<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
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 0-15022
FRONTIER INSURANCE GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 14-1681606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 LAKE LOUISE MARIE ROAD, ROCK HILL, NEW YORK 12775-8000
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (914) 796-2100
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.
[x] Yes [ ] No
The aggregate number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on August 11,1998 was 37,491,674.
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Page 1 of 19 pages
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FRONTIER INSURANCE GROUP, INC.
<TABLE>
<CAPTION>
INDEX PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at
June 30, 1998 (Unaudited) and December 31, 1997............................... 3-4
Consolidated Statements of Income and Comprehensive Income (Unaudited)
for the Three Months and Six Months Ended June 30, 1998 and 1997............. 5
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1998 and 1997............................... 6
Notes to Consolidated Financial Statements (Unaudited)........................ 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................. 10-16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 17
Item 2. Changes in Securities......................................................... 17
Item 3. Defaults upon Senior Securities............................................... 17
Item 4. Submission of Matters to a Vote of Security Holders........................... 17
Item 5. Other Information............................................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................................. 18
Signature .............................................................................. 19
</TABLE>
-2-
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -----------
(Unaudited)
<S> <C> <C>
Investments:
Securities, available for sale--at fair value:
Fixed maturities (amortized cost: 1998--$1,159,356; 1997--$1,053,540) $ 1,187,583 $ 1,079,740
Equity securities (cost: 1998--$36,267; 1997--$17,256); 40,734 20,281
Limited investment partnerships 27,065 17,758
Equity investees 15,662 14,108
Short-term investments 69,176 117,568
------------- -----------
TOTAL INVESTMENTS 1,340,220 1,249,455
Cash 32,074 11,804
Agents' balances due, less allowances for doubtful accounts
(1998--$2,357; 1997--$2,146) 88,509 69,889
Premiums receivable from insureds, less allowances
for doubtful accounts (1998--$568; 1997--$645) 27,034 26,307
Net reinsurance recoverables less allowances for
doubtful accounts (1998--$246; 1997--$310) 446,004 391,168
Accrued investment income 16,822 14,970
Federal income taxes recoverable 7,318 7,292
Deferred policy acquisition costs 82,553 55,634
Deferred federal income tax asset 21,216 29,045
Home office building, property and equipment--at cost,
less accumulated depreciation and amortization
(1998--$17,821; 1997--$15,075) 53,202 48,298
Intangible assets, less accumulated amortization
(1998--$12,151; 1997--$4,770) 54,748 29,885
Other assets 40,271 41,966
------------- -------------
TOTAL ASSETS $2,209,971 $1,975,713
============= =============
</TABLE>
See notes to consolidated financial statements (unaudited).
-3-
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FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
(dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES
Policy liabilities:
Unpaid losses $ 689,939 $ 635,719
Unpaid loss adjustment expenses 145,921 144,325
Unearned premiums 505,753 404,042
----------- -----------
TOTAL POLICY LIABILITIES 1,341,613 1,184,086
Funds held under reinsurance contracts 138,356 111,879
Bank debt 10,000
Cash dividend payable to shareholders 2,391 2,375
Other liabilities 62,786 56,965
------------ -----------
TOTAL LIABILITIES 1,555,146 1,355,305
COMMITMENTS AND CONTINGENCIES
GUARANTEED PREFERRED BENEFICIAL INTEREST IN
COMPANY'S CONVERTIBLE SUBORDINATED DEBENTURES 166,787 166,703
SHAREHOLDERS' EQUITY--
Preferred Stock, par value $.01 per share;
(shares authorized and unissued--1,000,000)
Common Stock, par value $.01 per share
(shares authorized: 150,000,000,
shares issued: 1998-37,565,899; 1997-37,419,298) 376 340
Additional paid-in capital 448,928 367,914
Accumulated other comprehensive income, net of tax 22,888 20,238
Retained earnings 16,627 65,995
------------- -------------
SUBTOTAL 488,819 454,487
Less treasury stock--at cost (1998--99,322; 1997--99,792 shares) 781 782
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 488,038 453,705
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,209,971 $1,975,713
========== ==========
Book value per share $13.03 $12.16
====== ======
</TABLE>
See notes to consolidated financial statements (unaudited).
