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 MARCH 31, 2000
Commission File Number 1-14795
AMERICAN SAFETY INSURANCE GROUP, LTD.
(Exact name of Registrant as specified in its charter)
Bermuda Not Applicable
(State or other (I.R.S. Employer
jurisdiction Identification
of incorporation) 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 May 4, 2000 was 5,377,750.
<PAGE>
AMERICAN SAFETY INSURANCE GROUP, LTD.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........14
Item 3. Quantitative and Qualitative Disclosures About Market Risks.....22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................23
Item 2. Changes in Securities and Use of Proceeds.......................23
Item 3. Defaults Upon Senior Securities.................................23
Item 4. Submission of Matters to a Vote of Security Holders.............24
Item 5. Other Information...............................................24
Item 6. Exhibits and Reports on Form 8-K................................24
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Assets December 31, March 31,
------
1999 2000
------ -----
(unaudited)
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities $40,694,556 $41,698,000
Common stock 163,968 448,126
Investment in real estate 12,039,842 13,108,823
Short-term investments 6,679,791 4,501,047
----------- -----------
Total investments 59,648,157 59,755,996
Cash 427,154 10,959,574
Accrued investment and interest income 2,783,663 3,042,702
Notes receivable:
Related parties 1,700,000 170,000
Other 11,255,264 12,077,056
Premiums receivable 12,239,544 13,209,317
Commissions receivable 5,948 11,650
Funds on deposit 353,407 364,730
Ceded unearned premium 4,591,075 6,017,401
Reinsurance recoverable 6,065,502 7,041,049
Due from affiliate 2,088,748 2,163,525
Income tax recoverable - 113,850
Deferred income taxes 733,227 2,151,027
Deferred Acquisition Costs 274,701 631,444
Property, plant and equipment 1,234,294 1,298,493
Prepaid Items 604,537 573,731
Goodwill 234,467 1,619,290
113,846 1,612,522
Other assets ------------ -------------
Total assets $104,353,534 $122,813,357
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses $ 20,413,236 $ 21,536,250
Unearned premiums 9,496,342 12,862,201
Reinsurance on paid loss and loss adjustment expenses 1,419,536 853,088
Reinsurance deposits on retroactive contract 48,375 7,361
Ceded premiums payable 6,739,068 8,885,511
Due to affiliate:
Ceded premiums payable 1,636,207 1,922,658
Reinsurance on paid loss and loss adjustment
expenses 79,198 135,692
Accounts payable and accrued expenses 1,893,470 3,455,448
Funds held 357,509 453,243
Loan payable - 11,648,855
Collateral held 1,208,976 925,939
Income tax payable 22,857 -
---------- ------------
Total liabilities 43,314,774 62,686,246
---------- ------------
-1-
<PAGE>
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, 1999,
6,077,750shares, and at March 31, 2000, 6,277,750
shares 60,777 62,777
Additional paid-in capital 33,810,387 35,133,387
Retained earnings 30,625,739 28,676,986
Accumulated other comprehensive income, net (1,288,804) (911,581)
Treasury Stock, 300,000 shares at December 31, 1999
and 401,225 shares at March 31, 2000 (2,169,339) (2,834,458)
----------- ------------
Total shareholders' equity 61,038,760 60,127,111
----------- ------------
Total liabilities and
shareholders' equity $104,353,534 $122,813,357
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
<TABLE>
Consolidated Statements of Earnings
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------------------------------------
1999 2000
Revenues:
<S> <C> <C>
Direct premiums earned $1,410,051 $4,155,833
Assumed premiums earned:
Affiliate 810,716 995,736
Nonaffiliates 1,579,001 2,655,046
---------- ---------
Total assumed premiums earned 2,389,717 3,650,782
---------- ---------
Ceded premiums earned:
Affiliate 1,090,695 846,088
Nonaffiliates 254,289 1,657,949
---------- ---------
Total ceded premiums earned 1,344,984 2,504,037
---------- ---------
Net premiums earned 2,454,784 5,302,578
--------- ---------
Net investment income 699,335 729,102
Interest on notes receivable 926,102 434,594
Brokerage commission income 430,867 230,510
Management fees from affiliate 341,134 367,000
Net realized gains (losses) (1,118) (126,047)
Other income 78,521 656,162
--------- ---------
Total revenues 4,929,625 7,593,899
--------- ---------
Expenses:
Losses and loss adjustment expenses incurred 1,319,355 2,797,099
Acquisition expenses 323,444 1,535,430
Payroll and related expenses 1,003,636 1,628,224
Other expenses 609,742 1,110,310
