================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number: 0-15286
CHANDLER INSURANCE COMPANY, LTD.
(Exact name of registrant as specified in its charter)
Cayman Islands None
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5th Floor Anderson Square N/A
P.O. Box 1854 (Zip Code)
Grand Cayman, Cayman Islands B.W.I.
(Address of principal executive offices)
Registrant's telephone number, including area code: 345-949-8177
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The number of Common Shares, $1.67 par value, of the registrant outstanding
on October 31, 1996 was 6,941,708. This excludes 567,350 Common Shares owned by
Chandler (U.S.A.), Inc., a subsidiary of registrant, which are eligible to vote.
================================================================================
<PAGE>
<PAGE>
PAGE 2
CHANDLER INSURANCE COMPANY, LTD.
INDEX
PART I - Financial Information
==============================
Item 1
- ------
Consolidated Statements of Operations for the
three months ended September 30, 1996 and 1995............................3
Consolidated Statements of Operations for
the nine months ended September 30, 1996 and 1995.........................4
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.....................................................5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995..................................6
Notes to Interim Consolidated Financial Statements.............................7
Item 2
- ------
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9
PART II - Other Information
===========================
Item 1 - Legal Proceedings....................................................12
Item 2 - Changes in Securities................................................12
Item 3 - Defaults Upon Senior Securities......................................12
Item 4 - Submission of Matters to a Vote of Security Holders..................12
Item 5 - Other Information....................................................12
Item 6 - Exhibits and Reports on Form 8-K.....................................12
Signatures....................................................................13
<PAGE>
<PAGE>
PAGE 3
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the three months
ended September 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Premiums and other revenues
Direct premiums written and assumed..................$ 37,058 $ 33,530
Reinsurance premiums ceded........................... (5,002) (3,363)
---------- ----------
Net premiums written and assumed................... 32,056 30,167
Increase in unearned premiums........................ (8,266) (8,105)
---------- ----------
Net premiums earned................................ 23,790 22,062
Net investment income.................................. 1,769 1,863
Commissions, fees and other income..................... 792 520
---------- ----------
Total revenues..................................... 26,351 24,445
---------- ----------
Operating costs and expenses
Losses and loss adjustment expenses.................. 13,618 13,495
Policy acquisition costs............................. 9,641 6,283
General and administrative expenses.................. 3,339 2,966
Litigation expenses, net............................. (968) 330
---------- ----------
Total operating expenses........................... 25,630 23,074
---------- ----------
Income before income taxes............................. 721 1,371
Federal income tax provision of
consolidated U.S. subsidiaries....................... (184) (511)
---------- ----------
Net income.............................................$ 537 $ 860
========== ==========
Net income per share...................................$ 0.08 $ 0.12
Weighted average common shares and common
share equivalents outstanding........................ 6,942 6,942
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
<PAGE>
PAGE 4
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Premiums and other revenues
Direct premiums written and assumed..................$ 83,046 $ 76,784
Reinsurance premiums ceded........................... (11,057) (11,248)
---------- ----------
Net premiums written and assumed................... 71,989 65,536
Increase in unearned premiums........................ (5,219) (4,912)
---------- ----------
Net premiums earned................................ 66,770 60,624
Net investment income.................................. 5,469 5,725
Commissions, fees and other income..................... 2,792 2,159
---------- ----------
Total revenues..................................... 75,031 68,508
---------- ----------
Operating costs and expenses
Losses and loss adjustment expenses.................. 40,429 37,876
Policy acquisition costs............................. 24,086 17,488
General and administrative expenses.................. 10,600 9,579
Litigation expenses, net............................. (761) 860
---------- ----------
Total operating expenses........................... 74,354 65,803
---------- ----------
Income before income taxes............................. 677 2,705
Federal income tax benefit (provision)
of consolidated U.S. subsidiaries.................... 790 (239)
---------- ----------
Net income.............................................$ 1,467 $ 2,466
========== ==========
Net income per share...................................$ 0.21 $ 0.36
Weighted average common shares and common
share equivalents outstanding........................ 6,942 6,942
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
<PAGE>
PAGE 5
