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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1995
(Fee Required)
- or -
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
500 Fifth Avenue, New York, New York 10110
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 944-8242
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value on March 21, 1996 of voting stock
held by non-affiliates of the registrant was $815,000. As of
March 21, 1996, 14,121,482 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
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TABLE OF CONTENTS
Item 1 Business 3
Item 2 Properties 21
Item 3 Legal Proceedings 22
Item 4 Submission of Matters to a Vote
of Security Holders 22
Item 5 Market for Registrant's Common Stock
an Related Stockholder Matters 22
Item 6 Selected Consolidated Financial Data 23
Item 7 Management"s Discussion an Analysis of Financial
Condition and Results of Operations 25
Item 8 Financial Statements and Supplemental Data 32
Item 9 Changes and Disagreements with Accountants on
Accounting and Financial Disclosures 33
Item 10 Directors and Executive Officers 33
Item 11 Executive Compensation 35
Item 12 Security Ownership of Certain Beneficial
Owners and Management 38
Item 13 Certain Relationships and Related Transactions 38
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8K 41
Signatures 42
Index to Consolidated Financial Statements and
Financial Statement Schedules 43
Consolidated Financial Statements F-1
Financial Statement Schedules S-1
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PART I
ITEM 1. BUSINESS
General
On November 9, 1995, after a long period of negotiation and
discussion with the New York Insurance Department (NYID), Lawrence
Insurance Group, Inc. (LIG or the Company) consented to United
Community Insurance Company (UCIC) being liquidated. This action
concludes the most difficult and challenging chapter in the history
of the UCIC and LIG. While the Board deeply regretted this action,
it believes that it was in the best interests of the public and its
shareholders as it allows the Company to refocus its energies and
resources on its remaining businesses. With the liquidation of
UCIC, the Company is no longer required to carry the stockholders'
deficit of UCIC as a liability. This had a positive impact on LIG's
net income and stockholders' equity of $38,387,000 and $57,621,000,
respectively. Primarily as a result of the problems at UCIC the
Company had recorded a net loss of $7,091,000 for 1994 following
a net loss of $77,104,000 for 1993. However, the Company and
United Republic Insurance Company (URIC) could continue to be
impacted by losses incurred by UCIC as a result of the pooling
agreement between URIC and UCIC. Refer to Reinsurance Ceded for
further detail.
Partly as a consequence of UCIC's losses charged to URIC as
a result of the pooling agreement between them and a disagreement
with the Texas Department of Insurance (TDI) over the value of
certain assets, URIC had been under a Confidential Order of
Supervision from June 22, 1994 through August 25, 1995 when it was
released. The release was conditioned upon URIC's meeting certain
financial and other conditions. The failure to meet these
conditions would allow URIC to be placed into conservatorship
without the consent of URIC or LIG management. At December 31,
1995 URIC had not met all of those goals.
UCIC, which the New York State Supreme Court of Schenectady
County with the consent of the Company, ordered liquidated as of
November 10, 1995, was a wholly owned subsidiary of the Company.
UCIC was incorporated in 1967 and acquired by Albert W. Lawrence on
December 30, 1981. UCIC was transferred by Mr. Lawrence to a
subsidiary of Lawrence Group in 1982 and was transferred to the
Company in 1986. UCIC wrote commercial and personal lines of
Property and Casualty (P&C) insurance until mid-February 1994, when
it ceased writing new or renewal business. Refer to Regulation for
further detail.
URIC is owned approximately 79% by the Company, and the
remainder is owned by UCIC. URIC was incorporated in 1986 and was
acquired by the Company on October 24, 1989. URIC assumed
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reinsurance and was also licensed to write business directly
in some states. URIC voluntarily ceased writing business in 1994.
Under the conditions of its confidential supervision and
subsequent release, the approval of the TDI to accept any new or
renewal business is required. Refer to Regulation for further
detail.
Global Insurance Company (Global) is a wholly owned
subsidiary of URIC. Global was incorporated in 1969 and acquired
by the Company effective January 1, 1992. Global wrote substandard
automobile and excess and surplus lines of P&C insurance. Global
voluntarily ceased writing new or renewal business in November
1993 although it continued to receive assignments from Georgia's
automobile assigned risk pool. Refer to Regulation for further
detail.
Senate is a wholly owned subsidiary of URIC. Senate was
incorporated in 1967, acquired by Albert W. Lawrence in 1978,
transferred to a subsidiary of Lawrence Group in 1981 and
transferred to the Company in 1986. Senate writes accident and
health (A&H) insurance.
Senate National Life Insurance Company (SNLIC), (formerly
known as Commercial Resources Insurance Company), is a wholly owned
subsidiary of Senate. SNLIC was incorporated in 1970 and acquired
by Senate on January 13, 1983. SNLIC is licensed to write life
insurance and assumes A&H and credit life insurance.
Senate Syndicate, Inc. (Syndicate) was formed in 1985 and was
a syndicate on the New York Insurance Exchange (Exchange) until its
withdrawal in 1989. It is dormant.
The Company was formed in 1986 by Lawrence Group under the
laws of Delaware, to function as an insurance holding company.
