<
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Commission File Number 333-42749
AMERICAN SAFETY INSURANCE GROUP, LTD.
(Exact name of Registrant as specified in its charter)
Bermuda Not Applicable
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
44 Church Street
P.O. Box HM2064
Hamilton HM HX, Bermuda
(Address, zip code of principal executive offices)
(441) 296-8560
(Registrant's telephone number, including area code)
--------------
Indicate by check mark whether 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No___
The aggregate number of shares outstanding of Registrant's common stock, $.01
par value, on November 10, 1999 was 5,909,600.
<PAGE>
AMERICAN SAFETY INSURANCE GROUP, LTD.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risks............................................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 17
Item 2. Changes in Securities and Use of Proceeds.................... 17
Item 3. Defaults Upon Senior Securities.............................. 17
Item 4. Submission of Matters to a Vote of Security Holders.......... 17
Item 5. Other Information............................................ 17
Item 6. Exhibits and Reports on Form 8-K............................. 17
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31, September 30,
Assets 1998 1999
------ ------------ ---------
(unaudited)
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities $45,308,326 $39,313,312
Common stock 3,453,123 1,600,959
Investment in real estate - 11,122,271
Short-term investments 2,286,320 8,587,532
----------- -----------
Total investments 51,047,769 60,624,074
Cash 4,737,132 2,315,700
Accrued investment and interest income 2,441,857 2,379,214
Notes receivable:
Related parties 280,000 -
Other 15,939,894 11,064,255
Premiums receivable 5,838,567 10,603,797
Commissions receivable 22,569 259,013
Ceded unearned premium 1,742,021 2,932,303
Reinsurance recoverable 1,840,884 3,137,802
Due from affiliate 668,074 301,603
Income tax recoverable 277,292 160,946
Deferred income taxes 362,951 587,271
Property, plant and equipment 185,807 1,094,349
Goodwill 252,239 238,910
Fund held by reinsureds - 318,400
Other assets 510,416 935,544
----------- -----------
Total assets $86,147,472 $96,953,181
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment
expenses $14,700,473 $18,311,237
Unearned premiums 3,894,568 6,568,849
Liability for deductible fees held 244,998 -
Reinsurance on paid loss and loss
adjustment expenses 380,858 1,097,332
Reinsurance deposits on retroactive
contract 332,430 89,389
Ceded premiums payable 4,382,922 6,973,157
Due to affiliate:
Ceded premiums payable 201,778 110,044
Reinsurance on paid loss and loss
adjustment expenses 52,151 247,833
Accounts payable and accrued expenses 2,688,001 1,344,255
Collateral held - 949,068
----------- -----------
Total liabilities 26,878,179 35,691,164
----------- -----------
Shareholders' equity:
Preferred stock, $0.01 par value;
authorized 5,000,000 shares; no shares
issued and outstanding
Common stock, $0.01 par value; authorized 15,000,000 shares; issued and
outstanding at December 31, 1998, 6,074,770 shares, and at
September 30, 1999, 5,934,200 shares 60,747 60,777
Treasury Stock - (1,101,144)
Additional paid-in capital 33,809,141 33,810,387
Retained earnings 24,705,471 29,225,309
Other comprehensive income 693,934 (733,312)
----------- -----------
Total shareholders' equity 59,269,293 61,262,017
----------- -----------
Total liabilities and
shareholders' equity $86,147,472 $96,953,181
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-3-
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------
1998 1999 1998 1999
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Direct premiums earned $1,051,603 $2,212,188 $3,086,805 $5,325,894
Assumed premiums earned:
Affiliate 1,015,857 799,131 2,429,850 2,383,284
Nonaffiliates 895,562 2,279,402 3,936,552 6,066,682
--------- --------- --------- ---------
Total assumed premiums earned 1,911,419 3,078,533 6,366,402 8,449,966
--------- --------- --------- ---------
Ceded premiums earned:
Affiliate 677,600 1,082,486 2,111,717 3,085,890
Nonaffiliates 485,547 682,013 1,264,067 1,108,583
------- --------- --------- ---------
Total ceded premiums earned 1,163,147 1,764,499 3,375,784 4,194,473
--------- --------- --------- ---------
Net premiums earned 1,799,875 3,526,222 6,077,423 9,581,387
--------- --------- --------- ----------
Net investment income 825,279 746,194 2,307,049 2,159,959
Interest on notes receivable 791,060 512,289 1,486,678 2,019,851
Brokerage commission income 229,392 276,800 890,342 771,034
Management fees from affiliate 183,186 206,769 549,722 562,804
Net realized gains (losses) 60,529 120,207 155,608 218,064
Other income 3,900 245,007 15,483 706,056
--------- --------- --------- ----------
Total revenues 3,893,221 5,633,488 11,482,305 16,019,155
--------- --------- ---------- ----------
Expenses:
Losses and loss adjustment expenses
incurred 1,150,611 2,147,664 3,621,763 5,567,194
Acquisition expenses (85,635) 193,644 334,584 865,060
Payroll and related expenses 866,008 1,153,340 2,498,671 3,496,027
Other expenses 433,574 591,804 853,406 1,537,254
--------- --------- --------- ---------
Total expenses 2,364,558 4,086,452 7,308,424 11,465,535
--------- --------- --------- ----------
Earnings before income taxes 1,528,663 1,547,036 4,173,881 4,553,620
Income taxes (69,520) 187,773 (29,862) 33,782
----------- ---------- ---------- ----------
Net earnings $1,598,183 $1,359,263 $4,203,743 $4,519,838
========== ========== ========== ==========
Net earnings per share:
Basic $ 0.26 $ 0.23 $ 0.76 $ 0.75
========== ========= ========== ==========
Diluted $ 0.26 $ 0.23 $ 0.75 $ 0.74
========== ========= ========== ==========
Common shares used in computing earnings per share:
Basic 6,074,770 6,009,208 5,522,497 6,050,059
========= ========= ========= =========
Diluted 6,119,089 6,027,667 5,607,457 6,077,700
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-4-
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1999
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 4,203,743 $ 4,519,838
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Realized losses (gains) on sale of investments (155,608) (218,064)
Amortization of deferred acquisition costs 343,967 1,195,038
Change in:
Accrued investment and interest income (1,415,097) (917,477)
Premiums receivable 418,800 (4,765,230)
Commissions receivable (21,968) (236,444)
Reinsurance recoverable and ceded unearned premiums (795,310) (2,487,200)
Funds held by reinsured - (318,401)
Due from affiliate 60,580 366,471
Income taxes (48,125) (107,974)
Unpaid losses and loss adjustment expenses 1,105,994 3,610,764
Unearned premiums 2,107,057 2,674,281
