UNITED STATES
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 period ended September 30, 1995
- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9460
LAWRENCE INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3370656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Fifth Avenue, New York, New York 10110
(Address of principal executive offices)
(212) 944-8242
(Registrant's telephone number, including area code)
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
As of September 30, 1995, there were 14,121,482 shares of
common stock, $.01 par value, issued and outstanding.
Page 1 of 14
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
($ IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED) (AUDITED)
----------- ------------
Investments:
Fixed maturities held to maturity at
amortized cost (Fair value:
1995-$4,461; 1994-$7,684) $4,331 $7,698
Fixed maturities available for sale
at fair value (Cost: 1995-$2,330;
1994-$6,228) 2,330 5,784
Equity in common stock of investee
(Cost: 1995-$103; 1994-$103) - -
Equity securities, at fair value
(Cost: 1995-$997; 1994-$997) 940 917
Short-term investments, at cost which
approximates fair value 13,582 11,523
Collateral loans, at fair value - 1,033
Mortgage loans on real estate, at
aggregate outstanding principal balance 175 186
Other invested assets, at fair value:
(Cost: 1995-$42; 1994-$853) 42 853
------ ------
Total investments 21,400 27,994
Cash and cash equivalents 2,273 2,500
Accrued investment income 552 668
Accounts receivable (Net of allowance
for doubtful accounts of $0 in 1995
and 1994 and commissions owed to
affiliates of $0 in 1995 and 1994) 10,754 12,467
Reinsurance recoverable on paid losses 11,681 13,708
Reinsurance receivable 5,462 7,320
Deferred policy acquisition costs 63 289
Property and equipment, net 29 52
Other assets 1,984 2,043
------ ------
Total assets $54,198 $67,041
====== ======
See accompanying notes to consolidated financial statements.
Page 2 of 14
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
($ IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED) (AUDITED)
---------- ----------
Liabilities:
Reserves for losses and loss
adjustment expenses $33,613 $47,165
Deficit of non-consolidated
subsidiary 57,062 56,879
Unearned premiums 780 1,384
Reinsurance balances payable 14,686 13,316
Other liabilities 2,783 4,549
Note payable to affiliate 300 -
------- -------
Total liabilities 109,224 123,293
------- -------
Contingencies and commitments - -
Stockholders' deficiency:
Preferred stock, $.01 par value;
2,000,000 shares authorized; no
shares outstanding - -
Common stock, $.01 par value;
20,000,000 shares authorized;
14,121,482 shares issued and
outstanding 141 141
Additional paid-in-capital 39,739 39,739
Net unrealized gains (losses)
on investments (net of deferred
income tax of $0 in 1995 and 1994) (2,297) (2,664)
Receivable from Alpha Trust (27,000) (27,000)
Accumulated deficit (65,609) (66,468)
------ ------
Total stockholders' deficiency (55,026) (56,252)
------ ------
Total liabilities and
stockholders' deficiency $54,198 $67,041
====== ======
See accompanying notes to consolidated financial statements.
Page 3 of 14
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------- ---------------
1995 1994 1995 1994
----- ----- ----- -----
Revenues:
Net premiums earned $1,342 $2,453 $2,881 $7,938
Net investment income 807 786 2,383 2,476
Realized gains (losses)
on investments (568) 9 (568) (881)
----- ----- ----- -----
Total revenues 1,581 3,248 4,696 9,533
----- ----- ----- -----
Operating expenses:
Losses and loss
adjustment expenses 334 (570) 1,479 4,403
Policy acquisition
expenses 721 2,564 1,400 4,287
Other operating expenses 343 505 1,255 1,061
----- ----- ----- -----
Total operating expenses 1,398 2,499 4,134 9,751
----- ----- ----- -----
Operating income (loss) 183 749 562 (218)
Equity in earnings (loss)
of non-consolidated
subsidiary (83) (121) (83) (7,067)
Equity in loss of investee - - - (103)
----- ----- ----- ------
Income (loss) before
income taxes 100 628 479 (7,388)
----- ----- ----- ------
Income tax expense (benefit) (364) 27 (380) 81
----- ----- ---- -----
Net income (loss) $ 464 $ 601 $ 859 $(7,469)
===== ===== ===== ======
Average shares
outstanding 14,121 14,121 14,121 14,121
====== ====== ====== ======
Net income (loss)
per share $ .03 $ .04 $ .06 $ (.53)
====== ====== ===== ======
See accompanying notes to consolidated financial statements.