Unless the context otherwise requires, URIC, Global, Senate,
SNLIC and Syndicate each are sometimes referred to herein as the
Company except for 1993 wherein the term Company also includes the
accounts of UCIC.
The Company's executive offices are located at 500 Fifth
Avenue, New York, New York 10110, and its telephone number is (212)
944-8242. The Company's principal administrative functions are
located at 431 New Karner Road, Albany, New York 12212, and its
telephone number is (518) 464-9200.
Relationship with Lawrence Group, Inc.
Lawrence Group owns and operates subsidiaries principally
engaged in insurance agency and brokerage operations, in addition
to its ownership interest in the Company. Lawrence Group,
headquartered in Schenectady, New York, was established on December
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30, 1983, as a holding company for the various insurance related
enterprises controlled by Albert W. Lawrence.
Lawrence Group, through several of its subsidiaries provides
marketing, underwriting and policy issuance services to Senate for
its A&H insurance. Previously, it had provided marketing, policy
issuance, loss control and risk management services for UCIC.
Lawrence Group owns approximately 93% of the common stock of
the Company. Albert W. Lawrence, Chairman of the Board of the
Company, is, along with Barbara C. Lawrence, his wife, the owner of
100% of the common stock of Lawrence Group.
Products
The Company's current product mix consists of A&H insurance.
This class of insurance includes principally medical stop-loss
insurance for self-insured medical plans, short-term disability
coverage and group dental programs and student accident insurance.
The Company's A&H coverage are marketed by A.W. Lawrence & Co.,
Inc. (AWL), a subsidiary of Lawrence Agency Corp.(LAC), which is a
subsidiary of Lawrence Group, Inc. (Lawrence Group), the Company's
principal stockholder. SNLIC is licensed to write life insurance
and assumes credit A&H and credit life insurance. Due to the
lengthy inactivity of URIC and Global in the market place it is
uncertain what products, organization and relationships could be
reestablished if these companies resume business.
The following table sets forth the Company's gross premiums
written and earned by product line for the periods indicated:
Year Ended December 31,
1995 1994 1993 1992 1991
-------------------------------------
(Dollars in thousands)
Gross premiums written:
Property/casualty $ 137 $ 283 $111,838 $132,273 $128,169
Reinsurance assumed 1,281 (12,171) 7,815 29,183 30,288
Accident/Health/Life 5,237 8,974 11,513 11,673 10,156
------ ------- ------- ------- -------
Totals $ 6,655 (2,914)$131,166 $173,129$168,613
===== ===== ======= ======= ======
Gross premiums earned:
Property/casualty $ 222 $ 658 $119,615 $136,633 $131,179
Reinsurance assumed 2,091 451 14,480 26,349 27,799
Accident/Health/Life 5,222 8,857 11,547 11,686 9,952
----- ------- ------- ------- -------
Totals $ 7,535 $ 9,966 $145,642 $174,668 $168,930
===== ===== ======= ======= =======
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Gross premiums written or premiums assumed are a measure of
the Company's participation and acceptance in the market place.
Premiums earned represent a pro rata portion of the business
written or assumed in the current calendar year plus amounts
carried over from the prior year that are taken into revenue in the
current period. Audit premiums on workers' compensation policies
are an exception to this rule as such premiums are treated as fully
earned when written since the audits are performed after the
expiration of the policy. The decline in premiums written and
earned during 1995 and 1994 compared with 1993, was related
primarily to the exclusion of UCIC and the halt of new and renewal
business by URIC and Global.
The costs of reinsurance are deducted from gross premiums to
arrive at net premiums written or earned. The Company, like the
industry in general, utilizes reinsurance to minimize the
concentration of exposure to losses in any one geographic area,
type of coverage or any one insured or group of insureds. The
following table shows the net premiums written and earned together
with other key operating results, followed by a discussion of the
individual products.
Key operating results on a combined basis and for each product
are summarized below:
Year Ended December 31,
1995 1994 1993
---- ---- ----
(Dollars in thousands)
All products combined:
Net premiums written $ 5,135 $(7,770) $117,861
Net premiums earned 5,533 $ 5,221 $121,015
Percentage of Company's
total earned premium 100.0% 100.0% 100.0%
Loss and LAE ratio 97.6% 77.0% 122.7%
Losses - government pools ratio - % - % 0.7%
Expense ratio 65.7% 65.6% 41.2%
Dividend ratio - % - % 0.2%
Combined ratio 163.3% 142.6% 164.8%
Property/casualty:
Net premiums written $ 137 $ 273 $100,541
Net premiums earned 222 $ 641 $ 96,874
Percentage of Company's
total earned premium 4.0% 12.3% 80.0%
Loss and LAE ratio 140.1% 130.9% 133.9%
Losses - government pools ratio - % - % 0.9%
Expense ratio 151.3% 69.0% 42.0%
Dividend ratio - % - % 0.2%
Combined ratio 291.4% 199.9% 177.0%
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Year Ended December 31,
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Reinsurance assumed:
Net premiums written $1,063 $(13,802) $ 7,093
Net premiums earned 1,490 (974) 13,862
Percentage of Company's
total earned premium 26.9% (18.7)% 11.5%
Loss and LAE ratio 208.6% - % 97.7%
Expense ratio 89.9% - % 49.3%
Combined ratio 298.5% - % 147.0%
Accident/health/life:
Net premiums written $3,935 $ 5,759 $10,227
Net premiums earned 3,821 $ 5,554 $10,279
Percentage of Company's
total earned premium 69.1% 106.4% 8.5%
Loss and LAE ratio 51.9% 37.9% 50.7%
Expense ratio 51.0% 44.3% 23.6%
Combined ratio 102.9% 82.2% 74.3%
All Products Combined: For 1995 net premiums written totaled
$5,135,000 of which 69% were A&H premiums. Net premiums earned
were $5,333,000. For 1994, net premiums written were $(7,770,000).