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities available for sale,
at estimated fair value..........................$ 106,570 $ 108,096
Fixed maturities held to maturity, at
amortized cost (estimated fair value $1,753
and $6,147 in 1996 and 1995, respectively)....... 1,677 5,941
Short-term investments............................. 2,952 -
------------ ------------
Total investments................................ 111,199 114,037
Cash and cash equivalents............................ 9,210 8,524
Premiums receivable, less allowance for
non-collection of $1,175 and $177 at
1996 and 1995, respectively........................ 34,366 35,058
Reinsurance recoverable on paid losses, less
allowance for non-collection of $470 and
$307 at 1996 and 1995, respectively................ 4,048 4,485
Reinsurance recoverable on unpaid losses, less
allowance for non-collection of $185 and
$307 at 1996 and 1995, respectively................ 40,663 46,777
Prepaid reinsurance premiums......................... 5,639 5,170
Deferred policy acquisition costs.................... 4,873 3,800
Property and equipment, net.......................... 6,097 6,188
Other assets......................................... 12,015 10,617
Licenses, net........................................ 4,531 4,643
Excess of cost over net assets acquired, net......... 6,062 6,517
Covenants not to compete, net........................ 833 1,133
------------ ------------
Total assets.........................................$ 239,536 $ 246,949
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses.........$ 114,454 $ 128,794
Unearned premiums.................................. 36,969 31,280
Policyholder deposits.............................. 4,232 4,484
Notes payable...................................... 4,800 300
Accrued taxes and other payables................... 4,138 5,669
Premiums payable................................... 2,807 2,972
------------ ------------
Total liabilities................................ 167,400 173,499
------------ ------------
Shareholders' equity
Common stock, $1.67 par value, 10,000,000 shares
authorized, 7,509,058 shares issued.............. 12,540 12,540
Paid-in surplus.................................... 36,143 36,143
Retained earnings.................................. 27,393 25,926
Unrealized gain (loss) on investments
available for sale, net of tax................... (1,792) 989
Less: Stock held by subsidiary, at cost
(567,350 shares)................................. (2,148) (2,148)
------------ ------------
Total shareholders' equity..................... 72,136 73,450
------------ ------------
Total liabilities and shareholders' equity...........$ 239,536 $ 246,949
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
<PAGE>
PAGE 6
CHANDLER INSURANCE COMPANY, LTD.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................$ 1,467 $ 2,466
Add (deduct):
Adjustments to reconcile net income
to cash applied to operations:
Net realized gains on sales of investments......... (119) (9)
Net (gains) losses on sales of equipment........... (10) 2
Amortization and depreciation...................... 1,740 1,685
Provision for non-collection of premiums........... 1,165 47
Provision for non-collection of
reinsurance recoverables......................... 1,634 320
Net change in non-cash balances
relating to operations:
Premiums receivable.............................. (474) (3,390)
Reinsurance recoverable on paid losses........... (1,220) (433)
Reinsurance recoverable on unpaid losses......... 6,137 7,605
Prepaid reinsurance premiums..................... (469) (1,313)
Deferred policy acquisition costs................ (1,073) 121
Other assets..................................... (393) 2,887
Unpaid losses and loss adjustment expenses....... (14,340) (22,674)
Unearned premiums................................ 5,689 6,225
Policyholder deposits............................ (252) (287)
Accrued taxes and other payables................. (1,531) (1,044)
Premiums payable................................. (165) 184
---------- ----------
Cash applied to operations......................... (2,214) (7,608)
---------- ----------
INVESTING ACTIVITIES:
Short-term investments
Purchases.......................................... (2,944) (12,436)
Maturities......................................... - 14,500
Fixed maturities available for sale
Purchases.......................................... (26,468) (9,769)
Sales.............................................. 13,743 1,030
Maturities......................................... 10,328 1,254
Fixed maturities held to maturity
Purchases.......................................... - (35)
Maturities......................................... 4,300 13,471
Cost of property and equipment purchased............. (575) (629)
Proceeds from sale of property and equipment......... 36 117
Other................................................ (20) -
---------- ----------
Cash provided by investing activities.............. (1,600) 7,503
---------- ----------
FINANCING ACTIVITIES:
Proceeds from note payable........................... 4,500 -
---------- ----------
Cash provided by financing activities.............. 4,500 -
---------- ----------
Increase (decrease) in cash and cash
equivalents during the period...................... 686 (105)
Cash and cash equivalents at beginning of period..... 8,524 8,420
---------- ----------
Cash and cash equivalents at end of period...........$ 9,210 $ 8,315
========== ==========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
<PAGE>
PAGE 7
CHANDLER INSURANCE COMPANY, LTD.