Liability for deductible fees held (850,735) (488,039)
Ceded premiums payable (2,605,124) 2,590,235
Due to affiliate 665,574 103,948
Accounts payable and accrued expenses 880,493 (1,343,746)
Collateral - 949,068
Other, net (156,138) (526,928)
----------- -----------
Net cash provided by operating activities 3,738,103 4,600,140
---------- ----------
Cash flow from investing activities:
Purchases of fixed maturities (72,086,248) (5,765,209)
Purchases of Equity Investments (3,527,435) (1,321,179)
Proceeds from maturity and redemption of fixed maturities 7,441,489 8,083,197
Proceeds from sale of fixed maturities 44,773,017 2,103,289
Proceeds from sale of equity investments 330,941 3,065,525
Decrease (increase) in Investment in Real Estate - (887,328)
Decrease (increase) in short-term investments 786,781 (6,301,212)
Decrease (increase) in notes receivable - related parties - 280,000
Decrease (increase) in notes receivable - other (9,025,384) (4,287,138)
Purchase of fixed assets, net (68,137) (891,649)
------------ -----------
Net cash used in investing activities (31,374,976) (5,921,704)
------------ -----------
Cash flow from financing activities:
Proceeds from sale of common stock 31,102,975 1,276
Purchase of treasury stock - (1,101,144)
---------- -------------
Net cash used in financing activities 31,102,975 (1,099,868)
---------- -------------
Net increase (decrease) in cash 3,446,102 (2,421,432)
Cash at beginning of period 2,768,831 4,737,132
---------- ----------
Cash at end of period $6,234,933 $2,315,700
========== ==========
NONCASH ITEMS Operating activities:
Change in accrued interest income - 980,120
Investing activities:
Decrease in notes receivable-other 9,162,777
Purchase of real estate - (10,142,897)
Financing activities:
No activity - -
---------- ----------
Net noncash adjustments - -
========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-5-
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine Months ended
September 30, September 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
--------------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net earnings $1,598,182 $1,359,263 $4,203,742 $4,519,838
Other comprehensive earnings before income taxes:
Unrealized gains (losses) on securities
available for sale 857,248 (564,704) 748,235 (1,687,589)
Reclassification adjustment for
realized gains included in net
earnings 60,529 120,207 155,608 126,018
--------- -------- --------- ----------
Total other comprehensive earnings
(loss) before taxes 917,777 (444,497) 903,843 (1,561,571)
Income tax expense (benefit) related to
items of comprehensive income 70,192 (22,649) 45,757 (134,325)
--------- --------- --------- -----------
Other comprehensive earnings (loss)
net of income taxes 847,585 (421,848) 858,086 (1,427,246)
--------- --------- --------- -----------
Total comprehensive earnings $2,445,767 $937,415 $5,061,828 $3,092,592
========= ======= ========= =========
See accompanying notes to consolidated financial statements (unaudited).
</TABLE>
-6-
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
American Safety Insurance Group, Ltd. ("American Safety") and its subsidiaries
(collectively, the "Company") are prepared in accordance with generally accepted
accounting principles in the United States and, in the opinion of management,
reflect all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation of the interim period presented. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates, based on the best
information available, in recording transactions resulting from business
operations. The balance sheet amounts that involve a greater extent of
accounting estimates and actuarial determinations subject to future changes are
the Company's liabilities for unpaid losses and loss adjustment expenses. As
additional information becomes available (or actual amounts are determinable),
the recorded estimates may be revised and reflected in operating results. While
management believes that the liability for unpaid losses and loss adjustment
expenses is adequate to cover the ultimate liability, such estimates may be more
or less than the amounts actually paid when claims are settled.
The results of operations for the nine months ended September 30, 1999 may
not be indicative of the results that may be expected for the full year ending
December 31, 1999. These unaudited interim consolidated financial statements and
notes should be read in conjunction with the financial statements and notes
included in the audited consolidated financial statements of American Safety and
its subsidiaries for the year ended December 31, 1998.
The unaudited interim consolidated financial statements include the
accounts of American Safety and each of its subsidiaries. All significant
intercompany balances have been eliminated.
Note 2 - Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA")issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 is effective
for years beginning after December 15, 1998. The SOP specifies the types of
costs that should be capitalized and those that should be expensed as incurred
in connection with an internal-use software project. Capitalized costs begin
amortizing when the software is ready for its intended use, regardless of when
it is placed in service. Companies are required to evaluate capitalized costs
for impairment using estimated future cash flows to determine if the asset is
impaired. Implementation of this statement did not have a material impact on the
Company's consolidated financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for years
beginning after June 15, 2000. The standard requires that all derivatives be
recorded as an asset or liability, at estimated fair value, regardless of the
purpose or intent for holding the derivative. If a derivative is not utilized as
a hedge, all gains or losses from the change in the derivative's estimated fair
value are recognized in earnings. The gains or losses from the change in
estimated fair value of certain derivatives utilized as hedges are recognized in
earnings or other comprehensive income depending on the type of hedge
relationship. The Company expects that adoption of SFAS No. 133 will have an
immaterial impact on the Company's consolidated financial position and results
of operations.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." SOP 97-3 suggests methods
to determine when an entity should recognize a liability for guaranty fund and
other insurance-related assessments, how to measure that liability, and when an
asset may be recognized for the recovery of such assessments through premium tax
offsets or policy surcharges. SOP 97.3 is effective for 1999, and the effect of
initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed.