Page 4 of 14
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1995
($ IN THOUSANDS)
Net
unreal-
Addi- ized
tional gains Receiv- Total
paid- (losses) able Accum- stock-
Com- in on from ulated holders'
mon cap- invest- Alpha def- def-
stock ital ments Trust ciency ciency
- -----------------------------------------------------------------
Balance at
1/1/95 $141 $39,739 $(2,664) $(27,000) $(66,468) $(56,252)
Net income
(loss) - - - - 859 859
Change in
net
unreal-
ized
gains
(losses) - - 367 - - 367
--- ------ ----- ------ ------ ------
Balance at
9/30/95 $141 $39,739 $(2,297) $(27,000) $(65,609) $(55,026)
=== ====== ===== ====== ====== ======
See accompanying notes to consolidated financial statements.
Page 5 of 14
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30, 1995
($ IN THOUSANDS) 1995 1994
------ -------
Net cash and cash equivalents
used by operating activities $(7,024) $(17,689)
------ -------
Investing activities:
Proceeds on sales of:
Fixed maturities held to maturity 1,721 -
Fixed maturities available for sale 3,910 7,705
Other investments 682 -
Proceeds on redemptions of:
Fixed maturities held to maturity 3,850 830
Fixed maturities available for sale 27 600
Other investments 477 511
Purchase of long-term investments:
Fixed maturities held to maturity (2,111) -
Fixed maturities available for sale - (12,997)
Equity securities - (503)
Other - (1,756)
(Increase) decrease in short-term
investments (2,059) 23,124
----- ------
Net cash and cash equivalents
provided by investing activities 6,497 17,514
----- ------
Financing activities:
Receivable from Alpha Trust - (14,000)
Note payable to affiliate 300 -
----- ------
Net increase (decrease) from
financing activities 300 (14,000)
----- ------
Increase (decrease) in cash
and cash equivalents (227) (14,175)
Cash and cash equivalents-beginning
of period 2,500 35,276
Cash and cash equivalents of non-
consolidated subsidiary at
December 31, 1993 - (18,394)
----- ------
Cash and cash equivalents-end of period $ 2,273 $ 2,707
===== =======
Supplemental disclosure of cash
flow information:
Cash paid during period for
income taxes $ 31 $ 307
===== =======
See accompanying notes to consolidated financial statements.
Page 6 of 14
LAWRENCE INSURANCE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
- --------------
NOTE 1 - GENERAL
Lawrence Insurance Group, Inc. (the Company or LIG) was
incorporated in Delaware on September 30, 1986, as an insurance
holding company which is presently 93% owned by Lawrence Group,
Inc. (Lawrence Group).
Subsidiaries of the Company include United Community
Insurance Company (UCIC), United Republic Insurance Company
(URIC), Global Insurance Company (Global), Senate Insurance
Company (Senate), Senate National Life Insurance Company (SNLIC),
and Senate Syndicate, Inc. (Syndicate). Senate and Global are
wholly owned subsidiaries of URIC. SNLIC is a wholly owned
subsidiary of Senate.
(a) BASIS OF PRESENTATION
The consolidated financial statements for 1995 and 1994,
include the accounts of LIG and all of its wholly owned
subsidiaries (collectively, the Company) except as noted below.
