,325,164 $ .40
</TABLE>
Diluted EPS for 2000 is the same as basic EPS because the result of the
calculation is antidilutive due to the net loss reported for the three
months ended June 30, 2000. Dilutive securities represent the Company's
stock options.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Gross premiums written increased 20% and 17% from $36,042,000 and
$68,177,000 for the three months and six months ended June 30, 1999,
respectively, to $43,275,000 and $79,947,000 for the three months and
six months ended June 30, 2000, respectively.
Gross premiums for the surety business increased 11% and 12% from
$28,916,000 and $53,949,000 for the three months and six months ended
June 30, 1999, respectively, to $31,960,000 and $60,662,000 for the
three months and six months ended June 30, 2000, respectively. The
increase is attributable to increased writings in the commercial surety
and court operations.
Gross premiums for the property and casualty business increased 59% and
36% from $7,126,000 and $14,228,000 for the three months and six months
ended June 30, 1999, respectively, to $11,315,000 and $19,285,000 for
the three months and six months ended June 30, 2000, respectively. The
increase is primarily due to increased writings in the commercial
trucking product, the California specialty motorcycle program and the
Florida homeowners program.
As of April 1, 2000, the Company entered into a 35% quota share
reinsurance agreement on it's surety business with Swiss Reinsurance
America Corporation. Premiums ceded under this contract amounted to
$18,890,000 during the three months ended June 30, 2000. With this
quota share agreement in place, net written premium decreased by 26%
for the quarter ended June 30, 2000.
Net premiums earned increased 1% and 7% from $26,986,000 and
$53,979,000 for the three months and six months ended June 30, 1999,
respectively, to $27,170,000 and $57,907,000 for the three months and
six months ended June 30, 2000, respectively. The growth in net
premiums earned for the three months and six months ended June 30, 2000
was lower than growth in premiums written due to higher premium
cessions in 2000 versus 1999 on the surety quota share reinsurance. 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 investment income decreased 8% and 1% from $1,705,000 and
$3,474,000 for the three months and six months ended June 30, 1999,
respectively, to $1,575,000 and $3,452,000 for the three months and six
months ended June 30, 2000, respectively. The decrease is due to a
decrease in the amount of average invested assets from $126,311,000 at
June 30, 1999 to $113,541,000 at June 30, 2000. Realized investment
gains decreased from $1,297,000 and $2,037,000 for the three months and
six months ended June 30, 1999, respectively, to a loss of $244,000 and
a gain of $911,000 for the three months and six months ended June 30,
2000, respectively. The investments sold during the three months and
six months ended June 30, 2000 were primarily equity securities and
convertible bonds.
Commissions and fees decreased 8% and increased 17% from $522,000 and
$1,129,000 for the three months and six months ended June 30, 1999,
respectively, to $481,000 and $1,324,000 for the three months and six
months ended June 30, 2000, respectively. The increase for the six
months ended June 30, 2000 is primarily due to an increase in fee
income on the funds control business offset by a decrease in fee income
from the Liberty Retail Bail division for the three months ended June
30, 2000.
<PAGE>
Net losses and loss adjustment expenses increased 182% and 119% from
$10,003,000 and $19,089,000 for the three months and six months ended
June 30, 1999, respectively, to $28,243,000 and $41,791,000 for the
three months and six months ended June 30, 2000, respectively. The loss
and loss adjustment expense ratio for the surety operations increased
from 18% and 22% for the three months and six months ended June 30,
1999, respectively, to 103% and 66% for the three months and six months
ended June 30, 2000, respectively, primarily due to net adverse
development of $4,676,000 for the 1999 loss year, increases in net
reserves for the 2000 loss year to bring it in line with the
development trends of the 1999 loss year, and changes in the Company's
reinsurance program which resulted in an increase in retained losses.
The 1999 and 2000 loss year development is the result of claims on
contract bonds with larger penal amounts, generally in excess of
$1,000,000. An analysis of the development on these bonds indicate that
these larger obligations tend to develop at a slower pace and are
generally more susceptible to issues of severity than smaller, less
complex obligations.
The loss and loss adjustment expense ratio for the property and
casualty operations decreased from 112% to 106% for the three months
ended June 30, 1999 and 2000, respectively, and increased slightly from
88% to 90% for the six months ended June 30, 1999 and 2000,
respectively. The commercial trucking insurance market has continued to
firm and the Company has been able to affect rate increases without
sacrificing policy retention.
Policy acquisition costs increased as a percentage of net premiums
earned from 47%, or $12,736,000, and 48%, or $25,923,000, for the three
months and six months ended June 30, 1999, respectively, to 51%, or
$13,807,000, and 50%, or $29,061,000, for the three months and six
months ended June 30, 2000, respectively. The increase in the ratio is
due to increased commission expense on the surety business offset
slightly by higher ceding commissions from the surety quota share
reinsurance.