The negative amount was attributable primarily to written premiums
that were canceled as a result of the termination of the pooling
agreement between URIC and UCIC on January 1, 1994 and retrospect-
ive premium adjustments at URIC. Net premiums earned for 1994
totaled $5,221,000. The decrease excluding UCIC was attributable
to the moratorium on new and renewal business at URIC and Global
and a decline in Senate's net premium earned. The loss and loss
adjustment expense (LAE) ratio was 122.7% in 1993, of which approx-
imately 47 points of the total ratio represented adjustments to
prior year loss reserves related primarily to the P&C business. The
loss and LAE ratio was 97.6% and 77.0% for 1995 and 1994,
respectively. The loss ratios for 1995 and 1994 were impacted
largely by changes in premium and losses for the reinsurance
assumed segment due to commutation and or adjustments to numerous
reinsurance contracts. For 1995 this favorability was offset by
adverse development related URIC's pooling agreement with UCIC.
The operating expense ratio for 1995 and 1994 was
substantially higher than 1993 as changes in operating expenses
have not kept pace with reductions in premiums.
Property/Casualty: Property and casualty results essentially
reflected the runoff of prior years' business as new business
consisted only of personal automobile assigned risk assignments in
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Global. The Company's P&C premiums for 1993 comprised
approximately 80% of the Company's net premiums earned. The
Company's P&C combined ratio was 177.0% for 1993 and was due
primarily to the adverse development and reserve strengthening
within these lines of business.
The Company wrote very little products liability,
professional malpractice and business containing environmental
impact coverage. Consequently, the overall exposure to
occupational diseases or similar long-time emerging disabilities is
considered by Management to be minimal.
Reinsurance Assumed: Assumed reinsurance was underwritten for
P&C coverage which emphasize short-tail exposures in the
automobile and general liability lines of business where claims
develop over a shorter period of time than do claims arising in
such lines of business as medical malpractice and product
liability. Reinsurance assumed business for 1995 and 1994
reflected the runoff of prior years business as new business was
halted in 1994. Negative written premiums for 1994 were due
largely to the termination of the pooling agreement between URIC
and UCIC on January 1, 1994.
Accident/Health: Earned premiums from A&H insurance lines
decreased by 31% in 1995 and 15% in 1994 excluding UCIC. The
Company's premium volume in A&H has been largely from medical stop
loss policies. The growth in this business has slowed as many of
the customers who purchased these policies in the past are self
insuring at higher retentions. In addition, the Company was
impacted by the publicity related to the financial difficulties of
UCIC. The Company's A&H loss and LAE ratio increased to 51.9% for
1995 after decreasing to 37.9% for 1994 from 50.7% in 1993. The
expense ratio increased to 51.0% in 1995 from 44.3% for 1994 and
from 23.6% in 1993.
Further discussion of operating results is provided in ITEM 7
- - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Markets
The Company's markets for A&H insurance traditionally included
school districts, municipalities, retail stores and other selected
risks. Public school districts represented the Company's largest
single market for its A&H coverage.
A&H insurance is generally marketed by affiliates of LAC with
a lesser percentage of such coverage marketed by agents not
otherwise affiliated with Lawrence Group or the Company. A portion
of this coverage is marketed to members of sponsoring
organizations.
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The Company is required by regulatory authorities to
participate in a number of assigned risk pools (Pools) and joint
underwriting associations (JUAs). Participation may take the form
of either direct assignments of policies to be issued by the
Company or payment of assessments to fund the operating deficits of
the Pools and JUAs which utilize servicing carriers to provide
coverage. For Pools and JUAs which utilize direct assignment of
policies, the Company must insure risks that might not otherwise
meet the Company's underwriting standards. In 1995, risks insured
through direct assignment of policies by Pools and JUAs amounted to
approximately $136,000 in net premiums written. Further discussion
of the impact of assessments from Pools and JUAs on the Company's
operations is provided in ITEM 7 in a section entitled Losses -
Government Pools.
Claims
URIC's reinsurance assumed claims are administered by a claims
manager and use of a claims consultant, when necessary. Individual
claims originate from ceding companies and are sent by the
reinsurance intermediaries to URIC. Claims are monitored and
appropriate controls are established for each ceding company.
Periodic claims audits are conducted by URIC at the claims offices
of the ceding companies to determine the quality and timeliness of
claims handling.
Global's reinsurance assumed claims are administered by its
Finance Department as the individual claims are sent by the ceding
companies to Global.