On July 7, 1994, UCIC, with the consent of UCIC management, was
placed in Rehabilitation by court order. Consequently, LIG and
UCIC management no longer exercise any decision making authority
or control over UCIC. These functions are presently the
responsibility of the New York Insurance Department (NYID).
As a result of this loss of control, the Company has included the
financial results of UCIC only through the date of the Order of
Rehabilitation and then on an unconsolidated basis. ie. results
of operations are reflected as "Equity in earnings (loss) of
non-consolidated subsidiary" and the Company's investment as
"Deficit of non-consolidated subsidiary".
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. While the
Company reported net income of $859,000 for the nine months ended
September 30, 1995, it has a stockholders' deficiency of
$55,026,000 at September 30, 1995. In addition, URIC had been
under a confidential order of supervision by the Texas Department
of Insurance (TDI) from June 22, 1994 through August 25, 1995. The
release was conditioned upon achieving certain policyholder
surplus goals. The Company has met the first three surplus goals
and expects to achieve the fourth, which calls for a minimum policy
holders surplus of $8,000,000 at December 31, 1995. There can be
no guarantee, however, that this will be achieved. The release
also contained a number of other requirements which relate to
reporting and cooperation with the TDI. In the event that URIC
Page 7 of 14
LAWRENCE INSURANCE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
- --------------
NOTE 1 - GENERAL, continued
fails to meet or achieve the various deadlines and requirements,
the TDI will have the authority to place URIC into
conservatorship. Under conservation TDI assumes all control and
decision making authority. While under conservatorship URIC would
be accounted for as a non-consolidated subsidiary. The 1995
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The accompanying consolidated financial statements are
presented in accordance with generally accepted accounting
principles, and in the opinion of Management, reflect all
adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and
results of operations for the interim periods. Results of
interim periods are not necessarily indicative of results for the
full year.
These consolidated financial statements should be read in
conjunction with the following notes and with the Notes to
Consolidated Financial Statements included in the Company's Form
10-K for the year ended December 31, 1994.
(b) CASH AND CASH EQUIVALENTS
The Company considers cash to be funds held in checking and
money market accounts. Non-negotiable certificates of deposit
are considered to be cash equivalents.
(c) PER SHARE DATA
Net income per share is calculated by dividing net income by
the weighted average number of common shares outstanding during
the period.
Page 8 of 14
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
As discussed in Note 1, UCIC has been placed under the control
and management of the NYID and as a consequence, has not been
consolidated with the Company's results. The operating results up
to July 7, 1994 are included in "Equity in earnings (loss) of
non-consolidated subsidiary", based upon the equity method of
accounting. UCIC has a stockholder's deficit and the Company's net
investment is recorded as "Deficit of non-consolidated subsidiary".
It should be noted that the third quarter 1995 10-Q has been
prepared on the premise that UCIC's difficulties would be borne
financially by the Company. In management's opinion, it is
unlikely that this deficiency would be imposed on the Company.
In addition, the financial statement exhibits monies due UCIC
and URIC from the Alpha Trust as if they do not exist. This is
because of the accounting treatment which is accorded them at the
moment.
In the absence of the accounting treatment stated above, the
stockholders' equity would be approximately $16,595,000.
Nonetheless, the 1995 financial figures in this 10-Q do not include
these adjustments.
URIC and Global voluntarily ceased writing new and renewal
business during the first quarter of 1994 and the fourth quarter of
1993, respectively, although Global continued to receive
assignments from the Georgia automobile assigned risk pool.
Approval is required from the respective state insurance
departments before they can resume writing.
Results for the third quarter 1995 vs 1994 are as follows:
Earned premium for the third quarter decreased approximately
$1,111,000 reflecting the impact of the moratorium on URIC and
Global and a reduction in Senate's business. Senate has been
impacted by publicity related to the financial condition of LIG and
to changes in customer needs for stop loss insurance which is
Senate's primary product.