Expense due to rescission - 3,541,848
---------- -----------
Total expenses 3,256,177 10,612,911
---------- -----------
Earnings before income taxes 1,673,448 (3,019,012)
Income taxes (45,730) (1,070,259)
--------- -----------
Net earnings $1,719,178 $(1,948,753)
Net earnings (loss) per share:
Basic $ 0.28 $ ( 0.33)
========== ============
Diluted $ 0.28 $ ( 0.33)
========== ============
Common shares used in computing earnings per share:
Basic 6,077,750 5,926,654
========== ==========
Diluted 6,108,541 5,931,996
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
Three months ended
March 31,
1999 2000
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 1,719,178 $(1,948,753)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Realized losses on sale of investments 1,118 126,047
Amortization of deferred acquisition costs 344,325 678,192
Change in:
Accrued investment and interest income (680,967) (259,039)
Premiums receivable 4,302,869 (969,773)
Commissions receivable 9,889 (5,702)
Reinsurance recoverable and ceded unearned premiums (359,016) (2,968,321)
Funds held by reinsured - 95,734
Due from affiliate 161,129 (74,777)
Funds on Deposit - (11,323)
Income taxes (70,754) (1,554,507)
Unpaid losses and loss adjustment expenses 1,439,354 1,123,014
Unearned premiums 1,144,808 3,365,859
Liability for deductible fees held (41,014) (41,014)
Ceded premiums payable 604,859 2,146,443
Due to affiliate 1,075,488 342,945
Accounts payable and accrued expenses (340,007) 1,561,978
Collateral 522,728 (283,037)
Prepaid items - 30,806
Other, net 163,353 (210,145)
---------- -----------
Net cash provided by operating activities 1,391,602 1,144,627
---------- -----------
Cash flow from investing activities:
Purchases of fixed maturities (988,954) -
Purchases of Equity Investments - (4,898,758)
Proceeds from maturity and redemption of fixed maturities 80,000 -
Proceeds from sale of fixed maturities 1,786,435 4,008,167
Proceeds from sale of equity investments 1,062 4,591,753
Purchase of Trafalgar Insurance Company - (7,050,877)
Increase in Investment in Real Estate - (1,068,981)
Increase in short-term investments (463,015) 2,178,744
Proceeds from notes receivable - related parties - 1,530,000
Advances in notes receivable - other (2,030,316) (821,792)
Purchase of fixed assets, net (2,117,672) (64,199)
---------- -----------
Net cash used in investing activities (3,372,460) (1,595,943)
---------- -----------
Cash flow from financing activities:
Proceeds from sale of common stock 1,276 -
Purchase of treasury stock - (665,119)
Loan Payable - 11,648,855
---------- -----------
Net cash provided by financing activities 1,276 10,983,736
---------- -----------
Net increase (decrease) in cash (2,339,582) 10,532,420
Cash at beginning of period 4,737,132 427,154
---------- -----------
Cash at end of period $2,397,550 $10,959,574
========= ==========
NONCASH ITEMS
Operating activities:
Recoverable due to rescission in other assets - (1,323,000)
Investing activities:
No activity - -
Financing activities:
Issuance of common stock - 1,323,000
---------- -----------
Net noncash adjustments - -
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
<PAGE>
American Safety Insurance Group, Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------------------
1999 2000
------------------------- -------------------------
<S> <C> <C>
Net earnings $1,719,178 $(1,948,753)
Other comprehensive earnings before income taxes:
Unrealized gains (losses) on securities
available for sale (584,332) 269,007
Reclassification adjustment for
realized gains included in net
earnings (1,118) (126,047)
--------- ----------
Total other comprehensive earnings (loss) before taxes (585,450) 142,960
Income tax expense (benefit) related to
items of comprehensive income (24,008) (234,263)
--------- ----------
Other comprehensive earnings (loss) net of income taxes (561,442) 377,223
---------- ---------
Total comprehensive earnings $1,157,736 $(1,571,530)
========== ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-7-
<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 three months ended March 31, 2000 may not
be indicative of the results that may be expected for the full year ending
December 31, 2000. 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, 1999.
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 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.
-8-
<PAGE>
Note 3 - Nature of Operations
The following is a description of certain risks facing the Company:
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.