Implementation of this statement did not have a material impact on the Company's
consolidated financial position and results of operations.
-7-
<PAGE>
In October 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk".
SOP 98-7 provides guidance on how to account for insurance and reinsurance
contracts that do not transfer insurance risk. It applies to all entities and
all insurance and reinsurance contracts that do not transfer insurance risk
except for long-duration life and health insurance contracts. The method used to
account for insurance and reinsurance contracts that do not transfer insurance
risk is referred to as deposit accounting. SOP 98-7 does not address when
deposit accounting should be applied. SOP 98-7 is effective for financial
statements for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. Restatement of previously issued annual financial statements would
not be permitted. The effect of initially adopting SOP 98-7 should be reported
as a cumulative effect of a change in accounting principle (in accordance with
the provisions of Accounting Principles Board Opinion No. 20, Accounting
Changes). Implementation of SOP 98-7 did not have a material impact on the
Company's consolidated financial position and results of operations.
Note 3 - Nature of Operations
The following is a description of certain risks facing casualty insurers:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory
environment in which an insurer operates which will create additional expenses
not anticipated by the insurer in pricing its products and beyond those recorded
in the financial statements. Regulatory initiatives designed to reduce insurer
profits or otherwise affecting the industry in which the Company operates, new
legal theories or insurance company insolvencies through guaranty fund
assessments, may create costs for the Company beyond those recorded in the
financial statements. The Company attempts to mitigate this risk by writing
insurance business in several states, thereby spreading this risk over a large
geographic area.
Potential Risk of United States Taxation of Bermuda Operations. Under
current Bermuda law, American Safety is not required to pay any taxes in Bermuda
on either income or capital gains. American Safety has received an undertaking
from the Minister of Finance in Bermuda that will exempt American Safety from
taxation until the year 2016 in the event of any such taxes being imposed. The
Company, exclusive of its United States subsidiaries, does not consider itself
to be engaged in a trade or business in the United States and accordingly does
not expect to be subject to direct United States income taxation. The Company's
U.S. subsidiaries are subject to taxation in the United States.
Whether a foreign corporation is engaged in a United States trade or
business or is carrying on an insurance business in the United States depends
upon the level of activities conducted in the United States. If the activities
of a foreign company are "continuous, regular, and considerable," the foreign
company will be deemed to be engaged in a United States trade or business. Due
to the fact that American Safety will continue to maintain an office in Bermuda
and American Safety and its Bermuda subsidiary's business is reinsuring
contracts via treaty reinsurance agreements, which are all signed outside of the
United States, American Safety does not consider itself to be engaged in a trade
or business in the United States and, accordingly, does not expect to be subject
to United States income taxes. This position is consistent with the position
taken by various other entities that have the same operational structure as
American Safety.
However, because the Internal Revenue Code of 1986, as amended, the
Treasury Regulations and court decisions do not definitively identify activities
that constitute being engaged in a United States trade or business, and because
of the factual nature of the determination, there can be no assurance that the
Internal Revenue Service will not contend that American Safety or its Bermuda
subsidiary are engaged in a United States trade or business. In general, if
American Safety or its Bermuda subsidiary are considered to be engaged in a
United States trade or business, it would be subject to (i) United States
Federal income tax on its taxable income that is effectively connected with a
United States trade or business at graduated rates and (ii) the 30 percent
branch profits tax on its effectively connected earnings and profits deemed
repatriated from the United States.
Credit Risk is the risk that issuers of securities owned by the Company or
secured notes receivable will default or that other parties, including
reinsurers that have obligations to the
-8-
<PAGE>
insurer, will not pay or perform. The Company attempts to mitigate this risk by
adhering to a conservative investment strategy, by obtaining sufficient
collateral for secured note obligations and by maintaining sound reinsurance,
credit and collection policies.
Interest Rate Risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company attempts to
mitigate this risk by attempting to match the maturities of its assets with the
expected payouts of its liabilities.
Note 4 - Investments
The amortized cost and estimated fair values of investments at December 31,
1998 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Amount at
which shown
Gross Gross in the
Amortized unrealized unrealized Estimated balance
Cost gains losses fair value sheet
-------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $13,365,480 332,997 50,997 13,647,480 13,647,480
Obligations of states and
political subdivisions 6,465,377 284,486 1,179 6,748,684 6,748,684
Corporate securities 19,688,443 364,650 53,841 19,999,252 19,999,252
Mortgage-backed securities 5,008,835 7,820 103,745 4,912,910 4,912,910
---------- -------- ------- ---------- ----------
Total fixed maturities 44,528,135 989,953 209,762 45,308,326 45,308,326
Equity investments - common
stocks 3,439,710 23,962 10,549 3,453,123 3,453,123
---------- -------- ------- ---------- ----------
Total $47,967,845 1,013,915 220,311 48,761,449 48,761,449
========== ========= ======= ========== ==========
September 30, 1999:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 13,570,154 31,798 413,387 13,188,565 13,188,565
Obligations of states and
political subdivisions 6,538,394 76,168 69,899 6,544,663 6,544,663
Corporate securities 16,297,369 1,391 407,505 15,891,255 15,891,255
Mortgage-backed securities 3,673,926 108,246 93,343 3,688,829 3,688,829
---------- ------- ------- ---------- ----------
Total fixed maturities 40,079,843 217,603 984,134 39,313,312 39,313,312
Equity investments - common stocks 1,602,395 1,436 1,600,959 1,600,959
---------- ------- ------- ---------- ----------
Total $41,682,238 217,603 985,570 40,914,271 40,914,271
========== ======= ======= ========== ==========
</TABLE>
Note 5 - Segment Information
(a) Factors used to identify the Company's reportable segments:
The Company's United States and Bermuda operating segments were identified
by management as separate operating segments based upon the regulatory
environments of each of these countries. Significant differences exist
under United States and Bermuda law concerning the regulation of insurance
entities including differences in: types of permissible investments,
minimum capital requirements, solvency monitoring, pricing, corporate
taxation, etc.