General operating costs decreased as a percentage of net premiums
earned from 17%, or $4,558,000, and 16%, or $8,497,000, for the three
months and six months ended June 30, 1999, respectively, to 14%, or
$3,761,000, and 13%, or $7,814,000, for the three months and six months
ended June 30, 2000, respectively. The improvement in the general
operating cost ratio is a continuation of the Company's ability to
service increased writings without corresponding increases in home
office expenses.
Interest expense increased 28% and 19% from $493,000 and $1,047,000 for
the three months and six months ended June 30, 1999, respectively, to
$630,000 and $1,250,000 for the three months and six months ended June
30, 2000, respectively. The increase is attributable to an increase in
average funds held on which the Company pays interest from $35,474,000
for the six months ended June 30, 1999 to $47,129,000 for the six
months ended June 30, 2000.
Income before income taxes decreased from $2,720,000 and $6,063,000 for
the three months and six months ended June 30, 1999, respectively, to a
loss of $17,459,000 and $16,322,000 for the three months and six months
ended June 30, 2000, respectively, due to the factors outlined above.
The effective tax rate was 36% and 32% for the three months and six
months ended June 30, 1999 as compared to a benefit of 31% for the
three months and six months ended June 30, 2000. 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 certain non-deductible expenses. The Company has
recorded for the six months ended June 30, 2000 its estimated effective
tax rate for the year based on current underwriting and investment
income recorded. Changes to the Company's estimated effective tax rate
are recorded quarterly.
<PAGE>
Net income decreased from $1,740,000 and $4,105,000 for the three
months and six months ended June 30, 1999, respectively, to a net loss
of $11,992,000 and $11,189,000 for the three months and six months
ended June 30, 2000, respectively, due to the factors outlined above.
Liquidity and Capital Resources
As of June 30, 2000, the Company held total cash and cash equivalents
and invested assets of $111,548,000. This amount includes an aggregate
of $43,986,000 in funds held which is shown as a liability on the
Company's consolidated balance sheets. As of June 30, 2000, the
Company's invested assets consisted of $86,751,000 in fixed maturities,
$5,134,000 in common equity securities, $3,390,000 in preferred equity
securities, $7,977,000 in other invested assets and $3,226,000 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.
The Company has entered into a revolving credit agreement, as amended,
with Union Bank for $15,000,000. At June 30, 2000, $14,500,000 of the
$15,000,000 line is currently utilized. 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 first
installment is due September 30, 2001. The interest rate at June 30,
2000 was 8.4%. 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 currently in violation of Section
5.13 of the revolving credit agreement pertaining to a minimum of
$32,500,000 in policyholders' surplus as well as Section 5.14
pertaining to a maximum operating leverage ratio of 3:1 for Amwest
Surety Insurance Company and its subsidiaries. The Company has provided
Union Bank with pertinent information regarding an action plan and is
currently seeking a waiver and amendment regarding this covenant.
Should the Company be unsuccessful in obtaining a waiver and amendment
regarding this covenant, the Company would be deemed to be in default
and all sums then owing would be due and immediately payable. In such
case, the Company would attempt to refinance the amounts owed to Union
Bank, however, no assurances can be given that the Company would be
successful in doing so.
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 minimum commitment with
respect to this lease in 2000 is approximately $447,000. The Company
also has the option to purchase this office building and land
commencing on April 27, 2000 and extending for a six month period at a
predetermined rate for the building, with the value of land based on
then existing market rates. The Company has exercised such option in
the second quarter of 2000 and expects to finalize the transaction by
the end of the third quarter of 2000.
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 used $6,478,000 and $12,210,000 in cash from operating
activities for the three months and six months ended June 30, 1999,
respectively, as compared to using $9,014,000 and $18,970,000 for the
three months and six months ended June 30, 2000, respectively. The
Company generated $1,747,000 and $2,063,000 in cash from investing
activities for the three months and six months ended June 30, 1999,
respectively, as compared to generating $9,852,000 and $14,548,000 for
the three months and six months ended June 30, 2000, respectively. The
Company generated $2,228,000 and $9,495,000 in cash from financing
activities for the three months and six months ended June 30, 1999,
respectively, as compared to using $2,810,000 and $6,329,000 for the
three months and six months ended June 30, 2000, respectively. The cash
used for operating activities increased primarily due to operating
losses for the six months ended June 30, 2000, changes in the
Company's reinsurance program, and a reduction in funds held as
collateral. The cash used for operating activities during the period
was primarily funded by investing activities.
