SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended March 31, 1995 Commission file number 0-14950
Argonaut Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4057601
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
1800 Avenue of the Stars, Suite 1175, Los Angeles, California 90067-6045
(Address of principal executive offices) (Zip Code)
310.553.0561
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
--- ---
As of April 28,1995 there were outstanding 24,215,424 shares of common stock,
par value $.10 per share, of the registrant.
<PAGE>
ARGONAUT GROUP, INC.
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
----
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994.....................................4
Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994...............................5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994...............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations:
First Quarter Ended March 31, 1995 and 1994.................................7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................................8
Signatures..................................................................9
Exhibit Index..............................................................10
Page 2
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PART I. FINANCIAL INFORMATION
Item 1.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The consolidated balance sheet as of March 31, 1995, and the related consol-
idated statements of income for the three-month periods ended March 31, 1995
and 1994 and the statements of cash flows for the three-month periods ended
March 31, 1995 and 1994 are unaudited, and, in the opinion of management,
include all adjustments which are necessary for a fair presentation of such
statements. Such adjustments consist of only normal recurring items. Interim
results are not necessarily indicative of results for other interim periods or
for a full year.
For a description of accounting policies, see notes to financial statements
in the Annual Report or the Form 10-K. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
Page 3
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ARGONAUT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In million except per share amounts)
March 31, 1995 December 31, 1994
(unaudited) (audited)
ASSETS
Investments:
Fixed maturities,
available for sale, at market $1,259.1 $1,270.7
(cost: 1995 - $1,253.7; 1994 - $1,289.5)
Equity securities,
available for sale, at market 224.5 183.9
(cost: 1995 - $136.0; 1994 - $101.5)
Short-term investments 0.2 35.2
Securities in transit 0.2 (5.0)
-------- --------
1,484.0 1,484.8
Cash and cash equivalents 7.9 29.2
Accrued investment income 31.0 29.6
Receivables:
Reinsurance 233.8 235.4
Agents' balances 68.4 75.1
Accrued retrospective premiums 111.6 110.0
Cost in excess of net assets purchased 45.9 46.6
Unearned premiums on ceded reinsurance 5.2 3.4
Deferred Federal income taxes receivable 53.8 66.0
Other assets 13.0 13.5
-------- --------
$2,054.6 $2,093.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and
loss adjustment expenses $1,174.4 $1,196.3
Unearned premiums 56.5 73.5
Accrued policyholder dividends 2.5 0.3
Income taxes payable (receivable) 0.5 (2.1)
Other liabilities 72.1 80.0
-------- --------
1,306.0 1,348.0
-------- --------
Shareholders' equity:
Common stock - $.10 par, 35,000,000 shares
authorized, 24,215,429 and 24,928,246
shares issued and outstanding at March 31,
1995 and December 31, 1994, respectively 2.4 2.5
Additional paid-in capital 97.9 100.6
Retained earnings 583.0 595.5
Net unrealized appreciation on securities 65.3 47.0
-------- --------
748.6 745.6
-------- --------
$2,054.6 $2,093.6
======== ========
Page 4
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ARGONAUT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(unaudited)
For the Quarter Ended
March 31,
1995 1994
------ ------
Premiums and other revenue:
Premiums, net $55.2 $67.2
Net investment income 25.9 27.4
Gains (losses) on sales of investments (0.1) 1.5
------ ------
Total Revenue 81.0 96.1
------ ------
Expenses:
Losses and loss adjustment expenses 48.5 52.0
Underwriting, acquisition, and
insurance expenses 15.9 17.9
Amortization of cost in excess
of net assets purchased 0.7 0.7
Policyholder dividends (0.9) 1.6
------ ------
Total Expenses 64.2 72.2
------ ------
Income before income taxes 16.8 23.9
Income tax provision 3.0 6.5
------ ------
Net Income $13.8 $17.4
====== ======
Income Per Common Share $0.56 $0.68
====== ======
Weighted Average Common Shares 24,665,572 25,676,295
========== ==========
Page 5
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ARGONAUT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In millions)
(unaudited)
For the
Three Months
Ended March 31,
1995 1994
------ ------
Cash flows from operating activities:
Net income $13.8 $17.4
Adjustments to reconcile net income to
net cash provided by operations:
Amortization and depreciation 2.5 1.2
Increase in accrued investment income (1.4) (1.1)
Decrease (increase) in reinsurance receivables 1.6 (5.5)
Decrease in agents' balances 6.7 13.2
Increase in accrued retrospective premiums (1.6) (11.7)
Increase in unearned premiums on ceded reinsurance (1.8) (1.6)
Decrease in deferred Federal income taxes receivable 0.2 5.6
