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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): AUGUST 5, 1997
FRONTIER INSURANCE GROUP, INC.
(Exact name of registrant as specified in charter)
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<S> <C> <C>
DELAWARE 0-15022 14-1681606
(State or other juris- (Commission (IRS Employer
diction of incorp- File Number) Identification No.)
oration)
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195 LAKE LOUISE MARIE ROAD, ROCK HILL, NEW YORK 12775-8000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 796-2100
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On August 5, 1997, Frontier Insurance Group, Inc. ("Registrant"),
issued a press release announcing its unaudited results for the quarter and
six months ended June 30, 1997. A copy of the press release is attached as
Schedule A hereto.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this current Report on Form 8-K to be
signed on its behalf by the undersigned hereunto duly authorized.
FRONTIER INSURANCE GROUP, INC.
(Registrant)
By: /s/ Mark H. Mishler
---------------------------------------
Mark H. Mishler
Vice President - Treasurer and
Chief Financial Officer
Dated: August 5, 1997
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Schedule A
Press Release of Frontier Insurance Group, Inc.
---------------------------
NEWS
---------------------------
[FRONTIER LOGO] Rock Hill, NY 12775-8000
INSURANCE GROUP, INC. (914) 796-2100
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
- ---------------------
CONTACT: MARK H. MISHLER (914) 796-2100, EXT 5490
FRONTIER INSURANCE GROUP, INC. ANNOUNCES UNAUDITED SECOND QUARTER 1997 RESULTS
Rock Hill, New York, August 5, 1997... Frontier Insurance Group, Inc. (Frontier)
(NYSE- FTR) today reported net income of $15.4 million for the second quarter of
1997 as compared to $9.8 million for the 1996 second quarter. Operating income
per share for the second quarter increased to $.51 per share, a 54.5% increase,
and net income per share increased by 52.9% to $.52 per share. Net income for
the six months ended June 30, 1997 increased 43.2% to $27.3 million from the
comparable 1996 period, operating income per share increased to $.90 per share,
a 40.6% increase, and net income per share increased by 38.8% to $.67. Net
income for the second quarter and six months ended were positively impacted by
the acquisition of Lyndon Property Insurance Company, for the period FROM
JUNE 3, 1997, THE DATE OF ITS ACQUISITION.
Frontier's gross and net written premiums increased substantially in 1997 (by
52.0% and 24.4%, respectively, and 47.0% and 26.3 %, respectively, in the 1997
second quarter and six-month period) over the comparable 1996 periods as a
result of growth in the majority of the Company's core and new program business,
and the acquisitions of Lyndon, United Capitol Holding Company and Regency
Insurance Company. These increases were partially offset by (i) a decrease in
workers' compensation, particularly in the cotton gin program that the Company
discontinued during 1996, (ii) a decrease in the workers' compensation component
of the social services programs due to price competition, and (iii) a loss of
medical malpractice business due to the effects of rate increases in Florida.
The reclassification of certain medical malpractice business to the general
liability line of business reduced net written premiums for medical malpractice.
Total net written premiums were reduced by increased ceded premiums to the
Company's reinsurance treaties. Net premiums earned increased at a substantially
similar rate as net written premiums, (by 21.2% and 23.6%, respectively, for the
net premiums earned for the second quarter and six month period) over the
comparable 1996 period. Since net written premiums for the third and fourth
quarters have historically contributed approximately 60% of the calendar year
premiums, the Company expects to meet its growth objectives in the 1997 fiscal
year. The Company also has several new specialty insurance programs that will be
introduced in the third quarter.
Net investment income for the second quarter of 1997 increased 49.3% from the
1996 comparable period, primarily as a result of greater investable funds
available from the proceeds of the issuance of Convertible Trust Originated
Preferred Securities ("TOPrS") in October 1996, cash inflow from regular
operations and the contribution to net investment income by Lyndon, United
Capitol and Regency, partially offset by the interest charge on
-more-
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funds held by the Company for the benefit of the reinsurer of the Company's
aggregate excess of loss reinsurance contract. The after-tax yield on
investments, excluding the interest charge on funds held under the aggregate
excess of loss reinsurance contract, for the second quarter of 1997 was 5.0%
compared to 5.0% for the comparable 1996 period. Net investment income for the
six-month period of 1997 was up 51.0% over the comparable 1996 six-month period,
primarily as a result of the aforementioned increase in investable funds,
partially offset by the interest charge on funds held under the aggregate excess
of loss reinsurance contract. The after-tax yield on investments, excluding the
interest charge for the funds held under the aggregate excess of loss
reinsurance contract, for the six months ended 1997 was 4.9% compared to 4.9%
for the comparable 1996 period. The realized capital gain of $1.2 million for
the six months ended 1997 was primarily attributable to capital gains recognized
during the year in the convertible bond portfolio.