-9-
<PAGE>
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 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,
1999 and March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Amount at
Gross Gross which shown in
Amortized unrealized unrealized Estimated the balance
Cost gains losses fair value sheet
---------------- -------------- --------------- -------------- -----------------
December 31, 1999:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. Government corporations and
<S> <C> <C> <C> <C> <C>
agencies $17,475,473 $ - $ 624,997 $16,850,476 $16,850,476
Obligations of states and political
subdivisions 6,526,137 38,835 104,972 6,460,000 6,460,000
Corporate securities 14,623,165 2,427 519,015 14,106,577 14,106,577
Mortgage-backed securities 3,433,949 209 156,655 3,277,503 3,277,503
---------- -------- --------- ---------- ----------
Total fixed maturities 42,058,724 41,471 1,405,639 40,694,556 40,694,556
Equity investments - common stocks 169,448 - 5,480 163,968 163,968
---------- -------- --------- ---------- ----------
Total $42,228,172 $ 41,471 $1,411,119 $40,858,524 $40,858,524
========== ======== ========= ========== ==========
March 31, 2000:
Securities available for sale:
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies $18,990,520 $ 6,411 $ 678,551 $18,318,380 $18,318,380
Obligations of states and political
subdivisions 11,558,721 73,749 95,519 11,536,951 11,536,951
Corporate securities 10,181,407 - 457,448 9,723,959 9,723,959
Mortgage-backed securities 2,188,773 275 70,338 2,118,710 2,118,710
---------- ------- --------- ---------- ----------
Total fixed maturities 42,919,421 80,435 1,301,856 41,698,000 41,698,000
Equity investments - common stocks 453,393 - 5,267 448,126 448,126
---------- ------- --------- ---------- ----------
Total $43,372,814 $80,435 $1,307,123 $42,146,126 $42,146,126
========== ======= ========== =========== ===========
</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 Company is also
involved in the development of the Harbour Village Golf and Yacht Club
project in Ponce Inlet, Florida, as discussed in Note 7.
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.
-10-
<PAGE>
(c) Information about segment profit or loss and assets:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 2000
---- ----
United States
<S> <C> <C>
Net Premiums Earned - All Other 1,913,313 4,782,989
Net Premiums Earned - Intersegment (820,445) (1,551,002)
Net investment income and interest on
notes receivable 212,075 312,567
Other revenues 799,883 786,914
--------- -------
Total Revenues 2,122,826 4,331,468
Depreciation and amortization expense 22,611 34,469
Equity in net loss of subsidiaries (100,257) (3,070,300)
Income taxes (45,730) (1,070,259)
Segment loss (54,527) (2,000,041)
Significant noncash items other than
depreciation and amortization - -
Property, plant and equipment 180,098 462,661
Total investments 14,071,689 37,997,156
Total assets 33,855,633 87,338,785
Total policy and contract liabilities 14,335,997 27,508,968
Total liabilities 24,019,621 60,403,070
Bermuda
Net Premiums Earned - All Other 523,471 519,589
Net Premiums Earned - Intersegment 820,445 1,551,002
Net investment income and interest on
notes receivable 1,413,362 851,129
Other revenues 9,679 519,515
--------- ---------
Total revenues 2,766,957 3,441,235
Depreciation and amortization expense - -
Equity in net loss of subsidiaries (1,028,413) (890,890)
Income Taxes - -
Segment profit 1,773,705 51,288
Significant noncash items other than
depreciation and amortization - -
Property, plant and equipment - 835,832
Total investments 60,612,167 53,602,506
Total assets 91,990,662 95,804,898
Total policy and contract liabilities 11,986,052 13,837,066
Total liabilities 17,233,929 17,661,013
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 2000
---- ----
Intersegment Eliminations
<S> <C> <C>
Net Premiums Earned - All Other - -
Net Premiums Earned - Intersegment - -
Net investment income and interest on notes - -
receivable
Other revenues (122,059) (178,804)
--------- ---------
Total revenues (122,059) (178,804)
Depreciation and amortization expense - -
Equity in net earnings of subsidiaries (1,028,413) 890,890
Income taxes - -
Segment profit (loss) - -
Significant noncash items other than
depreciation and amortization - -
Property, plant and equipment - -
Total investments (24,674,622) (44,952,489)
Total assets (33,673,780) (60,330,326)
Total policy and contract liabilities (5,142,846) (6,947,583)
Total liabilities (9,599,340) (15,377,837)
Total
Net Premiums Earned - All Other 2,454,784 5,302,578
Net Premiums Earned - Intersegment - -
Net investment income and interest on notes
receivable 1,625,437 1,163,696
Other revenues 849,404 1,127,625
---------- ---------
Total revenues 4,929,625 7,593,899
Depreciation and amortization expense 22,611 34,469
Equity in net earnings of subsidiaries - -
Income taxes (45,730) (1,070,259)
Segment profit (loss) 1,719,178 (1,948,753)
Significant noncash items other than
depreciation and amortization - -
Property, plant and equipment 2,285,310 1,298,493
Total investments 51,047,769 59,755,996
Total assets 86,147,472 122,813,357
Total policy and contract liabilities 21,179,203 34,398,451
Total liabilities 31,564,210 62,686,246
</TABLE>
-12-
<PAGE>
Note 6 - Shareholder Matters
During the quarter ended March 31, 2000, the Company repurchased 101,225
shares of its stock at a total price of $665,119 in open market transactions
pursuant to its share repurchase program.