Notes To Interim Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there have been no material changes in the
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the three and
nine month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year. Certain reclassifications of
the consolidated balance sheets for the 1995 period have been made to conform
to the 1996 presentation.
The consolidated financial statements include the accounts of Chandler Insurance
Company, Ltd. ("Chandler" or "the Company") and subsidiaries including:
- Chandler Insurance (Barbados), Ltd. ("Chandler Barbados") and
NAICO Indemnity (Cayman), Ltd., wholly owned subsidiaries of the Company.
- Chandler (U.S.A.), Inc. ("Chandler USA"), a wholly owned subsidiary of
Chandler Barbados.
- National American Insurance Company ("NAICO"), LaGere & Walkingstick
Insurance Agency, Inc. ("L&W") and Network Administrators, Inc.
("Network"), wholly owned subsidiaries of Chandler (U.S.A.), Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Accounting Pronouncements
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" establishes accounting standards for such assets.
SFAS 123, "Accounting for Stock-Based Compensation" establishes a fair value
method and disclosure standards for stock-based employee compensation
arrangements, such as stock purchase plans and stock options. As allowed by
SFAS 123, the Company will continue to follow the provisions of Accounting
Principles Board Opinion 25 for such stock-based compensation arrangements and
disclose the proforma effects of applying SFAS 123, if any, in the financial
statements. The Company adopted these new standards effective January 1, 1996,
the required effective date. The adoption of these standards had no material
impact on the Company's financial position, results of operations or related
disclosures to the Notes to Consolidated Financial Statements.
NOTE 2 - LITIGATION
In the Company's Annual Report on Form 10-K for the year ended December 31,
1995, various matters in litigation were described. In Item 3 of such Form
10-K, the Company reported on certain legal proceedings pending in the United
States District Court for the Western District of Oklahoma involving the CenTra
Group as well as an action pending involving Diane Semon. Such legal
proceedings have been scheduled for trial in the first quarter of 1997. In
Item 3 and Item 12 of such Form 10-K, the Company reported that on December 1,
1995 the Nebraska Supreme Court had upheld a ruling by a lower court denying
the CenTra Group's attempt to obtain control of NAICO. On April 3, 1996 the
CenTra Group filed a Petition for Writ of Certiorari in the United States
Supreme Court requesting that court to assume jurisdiction to review the
Nebraska Supreme Court decision. On May 13, 1996 the U.S. Supreme Court denied
the Petition for Writ of Certiorari. In the third quarter of 1996, the
Company recorded a $982,000 estimated recovery of costs from its directors
and officers liability insurer related to the Company's claim for reimbursable
amounts previously paid for defense and litigation costs associated with the
litigation involving the CenTra Group.
On October 16, 1996 the CenTra Group filed another Form A with the Nebraska
Insurance Department. The Form A requests consent to a transfer of the
Company's shares owned or controlled by the CenTra Group to the trustees of a
trust established for that purpose. No final hearing date has been set.
<PAGE>
<PAGE>
PAGE 8
On June 28, 1996 the Company filed a report on Form 8-K reporting a dispute
with Midwest Indemnity Corporation ("Midwest"). On May 24, 1996 Midwest, a
Skokie, Illinois based surety bond producer made a demand upon NAICO for binding
arbitration of certain claims against NAICO. The claims are allegedly based
upon a contractual relationship dating back to 1987 and accused NAICO of
libeling Midwest and attempting to wrongfully appropriate business belonging to
Midwest. In the arbitration demand Midwest alleges its corporate value has been
diminished by approximately $20 million and that security it gave NAICO in the
form of a letter of credit in the face amount of $200,000 and a surety bond
issued by Century Surety Company with the remaining penal sum of $1,500,000
should be released. On June 20, 1996 NAICO filed a lawsuit in state court in
Chandler, Oklahoma against Midwest and certain affiliates seeking a stay of the
arbitration and asserting claims against Midwest for debts owed to NAICO, breach
of fiduciary duty by Midwest and certain of its officers, various declaratory
judgements and seeking further relief in connection with those claims. The
state court granted an immediate temporary restraining order staying the
requested arbitration pending further hearing. On June 25, 1996 the action was
removed to U.S. District Court in Oklahoma City, Oklahoma. No trial date has
been set.