-4-
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FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums written $216,903 $129,170 $430,835 $234,982
Premiums ceded (77,566) (40,023) (157,220) (66,523)
---------- --------- --------- ---------
NET PREMIUMS WRITTEN 139,337 89,147 273,615 168,459
Increase in net unearned premiums (16,761) (13,130) (33,827) (14,635)
---------- --------- --------- ---------
NET PREMIUMS EARNED 122,576 76,017 239,788 153,824
Net Investment income 19,128 12,825 37,694 24,718
Realized capital gains 1,596 494 3,880 1,215
----------- ----------- ---------- ----------
TOTAL NET INVESTMENT INCOME 20,724 13,319 41,574 25,933
Net proceeds from company held life insurance policy 4,400
----------- ----------- ---------- ----------
TOTAL REVENUES 143,300 89,336 285,762 179,757
EXPENSES
Losses 54,321 26,105 108,388 57,221
Loss adjustment expenses 14,048 9,930 37,004 24,488
Amortization of policy acquisition costs 30,710 19,960 56,606 35,911
Underwriting and other expenses 17,227 9,251 30,794 18,511
Minority interest in income of consolidated subsidiary trust 2,777 2,804 5,464 5,486
Interest expense 238 284 314 290
----------- ---------- ----------- -----------
TOTAL EXPENSES 119,321 68,334 238,570 141,907
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES 23,979 21,002 47,192 37,850
INCOME TAXES
State 344 307 913 410
Federal 6,170 5,276 11,071 10,117
---------- ---------- --------- ---------
TOTAL INCOME TAXES 6,514 5,583 11,984 10,527
---------- ---------- --------- ---------
NET INCOME $ 17,465 $ 15,419 $ 35,208 $27,323
OTHER COMPREHENSIVE INCOME, NET 2,230 9,621 2,650 1,941
--------- --------- --------- ---------
TOTAL COMPREHENSIVE INCOME $19,695 $25,040 $37,858 $29,264
======= ======= ======= =======
PER SHARE DATA:
Primary earnings per common $.47 $.48 $.94 $.85
==== ==== ==== ====
Fully diluted earnings per common share $.42 $.43 $.85 $.77
==== ==== ==== ====
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (in thousands):
Primary 37,395 32,301 37,369 32,288
Fully diluted 45,883 40,396 45,858 40,383
</TABLE>
See notes to consolidated financial statements (unaudited).
-5-
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FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 35,208 $ 27,323
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in policy liabilities 92,289 31,942
Increase in reinsurance balances (32,247) (6,193)
Increase in agents' balances and premiums receivable (18,728) (2,146)
Increase in deferred policy acquisition costs (26,919) (8,112)
Increase in accrued investment income (1,619) (778)
Deferred income tax expense 3,590 1,312
Depreciation and amortization 9,396 3,220
Realized capital gains (3,880) (1,215)
Other, net 34,631 2,969
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 91,721 48,322
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities 91,743 40,532
Proceeds from calls, paydowns and maturities of fixed maturities 71,770 37,617
Proceeds from sales of equity securities 9,098 2,100
Purchases of fixed maturities (243,196) (142,100)
Purchases of equity securities (25,860)
Net sales of short-term investments 74,739 45,511
Additions and improvement to home office building, and (6,937) (3,024)
purchases of property and equipment
Purchase of wholly-owned subsidiary, net of cash acquired (28,112) (89,055)
Purchases of intangible assets (13,313) (3,000)
Other, net (7,874) (495)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (77,942) (111,914)
FINANCING ACTIVITIES
Proceeds from borrowings 10,000 62,000
Cash dividends paid (4,751) (3,809)
Issuance of common stock 1,635 1,037
Additional costs related to public common stock offering (397) 5
Reissuance of treasury stock 4
------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,491 59,233
INCREASE (DECREASE) IN CASH 20,270 (4,359)
CASH AT BEGINNING OF YEAR 11,804 8,332
-------- ----------
CASH AT END OF PERIOD $32,074 $ 3,973
======= =========
</TABLE>
See notes to consolidated financial statements (unaudited).
-6-
<PAGE>
<PAGE>
FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X and, accordingly, do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting of only normal, recurring accruals)
considered necessary for a fair presentation have been included. Certain
amounts in the 1997 financial statements have been reclassified to conform
to the 1998 presentation. All share and per share information presented in
the accompanying financial statements and these notes thereto have been
adjusted to give effect to stock dividends and stock splits. Operating
results for the six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998.
2. In October 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings per Share", which establishes standards for computing and
presenting earnings per share ("EPS"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and where appropriate have been
restated to conform to the Statement 128 requirements.
3. Dividends have been declared by the Board of Directors and paid by the
Company during the periods presented in the accompanying financial
statements, as follows:
<TABLE>
<CAPTION>
Declaration Record Payment Type of Cash Number of
Date Date Date Dividend Paid Shares Issued
----------- ------ ------- ------------------- -------- -------------
<S> <C> <C> <C> <C> <C>
02/27/97 03/24/97 04/18/97 $.065 per share cash $1,905 N/A
05/22/97 06/30/97 07/21/97 100% stock N/A 14,735,962
05/22/97 06/30/97 07/21/97 $.07 per share cash $2,057 N/A
08/14/97 09/30/97 10/17/97 $.07 per share cash $2,374 N/A
11/13/97 12/31/97 01/20/98 $.07 per share cash $2,375 N/A
02/06/98 03/31/98 04/21/98 $.07 per share cash $2,376 N/A
06/01/98 06/30/98 07/20/98 $.07 per share cash $2,384 N/A
06/01/98 07/01/98 07/20/98 10% stock $ 7(1) 3,414,296
</TABLE>
(1) Cash in lieu of fractional shares.
4. At June 30, 1998, options to purchase 953,332 shares of Common Stock, at per
share exercise prices ranging from $8.57 to $30.63 were outstanding,
compared to options to purchase 958,536 shares of Common Stock, at per share
exercise prices ranging from $8.57 to $17.27, outstanding at June 30, 1997
under the Company's stock option plans (the "Plans"). Options to purchase
323,738 and 1,239,392 shares of Common Stock were exercisable at June
30,1998 and June 30,1997, respectively, under the Plans.