Decrease in reserves for losses and
loss adjustment expense (21.9) (35.7)
Increase (decrease) in unearned premiums (17.0) 12.2
Increase (decrease) in accrued
policyholder dividends 2.2 (3.5)
Increase in income taxes payable (receivable) 2.6 0.7
Other, net (7.7) 8.9
------ ------
(21.8) 0.1
------ ------
Cash flows from investing activities:
Sales of fixed maturity investments 30.7 6.1
Maturies and mandatory calls of fixed maturities 3.6 41.9
Purchases of fixed maturity investments - (38.0)
Purchases of equity securities (34.5) -
Decrease (increase) in short-term investments 35.0 (6.8)
Other, net (5.2) 5.4
------ ------
29.6 8.6
------ ------
Cash flows from financing activities:
Repurchase of common stock (21.9) -
Payment of cash dividend (7.2) (6.4)
Exercise of stock options - 0.1
------ ------
(29.1) (6.3)
------ ------
Increase (decrease) in cash and cash equivalent (21.3) 2.4
Cash and cash equivalents, beginning of period 29.2 41.4
------ ------
Cash and cash equivalents, end of period $7.9 $43.8
====== ======
Page 6
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED OPERATING RESULTS
The Company's operating income after tax was $13.8 million for the quarter
ended March 31, 1995, compared with $16.4 million for the same period last
year. Operating income excludes gains on the sale of investments. The
combined ratio increased to 119% for the current quarter versus 107% for the
similar period in 1994.
Both written and earned premiums are down significantly from the first quarter
of 1994. Net written premiums were $44.8 million for the first quarter of
1995, compared with $66.4 million last year. Earned premiums were $55.2
million in the current quarter, compared with $67.2 million for the first
quarter of 1994. This decline is due in part to the following factors:
* Loss experience on recent policy years for Workers Compensation continues
to develop more favorably than anticipated, increasing the amount of premium
returned to policyholders under retrospectively rated policies.
* Workers Compensation premiums in California were subject to rate decreases
of 29% during 1994.
* An increasing number of Workers Compensation policies are being written
with large deductible provisions, reducing premium, but also reducing
exposure to losses.
Net income before tax for the current quarter includes a charge of $6.0 million
for adverse development of losses from general liability policies written in
prior years, compared with $3.5 million of similar development for general
liability in the first quarter of 1994. The first quarter of 1994 included
$3 million of favorable loss development from lines of business which are being
run off and are no longer being written. There was no similar favorable loss
development for the runoff lines in the first quarter of 1995. The amount of
future additional favorable or unfavorable development in these runoff lines,
if any, cannot be anticipated.
Loss and loss adjustment expenses decreased to $48.5 million for the first
quarter of 1995 from $52.0 million for the same period in 1994. The Company's
loss ratio increased to 86% for the current quarter compared with 79% for the
first quarter of 1994.
Net investment income decreased slightly to $25.9 million for the first quarter
of 1995 from $27.4 million for the first quarter in 1994.
Underwriting expenses totalled $15.9 million for the first quarter of 1995,
compared with $17.9 million for the similar period in 1994.
Policyholder dividend expense (recapture) was $(0.9) million in the first
quarter of 1995 versus $1.6 million for the first quarter of 1994.
Page 7
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Losses on sales of investments were $100,000 for the current quarter, compared
with a gain of $1.5 million for the same period in 1994. We cannot anticipate
when or if similar gains or losses may occur in the future.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company have been met by funds provided from
premiums and investment income as well as maturities of invested assets. The
primary use of funds was to pay claims, policy benefits, operating expenses,
and commissions and to purchase new investments.
Management believes that the Company maintains sufficient liquidity to pay
claims and expenses. Management also believes that the Company possesses
adequate capital resources to cover unforeseen events such as reinsurer
insolvencies, inadequate premium rates, or reserve deficiencies.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index
(b) During the quarter covered by this report, the Registrant did
not file any reports on Form 8-K.
Page 8
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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.
Argonaut Group, Inc.
(Registrant)
/s/ Charles E. Rinsch
- ----------------------
Charles E. Rinsch
President (principal executive officer)
/s/ James B Halliday
- ----------------------
James B Halliday
Vice President and Treasurer
(principal financial and accounting officer)
May 9, 1995
Page 9
<PAGE>
EXHIBIT INDEX
Exhibits are numbered in accordance with Item 601 of Regulation S-K.
Exhibit
No. Description
- ------- -------------------------
27 Financial Data Schedule for March 31, 1995 Form 10-Q.
Page 10
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