Note 7 - Investment in Real Estate
The Company's investment in the development of the Harbour Village Golf and
Yacht Club project is comprised of 173 acres of property in Ponce Inlet, Florida
(the "Property") that was acquired through foreclosure on April 13, 1999. At the
date of foreclosure, the Company evaluated the carrying value of its investment
in real estate by comparing the fair value of the foreclosed collateral to the
book value of the underlying loan and accrued interest. As the book value of the
loan and accrued interest was less than the fair value of the collateral, no
loss was recognized on foreclosure and the book balance of the loan and accrued
interest became the basis of the real estate. The Company has incurred
additional capitalizable development costs of approximately $3.5 million during
1999 and 2000.
The Company announced on March 10, 2000, its plans to complete development
of the Property through its subsidiary, Ponce Lighthouse Properties, Inc.
Note 8 - Acquisitions
On March 24, 2000, the Company purchased Trafalgar Insurance Company, an
Oklahoma licensed insurance company, which has authority to operate as an excess
and surplus lines insurance company in 34 states and the District of Columbia.
Trafalgar Insurance Company's stock was acquired from Houston Casualty Company
for a purchase price of $16.3 million cash, and Trafalgar had, at closing, cash
and investments in excess of $15 million of capital and surplus creating $1.3
million of goodwill. The net cash outlay for this acquisition was $7.0 million.
Prior to closing, Trafalgar entered into a bulk assumption reinsurance agreement
with Houston Casualty, under which Houston Casualty assumed all of Trafalgar's
prior and existing insurance business. Trafalgar has been renamed American
Safety Indemnity Company.
On January 6, 2000, the Company acquired (i) the stock of L&W Holdings,
Inc. and its wholly-owned subsidiary, RCA Syndicate #1, Ltd., an Illinois
licensed insurance carrier operating on the INEX (formerly the Illinois
Insurance Exchange), (ii) the stock of Principal Management, Inc., an insurance
program development and management group headquartered in Okemos, Michigan, and
in a related transaction, the Company also acquired (iii) the stock of Pegasus
Insurance, a Cayman Islands licensed insurance carrier. The transactions were
structured as stock acquisitions, with the purchase price paid by the Company
consisting of $3,500,000 plus 200,000 American Safety common shares and earnout
provisions for up to an additional 254,000 American Safety common shares over a
five-year period. Of the purchase price, $1,000,000 of cash and 109,086 shares
of stock are held in escrow to secure the obligations of the sellers. The
Company also obtained a security interest in a real estate condominium in the
Cayman Islands with an estimated value of
-13-
<PAGE>
$600,000 to secure the obligations of the sellers. On April 21, 2000, the
Company filed a lawsuit to rescind these acquisitions based upon the sellers'
misrepresentations as to the business affairs and financial condition of the
acquired companies, and recognized an expense, net at recoverables, of $3.5
million for such rescission.
Note 9 - Income Taxes
Total income tax (benefit) for the quarters ended March 31, 1999 and 2000
were allocated as follows:
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 2000
---- ----
Tax benefit attributable to:
<S> <C> <C>
Income from continuing operations (45,730) (1,070,259)
Unrealized losses on
securities available for sale (20,609) (232,639)
-------- -------------
Total $(66,339) $ (1,302,898)
======== ============
</TABLE>
U.S. Federal and state income tax expense from continuing operations
consists of the following components:
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
March 31, 1999 (72,241) 26,511 (45,730)
March 31, 2000 (1,132,235) 61,976 (1,070,259)
</TABLE>
The state income tax components aggregated $5,995 and $(4,461) for the
quarters ended March 31, 1999 and 2000, respectively.