In 1998, the Company granted the President and Chairman of the Board, and an
Executive Vice President, separate stock options outside the plan to
purchase 990,000 and 495,000 shares, respectively, of the Company's Common
Stock at prices ranging from $30.00 to $50.00 per share, exercisable at any
time through December 31, 2004, which options were outstanding at June 30,
1998.
Also in 1998, the Company granted the then President and Chairman of the
Board, since deceased, a separate stock option outside the plan to purchase
275,000 shares of the Company's Common Stock at $36.36 per share at any time
through December 31, 2001, which options were outstanding at June 30, 1998.
-7-
<PAGE>
<PAGE>
Item 1. Notes to Consolidated Financial Statements (Unaudited)--Continued
During 1993, the Company granted the President and Chairman of the Board,
and a Vice President, separate stock options outside of the Plans to
purchase 907,500 and 163,350 shares, respectively, of the Company's
Common Stock at $20.66 per share exercisable at any time through December
31, 1999, which options were outstanding at June 30, 1998.
The number of shares subject to options and the per share option prices have
been adjusted to reflect stock dividends. Exercisable options are
nondilutive to earnings per share presented in the accompanying financial
statements.
5. Contingent reinsurance commissions are accounted for on an earned basis and
are accrued, in accordance with the terms of the applicable reinsurance
agreement, based on the estimated level of profitability relating to such
reinsured business. During the three months ended June 30, 1998 and 1997,
such earned commissions accrued were $114,000 and $(694,000), respectively.
During the six months ended June 30, 1998 and 1997, such earned commissions
accrued were $(19,000) and $(120,000), respectively. The estimated
profitability of the reinsured business is continually reviewed and as
adjustments become necessary, such adjustments are reflected in current
operations.
6. The components of the net reinsurance recoverables balances in the
accompanying balance sheets were as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(in thousands)
<S> <C> <C>
Ceded paid losses recoverable $ 22,948 $ 21,460
Ceded unpaid losses and LAE 337,342 291,734
Ceded unearned premiums 136,523 111,927
Ceded reinsurance payable (50,809) (33,953)
--------- ----------
TOTAL $446,004 $391,168
======== ========
</TABLE>
The reinsurance ceded components of the amounts relating to the accompanying
income statements were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Ceded premiums earned $143,173 $71,908
Ceded incurred losses $ 90,176 $47,998
Ceded incurred LAE $ 9,952 $ 9,546
</TABLE>
The effect of reinsurance on premiums written and earned at June 30, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------
1998 1997
Premiums Premiums
------------------------- -----------------------
Written Earned Written Earned
(in thousands)
<S> <C> <C> <C> <C>
Direct $396,673 $358,849 $228,767 $219,396
Assumed 34,162 24,112 6,215 6,336
Ceded (157,220) (143,173) (66,523) (71,908)
-------- --------- --------- ---------
Net $273,615 $239,788 $168,459 $153,824
======== ======== ======== ========
</TABLE>
-8-
<PAGE>
<PAGE>
Item 1. Notes to Consolidated Financial Statements (Unaudited)--Continued
7. In the first quarter of 1997, the Company adopted Financial Accounting
Standards Board Statement 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FASB 125"), which
provides accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets, secured borrowing and
collateral transactions, and the extinguishments of liabilities. The
adoption excluded the provisions that deal with securities lending,
repurchase and dollar repurchase agreements, and the recognition of
collateral, which was adopted in the first quarter of 1998 pursuant to
the proposed amendment. The adoption of FASB 125 did not have a material
impact to the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement 131,
"Disclosures and Segments of an Enterprise and Related Information."
Statement 131 is effective for the years beginning after December 15, 1997
and establishes new disclosure requirements related to products and
services, geographic areas and major customers on an annual and quarterly
basis. Statement 131 requires companies to disclose qualitative and
quantitative segment data on the basis that is used by management for
evaluating segment performance and deciding how to allocate resources.
Although early application is encouraged, segment information is not
required to be reported in interim financial statements in the first year of
application. The Company is currently evaluating what its meaningful
reporting segments will be under Statement 131.
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board's statement 130, "Reporting Comprehensive Income." Statement 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement has no impact on
the Company's net income or shareholders' equity. Statement 130 requires
unrealized gains or losses on the Company's available-for sale securities
and foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of Statement 130.
The components of comprehensive income for the three months ended June 30,
1998 and 1997, and the six months ended June 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $17,465 $15,419 $35,208 $27,323
Other comprehensive income
Unrealized gains, net of tax 2,230 9,621 2,650 1,941
--------- --------- --------- ---------
Total comprehensive income $19,695 $25,040 $37,858 $29,264
======= ======= ======= =======
</TABLE>
The components of accumulated other comprehensive income, net of related tax
at June 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(in thousands)
<S> <C> <C>
Unrealized gains on securities $22,888 $20,238
</TABLE>
-9-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995: This Quarterly Report, on Form 10-Q, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 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 the following: general economic conditions and conditions
specific to the property and casualty insurance industry including its cyclical
nature, regulatory changes and conditions, rating agency policies and practices,
competitive factors, claims development and the impact thereof on loss reserves
and the Company's reserving policies, the adequacy of the Company's reinsurance
programs, developments in the securities markets and the impact on the Company's
investment portfolio, the success of the Company's acquisition program, changes
in generally accepted accounting principles and the risk factors listed from
time to time in the Company's Securities and Exchange Commission filings.