(b) Products and services from each reportable segment:
The Company's United States and Bermuda operating segments, develop,
underwrite, manage and market primary casualty insurance and reinsurance
programs in the alternative insurance market for environmental remediation
risks; employee leasing and staffing industry risks; and other specialty
risks. The Company has demonstrated expertise in developing specialty
insurance coverages and custom designed risk management programs not
generally available in the standard insurance market.
The United States operating segment's specialty insurance programs provide
insurance and reinsurance for general, pollution and professional liability
exposures, for workers' compensation and surety, as well as custom designed
risk management programs for contractors, consultants and other business
and property owners who are involved with environmental remediation,
employee leasing and staffing, and other specialty risks.
Through its United States brokerage and management services subsidiaries,
the Company also provides specialized insurance program development,
underwriting, risk and reinsurance placement, program management,
brokerage, loss control, claims administration and marketing services. The
Company also insures and places risks through its United States insurance
subsidiary, as well as its non-subsidiary risk retention group affiliate
and other unaffiliated insurance and reinsurance companies.
Through its Bermuda operating segment, the Company places and reinsures a
portion of the risks underwritten directly by its United States segment,
its risk retention group affiliate and other insurers.
(c) Information about segment profit or loss and assets:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1999 1998 1999
United States
<S> <C> <C> <C> <C>
Net Premiums Earned - All Other 1,206,991 3,018,227 2,599,658 7,663,886
Net Premiums Earned -
Intersegment (246,927) (1,121,623) 359,337 (2,870,232)
Net investment income and
interest on notes receivable 261,469 192,461 739,813 558,043
Other revenues 466,455 758,090 1,640,302 2,393,802
--------- --------- ----------- ----------
Total Revenues 1,687,988 2,847,155 5,339,110 7,745,499
Depreciation and amortization
expense 23,106 24,699 60,922 71,097
Equity in net earnings of
subsidiaries - 436,628 - 436,628
Income taxes (69,520) 187,773 (29,862) 33,782
Segment profit (loss) 3,129 429,961 263,767 146,094
Significant noncash items other
than depreciation and
amortization - - - -
Property, plant and equipment 191,239 228,762
Total investments 14,455,281 12,777,808
Total assets 27,697,356 42,690,975
Total policy and contract 10,389,367 18,797,327
liabilities
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Total liabilities 17,427,594 33,292,874
Bermuda
Net Premiums Earned - All Other 592,884 507,995 3,477,765 1,917,501
Net Premiums Earned -
Intersegment 246,927 1,121,623 (359,337) 2,870,232
Net investment income and
interest on notes receivable 1,354,870 1,066,022 3,053,914 3,621,767
Other revenues 56,108 240,262 151,187 249,941
---------- --------- --------- ---------
Total revenues 2,250,789 2,935,902 6,323,529 8,659,441
Depreciation and amortization
expense - - - -
Equity in net earnings of
subsidiaries 807,537 319,232 1,631,448 1,718,391
Income Taxes - - - -
Segment profit (loss) 1,595,052 929,302 3,939,975 4,373,744
Significant noncash items other
than depreciation and
amortization - - - -
Property, plant and equipment - 865,587
Total investments 48,315,253 39,667,590
Total assets 72,663,021 76,243,379
Total policy and contract
liabilities 10,995,115 12,754,433
Total liabilities 14,665,914 14,981,362
Intersegment Eliminations
Net Premiums Earned - All Other - - - -
Net Premiums Earned -
Intersegment - - - -
Net investment income and
interest on notes receivable - - - -
Other revenues (45,556) (149,569) (180,334) (385,785)
----------- --------- ----------- -----------
Total revenues (45,556) (149,569) (180,334) (385,785)
Depreciation and amortization
expense - - - -
Equity in net earnings of
subsidiaries (807,537) (755,860) (1,631,448) (2,155,019)
Income taxes - - - -
Segment profit (loss) - - - -
Significant noncash items other
than depreciation and
amortization - - - -
Property, plant and equipment - -
Total investments (10,269,762) (9,397,445)
Total assets (14,709,420) (21,509,860)
Total policy and contract
liabilities (4,268,312) (6,200,361)
Total liabilities (4,439,657) (12,111,759)
Total
Net Premiums Earned - All Other 1,799,875 3,526,222 6,077,423 9,581,387
Net Premiums Earned -
Intersegment - - - -
Net investment income and
interest on notes receivable 1,616,339 1,258,483 3,793,727 4,179,810
Other revenues 477,007 848,783 1,611,155 2,257,958
---------- ---------- ----------- ----------
Total revenues 3,893,221 5,633,488 11,482,305 16,019,155
Depreciation and amortization
expense 23,106 24,699 60,922 71,097
Equity in net earnings of
subsidiaries - - - -
Income taxes (69,520) 187,773 (29,862) 33,782
Segment profit (loss) 1,598,181 1,359,263 4,203,742 4,519,838
-10-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Significant noncash items other
than depreciation and
amortization - - - -
Property, plant and equipment 191,239 1,094,349
Total investments 55,500,772 43,047,953
Total assets 85,650,957 97,424,494
Total policy and contract
liabilities 17,116,170 25,351,399
Total liabilities 27,653,851 36,162,477
</TABLE>
Note 6 - Shareholder Matters
Effective February 1, 1999, the Company's Board of Directors authorized a
share repurchase program. During the quarter ended September 30, 1999, the
Company repurchased 127,350 shares of its stock at a total price of $986,790 in
open market transactions.