Claims on policies insured by Senate are handled by a related
third party administrator. Senate is provided with monthly reports
on claims activity.
Reserves
Insurance companies are required to maintain reserves for
losses and LAE for all lines of business. These reserves are
intended to provide for the ultimate settlement and administration
of claims for all losses incurred and unpaid, including those
incurred but not yet reported (IBNR). As of December 31, 1993, net
reserves for loss and LAE of UCIC were increased significantly in
order to reflect the current estimate of settlement costs for all
known and unknown claims.
Property/Casualty and Accident/Health:
Reserves for losses and LAE represent estimates of reported
losses and LAE and estimates of IBNR based upon past and current
experience and is net of salvage and subrogation to be received and
is increased for reinsurance assumed. In developing reserve
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estimates, Global and Senate give consideration to the impact of
changes in demographics and/or line of business mix. The IBNR
reserve is calculated by applying actuarial derived loss
development factors to results recorded to date.
Reinsurance Assumed:
Reserves for losses on reinsurance assumed business are
generally maintained by URIC at the amounts reported by the ceding
companies.
The following table provides a reconciliation of the Company's
beginning and ending property and casualty (P&C) loss and LAE
liability balances for 1995, 1994 and 1993.
Year Ended December 31,(1)
(Dollars in thousands) 1995 1994 1993
-------- -------- --------
Reserves for losses and
LAE at January 1, $45,560 $186,973 $145,308
Less reserves related
to deconsolidating UCIC - 111,574 -
Less reinsurance receivable 7,072 9,679 19,997
------ ------- -------
Total 38,488 65,720 125,311
Provision for losses and
LAE for claims occurring
in the current year 368 4,614 86,129
Increase (decrease) in estimated
losses and LAE for claims
occurring in prior years 3,051 (2,699) 57,088
----- ----- ------
Total incurred losses & LAE 3,419 1,915 143,217
Losses and LAE payments ----- ----- -------
for claims occurring during:
Current year 141 2,758 24 261
Prior years 17,657 26,389 78,091
------ ------ ------
Total losses and LAE payments 17,798 29,147 102,352
------ ------ -------
Net reserves for losses
and LAE at December 31, 24,109 38,488 166,176
Reinsurance receivables 4,600 7,072 20,797
------ ------ -------
Gross reserves $28,709 $ 45,560 $186,973
====== ====== =======
Note 1: The above tables as presented exclude the reserves
for losses and LAE on government pools recognized on the Company's
P&C business and those of Senate and SNLIC. The reserves for
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government pools are not under the control of the Company and
reflect the operating results and reserving practices of servicing
carriers and regulators who administer these assigned risk pools in
which the Company is obligated to participate. Accordingly, these
reserves have been excluded from the tables. As of December 31,
1993, the Company's loss and LAE reserves related to these
government pools were approximately $11,246,000. The above table
for 1995 and 1994 and the accompanying loss and LAE reserve
summary, exclude UCIC and Senate and SNLIC. Net reserves for Senate
and SNLIC were $1,102,000, $1,180,000 and $1,396,000 at December
31, 1995 , 1994 and 1993, respectively.
Loss and LAE incurred for 1995 totaled $3,419,000 reflecting
the unfavorable impact of the adverse development of the URIC's
pooling agreement with UCIC partially offset by the favorable
impact of commuting several reinsurance treaties. Loss and LAE for
1994 totaled $1,915,000 and included approximately $1,600,000
related to the Northbridge California earthquake. Reserves related
to prior years were reduced by $3,699,000 reflecting more favorable
results in the reinsurance assumed business. The favorable loss
experience on the reinsurance assumed business was related
primarily to contracts that have retrospective rating provisions.
This resulted in a commensurate reduction in earned premiums.
Total net losses and LAE incurred for 1993 totaled approximate-
ly $143,217,000. Implementation of Statement of Financial Account-
ing Standards (SFAS) No. 113 increased losses by $12,902,000.
Included in the total incurred losses and LAE for 1993 was
approximately $57,088,000 of losses and LAE attributable to prior
accident years and included significant reserve strengthening at
year-end. This adverse development was approximately 46% of the
Company's net reserves for losses and LAE as of the beginning of
the year and is related primarily to the casualty and workers'
compensation business written by UCIC.
The following table presents the development of the Company's
GAAP balance sheet reserves for 1985 through 1995, excluding UCIC.
The line "Reserves for Losses and LAE" reflects the reserves at the
balance sheet date for each of the indicated years and represents
the estimated amount of losses and LAE arising in all prior years
that are unpaid at the balance sheet date. The "Reserves Re-
estimated" lines of the table reflect the re-estimated amount of
the previously recorded reserves based on experience as of the end
of each succeeding year. The estimate changes as more information
becomes known about the frequency and severity of claims for
individual years. The "Cumulative Redundancy (Deficiency)"
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represents the aggregate change in the estimates over all prior
years. The "Cumulative Paid" lines of the table reflect the
cumulative amounts paid as of successive years with respect to
the aforementioned reserve liability.