Accordingly, there can be no assurance that the actual results will conform to
the forward-looking statements in this Quarterly Report.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Report and with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
The following table sets forth the net premiums earned by the principal lines of
insurance written by the Company for the periods indicated and the dollar amount
and percentage of change therein from period to period:
<TABLE>
<CAPTION>
Three Months Increase (Decrease)
Ended June 30, 1997 to 1998
---------------------- ---------------
1998 1997 Amount %
-------- -------- ------ ---
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
General liability $ 32,063 $22,777 $ 9,286 40.8
Medical malpractice (including
dental malpractice) 27,277 25,837 1,440 5.6
Surety 15,695 14,293 1,402 9.8
Specialty personal lines 15,258 5,293 9,965 188.3
Credit-related products 13,326 2,472 10,854 439.1
Workers' compensation 2,787 685 2,102 306.9
Commercial earthquake (366) 2,927 (3,293) (112.5)
Other 16,536 1,733 14,803 854.2
--------- --------- --------
Total $122,576 $76,017 $46,559 61.2
======== ======= =======
</TABLE>
The following table sets forth the Company's combined ratio calculated on a
statutory basis ("Statutory Combined Ratio") and on the basis of generally
accepted accounting principles ("GAAP Combined Ratio") for the periods
indicated:
<TABLE>
<CAPTION>
Statutory Combined Ratio GAAP Combined Ratio
------------------------ -------------------
Three Months Three Months
Ended June 30, Ended June 30,
------------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Losses 45.6% 34.3% 44.3% 34.3%
Loss adjustment expenses (LAE) 13.0 13.1 11.5 13.1
---- ---- ---- ----
Losses and LAE 58.6 47.4 55.8 47.4
Acquisition, underwriting, interest, and
other expenses 36.0 36.7 39.1 38.4
---- ---- ---- ----
Total combined ratio 94.6% 84.1% 94.9% 85.8%
==== ==== ==== ====
</TABLE>
-10-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
A variety of factors accounted for the 61.2% growth in net premiums earned,
the principal factor being increases in the Company's core and new program
businesses and the acquisitions of Lyndon Property Insurance Company
("Lyndon") in June 1997, Western Indemnity Insurance Company ("Western") and
Environmental Commercial Insurance Agency("ECI") in December 1997, and
Acceleration Life Insurance Company ("Accel") in January 1998. This increase was
partially offset by a decrease in commercial earthquake business due to an
increased amount of reinsurance coverage purchased and a decrease in the number
of risks insured, increased premiums ceded under an aggregate excess of loss
reinsurance treaty, and the planned decrease in a general liability program for
apartment owners.
Net premiums earned in the general liability line increased primarily because of
increases in various programs, including continued growth in social services,
artisans contractor, demolition contractors, and excess employers' liability
programs, and in the environmental programs underwritten by United Capitol.
These increases were partially offset by a decrease in net premiums earned in
the umbrella and liability programs for apartment owners.
The increase in medical malpractice net premiums earned was primarily
attributable to an increase in the number of physicians insured in the programs
for psychiatrists and alternative risks, geographical expansion in Ohio, Texas,
Michigan and Illinois, and growth in the dental program endorsed by the Academy
of General Dentistry, partially offset by the sale of the Florida medical
malpractice business.
Growth in surety net premiums earned continued in 1998, and was primarily
attributable to expanded writings of license and permit bonds, landfill bonds
and miscellaneous bonds.
Net premiums earned for the workers' compensation line increased, primarily as a
result of a greater required participation in the National Workers' Compensation
Reinsurance Pools, workers' compensation premiums written in the alternative
risk program, and the acquisition of Western.
Net premiums earned for the specialty personal lines increased primarily due to
increased volume in the mobile homeowners' program and auto physical damage
insurance, attributable in part, to the acquisition of Lyndon.
Net premiums earned for the credit-related products increased as a result of the
acquisitions of Lyndon and Accel.
Net premiums earned in the commercial earthquake program decreased primarily due
to the planned decrease in this line of business.
Net premiums earned for the other lines of business increased primarily due to
an increase in volume in commercial package and ocean marine programs.
Net investment income for the second quarter of 1998, increased 49.1% from the
1997 second quarter, primarily as a result of cash flow from regular operations
and the contribution to investment income from the 1997 acquisitions, partially
offset by the interest charge on funds held by the Company for the benefit of
the reinsurer of the aggregate excess of loss reinsurance treaty. Total net
investment income increased 55.6% due to the increase in net investment income
and a 223.1% increase in realized capital gains. The average annual pre-tax
yield on investments, excluding the interest charge on funds held under the
aggregate excess loss of reinsurance contract and realized capital gains and
losses, was 6.4% compared to 6.5% for the 1997 period. The average annual
after-tax yield on investments, excluding the interest charge on funds held
under the aggregate excess of loss reinsurance contract and realized capital
gains and losses, was 4.8% compared to 4.9% for the 1997 period.
Total revenues increased 60.4% as a result of the above.