On June 17, 1996 Century Surety Company filed an action in the Common Pleas
Court of Cuyahoga County, Ohio against NAICO and Midwest alleging that the bond
which it had given to NAICO to secure Midwest's obligations to NAICO is void
and requesting cancellation of the bond. On July 30, 1996 the action was
removed to U.S. District Court in Cleveland, Ohio. No trial date has been set.
Midwest currently owes NAICO approximately $5.4 million related to a commission
arrangement contingent on the loss experience on the NAICO/Midwest Surety Bond
Program. Pursuant to NAICO's agreement with Midwest, the obligation is
scheduled to be reduced by $1.5 million during the remainder of 1996 (at
September 30, 1996 $1.0 million is past due) with the balance due in January,
1997. In addition, Midwest owes approximately $782,000 for premiums it
collected in 1995 and 1996 but which have not been paid to NAICO. NAICO intends
to seek payment of all amounts due. However, the Company recorded a reserve of
$1.0 million as of September 30, 1996 with respect to amounts recoverable
from Midwest and the pending legal proceedings. In view of the large amounts
due from Midwest and the early stages of the various related legal proceedings,
an unfavorable result, if any, could have an additional material impact on the
Company.
In Item 8, Item 10 and Note 10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 a contingency relating to reinsurance
arbitration among NAICO, New York Life Insurance Company, Security Benefit Life
Insurance Company and Standard Insurance Company (the "reinsurers") was
discussed. On May 23, 1996 an arbitration award was made against the reinsurers
and in favor of NAICO but for $1.1 million less than had been expected. A final
award was made by the arbitration panel on July 19, 1996 but on July 30, 1996
the reinsurers requested that the arbitrators reconsider the award and,
accordingly, have not yet paid the amounts ordered to be paid under the award.
On August 9, 1996 NAICO filed suit in the U.S. District Court for the District
of Nebraska against the reinsurers to enforce the arbitration award.
<PAGE>
<PAGE>
PAGE 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Premiums Earned
The following table sets forth net premiums earned for each of the three and
nine month periods ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Standard property-casualty........$ 10,799 $ 8,194 $ 27,999 $ 21,082
Non-standard private
passenger automobile........... 4,278 3,926 12,870 11,387
Political subdivisions............ 3,553 3,776 10,496 9,273
Surety bonds...................... 2,737 3,617 6,989 11,145
Transportation.................... 431 558 1,555 2,785
Other............................. 1,992 1,991 6,861 4,952
---------- ---------- ---------- ----------
TOTAL..............$ 23,790 $ 22,062 $ 66,770 $ 60,624
========== ========== ========== ==========
</TABLE>
Net premiums earned increased 8% and 10% in the quarter and nine months ended
September 30, 1996 compared to the prior year periods. During the third
quarter of 1995, NAICO elected to commute the unpaid losses and loss adjustment
expenses related to reinsurance contracts covering certain business written in
1993, 1994 and 1995 which resulted in an increase in net premiums earned of
$2,175,000. There was no increase in net unpaid losses and loss adjustment
expenses for this commutation.
In 1996 NAICO reviewed the historical results for reinsurance contracts with
similar commutation provisions and began accruing for such commutations where
a commutation election was considered likely. Excluding the effects of the
commutation accruals and election in the 1996 and 1995 periods, net premiums
earned increased 14% and 13% for the quarter and nine months ended September
30, 1996, respectively. The effect of the commutation accruals and elections
on net premiums earned for each insurance program is set forth as follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Standard property-casualty........$ 106 $ 1,184 $ 514 $ 1,184
Political subdivisions............ 19 593 116 593
Other programs.................... 4 398 24 398
---------- ---------- ---------- ----------
TOTAL..............$ 129 $ 2,175 $ 654 $ 2,175
========== ========== ========== ==========
</TABLE>
Net premiums earned in the standard property-casualty program increased 32% and
33% in the three and nine months ended June 30, 1996, respectively, versus the
prior year. Net premiums earned for workers compensation accounted for $1.7
million and $4.1 million of the respective increases while other property-
casualty coverages accounted for the balance. The increases are primarily
attributable to continued expansion in Oklahoma and surrounding states.