December 31,
Year 1985 1986 1987 1988 1989 1990
Dollars in thousands
- -----------------------------------------------------------------
Reserves for losses & LAE 1,049 1,873 506 742 15,053 30,342
Reserves - re-estimated:
One year later 1,291 678 175 120 15,051 29,898
Two years later 1,250 537 109 120 17,782 43,688
Three years later 1,224 505 109 120 25,016 45,953
Four years later 1,214 505 109 120 24,722 36,419
Five years later 1,214 505 109 120 19,547 36,100
Six years later 1,214 505 109 120 19,875
Seven years later 1,214 505 109 120
Eight years later 1,214 505 109
Nine years later 1,214 505
Ten years later 1,214
Cumulative Redundancy
(Deficiency) (165) 1,368 397 622 (4,822) (5,758)
Cumulative paid as of:
One year later 1,235 570 94 120 4,902 10,587
Two years later 1,221 514 109 120 8,351 26,284
Three years later 1,220 505 109 120 15,086 29,823
Four years later 1,214 505 109 120 15,264 27,491
Five years later 1,214 505 109 120 14,642 32,301
Six years later 1,214 505 109 120 17,804
Seven years later 1,214 505 109 120
Eight years later 1,214 505 109
Nine years later 1,214 505
Ten years later 1,214
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December 31,
Year 1991 1992 1993 1994 1995
Dollars in thousands
- -------------------------------------------------------------------
Reserves for losses & LAE 44,399 60,845 76,099 45,560 28,709
Reserves - re-estimated:
One year later 63,249 78,590 65,338 49,230
Two years later 69,794 69,444 68,383
Three years later 62,418 70,707
Four years later 61,264
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Cumulative Redundancy
(Deficiency) (16,865) (9,862) 7,716 (3,670)
Cumulative paid as of:
One year later 32,658 24,586 23,297 20,745
Two years later 41,747 40,771 42,158
Three years later 46,934 54,708
Four years later 54,220
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
The Company does not discount its loss and LAE reserves to
present value, except as required for tax purposes under the Tax
Reform Act of 1986.
Reinsurance Ceded
URIC, Global and Senate utilize reinsurance principally to
reduce their net liability on individual risks and to protect
against catastrophic losses. Reinsurance generally is written
under contracts in which the coverage is either on a proportional
basis (quota share), where the reinsurer shares proportionately in
premiums and losses, or on an excess of loss basis, where only
losses above a fixed point are reinsured.
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URIC utilized reinsurance to limit its exposure to
catastrophic exposures that it assumed. Global used a combination
of excess of loss reinsurance arrangements and quota share treaties
to limit its liability on any one loss to $100,000. Senate also
utilizes reinsurance to limit its maximum exposure to $500,000 on
business written by it.
The ceding of reinsurance does not legally discharge the
original insurer from its primary liability to the policyholder,
and the ceding company is required to pay the loss even if the
assuming company fails to meet its obligations under the
reinsurance agreement. The practice of insurers, however, subject
to certain statutory limitations and as permitted by regulatory
authorities, is to account for reinsured risks to the extent of the
reinsurance ceded as though they were not risks for which the
original insurer is liable. Under SFAS No. 113, for balance sheet
presentations, companies are required to show reserves before
reinsurance ceded.
For 1993, UCIC had been a party to several different quota
share reinsurance treaties which covered all lines of business
written by it. For 1993, this reinsurance contract was considered
a financing arrangement under SFAS No. 113. The following
summarizes this contract and the related accounting treatment under
SFAS No. 113.
The Company ceded $21,700,000 of premiums and $12,902,000 in
losses and earned $8,380,000 in commissions. UCIC determined that
the contract did not pass the risk transfer criteria of SFAS No.
113. Accordingly, the Company applied deposit accounting to
this contract in 1993 and the premiums, losses and commissions are
excluded from the income statements and reflected as a net deposit
on the balance sheet.
In addition to the quota share agreements with unaffiliated
reinsurers, UCIC had also entered into several quota share
agreements with URIC. In order to spread the risk, URIC retroceded
amounts to other reinsurers. All retrocession agreements were
canceled prior to 1993.
UCIC and URIC had a pooling agreement in effect during 1992
and 1993. Under the terms of the agreement, the premiums and
losses incurred during 1992 and 1993 were to be combined between
the carriers and then split: 65% going to UCIC and 35% to URIC.
The contract was incorrectly administered for the 1992 and 1993
statutory statements. The correction had the effect of decreasing
UCIC's statutory policyholder's surplus by $8,300,000 and
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increasing URIC's by the same amount from the 1993 statutory
statements filed June 7, 1994. The agreement was terminated
effective January 1, 1994; however, each company is responsible for
its share of all premium, losses and LAE incurred prior to that
date. At December 31, 1995, URIC had a net liability to UCIC of
approximately $6,187,000 under the quota share and pooling
agreements.
Senate also reinsured a portion of its A&H business with UCIC.
Written premiums and claims expenses ceded to UCIC in 1994 totaled
$1,462,000 and $1,299,000 respectively. This agreement was
canceled on March 1, 1994. At December 31, 1995, Senate had a net
recoverable from UCIC of approximately $53,000.