As a result of significant operating losses experienced during the
first six months of 2000, the Company's capital levels have materially
decreased. Such decreases could result in regulatory action and a
possible rating reduction from A.M. Best and other industry rating
agents. The Company is currently undergoing an intensive analysis of
operations designed to improve operating results, however, the Company
believes it must quickly raise additional capital or enter into one or
more strategic alliances which would provide same. The Company has
engaged Cochran, Caronia & Co. LLC, an investment banking firm, to
immediately seek strategic alliances or other capital-raising
alternatives on behalf of the Company. No assurances can be given such
efforts will succeed.
Other Matters
Year 2000 issues:
The Company did not experience material Year 2000 problems and does
not expect to incur any significant additional costs related to
Year 2000 matters.
Other issues:
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: the
ineffectiveness of changes made by management, a deterioration in
premiums written or losses incurred in the Company's surety and other
specialty businesses, the ability to achieve increased percentage
writings of commercial surety and court products, the lack of adherence
by branch personnel to Company underwriting guidelines, failure of the
Company to improve its leverage which could result in a reduction in
the ratings from A.M. Best and other industry rating agencies, the
ability of the Company to obtain a waiver or amendment regarding a
covenant included in the Company's revolving bank credit agreement,
failure of the Company to raise additional capital or to sucessfully
consumate a strategic alliance, a reduction in the investment yield
earned on the Company's investment portfolio, or 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES
SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE
(Dollars in thousands)
Three months ended Six months ended Year ended
June 30, June 30, December 31,
Type of Bond 2000 1999 2000 1999 1999 1998
------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Surety
Gross premiums written $31,960 $28,916 $60,662 $53,949 $108,184 $102,270
Net premiums earned 19,327 21,395 42,935 42,895 85,500 84,166
Net losses and loss adjustment
expenses 19,948 3,747 28,328 9,388 27,373 23,262
Loss and loss adjustment expense
ratio 103% 18% 66% 22% 32% 28%
Property & Casualty
Gross premiums written $ 11,315 $ 7,126 $19,285 $14,228 $28,304 $30,549
Net premiums earned 7,843 5,591 14,972 11,084 25,044 21,805
Net losses and loss adjustment
expenses 8,295 6,256 13,463 9,701 20,937 17,569
Loss and loss adjustment expense
ratio 106% 112% 90% 88% 84% 81%
Total Company
Gross premiums written $43,275 $36,042 $79,947 $68,177 $136,488 $132,819
Net premiums earned 27,170 26,986 57,907 53,979 110,544 105,971
Net losses and loss adjustment
expenses 28,243 10,003 41,791 19,089 48,310 40,831
Loss and loss adjustment expense
ratio 104% 37% 72% 35% 44% 39%
</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 19, 2000.
(b) (i) The following directors were elected to serve
until the 2003 Annual Meeting of Stockholders or
until their successors have been duly elected and
qualified:
Richard H. Savage
Neil F. Pont
Charles L. Schultz
(ii) The other directors whose terms of office
continued after the meeting are:
John E. Savage
Thomas R. Bennett
Bruce A. Bunner
Robert W. Kleinschmidt
Guy A. Main
Arthur F. Melton
Roland D. Miller
(c) (i) Of the 3,506,756 shares represented at the
meeting, the directors named in (b) (i) above were
elected by the following votes:
No. of Votes Received
Withhold
Name For Authority
Richard H. Savage 3,467,884 38,872
Neil F. Pont 3,112,604 394,152
Charles L. Schultz 3,467,584 39,172
<PAGE>
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the Exhibit Index on page 17.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three months ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMWEST INSURANCE GROUP, INC.
Date: August 14, 2000 by: /s/ JOHN E. SAVAGE
-------------------------------------
John E. Savage
President, Co-Chief Executive Officer
and Chief Operating Officer
(Principal Executive Officer)
by: /s/ PHILLIP E. HUFF
-------------------------------------
Phillip E. Huff
Senior Vice-President,
Treasurer
(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
10.1 Consulting Agreement with Richard H. Savage dated
May 21, 1999 Exhibits
10.2 Aggregate Stop Loss Reinsurance Contract effective
April 1, 2000 issued to Amwest Surety Insurance
Company, Far West Insurance Company and Condor
Insurance Company by Underwriters Reinsurance
Company (Barbados) Inc. Exhibits
10.3 Quota Share Reinsurance Agreement effective April 1,
2000 issued to Amwest Surety Insurance Company
and Far West Insurance Company by Swiss Reinsurance
America Corporation. Exhibits
11 Statement re computation of per share earnings Page 8, Note 3
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