Note 7 - Notes Receivable
On May 29, 1998, American Safety Reinsurance, Ltd. ("American Safety Re"),
a subsidiary of Registrant, purchased an existing secured loan in the original
principal amount of $8,850,000 (the "Project Loan") from an affiliate of
Citibank Mortgage Corp., which loan was made to Ponce Marina, Inc. (the
"Developer") in connection with its planned development of 710 condominium
units, a marina with 142 condominium boat slips and a yacht club, a beach club
and a par 3 golf course on a 172 acre site located in Ponce Inlet, Florida (the
"Property"). American Safety Re purchased the Project Loan at a discount for
$5,850,082, and made additional advances to the Developer and incurred other
Property related costs totaling $2,009,815 following its purchase of the Project
Loan. The Developer was unable to obtain construction financing for the Property
and failed to make a $6,400,000 payment on the Project Loan due March 31, 1999.
Immediately following the Developer's default, American Safety Re obtained a
judgment against the Developer for $12,117,857 (which includes accrued
interest), foreclosed on the Property and received a certificate of title to the
Property on April 13, 1999. American Safety Re has invested through September
30, 1999, a total of $11,122,271 (which includes accrued interest) in the
Project Loan and the Property. As a result of the Developer's default on the
Project Loan, the Company's operating results for the quarter ended September
30, 1999 were reduced by approximately $300,000 in interest on notes receivable
(or $0.05 per share).
American Safety Re has entered into a contract to sell the Property which
is subject to customary real estate contract contingencies. The Property was
recently appraised for a third party by an independent appraisal firm for an
amount substantially in excess of American Safety Re's investment in the Project
Loan.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
American Safety is a specialty insurance and financial services holding
company which, through its subsidiaries, develops, underwrites, manages and
markets primary casualty insurance and reinsurance programs in the alternative
insurance market for environmental remediation risks, employee leasing and
staffing industry risks, and other specialty risks, as well as provides a broad
range of financial services and products to middle market businesses. The
Company has demonstrated expertise in developing specialty insurance coverages
and custom designed risk management programs not generally available in the
standard insurance market.
The Company's specialty insurance programs include coverages for general
liability, pollution liability, professional liability, workers' compensation
and surety, as well as custom designed risk management programs (including
captive and rent-a-captive programs), for contractors, consultants and other
businesses and property owners who are involved with environmental remediation
or exposures, employee leasing and staffing, and other specialty risks. Through
its U.S. brokerage and management services subsidiaries, the Company also
provides
-11-
<PAGE>
specialized insurance program development, underwriting, risk placement,
reinsurance, program management, brokerage, loss control, claims administration
and marketing services.
The Company insures and places risks through its U.S. insurance subsidiary,
American Safety Casualty Insurance Company, as well as its non-subsidiary risk
retention group affiliate, American Safety Risk Retention Group, Inc., and
substantial unaffiliated insurance and reinsurance companies. The Company also
reinsures and places, through its Bermuda reinsurance subsidiary, American
Safety Reinsurance, Ltd., and substantial unaffiliated reinsurers, a portion of
the risk underwritten directly by its U.S. insurance subsidiary, its risk
retention group affiliate and other insurers. Substantially all of the
reinsurance business that the Company currently assumes is for primary insurance
programs that the Company has developed and underwritten.
The Company is able to select its roles as program developer, primary
underwriter, reinsurer, program manager and broker based on its assessment of
each risk profile. After determining its roles, the Company utilizes its
insurance and reinsurance subsidiaries, its insurance brokerage and management
services subsidiaries, and its risk retention group affiliate to generate risk
premium revenues, program management fees, insurance and reinsurance commissions
and investment income as appropriate.
A.M. Best Company ("A.M. Best"), an independent nationally recognized
insurance rating service and publisher, has assigned a rating of "A (Excellent)"
on a group basis to American Safety, as well as its U.S. insurance subsidiary
and its non-subsidiary risk retention group affiliate. A.M. Best's ratings are
an independent opinion of an insurer's ability to meet its obligations to
policyholders, which opinion is of concern primarily to policyholders, insurance
agents and brokers, and should not be considered an investment recommendation.
The Company's consolidated financial position and results of operation are
subject to change based on various factors, including competitive conditions in
the insurance industry, unpredictable developments in loss trends, changes in
loss reserves, market acceptance of new coverages and enhancements, and changes
in levels of general business activity and economic conditions. During this
decade, the Company has operated in a soft market cycle which is characterized
by excess insurance capacity and declining insurance premium rates. The
Company's reported combined ratio for its insurance operations may not provide
an indication of the Company's overall profitability from insurance and
reinsurance programs due to the exclusion of fee and commission income and
expenses generated in related management and agency subsidiaries.
Certain of the Company's insurance policies and reinsurance assumed,
including general and pollution liability policies covering environmental
remediation risks, as well as workers' compensation policies, may be subject to
claims brought years after an incident has occurred or the policy period has
ended. The Company is required to maintain reserves to cover its estimated
liability for losses and loss adjustment expenses with respect to reported and
unreported claims incurred. The Company engages an independent internationally
recognized actuarial consulting firm to provide reserve studies, opinions and
rate studies. Reserves are estimates at a given time, which are established from
actuarial and statistical projections by the Company of the ultimate settlement
and administration costs of claims occurring on or prior to such time, including
claims that have not yet been reported to the insurer. The establishment of
appropriate loss reserves is an inherently uncertain process, and there can be
no assurance that the ultimate payments will not materially exceed the Company's
reserves.
Any statements made in this Report that are not based on historical
information are deemed to be "forward-looking statements" under applicable
federal securities laws. Forward-looking statements reflect the Company's
current views with respect to future events and financial performance and
involve risks and uncertainties which may cause actual results to differ.
Forward-looking statements are subject to change based on various factors,
including competitive conditions in the insurance industry, unpredictable
developments in loss trends, changes in loss reserves, market acceptance of new
coverages and enhancements, changes in levels of general business activity and
economic conditions, and other factors identified in the Company's filings with
the Securities and Exchange Commission.