Ceded premiums earned under reinsurance treaties were
approximately $2,002,000, $4,745,000 and $12,930,000 for 1995,
1994 and 1993, respectively. The decrease in 1995 is due primarily
to the lower level of premiums written. The decrease in 1994 is due
primarily to the deconsolidation of UCIC.
Facultative reinsurance ceded as a percentage of gross
premiums earned was 8% in 1993. The Company had no facultative
reinsurance in 1995 and 1994. The Company obtained facultative
reinsurance primarily for umbrella policies whose limits exceeded
those provided under the Company's excess of loss treaties, as
previously mentioned.
Investment Policy
Insurance company investments must comply with the insurance
law of the insurer's domiciliary state. These laws prescribe the
kind, quality and concentration of investments which may be made by
insurance companies. In general, these laws permit investments
within specified limits and subject to certain qualifications in
federal, state and municipal obligations, corporate bonds,
preferred stocks, common stocks, real estate mortgages, real estate
and money market instruments. In its examination report, the NYID
treated several of UCIC's investments as not being within Insurance
Regulations. The NYID and TDI have taken issue with investments of
UCIC and URIC in Alpha Trust. These investments, which total
$13,000,000 and $14,000,000 respectively, were made in 1994. Refer
to Regulation for additional comment.
The investment policy and investments of each of the Company's
subsidiaries are determined by its Investment Committee, consisting
of certain Directors, and all transactions are ratified by the
Board of Directors. The current investment objective is to
maintain adequate liquidity so that claims and other obligations
can be paid. The Company's current investment policy is to
maintain a portfolio comprised principally of fixed interest
and short term securities.
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<PAGE>
At of December 31, 1995, the Company has classified its fixed
investments as Fixed Maturities Available for Sale. Securities to
be held for indefinite periods of time and not intended to be held
to maturity are classified as available for sale.
During 1993, the Company liquidated most of its long-term GNMA
and FNMA fixed maturity portfolio and replaced it with short-term
investments and an increased cash position. In January 1994, URIC
used $14,000,000 of these cash and securities to invest in Alpha
Trust as further described under Regulation.
The table set forth below reflects average investments and
income earned thereon for the Company for each of the years in the
three-year period ended December 31, 1995:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
---- ---- ----
Average investments $23,370 $48,338 $161,433
Net investment income 3,101 3,313 7,165
Average yield excluding income
from Alpha Trust 6.8% 4.3% 4.4%
Net investment income for 1995 and 1994 includes interest
income from Alpha Trust whose principal is not included in average
investments. Net investment income included $1,513,000 and
$1,226,000 from Alpha Trust for 1995 and 1994, respectively. The
increase in average yield for 1995 compared with 1994 was
attributable primarily to the general improvement in interest
rates. The reduction in invested assets excluding UCIC declined
12% during 1994. The reduction in invested assets for 1995 and
1994 was due to the increased demands on cash flow from operations
as cash from invested assets and premium income declined more
rapidly than claim costs and operating expenses of the Company.
The following table summarizes the combined cash, cash
equivalents and investments of the Company as of December 31, 1995:
Percent
(Dollars in thousands) Amounts of Total
Cash and cash equivalents $ 5,688 25.1%
Short-term investments 11,898 52.6
Common stocks 941 4.2
Fixed maturities available for sale 3,921 17.3
Mortgage loans on real estate 171 .8
Other invested assets 4 .0
------ -----
Total $ 22,623 100.0%
====== =====
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The table set forth below indicates the carrying amount of the
fixed maturities portion of the investment portfolio by year of
maturity as of December 31, 1995:
Period from December 31, 1995 Percent of
to Maturity Amounts Portfolio
- ------------------------------ --------- ----------
(Dollars in thousands)
One year or less $ 2,301 58.7%
More than one year to five years 155 3.9
More than five years to ten years 396 10.1
More than ten years 109 2.8
----- -----
Sub-total 2,961 75.5
Mortgage backed securities 960 24.5
----- ----
Total $ 3,921 100.0%
===== =====
All securities in the Company's fixed investment portfolio as
of December 31, 1995 are rated A or better by Standard & Poor's
Corporation or Moody's Investor Services.
The Company wrote down its investment in common stock of
Mechanical Technology, Inc. (MTI) by $5,587,000 as of December 31,
1993 due to the bankruptcy filing of one of its principal
subsidiaries and the reporting of a negative stockholders' equity.
UCIC wrote down as of December 31, 1993, its investment in an
unrelated finance company by $3,500,000 to $1,500,000 due to the
substantial reduction during 1994 in the value of the collateral
supporting UCIC's investment.
Operations, Personnel and Management Agreements
At December 31, 1995, URIC, Senate and Global had 6, 4 and 1
employees, respectively.
UCIC and AWL had been parties to an agency agreement (Agency
Agreement), in which AWL provided sales, marketing, loss control
and customer service functions and was authorized to quote and
issue policies and to effect cancellations or terminations thereof.
During 1993, UCIC incurred expenses of $21,903,000 pursuant to that
agreement. AWL paid a substantial portion of those commissions to
external brokers and subagents.