Income tax expense for the quarters ended March 31, 1999 and 2000 differed
from the amount computed by applying the U.S. Federal income tax rate of 34% to
earnings before Federal income taxes as a result of the following:
-14-
<PAGE>
<TABLE>
<CAPTION>
March 31,
1999 2000
---- ----
<S> <C> <C>
Expected income tax expense $568,972 $(1,026,464)
Foreign earned income not subject to U.S.
taxation (603,060) (17,438)
Tax-exempt interest (25,161) (28,643)
State taxes and other 13,519 2,286
-------- -----------
$(45,730) $(1,070,259)
======== ===========
</TABLE>
Deferred income taxes are based upon temporary differences between the
financial statement and tax bases of assets and liabilities. The following
deferred taxes are recorded:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
Deferred tax assets:
<S> <C> <C>
Loss reserve discounting $509,011 $608,210
Unearned premium reserves 185,459 280,787
Unrealized loss on securities 80,844 313,484
Net operating loss carry forward - 1,123,187
---------- ---------
Gross deferred tax assets 775,314 2,325,668
---------- ---------
Deferred tax liabilities:
Deferred acquisition costs 42,087 174,641
------ -------
Gross Deferred tax liabilities 42,087 174,641
------ -------
Net deferred tax asset $733,227 $2,151,027
======= =========
</TABLE>
A valuation allowance has not been established as the Company believes it
is more likely than not that the deferred tax asset will be realized. The
Company believes it will have sufficient future income to offset the net
operating loss carry forward.
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,
-15-
<PAGE>
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.
During the past ten years, 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.
Forward Looking Statements
This Report contains certain forward-looking statements within the meaning
of United States' securities laws which are intended to be covered by the safe
harbors created thereby. Forward-looking statements involve risks and
uncertainties which may cause actual results to differ, and are subject to
change based on various factors, including the outcome of the Company's lawsuit
for rescission of the acquisition of an insurance agency and two related
insurance companies, competitive conditions in the insurance industry,
unpredictable developments in loss trends, adequacy and changes in loss
reserves, market acceptance of new coverages and enhancements, changes in
insurance regulatory requirements and tax statutes, changes in levels of general
business activity and economic conditions, and the Company's ability to
integrate and operate acquired businesses and the risks associated with such
businesses. With respect to the development of the Harbour Village Golf and
Yacht Club project, such forward-looking statements involve risks and
uncertainties which may cause actual results to differ, and are subject to
change based on various real estate development industry factors, including
competitive housing conditions in the local market area, risks inherent in new
construction, changes in interest rates and the availability of mortgage
financing for prospective purchasers of condominium units and boat slips, and
changes in local and national levels of general business activity and economic
conditions. All statements, other than statements of historical facts, included
or incorporated by reference in this Report that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future constitute forward-looking statements. Although the Company believes that
the assumptions underlying the forward-looking statements contained in this
Report are reasonable, any of the assumptions could over time prove to be
inaccurate and therefore, there can be no assurance that the forward-looking
statements included in this Report will themselves prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements included in this Report, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
-16-
<PAGE>
Results of Operations
The following table sets forth the Company's consolidated revenues:
<TABLE>
<CAPTION>
Three Months
Ended March 31
------------------------------------------------------------------------------
1998 to 1999 to
1998 1999 2000 1999 2000
-------------- -------------- -------------- -------------- ---------------
(Dollars in thousands)
------------------------------------------------------------------------------
Net Premiums earned:
Reinsurance:
<S> <C> <C> <C> <C> <C>
Workers' compensation $1,464 $1,395 $2,608 (4.7)% 87.0%
General liability from affiliate 441 643 744 45.8 15.7
Auto Liability - 13 - - -
---------- --------- ---------- ------- ----
Total reinsurance 1,905 2,051 3,352 7.7 63.4
Primary insurance:
Prepaid Legal - - 8 - -
Commercial Line - - 278 - -
Workers' compensation - - 70 - -
Surety 188 404 1,595 114.9 294.8
--- --- ----- ----- -----
Total primary insurance 188 404 1,951 114.9 382.9
--- --- ----- ----- -----
Total net premiums earned 2,093 2,455 5,303 17.3 116.0
----- ----- ----- ---- -----
Net investment income 627 699 729 11.5 4.3
Interest on notes receivable 268 926 435 245.5 (53.0)
Commission and fee income:
Brokerage commission income 384 431 230 12.2 (46.6)
Management fees from affiliate 328 341 367 4.0 7.6
-------- ------- ------- --------- ----------
Total commission and fee income 712 772 597 8.4 (22.7)
-------- ------- ------- --------- ----------
Net realized gains (losses) 37 (1) (126) (102.7) 12,500.0
Other income 6 79 656 1216.7 730.4
---------- -------- ------- --------- ----------
Total Revenues $3,743 $4,930 $7,594 31.7% 54.0%
---------- -------- ------- --------- ----------
</TABLE>
The following table sets forth the components of the Company's GAAP
combined ratio for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1999 2000
---- ---- ----
Insurance operations:
<S> <C> <C> <C>
Loss and loss adjustment expense ratio 63.8% 53.7% 52.7%
Expense ratio 10.4 16.6 44.3
---- ---- ----
Combined ratio 74.2% 70.3% 97.0%
---- ---- ----
</TABLE>
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Net Premiums Earned. Net premiums earned increased 116.0% from $2.5 million
in the quarter ended March 31, 1999 to $5.3 million in the quarter ended March
31, 2000. 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 from $1.4 million in the quarter ended March 31, 1999
to $2.6 million in the quarter ended March 31, 2000. This increase was a result
of additional premiums
-17-
<PAGE>
from new insureds in this line of business. Another factor accounting for the
increase was an increase of the Company's surety business by 294.8% from
$404,000 in the quarter ended March 31, 1999 to $1.6 million in the quarter
ended March 31, 2000. The increase in surety business is attributable to
additional premiums from new business and the Company's new reinsurance program.