<PAGE>
<PAGE>
PAGE 10
Net premiums earned in the political subdivisions program decreased 6% and
increased 13% in the current quarter and first nine months of 1996 compared to
the year ago periods. Excluding the effects of the commutations described
above, net premiums earned increased 11% and 20% over the same periods. The
expansion of the municipalities portion of the program to include workers
compensation, the addition of property-casualty coverages for Oklahoma counties
in mid-1995 and continued expansion in Oklahoma accounted for most of the
increases.
Net premiums earned in the surety bond program decreased 24% and 37% in the
three and nine months ended September 30, 1996 compared to the year ago periods.
NAICO and Midwest Indemnity Corporation ("Midwest"), the underwriting manager
for a large portion of the surety bond program, agreed to terminate the
underwriting and production contract effective December 31, 1995. See Note
2 - Litigation - to the Notes to Interim Consolidated Financial Statements
regarding legal proceedings involving Midwest. Net premiums earned from surety
bonds produced by LaGere & Walkingstick Insurance Agency, Inc. ("L&W") increased
to $1.9 million in the current quarter and $4.5 million in the first nine
months of 1996 compared to $1.0 million and $2.9 million in the respective 1995
periods.
Net premiums earned from the nonstandard private-passenger automobile programs
increased 9% and 13% for the quarter and nine months ended September 30, 1996
compared to the year ago periods. Increased premium volume from the California
portion of the program accounted for most of the increase and was partially
offset by a decrease in premium volume for the Arizona portion of the program.
Net premiums earned from direct assignments of workers compensation policies
and participation in certain voluntary and involuntary pools ("Pools") covering
workers compensation were $1.5 million and $5.3 million in the three and nine
month periods ended September 30, 1996 compared to $2.4 million and $5.5 million
in the year ago periods. The decreases are primarily attributable to a decrease
in premium volume for certain Pools and a decrease in NAICO's premium volume in
certain states using such Pools.
Commissions, Fees and Other Income
Brokerage commissions and fees before intercompany eliminations were $2.9
million and $6.4 million in the third quarter and first nine months of 1996
compared to $2.6 million and $6.0 million in the year ago periods. A large
portion of the brokerage commissions and fees for L&W is incurred by NAICO and
thus eliminated in the consolidation of the Company's subsidiaries.
Commissions and fees generated by Network Administrators, Inc. ("Network") were
$187,000 and $524,000 in the current quarter and first nine months of 1996.
Network is a third-party administrator of partially self-insured group accident
and health plans. Network was acquired by the Company in the fourth quarter of
1995.
Losses and Loss Adjustment Expenses
The percentage of losses and loss adjustment expenses to net premiums earned
was 57.2% and 60.5% for the three and nine months ended September 30, 1996,
respectively, compared to 61.2% and 62.5% in the 1995 periods.
Policy Acquisition Costs
Policy acquisition costs as a percentage of net premiums earned were 40.5% and
36.1% for the current quarter and first nine months of 1996 compared to 28.5%
and 28.8% in the year ago periods. In the current quarter, the Company incurred
a $1.0 million charge with respect to a reserve established for amounts
recoverable from Midwest and the related pending legal proceedings. In the
second quarter of 1996, NAICO concluded an arbitration process with three
reinsurers of its truckers workers compensation program relating to business
written from 1988 through 1991. NAICO received an arbitration award that was
$1.1 million smaller than expected. These charges increased policy acquisition
costs as a percentage of net premiums earned by 4.3 and 3.1 percentage points
in the three and nine months ended September 30, 1996.
The commission rate for a substantial portion of the surety bond program varies
inversely with the loss ratio pursuant to a commission arrangement contingent
on the loss experience of the program. The expected loss ratio for this
portion of the program was decreased in 1996 and such decrease increased the
percentage of net policy acquisition costs to net premiums earned by 7.0 and
4.2 percentage points, respectively, for the three and nine months ended
September 30, 1996.<PAGE>
<PAGE>
PAGE 11
General and Administrative Expenses
General and administrative expenses were 13.6% and 15.2% of revenues exclusive
of net investment income for the three and nine month periods ended September
30, 1996 compared to 13.1% and 15.3% in the respective 1995 periods. The
Company incurred $200,000 and $720,000 in expenses in the 1996 periods related
to the reinsurance arbitration and the Midwest legal proceedings discussed
above. See Note 2 - Litigation - to the Notes to Interim Consolidated Financial
Statements regarding such legal proceedings.