UCIC and AWL were also parties to a management consultant
agreement (Management Consultant Agreement), pursuant to which AWL
17
<PAGE>
provided consulting services as to the expansion of UCIC's
existing insurance business and as to the development and
implementation of new insurance programs. Under the Management
Consultant Agreement, AWL also provided UCIC with personnel and
office space at certain offices of AWL. During 1993, UCIC
incurred expenses totalling $915,000 pursuant to the Management
Consultant Agreement.
Senate and AWL are parties to a management agreement (Senate
Management Agreement) pursuant to which AWL provides management
services to Senate. During 1995, 1994 and 1993, Senate expended
$264,000, $ 60,000 and $60,000, respectively, pursuant to the
Senate Management Agreement. Senate also obtains a majority of its
medical stop-loss insurance and group business through subsidiaries
of LAC. During 1995, 1994, and 1993, Senate incurred commission
expenses of $605,000, $963,000 and $942,000, respectively, on this
business. LAC pays a portion of these commissions to external
brokers and subagents.
Competition
The P&C and A&H industry is highly competitive and competitors
have filled the vacuum caused by the moratorium on writings by URIC
and the downgrading by Best of the ratings of URIC to "D" (very
vulnerable). There can also be no assurance that customers can be
recovered even if the moratorium were lifted and the ratings are
improved. Competitors have also taken advantage of Senate's
relationship with UCIC.
In the particular lines of coverage written by the Company,
the primary competition was in price, service and products. The
Company had responded to this competition within the industry by
working aggressively to strengthen relationships with customers,
sponsoring organizations and trade groups. There had been little
evidence of meaningful price increases, except in some specialty
segments of the market during the last several years.
Regulation
The Company and its subsidiaries are subject to regulation in
each state in which they conduct business, including licensing and
supervision by state insurance departments. Current statutes and
regulations govern such matters as the nature of and limitations on
investments, the payment of dividends and capital and surplus
requirements. In addition, in most states, approval of premium
rates and policy forms is required. The Company and its
subsidiaries are, and will continue to be subject to these
regulations.
The Company and its subsidiaries also are subject to
regulation under the holding company statutes of Texas,
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<PAGE>
Georgia and Arizona. These holding company statutes generally
require insurers that are subsidiaries of holding companies to
register and file reports containing information concerning
their capital structure, ownership, management, financial condition
and general business operations and to provide such information
regarding the holding company as well. Such regulations also
generally require prior regulatory agency notice or approval of
intercompany transactions within the holding company structure.
The regulatory agencies of each state have statutory authorization
to enforce their laws and regulations through various
administrative orders and enforcement proceedings.
Texas Insurance Law provides that no person, as defined by the
Texas Insurance Law, may acquire control of the Company, and thus
indirect control of URIC, unless it has given notice to URIC and
obtained prior written approval from the Commissioner of Insurance
of Texas for such acquisition of control. Any purchaser of 10% or
more of the Company would be presumed to have acquired control
of the Company, unless such presumption is rebutted.
Georgia Insurance Law provides that no person, as defined by
Georgia Insurance Law, may acquire control of the Company, and thus
indirect control of Global, unless it has given notice to Global
and obtained prior written approval from the Commissioner of
Insurance of Georgia for such acquisition. Any purchaser of 10% or
more of the Company would be presumed to have acquired control of
the Company, unless such presumption is rebutted.
Arizona Insurance Law provides that no corporation or other
person may acquire control of the Company, and thus indirect
control of Senate and SNLIC, unless it has given notice to Senate
and SNLIC and obtained prior written approval from the Director of
Insurance of Arizona for such acquisition. Any purchaser of 25% or
more of the Company would be presumed to have acquired control of
the Company, unless such presumption is rebutted.
Texas Insurance Law provides that the maximum amount of
dividends that URIC may make without prior regulatory approval is
the greater of adjusted net investment income or 10% of statutory
surplus as of the preceding year-end subject to minimum earned
surplus requirements. At December 31, 1995, URIC did not meet the
earned surplus requirements for dividend purposes and cannot pay
dividends to LIG and UCIC in 1996.
Georgia Insurance Law provides that Global may pay dividends
only out of its earned surplus up to the lesser of net income,
excluding realized capital gains, but including realized capital
losses, or 10% of statutory surplus as of the preceding year-end
without regulatory approval. Global may pay dividends to URIC
only. Global cannot pay dividends in 1996.
19
<PAGE>
Arizona Insurance Law provides that Senate and SNLIC may pay
dividends only out of their earned surplus up to the lesser of net
gain from operations or 10% of statutory surplus as of the
preceding year-end without regulatory approval. Senate may pay
dividends to URIC only. SNLIC may pay dividends to Senate only.
Senate could pay $214,000 in dividends in 1996 and SNLIC could pay
$14,000 in dividends in 1996.
The National Association of Insurance Commissioners (NAIC)
annually calculates eleven financial ratios to assist state
insurance regulators in monitoring the financial condition of P&C
insurance companies. Many of these ratios are intended to express
operating activity over a one or two year period as a factor of
policyholders' statutory surplus. A "usual range" of results for
each ratio is used as a benchmark. Departure from the usual range
on four or more of the ratios could lead to inquiries from
individual state insurance commissioners as to certain aspects
of a company's business.