Total expenses increased by 74.6%, compared to the 61.2% increase in net
premiums earned. Losses and loss adjustment expenses ("LAE") increased at a
89.7% rate as a result of a 108.1% increase in losses and a 41.5% increase in
LAE. The increase in losses and LAE was disproportionate to that of net premiums
earned, resulting in a loss and LAE component of the GAAP Combined Ratio 8.4
-11-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
percentage points higher than in the comparable 1997 period. The 41.5% increase
in LAE resulted from a change in the line of business mix and to a $5.0 million
reserve release in the 1997 quarter, of which $1.0 million was allocated to LAE.
The 62.3% increase in the amortization of policy acquisition costs, underwriting
and other expenses was attributable primarily to an increase in direct
commission expense resulting from growth in programs with higher commission
rates, increased staffing and marketing expenses related to expansion, salary
increases and the total expenses attributable to Lyndon, Western and ECI,
partially offset by the recognition of $2.2 million of the amortization of the
excess of net assets over the purchase price associated with the Lyndon
acquisition. The Company also incurred approximately $2.8 million of expenses in
1998 attributable to the Convertible TOPrS. As the non-claim related component
of the GAAP Combined Ratio increased at a greater rate than premiums earned, the
non-claim component was .7 percentage points higher than in the comparable 1997
period. The total GAAP Combined Ratio increased by 9.1 percentage points to
94.9% as a result of the above.
The foregoing changes resulted in income before taxes of $23,979,000 for the
1998 quarter, a 14.2% increase from the comparable 1997 quarter. Net income for
the period increased by $ 2,046,000 or 13.3%.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The following table sets forth the net premiums earned by the principal lines of
insurance written by the Company for the periods indicated and the dollar amount
and percentage of change therein from period to period:
<TABLE>
<CAPTION>
Six Months Increase (Decrease)
Ended June 30, 1997 to 1998
------------------------- -----------------
1998 1997 Amount %
-------- -------- ------ ---
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
General liability $ 63,687 $ 50,787 $12,900 25.4
Medical malpractice (including
dental malpractice) 54,857 53,744 1,113 2.1
Surety 30,818 27,013 3,805 14.1
Specialty personal lines 28,412 5,960 22,452 376.7
Credit-related products 26,559 2,472 24,087 974.4
Workers' compensation 5,387 1,493 3,894 260.8
Commercial earthquake 2,532 4,701 (2,169) (46.1)
Other 27,536 7,654 19,882 259.8
---------- ----------- --------
Total $239,788 $153,824 $85,964 55.9
======== ======== =======
</TABLE>
-12-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
The following table sets forth the Company's combined ratio calculated on a
statutory basis ("Statutory Combined Ratio") and on the basis of generally
accepted accounting principles ("GAAP Combined Ratio") for the periods
indicated:
<TABLE>
<CAPTION>
Statutory Combined Ratio GAAP Combined Ratio
------------------------ -------------------
Six Months Six Months
Ended June 30, Ended June 30,
------------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Losses 46.9% 37.2% 45.2% 37.2%
Loss adjustment expenses (LAE) 16.9 15.9 15.4 15.9
---- ---- ---- ----
Losses and LAE 63.8 53.1 60.6 53.1
Acquisition, underwriting, and
other expenses 34.3 36.0 36.4 35.4
---- ---- ---- ----
Total combined ratio 98.1% 89.1% 97.0% 88.5%
==== ==== ==== ====
</TABLE>
A variety of factors accounted for the 55.9% growth in net premiums earned,
the principal factor being increases in the Company's core and new program
businesses and the acquisitions of Lyndon in June 1997, Western and ECI in
December 1997, and Accel in January 1998. This increase was partially offset
by a decrease in commercial earthquake business due to an increased amount of
reinsurance coverage purchased and a decrease in the number of risks insured,
increased premiums ceded under the aggregate excess of loss reinsurance treaty,
and the planned decrease in a general liability program for apartment owners.
The increase in medical malpractice net premiums earned was primarily
attributable to an increase in the number of physicians insured in the programs
for psychiatrists and alternative risks, geographical expansion in Ohio, Texas,
Michigan and Illinois, and growth in the dental program endorsed by the Academy
of General Dentistry, partially offset by the sale of the Florida medical
malpractice business.
Net premiums earned for the general liability line increased primarily because
of increases in various programs, including continued growth in the social
services, artisans contractor demolition contractors, and excess employers'
liability programs, and in the environmental programs underwritten by
United Capitol. These increases were partially offset by a decrease in net
premiums earned in the umbrella and liability programs for apartment owners.
Growth in surety net premiums earned continued in 1998, and was primarily
attributable to expanded writings of license and permit bonds, landfill bonds
and miscellaneous bonds.
Net premiums earned for the specialty personal lines increased primarily due to
increased volume in the mobile homeowners' program and auto physical damage
insurance, attributable, in part to the acquisition of Lyndon.
Net premiums earned for credit-related products increased as a result of the
acquisitions of Lyndon and Accel.
Net premiums earned for the workers' compensation line increased, primarily as a
result of a greater required participation in the National Workers' Compensation
Reinsurance Pools, workers' compensation premiums written in the alternative
risk program, and the acquisition of Western.
Net premiums earned in the commercial earthquake program decreased primarily
due to the planned decrease in this line of business.
Net premiums earned for the other lines of business increased primarily due to
an increase in volume in commercial package and ocean marine programs.