-12-
<PAGE>
Results of Operations
The following table sets forth the Company's consolidated revenues:
<TABLE>
<CAPTION>
Three Nine
Months Months
Three Months Nine Months Ended Ended
Ended Sept. 30, Ended Sept. 30, Sept. 30, Sept. 30,
-------------------------------------------------------------
1998 to 1998 to
1998 1999 1998 1999 1999 1999
-------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------
Net Premiums earned:
Reinsurance:
<S> <C> <C> <C> <C> <C> <C>
Workers' compensation $ 742 $2,339 $3,633 $5,541 215.2% 52.5%
General liability from affiliate 904 487 2,020 2,301 (46.1) 13.9
Auto Liability 6 28
------ ------ ----- -----
Total reinsurance 1,646 2,832 5,653 7,870 72.1 39.2
Primary insurance:
Surety 153 694 424 1,711 353.6 303.5
----- ------ ----- -----
Total primary insurance 153 694 424 1,711 353.6 303.5
----- ------ ----- -----
Total net premiums earned 1,799 3,526 6,077 9,581 96.0 57.7
----- ------ ----- ------
Net investment income 825 746 2,307 2,160 (9.6) (6.4)
Interest on notes receivable 791 512 1,487 2,020 (35.3) 35.8
Commission and fee income:
Brokerage commission income 229 277 890 771 21.0 (13.4)
Management fees from affiliate 183 207 550 563 13.1 2.4
----- ------ ----- ------
Total commission and fee income 412 484 1,440 1,334 17.5 (7.4)
----- ------ ----- ------
Net realized gains (losses) 61 120 156 218 96.7 39.7
Other income 4 245 15 706 6,182.2 4,460.2
----- ------ ----- ------
Total Revenues $3,892 $5,633 $11,482 $16,019 44.7% 39.5%
------ ------ ------- -------
</TABLE>
The following table sets forth the components of the Company's GAAP
combined ratio for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Nine Months ended
September 30, September 30,
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Insurance operations:
<S> <C> <C> <C> <C> <C> <C>
Loss and loss adjustment expense ratio 51.1% 63.9% 60.9% 54.3% 59.6% 58.1%
Expense ratio 41.1 4.1 15.0 33.7 9.2 14.9
----- ----- ----- ----- ----- -----
Combined ratio 92.2% 68.0% 75.9% 88.0% 68.8% 73.0%
----- ----- ----- ----- ----- -----
</TABLE>
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Net Premiums Earned. Net premiums earned increased 96.0% from $1.8 million
in the quarter ended September 30, 1998 to $3.5 million in the quarter ended
September 30, 1999. The principal factor accounting for the increase was the
Company's assumption of workers' compensation reinsurance business from an
unaffiliated insurance carrier, which increased net premiums earned from
workers' compensation reinsurance by 215.2% from $742,000 in the quarter ended
September 30, 1998 to $2.3 million in the quarter ended September 30, 1999. This
increase was a result of additional premiums from new insureds in this line of
business. Another factor accounting for the increase was an increase of the
Company's surety business by 353.6% from $153,000 in the quarter ended September
30, 1998 to $694,000 in the quarter ended September 30, 1999. The increase in
surety business is attributable to additional premiums from new business and the
Company's new reinsurance program.
-13-
<PAGE>
Net Investment Income. Net investment income decreased 9.6% from $825,000
in the quarter ended September 30, 1998 to $746,000 in the quarter ended
September 30, 1999 due to a reduction in the investment portfolio. The average
pre-tax yield on investments was 6.2% in the quarter ended September 30, 1998
and 5.6% in the quarter ended September 30, 1999. The average after-tax yield on
investments was 5.7% in the quarter ended September 30, 1998 and 5.4% in the
quarter ended September 30, 1999.
Interest from Notes Receivable. Interest from notes receivable decreased
35.3% from $791,000 in the quarter ended September 30, 1998 to $512,000 in the
quarter ended September 30, 1999 as a result of a decrease in the average
outstanding notes receivable. See note 7 to consolidated financial statements
(unaudited).
Brokerage Commission Income. Income from insurance brokerage operations
increased 21.0% from $229,000 in the quarter ended September 30, 1998 to
$277,000 in the quarter ended September 30, 1999 as a result of increased
production of agency business relating to the Company's risk retention group
affiliate during the quarter.
Management Fees. Management fees increased 13.1% from $183,000 in the
quarter ended September 30, 1998 to $207,000 in the quarter ended September 30,
1999 as a result of increased service levels, provided by the Company, to its
risk retention group affiliate.
Net Realized Gains (Losses). Net realized gains increased 96.7% from
$61,000 in the quarter ended September 30,1998 to $120,000 for the quarter ended
September 30, 1999 due to the sale of mutual funds.
Other Income. Other income increased from $4,000 in the quarter ended
September 30, 1998 to $245,000 for the quarter ended September 30, 1999 as a
result the Company's new financial services subsidiary, which is engaged in the
business of arranging third-party financing for a fee and earnings from the
companys prepaid legal program.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased 86.7% from $1.2 million in the quarter ended September 30, 1998 to
$2.1 million in the quarter ended September 30, 1999 primarily due to an
increase in net premiums earned. Increases in workers' compensation premiums
accounted for the largest portion of the increase in the losses and loss
adjustment expenses, as that line of business has a higher loss ratio than the
general liability or surety lines of business.
Acquisition Expenses. Policy acquisition expenses increased 326.1% from
($86,000) in the quarter ended September 30, 1998 to $194,000 in the quarter
ended September 30, 1999 as a result of increased premiums production and the
Company's new reinsurance program for surety business which eliminated the
ceding commissions.
Payroll and Other Expenses. Payroll and other expenses increased 34.3% from
$1.3 million in the quarter ended September 30, 1998 to $1.7 million in the
quarter ended September 30, 1999 as a result of increases in salary, benefits
and operating expense primarily due to increased staffing for new and existing
programs combined with operating expenses from the Company's new financial
services subsidiary.