Net Investment Income. Net investment income increased 4.3% from $699,000
in the quarter ended March 31, 1999 to $729,000 in the quarter ended March 31,
2000 due to an increase in the investment portfolio and cash. The average
pre-tax yield on investments was 5.5% in the quarter ended March 31, 1999 and
6.2% in the quarter ended March 31, 2000. The average after-tax yield on
investments was 5.2% in the quarter ended March 31, 1999 and 5.5% in the quarter
ended March 31, 2000.
Interest from Notes Receivable. Interest from notes receivable decreased
53% from $926,000 in the quarter ended March 31, 1999 to $435,000 in the quarter
ended March 31, 2000 as a result of interest income lost as a result of the
foreclosure on the Harbour Village property in April 1999.
Brokerage Commission Income. Income from insurance brokerage operations
decreased 46.6% from $431,000 in the quarter ended March 31, 1999 to $230,000 in
the quarter ended March 31, 2000 as a result of lower commissions from the
Company's brokerage operations due to lower production of premium.
Management Fees. Management fees increased 7.6% from $341,000 in the
quarter ended March 31, 1999 to $367,000 in the quarter ended March 31, 2000 as
a result of increased service levels, provided by the Company, to its risk
retention group affiliate.
Net Realized Losses. Net realized losses decreased from$1,000 in the
quarter ended March 31, 1999 to$126,000 for the quarter ended March 31, 2000 due
to the sale of bonds for the purchase of Trafalgar Insurance Company.
Other Income. Other income increased from $79,000 in the quarter ended
March 31, 1999 to $656,000 for the quarter ended March 31, 2000. $590,000 of
this relates to the commitment fee on the proposed sale of Harbour Village.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased 112% from $1.3 million in the quarter ended March 31, 1999 to $2.8
million in the quarter ended March 31, 2000 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.
-18-
<PAGE>
Acquisition Expenses. Policy acquisition expenses increased 374.7% from
($323,000) in the quarter ended March 31, 1999 to $1.5 million in the quarter
ended March 31, 2000 as a result of increased premiums production. Increased
production in the bail bond program was the largest contributor to the increase
as this program carries a 95% expense ratio.
Payroll and Other Expenses. Payroll and other expenses increased 70.0% from
$1.6 million in the quarter ended March 31, 1999 to $2.7 million in the quarter
ended March 31, 2000 as a result of increases in salary, benefits and operating
expense primarily due to increased staffing for new and existing programs.
Expense Due to Rescission. Expense due to rescission was $3.5 million for
the quarter and relates to the rescission of the acquisition of the Michigan
group of companies. See Note 8.
Income Taxes. Federal and state income taxes decreased from a benefit of
$46,000 in the quarter ended March 31, 1999 to a benefit of $1.1 million in the
quarter ended March 31, 2000 due to decreased taxable income in the Company's
U.S. subsidiaries. The decrease in taxable income was primarily due to expenses
relating to rescission.
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Net Premiums Earned. Net premiums earned increased 17.3% from $2.1 million
in the quarter ended March 31, 1998 to $2.5 million in the quarter ended March
31, 1999. The principal factor accounting for the increase was the Company's
assumption of general liability reinsurance business from an affiliated
insurance carrier, which increased by 45.8% from $441,000 in the quarter ended
March 31, 1998 to $643,000 in the quarter ended March 31, 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 114.9% from $188,000 in the quarter ended March 31, 1998 to
$404,000 in the quarter ended March 31, 1999. This increase is attributable to
additional premiums from new business and the Company's new reinsurance program.