Investment income increased by $21,000 reflecting the lower
level of average invested assets offset by higher rates on short
term investments.
Realized losses were $568,000 compared with a $9,000 gain
recorded in 1994. The loss during the 1995 quarter represented a
loss on the disposal of URIC's investment in Aquatic Development
Page 9 of 14
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Corporation ($683,000) partially offset by gains on the disposition
of other investments ($115,000).
Loss and loss adjustment expense (LAE) increased by $904,000
compared with last year as the third quarter 1994 was impacted by
adjustments between premiums, losses and LAE and commission
expenses related to adjustable reinsurance contracts.
Policy acquisition expenses decreased by $1,843,000 and was
related primarily to the decrease in earned premium and commission
adjustments on adjustable reinsurance contracts.
Operating expenses decreased by $167,000 with the decrease
attributable to the lower level of business.
Equity in loss of non-consolidated subsidiary was $83,000
compared with a loss of $121,000 in the third quarter 1994.
Subsequent to June 1994, the Company no longer included UCIC's
results of operations and the 1995 amount represents only
UCIC's share of URIC's operations.
Income tax benefits for the quarter was $364,000 compared with
a cost of $27,000 for the third quarter 1994. The benefit resulted
from the receipt of monies in 1995 related to an income tax
receivable which had been reserved for in 1994.
As a result of the above, the Company recorded net income of
$464,000 for the third quarter of 1995 compared with a net income
of $601,000 for the same period in 1994.
Page 10 of 14
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Results for the nine months ended September 30, 1995 compared
with the same period last year are as follows:
Earned premium for the nine months decreased approximately
$5,057,000 reflecting the impact of the moratorium on
URIC and Global and a reduction in Senate's business. Senate has
been impacted by publicity related to the financial condition of
LIG and to changes in customer needs for stop loss insurance which
is Senate's primary product.
Investment income decreased by $93,000 reflecting the impact
of lower average invested assets partially offset by higher
rates on short term investments. Realized losses were $568,000 as
compared with a $881,000 realized loss incurred in 1994.
Loss and loss adjustment expense (LAE) decreased by $2,924,000
as a result of lower premium volume as well as 1994 being
adversely impacted by the Northbridge California earthquake.
Policy acquisition expenses decreased by $2,887,000 and was
related to the decrease in earned premium and commission
adjustments on loss sensitive reinsurance contracts.
Operating expenses increased by $188,000 with the increase
attributable largely to costs associated with defending the
Company's subsidiaries in disputes with state insurance
departments.
Equity in loss of non-consolidated subsidiary was
$83,000 compared with a loss of $7,067,000 in the first nine
months of 1994. Subsequent to June 1994, the Company no longer
included UCIC's results of operations and the 1995 amount
represents only the UCIC's share of URIC's operations.
Equity in loss of investee was $0 for 1995 compared with a
loss of $103,000 in the same period last year. The amount for 1994
represented the amount charged to operations to reduce LIG's
carrying value for MTI to $0.
Income tax benefits for 1995 represents restorations of an
income tax recoverable written down in 1994 as monies were received
during the third quarter 1995 and adjustments for state income
taxes.
Page 11 of 14
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
As a result of the above, the Company recorded net income of
$859,000 for the first nine months of 1995 compared with a net loss
of $7,469,000 for the same period in 1994. The first nine months
of 1994 loss was restated by $4,230,000 compared with the Company's
results reported on its third quarter 1994 10-Q. The restatement
was attributable primarily to the write off of an income tax
recoverable by UCIC of approximately $3,416,000 and the write down
of several investments in the amount of $1,221,000. These were
partially offset by reductions in the net deficit of UCIC of
$407,000.
LIQUIDITY AND CAPITAL RESOURCES
AS OF SEPTEMBER 30, 1995
For the nine months ended September 30, 1995, the Company used
cash for operations of $7,024,000. This was partially offset by
cash provided by investing operations. To the extent that URIC and
Global continue in a run off situation, it is likely that
operations will be partially funded by proceeds from the
disposition of investments.