-13-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Net investment income for the second quarter of 1998, increased 52.5% from the
1997 second quarter, primarily as a result of cash flow from regular operations
and the contribution to investment income from the 1997 acquisitions, partially
offset by the interest charge on funds held by the Company for the benefit of
the reinsurer of the aggregate excess of loss reinsurance treaty. Total net
investment income increased 60.3% due to the increase in net investment income
and a 219.3% increase in realized capital gains. The average annual pre-tax
yield on investments, excluding the interest charge on funds held under the
aggregate excess loss of reinsurance contract and realized capital gains and
losses, was 6.4% compared to 6.5% for the 1997 period. The average annual
after-tax yield on investments, excluding the interest charge on funds held
under the aggregate excess of loss reinsurance contract and realized capital
gains and losses, was 4.8% compared to 4.9% for the 1997 period.
Total revenues increased 59.0% as a result of the above.
Total expenses increased by 68.1%, compared to the 55.9% increase in net
premiums earned. Losses and loss adjustment expenses ("LAE") increased at a
77.9% rate as a result of a 89.4% increase in losses and a 51.1% increase in
LAE. The increase in losses and LAE was disproportionate to that of net premiums
earned due to a $6.8 million addition to reserves in the first quarter of 1998,
predominantly in the medical malpractice line of business for accident years
prior to 1995, substantially offset by a one-time gain of $4.4 million from
the proceeds of an insurance policy on the life of the Company's late President
and Chief Executive Officer, resulting in a loss and LAE component of the GAAP
Combined Ratio 7.5 percentage points higher than in the comparable 1997 period.
The 51.1% increase in LAE resulted from a change in the line of business mix
to those having a higher percentage relationship of LAE to losses and to the
$6.8 million addition to reserves, of which $2.0 million was allocated to LAE.
The 57.6% increase in the amortization of policy acquisition costs, underwriting
and other expenses was attributable primarily to an increase in direct
commission expense resulting from growth in programs with higher commission
rates, increased staffing and marketing expenses related to expansion, salary
increases and the total expenses attributable to Lyndon, Western and ECI,
partially offset by the recognition of $4.7 million of the amortization of the
excess of net assets over the purchase price associated with the Lyndon
acquisition. The Company also incurred approximately $5.5 million of expenses
in 1998 attributable to the Convertible TOPrS. As the non-claim related
component of the GAAP Combined Ratio increased at a greater rate than premiums
earned, the non-claim component was 1.0 percentage points higher than in the
comparable 1997 period. The total GAAP Combined Ratio increased by 8.5
percentage points to 97.0% as a result of the above.
The foregoing changes resulted in income before taxes of $47,192,000 for the six
months ended June 30, 1998, a 24.7% increase from the comparable 1997 period.
Net income for the period increased by $ 7,885,000 or 28.9%, to $35,208,000.
Liquidity and Capital Resources
The Company is a holding company, receiving cash principally through sales of
equities, borrowings, and dividends from its subsidiaries, most of which are
subject to dividend restrictions. The ability of insurance and reinsurance
companies to underwrite insurance and reinsurance is based on maintaining
liquidity and capital resources sufficient to pay claims and expenses as they
become due. The primary sources of liquidity for the Company's subsidiaries are
funds generated from insurance and reinsurance premiums, investment income,
commission and fee income, capital contributions from the Company and proceeds
from sales and maturities of portfolio investments. The principal expenditures
of the Company are for payment of losses and LAE, operating expenses,
commissions, and dividends to shareholders.
At June 30, 1998, $2.2 billion in total assets were comprised of the following:
62.1% cash and investments, 20.2% net reinsurance recoverables, 5.2% premiums
receivable, 2.4% home office building and equipment, 4.7% deferred expenses
(federal income taxes and policy acquisition costs), and 5.4% other assets.
The Company's subsidiaries maintain liquid operating positions and follow
investment guidelines that are intended to provide for an acceptable return on
investment while preserving capital, maintaining sufficient liquidity to meet
their obligations and, as to the Company's insurance subsidiaries, maintaining a
sufficient margin of capital and surplus to ensure their unimpaired ability to
write insurance and assume reinsurance.
-14-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
The following table provides a profile of the Company's fixed maturities
investment portfolio by rating at June 30, 1998:
<TABLE>
<CAPTION>
Amount
Market Reflected on Percent of
S&P's/Moody's Rating Value Balance Sheet Portfolio
-------------------- ----------- ------------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C>
AAA/Aaa (including U.S. Treasuries
of $42,181) $ 639,250 $ 639,250 53.8%
AA/Aa 201,167 201,167 16.9
A/A 240,486 240,486 20.3
BBB/Baa 76,338 76,338 6.4
All other 30,342 30,342 2.6
---------- ---------- -----
Total $1,187,583 $1,187,583 100.0%
========== ========== =====
</TABLE>
Cash flow generated from operations for the six-month periods ended June 30,
1998 and 1997 was $92 million, and $48 million, respectively, amounts adequate
to meet all obligations during the periods.
In April 1992, the Company commenced paying quarterly cash dividends to its
shareholders. Cash dividends declared in the six-month periods ended June 30,
1998 and 1997 were $4,767,000 and $3,962,000 respectively
On June 3, 1997, the Company obtained a five-year $100,000,000 revolving loan
credit facility from Deutsche Bank AG, New York Branch and/or Cayman Islands
Branch, from which it borrowed $62,000,000 at an initial floating interest rate
of 6.04%, based upon Eurodollar interest rates, payable quarterly, to fund a
portion of the $92,000,000 purchase price for Lyndon. As of June 30, 1998, the
Company had an outstanding principal balance of $10,000,000.