Income Taxes. Federal and state income taxes increased from a benefit of
$70,000 in the quarter ended September 30, 1998 to an expense of $188,000 in the
quarter ended September 30, 1999 due to increased taxable income in the
Company's U.S. subsidiaries.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Net Premiums Earned. Net premiums earned increased 57.7% from $6.1 million
in the nine months ended September 30, 1998 to $9.6 million in the nine months
ended September 30, 1999. The principal factor accounting for the increase was
the Company's assumption of workers' compensation reinsurance business from an
unaffiliated insurance carrier, which increased net premiums earned from
workers' compensation reinsurance by 52.5% from $3.6 million in the nine months
ended September 30, 1998 to $5.5 million in the nine months ended September 30,
1999. This increase was a result of additional premiums from new insureds in
this line of business. Another factor accounting for the increase was an
increase of the Company's surety business by 303.5% from $424,000 in the nine
months ended September 30, 1998 to $1.7 million in the nine
-14-
<PAGE>
months ended September 30, 1999. The increase in surety business is attributable
to additional premiums from new business and the Company's new reinsurance
program.
Interest from Notes Receivable. Interest from notes receivable increased
35.9% from $1.5 million in the nine months ended September 30, 1998 to $2.0
million in the nine months ended September 30, 1999 as a result of an increase
in the average outstanding notes receivable. See note 7 to consolidated
statements (unaudited).
Brokerage Commission Income. Income from insurance brokerage operations
decreased 13.4% from $890,000 in the nine months ended September 30, 1998 to
$771,000 in the nine months ended September 30, 1999 as a result of lower
production in our agency business due to a change in personnel partially offset
by increased production with our risk retention group affiliate.
Management Fees. Management fees increased 2.4% from $550,000 in the nine
months ended September 30, 1998 to $563,000 in the nine months ended September
30, 1999 as a result of increased service levels provided by the Company to its
risk retention group affiliate.
Net Realized Gains. Net realized gains (losses) increased 40.1% from a gain
of $156,000 in the nine months ended September 30, 1998 to a gain of $218,000 in
the nine months ended September 30, 1999.
Other Income. Other income increased from $15,000 in the nine months ended
September 30, 1998 to $706,000 for the nine months ended September 30, 1999 as a
result of the Company's new financial services subsidiary which is engaged in
the business of arranging third-party financing for a fee and earnings from the
companys prepaid legal program.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased 53.7% from $3.6 million in the nine months ended September 30, 1998 to
$5.6 million in the nine months ended September 30, 1999 primarily due to an
increase in net premiums earned. Increases in workers' compensation premiums
accounted for the largest portion of the increase in the losses and loss
adjustment expenses, as that line of business has a higher loss ratio than the
general liability or surety lines of business.
Acquisition Expenses. Policy acquisition expenses increased 158.5% from
$335,000 in the nine months ended September 30, 1998 to $865,000 in the nine
months ended September 30, 1999 as a result of increased premiums production and
the Company's new reinsurance program for surety business which eliminated the
ceding commissions.
Payroll and Other Expenses. Payroll and other expenses increased 50.2% from
$3.4 million in the nine months ended September 30, 1998 to $5.0 million in the
nine months ended September 30, 1999 as a result of increases in salary,
benefits and operating expense primarily due to increased staffing for new and
existing programs combined with operating expenses from the Company's new
financial services subsidiary.
Income Taxes. Federal and state income taxes increased from a benefit of
$30,000 in the nine months ended September 30, 1998 to an expense of $34,000 in
the nine months ended September 30, 1999 due to increased taxable income in the
Company's U.S. subsidiaries.
Liquidity and Capital Resources
The Company historically has met its cash requirements and financed its
growth principally through cash flows generated from operations. The Company's
primary sources of cash flow are proceeds from the sale or maturity of invested
assets, premiums earned, investment income, commission income and management
fees. The Company's short-term cash requirements are primarily for claims
payments, reinsurance premiums, commissions, salaries, employee benefits
-15-
<PAGE>
and other operating expenses, and the purchase of investment securities, which
have historically been satisfied from operating cash flows. Due to the
uncertainty regarding settlement of unpaid claims, the long-term liquidity
requirements of the Company may vary, and the Company has attempted to structure
its investment portfolio to take into account the historical payout patterns.
Management believes that the Company's current cash flows are sufficient for its
short-term needs and the Company's invested assets are sufficient for its
long-term needs. The Company also purchases reinsurance to mitigate the effect
of large claims and to stabilize demands on its liquidity. The Company has
repurchased 168,150 shares in open market transactions, through November 10,
1999, pursuant to its stock repurchase program.
On a consolidated basis, net cash provided from operations was $3.7 million
for the nine months ended September 30, 1998 and $4.6 million for the nine
months ended September 30, 1999. The positive cash flows for both periods were
primarily attributable to net premiums written, net earnings, and increases in
reserves for unpaid losses. Because workers' compensation and general liability
claims may be paid over an extended period of time, the Company has established
appropriate loss reserves for such lines of business. The assets supporting the
Company's reserves continue to earn investment income until claims payments are
made.
Total assets increased from $86.1 million at December 31, 1998 to $97.0
million at September 30, 1999, primarily due to increases in premiums
receivable, reinsurance recoverable and real estate investments and slightly
offset by a decrease in notes receivable. Cash, invested assets and notes
receivable were $72.0 million at December 31, 1998 and September 30, 1999.
American Safety is an insurance and financial services holding company
whose principal assets are its investment portfolio and its investment in the
capital stock of its subsidiaries. As an insurance holding company, American
Safety's ability to pay dividends to its shareholders will depend, to a
significant degree, on the ability of the Company's subsidiaries to pay
dividends to American Safety. The jurisdictions in which American Safety and its
insurance and reinsurance subsidiaries are domiciled place limitations on the
amount of dividends or other distributions payable by insurance companies in
order to protect the solvency of insurers.
In January 1997, the Securities and Exchange Commission approved rule
amendments regarding disclosures concerning derivative financial instruments,
other financial instruments and derivative commodity instruments (the
"Release"). The Release requires inclusion in the footnotes to the financial
statements of extensive detail about the accounting policies followed by a
company in connection with its accounting for derivative financial instruments
and derivative commodity instruments. As of September 30, 1999, the Company had
no investments in derivative instruments.