General and administrative expenses have historically not varied in direct
proportion to the Company's revenues. A portion of such expenses is allocated
to policy acquisition costs and loss and loss adjustment expenses based on
various factors including employee counts, salaries, occupancy and specific
identification.
Liquidity and Capital Resources
The Company used $2.2 million of cash in operations in the first nine months of
1996 compared to $7.6 million in the first nine months of 1995. These uses of
cash generally reflect the reductions in premium volume from earlier years and
the payment of losses and loss adjustment expenses incurred in those years.
The Company sold $13.7 million of fixed-income securities available for sale
prior to their maturities in the first nine months of 1996. The Company sold
$1.7 million of fixed-income securities prior to their maturities during the
same period in the prior year.
During the third quarter of 1996, Chandler USA borrowed $4.5 million from a bank
on a three year note payable. The note has a floating interest rate at Wall
Street Journal prime, and principal and interest are payable monthly. The note
is collateralized by the shares of NAICO stock owned by Chandler USA. Proceeds
from the note were used to repay intercompany advances from Chandler USA's
parent company Chandler Insurance (Barbados), Ltd., a wholly owned subsidiary of
the Company.
Litigation Expenses
In 1992, the Company became involved in certain legal proceedings beyond the
ordinary course of business. In the third quarter of 1996, the Company recorded
a $982,000 estimated recovery of costs from its directors and officers liability
insurer related to the Company's claim for reimbursable amounts previously paid
for defense and litigation costs associated with the litigation involving the
CenTra Group. These proceedings generally involve CenTra, Inc., a shareholder,
and certain of its affiliates ("CenTra"). The Company does not expect an
immediate resolution of these legal proceedings. However, a substantial portion
of such legal proceedings are scheduled for trial in the first quarter of 1997.
Accordingly, the Company expects to incur additional legal costs in future
periods. Due to the inherent uncertainties of such legal proceedings and the
unpredictability of CenTra's future actions, the Company cannot predict the
outcome of such litigation with certainty or the rate at which such defense
and litigation costs will be incurred in the future.
Income Tax Provision
The provision for or benefit from federal income taxes of the consolidated U.S.
subsidiaries varies with the level of income or loss before income taxes of
such subsidiaries. The provision or benefit relative to the consolidated income
before income taxes will also vary dependent on the contribution to income
before income taxes by the consolidated U.S. subsidiaries.
The net income tax benefit resulting from the reinsurance arbitration and
related expenses, the Midwest legal proceedings and the estimated recovery
of litigation costs described above was $113,000 and $650,000 in the three and
nine months ended September 30, 1996.
<PAGE>
<PAGE>
PAGE 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In response to this item, the Company incorporates by reference to Note
2 - Litigation - to its Interim Consolidated Financial Statements contained
elsewhere in this report.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
<PAGE>
PAGE 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1996 CHANDLER INSURANCE COMPANY, LTD.
By: /s/ Brent LaGere
--------------------------------
Brent LaGere
Chairman of the Board of
Directors and Chief Executive
Officer
(Principal Executive Officer)
By: /s/ Mark T. Paden
--------------------------------
Mark T. Paden
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from Chandler
Insurance Company, Ltd.'s September 30, 1996 Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 106,570
<DEBT-CARRYING-VALUE> 1,677
<DEBT-MARKET-VALUE> 1,753
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 111,199
<CASH> 9,210
<RECOVER-REINSURE> 4,048
<DEFERRED-ACQUISITION> 4,873
<TOTAL-ASSETS> 239,536
<POLICY-LOSSES> 114,454
<UNEARNED-PREMIUMS> 36,969
<POLICY-OTHER> 4,232
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,800
0
0
<COMMON> 12,540
<OTHER-SE> 59,596
<TOTAL-LIABILITY-AND-EQUITY> 239,536
66,770
<INVESTMENT-INCOME> 5,350
<INVESTMENT-GAINS> 119
<OTHER-INCOME> 2,792
<BENEFITS> 40,429
<UNDERWRITING-AMORTIZATION> 24,086
<UNDERWRITING-OTHER> 9,839
<INCOME-PRETAX> 677
<INCOME-TAX> (790)
<INCOME-CONTINUING> 1,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,467
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