Total revenues of $89.3 million were 18.5% higher for the second quarter than in
the 1996 quarter, while second quarter total expenses increased 10.5% over the
1996 quarter, resulting in a statutory combined ratio of 84.9% for the second
quarter 1997, compared to 93.5% for the second quarter of 1996 and a GAAP
combined ratio of 85.8% for the second quarter of 1997 compared to 92.7% for the
comparable 1996 period. Total revenues of $179.8 million for the six months
ended June 30, 1997 were 26.4% higher than the comparable 1996 period, while the
six months' total expenses increased 22.5%, resulting in a statutory combined
ratio of 89.5% for the 1997 six-month period, compared to 92.5% for the
comparable 1996 period, and a GAAP combined ratio of 88.4% for the six-month
period compared to 92.4% for the comparable 1996 period.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act") which are not historical
facts and involve risks and uncertainties that could cause actual results to
differ materially from those expected and projected. Such risks and
uncertainties include, but are not limited to, the following: (i) general
economic conditions; (ii) conditions specific to the property and casualty
insurance industry, including its cyclical nature, regulatory changes, rating
agency policies and practices, competitive factors and claims development and
the impact thereof on loss reserves, the Company's reserving policies and the
adequacy of the Company's reinsurance programs; (iii) developments in the
securities markets and the impact thereof on the Company's investment portfolio;
(iv) the success of the Company's acquisition program: (v) changes in generally
accepted accounting principles; and (vi) the risk factors set forth in this
release. Accordingly, there can be no assurance that the actual results will
conform to the forward-looking statements in this release. The words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements.
Frontier is a national underwriter and creator of specialty insurance products
serving the needs of insureds in niche markets.
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FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(amounts in thousands, except per share dollar amounts)
[GRAPHIC OMITTED]
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Income Statement Data: THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
- --------------------- JUNE 30 CHANGE JUNE 30 CHANGE
--------------------------- -------- ---------------------------- -------
1997 1996 1997 1996
------------ ------------ ----------- ----------
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REVENUES
Premiums written $129,170 $84,966 52.0 $234,982 $159,826 47.0
Premiums ceded (40,023) (13,343) 200.0 (66,523) (26,474) 151.3
--------- ------- -------- --------
NET PREMIUMS WRITTEN $ 89,147 $71,623 24.5 $168,459 $133,352 26.3
========= ======= ======== ========
Net premiums earned $ 76,017 $66,148 14.9 $153,824 $124,442 23.6
Net investment income 12,825 8,588 49.3 24,718 16,374 51.0
Realized capital gains (losses) 494 614 (19.5) 1,215 1,305 (6.9)
Claims adjusting income (15) 12 (225.0) 37 (100.0)
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TOTAL REVENUES 89,321 75,362 18.5 179,757 142,158 26.4
EXPENSES
Losses 26,105 30,404 (14.1) 57,221 56,916 .5
Loss adjustment expenses 9,930 9,797 1.4 24,488 18,728 30.8
Policy acquisition costs 19,960 15,330 30.2 35,911 27,711 29.6
Underwriting and other expenses 9,194 5,847 57.2 18,425 11,638 58.3
Minority interest in income of
consolidated subsidiary trust 2,849 N/A 5,581 N/A
Interest expense 281 439 (36.0) 281 880 (68.1)
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TOTAL EXPENSES 68,319 61,817 10.5 141,907 115,873 22.5
INCOME (LOSS) BEFORE
INCOME TAXES 21,002 13,545 55.1 37,850 26,285 44.0
INCOME TAXES
State 307 432 (28.9) 410 547 (25.0)
Federal 5,276 3,344 57.8 10,117 6,705 50.9
---------- --------- --------- ---------
TOTAL INCOME TAXES 5,583 3,776 47.9 10,527 7,252 45.2
---------- --------- --------- ---------
NET INCOME (LOSS) $ 15,419 $ 9,769 57.8 $ 27,323 $19,033 43.6
========== ========= ========= =========
PRIMARY EARNINGS PER SHARE:
Operating income (loss) $.51 $.33 54.5 $.90 $.64 40.6
Realized capital gains (losses) .01 .01 0.0 .03 .03 0.0
---- ---- ---- -----
NET INCOME (LOSS) $.52 $.34 52.9 $.93 $.67 38.8
==== ==== ==== ====
FULLY DILUTED EARNINGS PER SHARE:
Operating income (loss) $.47 $.33 42.4 $.82 $.64 28.1
Realized capital gains (losses) .01 .01 0.0 .02 .03 (33.3)
---- ---- ---- ----
NET INCOME (LOSS) $.48 $.34 41.2 $.84 $.67 25.4
==== ==== ==== ====
WEIGHTED AVERAGE SHARES
OUTSTANDING (in thousands)
Primary 29,365 28,760 2.1 29,353 28,702 2.3
Fully Diluted 36,724 28,760 27.7 36,712 28,702 27.9
GAAP COMBINED RATIO 85.8% 92.7% N/A 88.4% 92.4% N/A
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Balance Sheet Data: JUNE 30
------------------- ------------------------------ PERCENT
1997 1996 CHANGE
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(UNAUDITED)
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Total investments $1,064,781 $635,586 67.5
Total assets 1,656,334 950,159 74.3
Reserves for:
Gross unpaid losses 511,158 407,890 25.3
Gross loss adjustment expenses 112,709 85,931 31.2
Total liabilities 1,194,551 713,157 67.5
Total shareholders' equity 294,813 237,002 24.4
Book value per share $10.03 $8.22 22.0
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