The Company obtained the majority of its cash from dividends
paid by its two insurance subsidiaries (UCIC and URIC). Due to
regulatory restrictions, those subsidiaries currently can not pay
dividends to the parent. However, it has been able to meet its
cash needs out of its current assets. It is anticipated that URIC
will be able to meet its projected cash requirements as will the
subsidiaries owned by URIC.
Page 12 of 14
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held
on August 29, 1995. The following members were elected to the
Company's Board of Directors to hold office for the ensuing year.
IN FAVOR WITHHELD ABSTAINED
RITA E. HARFIELD 13,413,856 27,894
BARBARA C. LAWRENCE 13,411,486 30,264
F. HERBERT BRANTLINGER 13,413,782 27,968
R. WAYNE DIESEL 13,413,731 28,019
NEVIN D. HARKNESS 13,410,202 31,548
ALBERT F. KILTS 13,413,757 27,993
MILOS R. KNORR 13,413,931 27,819
ALBERT W. LAWRENCE 13,411,562 30,188
WILLIAM J. MATHER 13,413,631 28,119
LAWRENCE A. SHORE 13,412,161 29,589
The vote on the ratification of Coopers and Lybrand, L.L.P. as
the Company's independent public accountants was as follows:
RATIFICATION OF
INDEPENDENT PUBLIC
ACCOUNTANTS 13,429,982 9,616 2,152
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On August 29, 1995, the Company filed Form 8-K indicating that
the Commissioner of Insurance of the Texas Department of Insurance,
effective August 25, 1995 released URIC from the confidential order
of supervision which it had imposed on June 22, 1994. The release
was conditioned upon URIC achieving certain financial goals.
The 8-K also reported that the American Stock Exchange was
allowing the resumption of trading of the Company's stock effective
August 30, 1995. The Exchange had noted however, that since the
Company did not meet its financial guidelines, that delisting
procedures could be commenced in the future.
Page 13 of 14
LAWRENCE INSURANCE GROUP, INC.
SIGNATURES
September 30, 1995
_____________________________
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAWRENCE INSURANCE GROUP, INC.
/s/ Albert W. Lawrence
-----------------------------------------
Albert W. Lawrence, Chairman of the Board
/s/ F. Herbert Brantlinger
---------------------------------
F. Herbert Brantlinger, President
/s/ Albert F. Kilts
--------------------------
Albert F. Kilts, Treasurer
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 2,330
<DEBT-CARRYING-VALUE> 4,331
<DEBT-MARKET-VALUE> 4,461
<EQUITIES> 940
<MORTGAGE> 175
<REAL-ESTATE> 0
<TOTAL-INVEST> 21,400
<CASH> 2,273
<RECOVER-REINSURE> 11,681
<DEFERRED-ACQUISITION> 63
<TOTAL-ASSETS> 54,198
<POLICY-LOSSES> 33,613
<UNEARNED-PREMIUMS> 780
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 300
<COMMON> 141
0
0
<OTHER-SE> (55,167)
<TOTAL-LIABILITY-AND-EQUITY> 54,198
2,881
<INVESTMENT-INCOME> 2,383
<INVESTMENT-GAINS> (568)
<OTHER-INCOME> 0
<BENEFITS> 1,479
<UNDERWRITING-AMORTIZATION> 1,400
<UNDERWRITING-OTHER> 1,255
<INCOME-PRETAX> 479
<INCOME-TAX> (380)
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
<RESERVE-OPEN> 39,845
<PROVISION-CURRENT> 2,219
<PROVISION-PRIOR> (739)
<PAYMENTS-CURRENT> 1,481
<PAYMENTS-PRIOR> 13,174
<RESERVE-CLOSE> 28,151
<CUMULATIVE-DEFICIENCY> (739)
</TABLE>