Income Taxes
American Safety is incorporated under the laws of Bermuda and, under
current Bermuda law, is not obligated to pay any taxes in Bermuda based upon
income or capital gains. American Safety has received an undertaking from the
Minister of Finance in Bermuda pursuant to the provisions of The Exempted
Undertakings Tax Protection Act 1966, which exempts American Safety and its
shareholders, other than shareholders ordinarily resident in Bermuda, from any
Bermuda taxes computed on profits, income or any capital asset, gain or
appreciation, or any tax in the nature of estate, duty or inheritance until
March 28, 2016. The Company, exclusive of its United States subsidiaries, does
not consider itself to be engaged in a trade or business in the United States
and accordingly does not expect to be subject to direct United States income
taxation. The Company's U.S. subsidiaries are subject to taxation in the United
States.
Inflation
Property and casualty insurance premiums are established before the amounts
of losses and loss adjustment expenses are known and therefore before the extent
by which inflation may affect such expenses is known. Consequently, the Company
attempts, in establishing its premiums, to anticipate the potential impact of
inflation. However, for competitive and regulatory reasons, the Company may be
limited in raising its premiums consistent with anticipated inflation, in which
event the Company, rather than its insureds, would absorb inflation costs.
Inflation also affects the rate of investment return on the Company's investment
portfolio with a corresponding effect on the Company's investment income.
-16-
<PAGE>
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. If not
corrected, computer applications could fail or create erroneous results by or at
the Year 2000. The Company, together with consulting outside vendors, has
reviewed its information technology systems (i.e., underwriting, insureds,
claims and accounting) and believes that the systems will process date
information accurately and without interruption when required to process dates
in the year 1999 and beyond.
In the context of Year 2000 issues, the Company has identified the
following general categories of business partners as material to the Company's
ability to conduct its operations: software, hardware and telecommunication
providers, banks and investment managers, insurance brokers, agents and
producers, reinsurers and reinsurance intermediaries and utilities. The Company
has been in contact with its material business partners to determine their state
of readiness with regard to Year 2000 compliance and the potential impact on the
Company. Based on the information available to the Company, the Company has not
currently identified a material business partner that will not be compliant with
respect to Year 2000 issues. However, there can be no assurance that such
material business partners will be Year 2000 compliant, and such noncompliance
could have a material affect on the Company's financial condition and results of
operations.
The Company has conducted a review of its underwriting guidelines and
policies, and has determined that the insurance policies issued by the Company
did not insure Year 2000 claims. However, changing social and legal trends may
create unintended coverage for claims by reinterpreting insurance contracts and
exclusions. It is impossible to predict what, if any, exposure insurance
companies may ultimately have for Year 2000 claims whether coverage for the
issue was specifically excluded or included.
The Company has completed its year 2000 testing. The Company's contingency
plan for any Year 2000 noncompliance of its information technology systems
involves the manual entering and outputting of business records. The Company
believes it has sufficient employees and other staff available to maintain its
current level of customer service. To date, the Company has spent less than
$100,000 on hardware and software relating to Year 2000 compliance and the
Company does not anticipate any significant additional expenditures with respect
to the Year 2000 issue.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
The Company's market risk has not changed materially since December 31,
1998.
[The remainder of this page is intentionally left blank.]
-17-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Report:
Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
Not applicable.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 12th day of November 1999.
American Safety Insurance Group, Ltd.
By: /s/ Lloyd A. Fox
Lloyd A. Fox
President and Chief Executive Officer
By: /s/ Steven B. Mathis
Steven B. Mathis
Chief Financial Officer
(Principal Financial Officer)
-19-
<PAGE>
Exhibit 11
American Safety Insurance Group, Ltd. and subsidiaries
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
------ ------ ------ -----
Basic:
Earnings Available to Common
<S> <C> <C> <C> <C>
Shareholders.............................. $1,598,183 $1,359,263 $4,203,743 $4,519,838
========== ========== ========== ==========
Weighted Average Common Shares
Outstanding............................... 6,074,770 6,009,208 5,522,497 6,050,059
Basic Earnings Per Common
Shares ................................... $ .26 $ .23 $ .76 $ .75
========== ========== ========== ==========
Diluted:
Earnings Available to Common
Shareholders.............................. $1,598,183 $1,359,263 $4,203,743 $4,519,838
========== ========== ========== ==========
Weighted Average Common Shares
Outstanding............................... 6,074,770 6,009,208 5,522,497 6,050,059
Weighted Average Common Shares
Equivalents Associated with
Options................................... 44,319 18,459 84,960 27,641
Total Weighted Average Common
Shares.................................... 6,119,089 6,027,667 5,607,457 6,077,700
========= ========= ========= =========
Diluted Earnings per Common
Shares.................................... $ .26 $ .23 $ .75 $ .74
========== ========== ========== ==========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-30-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 39,313
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,601
<MORTGAGE> 0
<REAL-ESTATE> 11,122
<TOTAL-INVEST> 60,624
<CASH> 2,316
<RECOVER-REINSURE> 6,070
<DEFERRED-ACQUISITION> 230
<TOTAL-ASSETS> 96,953
<POLICY-LOSSES> 18,311
<UNEARNED-PREMIUMS> 6,569
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 61
<OTHER-SE> 61,201
<TOTAL-LIABILITY-AND-EQUITY> 96,953
3,526
<INVESTMENT-INCOME> 746
<INVESTMENT-GAINS> 120
<OTHER-INCOME> 245
<BENEFITS> 2,148
<UNDERWRITING-AMORTIZATION> 605
<UNDERWRITING-OTHER> 1,745
<INCOME-PRETAX> 1,547
<INCOME-TAX> 188
<INCOME-CONTINUING> 1,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,359
<EPS-BASIC> .23
<EPS-DILUTED> .23
<RESERVE-OPEN> 15,145
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 15,173
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