Net Investment Income. Net investment income increased 11.5% from $627,000
in the quarter ended March 31, 1998 to $699,000 in the quarter ended March 31,
1999 as a result of the investment of additional cash flows from insurance
operations and from the timing of the investment of the Company's initial public
offering proceeds which took place in the middle of the first quarter of 1998.
The average annual pre-tax yield on investments was 5.6% in the quarter ended
March 31, 1998 and 5.5% in the quarter ended March 31, 1999. The average annual
after-tax yield on investments was 5.1% in the quarter ended March 31, 1999 and
5.2% in the quarter ended March 31, 1999.
Interest from Notes Receivable. Interest from notes receivable increased
245.5% from $268,000 in the quarter ended March 31, 1998 to $926,000 in the
quarter ended March 31, 1999 as a result of an increase of $13.0 million in
outstanding secured notes receivable compared to the same
-19-
<PAGE>
period in 1998. The notes bear interest rates ranging from 9% to 25% and are
payable on various dates.
Brokerage Commission Income. Income from insurance brokerage operations
increased 12.2% from $384,000 in the quarter ended March 31, 1998 to $431,000 in
the quarter ended March 31, 1999
Management Fees. Management fees increased 4.7% from $171,000 in the
quarter ended March 31, 1998 to $179,000 in the quarter ended March 31, 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 (losses) decreased from a
gain of $37,000 in the quarter ended March 31,1998 to a loss of $1,000 for the
quarter ended 1999.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
decreased 1.5% from $1.34 million in the quarter ended March 31, 1998 to $1.32
million in the quarter ended March 31, 1999 primarily due to lower retentions
from the Company's new reinsurance program that was effective January 1, 1999
and the mix of premiums earned. General liability and surety, which carry a
lower loss ratio, had an increase in premiums earned while workers'
compensation, which has a higher loss ratio, had a slight decrease in premiums
earned. The Company continues to record loss and loss adjustments expense for
workers' compensation to the aggregate stop-loss attachment point of its
reinsurance.
Acquisition Expenses. Policy acquisition expenses increased 51.6% from
$213,000 in the quarter ended March 31, 1998 to $323,000 in the quarter ended
March 31, 1999 as a result of increased premiums production and the Company's
new reinsurance program for surety business which eliminated ceding commissions
that previously reduced the expense.
Payroll and Other Expenses. Payroll and other expenses increased 51.1% from
$960,000 in the quarter ended March 31, 1998 to $1,451,000 in the quarter ended
March 31, 1999 as a result of salary and benefit and operating expense increases
primarily due to increased staffing for new and existing programs.
Income Taxes. Federal and state income taxes decreased from $54,000 in the
quarter ended March 31, 1998 to a benefit of $46,000 in the quarter ended March
31, 1999 due to additional premiums being ceded to the Company's Bermuda
reinsurance subsidiary and investment income earned in Bermuda.
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,
-20-
<PAGE>
commission income and management fees. The Company's short-term cash
requirements are primarily for claims payments, reinsurance premiums,
commissions, salaries, employee benefits 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. During the quarter ended March 31, 2000, the Company repurchased
101,225 shares in open market transactions, pursuant to its share repurchase
program.
On a consolidated basis, net cash provided from operations was $1.4 million
for the three months ended March 31, 1999 and $1.1 million for the three months
ended March 31, 2000. The positive cash flows for both periods were primarily
attributable to net premiums written, 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 $104.4 million at December 31, 1999 to $122.8
million at March 31, 2000, primarily due to increases in premiums receivable,
reinsurance recoverable, deferred income tax and real estate investments and
slightly offset by a decrease in notes receivable. Cash, invested assets and
notes receivable were $73.0 million at December 31, 1999 and $83.0 million at
March 31, 2000. Other assets increased from $114,000 at December 31, 1999 to
$1.6 million at March 31, 2000 as a result of $1.3 million collateral held which
lowered the expense due to rescission.
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 March 31, 2000, the Company had no
investments in derivative instruments.
-21-
<PAGE>
Harbour Village Development. American Safety announced in March 2000 its
plans to complete development of the Harbour Village Golf and Yacht Club,
located in Ponce Inlet, Florida, consisting of 786 residential condominium
units, a marina containing 142 boat slips, a par 3 golf course and beach club.
The property, acquired by American Safety through foreclosure in April 1999, has
been under development through its Ponce Lighthouse Properties, Inc. subsidiary.
While the property was being marketed for sale, deposits have been received for
in excess of $40 million of pre-construction sales that have been generated
under American Safety's development effort.