Reinsurance
Effective January 1, 1995, the Company entered into a stop loss reinsurance
agreement with Zurich Reinsurance (North America), Inc. ("Zurich N.A."),
formerly Centre Reinsurance Company of New York ("Centre Re") for accident
years' commencing 1995. Under the agreement, Zurich N.A. provides reinsurance
protection within certain accident year and contract aggregate dollar limits for
losses and LAE in excess of a predetermined ratio of these expenses to net
premiums earned for a given accident year for all subject business. The loss and
LAE ratio above which the reinsurance provides coverage is 66%, 65%, and 64% for
accident years 1995 through 1997, respectively. The maximum amount recoverable
for an accident year is 175% of the reinsurance premium paid for the accident
year, or $162,500,000 in the aggregate for the three years.
Effective January 1, 1998, the Company entered into an Aggregate Excess of Loss
Reinsurance Agreement (Stop Loss) with Zurich N.A. for the 1998 and 1999
accident years. The new agreement includes selected programs underwritten by
United Capitol, Western, and selected core programs of Frontier Insurance and
Frontier Pacific, which were part of the original 1995-1997 Stop Loss Agreement.
Under the terms of the agreement, Zurich N.A. provides reinsurance protection
within certain contract aggregate dollar limits for losses and LAE in excess of
a predetermined ratio of these expenses to earned premiums for a given accident
year for subject insurance programs. The maximum amount recoverable for an
accident year is 240% of the reinsurance premium paid for the accident year or
$230,000,000 in the aggregate for the two years.
Litigation with the State of New York
In December 1990, the New York State Court of Claims rendered a decision in
favor of the Company holding that a State University of New York ("SUNY")
medical school faculty member engaged in the clinical practice of medicine at a
SUNY medical facility, corollary to such physician's faculty activities, was
within the scope of such physician's employment by SUNY and was protected
against malpractice claims arising out of such activity by the State of New York
and not under the Company's medical malpractice policy. The decision was
affirmed on appeal by the New York State Appellate Division in November 1991 and
not appealed by the State. In July 1992, the
-15-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
State of New York enacted legislation eliminating medical school faculty members
of SUNY engaged in the clinical practice of medicine at a SUNY medical facility
from indemnification by the State with respect to malpractice claims arising out
of such activity, retroactive to July 1, 1991. In an opinion filed on September
3, 1993 the Court of Claims of the State of New York held, inter alia, that the
July 1992 legislation by the State of New York eliminating SUNY medical school
faculty members engaged in the clinical practice of medicine, as part of
their employment by SUNY, from indemnification by the State with respect to
malpractice claims arising out of such activity, was not to be applied
retroactively. This decision was affirmed by the New York State Appellate
Division in April 1994. Subsequently, in February 1995, the Appellate Division
granted leave to Frontier and the State of New York to have the issues of
Frontier's entitlement to recover its costs of defense and its costs of
settlement ruled on by the State's highest Court, the New York Court of Appeals.
In December 1995, the New York Court of Appeals ruled on this issue and
concluded that Frontier was entitled to recoveries from the State for such
medical malpractice claims. In January 1997, the New York Court of Claims
rendered a decision granting summary judgement to the Company on three SUNY
cases that were previously paid by the Company. This decision has been appealed
by the State of New York. As a result of this decision, the Company believes
that it will benefit economically by not being ultimately responsible for
certain claims against SUNY physicians for whom it presently carries reserves is
entitled to reimbursement of certain claims previously paid; accordingly, as of
December 31, 1997, Frontier recorded subrogation recoverables of approximately
$27,000,000, representing the amount of claims already paid and the reserves
currently held by Frontier on cases that management believes are reimbursable by
the State of New York. In January 1998, the New York Legislature approved a bill
to eliminate the right of SUNY physicians to obtain indemnification from New
York State for claims arising out of their clinical practice of medicine,
retroactive to August 5, 1978, which bill was vetoed by the Governor in February
1998. Prior to the veto, the Company's management and members of the offices
of the Governor and of the Attorney General held joint discussions for a
comprehensive settlement of the amount of reimbursement to which the Company
is entitled form the State.
On July 21, 1998, the Company announced that it had reached an agreement with
the State of New York pertaining to the 83 pending closed cases involving the
physicians in Frontier's SUNY program, for which the Company recorded
subrogation recoveries of $14,500,000. Under the agreement, the State will
pay the Company $15,000,000 and the Company will forego $5,100,000 in interest.
The Company and the State of New York are preparing a formal settlement
agreement.
Discussions are continuing with respect to open cases, but to date no
resolution has been reached. To the extent that the amount of the actual
recovery varies from recorded subrogation, such difference will be reported in
the period recognized. The Company is continuing to defend all SUNY faculty
members against malpractice claims that have been asserted and is maintaining
reserves therefor adjusted for the anticipated recoveries.
Shareholder Litigation
The Company is a defendant in a class action alleging violations of federal
securities laws by the Company and certain of its officers and directors. The
complaint relates to the Company's November 5, 1994 announcement of its third
quarter financial results and alleges that the Company previously had omitted
and/or misrepresented material facts with respect to its earnings and profits.
The Company believes the suit is without merit and has retained special legal
counsel to contest the suit vigorously and believes that the Company's exposure
to liability under such lawsuit, if any, would not have a material adverse
effect on the Company's financial condition.
-16-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 28, 1998, the shareholders of the Company held their annual
meeting in Rock Hill, New York. The shareholders of 32,619,020
shares of Common Stock were present or represented by proxy and,
accordingly, a quorum was present and matters were voted upon as
follows:
a. The following persons were elected directors of the Company:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
---------- --------
<S> <C> <C>
Suzanne Rhulen Loughlin 32,370,410 248,610
Peter L. Rhulen 32,370,410 248,610
Harry W. Rhulen 32,344,066 274,954
Joseph Loughlin 32,370,410 248,610
Lawrence E. O'Brien 32,370,410 248,610
Douglas C. Moat 32,370,410 248,610
Alan Gerry 32,370,410 248,610
Paul B. Guenther 32,360,680 258,340
</TABLE>
b. The vote to adopt an amendment to the Company's Restricted
Certificate of Incorporation, to increase the authorized number
of shares of the Company's Common Stock from 50,000,000 to
150,000,000, also passed. Votes totaling 27,817,151 were in
favor of the amendment, 4,697,443 were against, 104,419
abstained and 2 were unvoted.
c. The vote to grant a stock option, expiring December 31, 2001,
to Walter A. Rhulen, the then Chairman of the Board, President
and Chief Executive Officer of the Company, since deceased, to
purchase 250,000 shares of the Company's Common Stock at $40.00
per share was also ratified. Votes totaling 31,195,406 were in
favor of the ratification, 1,305,892 were against, 117,718
abstained, 4 were unvoted.
d. The vote to grant a stock option, expiring December 31, 2004,
to Harry W. Rhulen, the Chairman of the Board, President and
Chief Executive Officer of the Company, to purchase a total of
900,000 shares of the Company's Common Stock at prices ranging
from $33.00 to $55.00 per share was also ratified. Votes
totaling 31,409,917 were in favor of the ratification, 985,417
were against, 223,682 abstained, and 4 were unvoted.
-17-
<PAGE>
<PAGE>
e. The vote to grant a stock option, expiring December 31, 2004,
to Peter H. Foley, an Executive Vice President, to purchase a
total of 450,000 shares of the Company's Common Stock at prices
ranging from $33.00 to $55.00 per share was also ratified.
Votes totaling 31,444,149 were in favor of the ratification,
953,492 were against, 221,376 abstained, and 3 were unvoted.
Note: Share amounts have not been adjusted for the 10% Common
Stock dividend effected on July 20, 1998.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
-18-
<PAGE>
<PAGE>
SIGNATURE
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: August 14, 1998 Frontier Insurance Group, Inc.
------------------------------
(Registrant)
By: /s/ Mark H. Mishler
_________________________________________
Mark H. Mishler
Vice President - Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
-19-
<PAGE>
<PAGE>
FRONTIER INSURANCE GROUP, INC. JUNE 30, FORM 10-Q EXHIBIT 11
Computation of Per Share Earnings
(in thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------- --------- -------- -------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $17,465 $15,419 $35,208 $27,323
======= ======= ======= =======
Weighted average shares of
common stock outstanding (1) 37,395 32,301 37,369 32,288
======= ======= ======= =======
Net income per share of
common stock outstanding (1) $ 0.47 $ 0.48 $ 0.94 $ 0.85
======= ======= ======= =======
Diluted earnings per share:
Net income 19,270 17,242 38,759 30,889
======= ======= ======= =======
Weighted average shares of
common stock and common stock
equivalents outstanding (1)
45,883 40,396 45,858 40,383
======= ======= ======= =======
Net income per share of
common stock and common stock
equivalents outstanding (1) $ 0.42 $ 0.43 $ 0.85 $ 0.77
======= ======= ======= =======
</TABLE>
(1) Weighted average shares of common stock outstanding have been adjusted to
give effect to the Company's common stock dividends and stock splits.
Accordingly, net income per share of common stock has been adjusted.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,187,583
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 40,734
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,340,220
<CASH> 32,074
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 82,553
<TOTAL-ASSETS> 2,209,971
<POLICY-LOSSES> 835,860
<UNEARNED-PREMIUMS> 505,753
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 376
0
0
<OTHER-SE> 487,662
<TOTAL-LIABILITY-AND-EQUITY> 2,209,971
239,788
<INVESTMENT-INCOME> 37,694
<INVESTMENT-GAINS> 3,880
<OTHER-INCOME> 0
<BENEFITS> 145,092
<UNDERWRITING-AMORTIZATION> 56,606
<UNDERWRITING-OTHER> 30,794
<INCOME-PRETAX> 47,192
<INCOME-TAX> 11,984
<INCOME-CONTINUING> 35,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,208
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.85
<RESERVE-OPEN> 483,539
<PROVISION-CURRENT> 131,704
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 16,927
<PAYMENTS-PRIOR> 109,847
<RESERVE-CLOSE> 485,170
<CUMULATIVE-DEFICIENCY> 3,299
</TABLE>