It is anticipated that Harbour Village will be developed in three phases
over the next three to five years, depending on future sales activities and
economic conditions that may impact the marketing of the condominium units. The
Company intends to obtain an acquisition and development loan and a revolving
bank credit facility in order to construct in sequence the three phases of
Harbour Village. The anticipated construction cost for the entire project is in
excess of $160 million. Financing in the approximate amount of $34 million will
be required for construction of Phase I. The Company has received a proposal for
the bank credit facility, and is in the process of obtaining a commitment for
such credit facility. Phase I of the development consists of construction of all
site work including a 142-boat slip marina, 372 residential units, and
amenities. No assurance can be given, however, as to either future sales
activities of the condominium units or the impact of local and national economic
conditions on the Company's marketing efforts for Harbour Village.
Management believes that the Company will be able to obtain a bank credit
facility which, together with anticipated cash flows from marketing and sales
operations, will meet the liquidity needs for the construction and development
of Phase I of Harbour Village during the first 24 months of development. There
can be no assurance, however, that the amounts available from the Company's
sources of liquidity will be sufficient to meet the Company's future capital
needs.
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.
-22-
<PAGE>
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
The Company's market risk has not changed materially since December 31,
1999.
[The remainder of this page is intentionally left
blank.]
-23-
<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.
The Company filed a Form 8-K on January 17, 2000 regarding American
Safety Holdings Corp.'s acquisition of (i) the stock of L&W Holdings,
Inc. and its wholly-owned subsidiary, RCA Syndicate #1, Ltd., an
Illinois licensed insurance company operating on the INEX (formerly the
Illinois Insurance Exchange), (ii) the stock of Principal Management,
Inc., an insurance program development and management group
headquartered in Okemos, Michigan; and in a related transaction the
Company's acquisition of (iii) the stock of Pegasus Insurance, a Cayman
Islands licensed insurance company.
-24-
<PAGE>
The Company filed a Form 8-K on March 15, 2000 regarding American
Safety Reinsurance Ltd.'s plan to complete the development of the
Harbour Village Golf and Yacht Club in Ponce Inlet, Florida (the
"Property"). The Property was acquired by the Company in April 1999
through a foreclosure.
The Company filed a Form 8-K on March 30, 2000 regarding American
Safety Holdings Corp.'s purchase of Trafalgar Insurance Company, an
Oklahoma licensed insurance company, which has started to operate as an
excess and surplus lines insurance company in 34 states and the
District of Columbia. Trafalgar has been renamed American Safety
Indemnity Company.
-25-
<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 15th day of May 2000.
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)
-26-
<PAGE>
Exhibit 11
American Safety Insurance Group, Ltd. and subsidiaries
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, March 31,
1999 2000
------ -----
Basic:
Earnings Available to Common
<S> <C> <C>
Shareholders................................. $1,719,178 $(1,948,753)
========== ============
Weighted Average Common Shares
Outstanding.................................. 6,077,750 5,926,654
Basic Earnings Per Common Shares ............ $ .28 $ ( .33)
========== ==========
Diluted:
Earnings Available to Common
Shareholders................................. $1,719,178 $(1,948,753)
========== ============
Weighted Average Common Shares
Outstanding.................................. 6,077,750 5,926,654
Weighted Average Common Shares
Equivalents Associated with Options.......... 30,791 5,342
Total Weighted Average Common
Shares....................................... 6,108,541 5,931,996
========= =========
Diluted Earnings per Common Shares........... $ .28 $ (.33)
========== ===========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
-27-
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-31-1999
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 41,698
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 448
<MORTGAGE> 0
<REAL-ESTATE> 13,109
<TOTAL-INVEST> 59,756
<CASH> 10,960
<RECOVER-REINSURE> 13,058
<DEFERRED-ACQUISITION> 631
<TOTAL-ASSETS> 122,813
<POLICY-LOSSES> 21,536
<UNEARNED-PREMIUMS> 12,862
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 11,649
0
0
<COMMON> 63
<OTHER-SE> 60,064
<TOTAL-LIABILITY-AND-EQUITY> 122,813
5,303
<INVESTMENT-INCOME> 729
<INVESTMENT-GAINS> (126)
<OTHER-INCOME> 656
<BENEFITS> 2,797
<UNDERWRITING-AMORTIZATION> 1,535
<UNDERWRITING-OTHER> 6,280
<INCOME-PRETAX> (3,019)
<INCOME-TAX> (1,070)
<INCOME-CONTINUING> (1,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,949)
<EPS-BASIC> (.33)
<EPS-DILUTED> (.33)
<RESERVE-OPEN> 14,348
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 14,495
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