Global fell outside the normal range on two ratios. One was
related to the winding down of Global's operations and one related
to adverse loss development on a contract that was commuted in
1994.
URIC fell outside the normal range on four ratios. Three of
the ratios fell outside of the range as a result of the investment
in Alpha Trust being treated as a non-admitted asset for 1995 and
the fourth due to the negative premiums written in 1994.
Senate fell outside the range on one ratio related to the
decrease in premiums written during 1995.
In January, 1994, UCIC and URIC loaned $13,000,000 and
$14,000,000, respectively, to the Alpha Trust, the trustee of which
is The Bank of New York. These loans consisted of term notes with
differing maturities and repayment schedules with the initial
principal repayment commencing April 1, 1996 and ending on January
1, 2001. Interest is at the prime rate plus 2%. Interest is
payable quarterly beginning April 1, 1994. The Alpha Trust loaned
$27,000,000 to Lawrence Group, which owns approximately 93% of the
Company. The NYID and TDI had taken the position that the loans
from UCIC and URIC, respectively, did not qualify as admitted
assets.
The NYID conducted its regular examination of UCIC. The
Department concluded in its report dated May 4, 1994 that UCIC was
insolvent in the amount of $33,224,941, its capital impaired in the
amount of $36,224,941 and its required minimum surplus to
policyholders is impaired in the amount of $37,624,941. Following
lengthy discussions and negotiations between the NYID and Company
Management, on November 10, 1995 UCIC with the consent of the
20
<PAGE>
Company was placed into liquidation by order of the Court.
The TDI conducted its regular examination of URIC as of March
31, 1993. TDI issued their audit report on May 25, 1994. On June
22, 1994, the TDI issued a confidential order creating a state of
supervision and appointing a supervisor of the operations of URIC.
The order was based upon disagreements with valuations of several
assets, chief among them Alpha Trust, in financial statements
filed by URIC with the TDI and upon net operating losses reported
during the first quarter of 1994. As part of the agreement between
the Company and the TDI lifting the confidential order of
supervision, the Company agreed to certain financial covenants.
If it were not to meet them the TDI could place URIC into
conservatorship without opposition from the Company. At December
31, 1995 URIC had not met all the requirements.
Global, Senate and SNLIC also underwent their regular
examinations as of December 31, 1993, by their respective state
insurance departments. The results showed no material findings.
As a result of the financial difficulties, Best downgraded
URIC's rating from B (adequate) to D (very vulnerable). Senate's B
rating was placed under review due to the difficulties of its
parent, but was subsequently reaffirmed as a B.
The NAIC, which is not itself a regulatory authority but makes
recommendations to and takes other actions affecting state
regulatory authorities, adopted a Risk-Based Capital (RBC) standard
in the fourth quarter of 1993 for use by state insurance
regulators. RBC is intended to be a "tool" for regulators to
assess the capital adequacy of property and casualty insurers and
to take action when capital under the standard is judged to be
inadequate. This standard has four action levels based upon the
relationship of actual capital to RBC. The mildest action occurs
at a level of 2.5:1. Based upon the RBC standards developed by the
NAIC, all consolidated subsidiaries capital except URIC exceeded
the authorized control level RBC by a substantial margin. URIC's
ratio was 2.0:1. At this level, the TDI could require that URIC
submit a business plan, however they are currently under more
stringent requirements than those imposed by the RBC standards.
Tax Legislation
During 1995, the IRS did not issue any new regulations which
would have any material impact on the Company's tax position.
ITEM 2. PROPERTIES
The Company occupies a variety of leased office space in
Texas, Georgia and New York, with its corporate headquarters
located in New York City, New York.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In addition to the proceedings with the NYID and TDI discussed
under Regulation, the Company is a defendant in other legal
proceedings which Management believes will not have a material
impact on the Company's financial statements. Management is
defending these cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, there were no matters
submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's common stock was traded on the American Stock
Exchange under the symbol of LWR. Trading of the Company's common
stock was suspended by the American Stock Exchange from May 16,
1994 to August 29, 1995 due to the lack of current financial
information. On August 30, 1995 trading was resumed, however, at
that time the Company did not meet the minimum financial
requirements of the Exchange and delisting procedures could have
been resumed in the future. As of December 31, 1995 the Company
does not meet the minimum net worth requirements of the AMEX.
The high and low sales prices for each quarterly period are
summarized in the following schedule:
1995 1994
Quarter Ended High Low High Low
- -------------- ---- --- ---- ---
March 31 N/A N/A 4 3/8 3 1/4
June 30 N/A N/A N/A N/A
September 30 1 3/16 7/8 N/A N/A
December 31 15/16 7/8 N/A N/A
As of March 21, 1996, there were approximately 1,800 holders
of the Company's common stock and there were 14,121,482 common
shares issued and outstanding.
The Company has not declared or paid any dividends in 1995
or 1994.
22
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following GAAP basis tables should be read in conjunction
with the consolidated financial statements of the Company and the
notes thereto.
Year Ended December 31,
($ in thousands) 1995 1994 1993 1992 1991
Operating Data: ----- ---- ---- ---- ----
Revenues:
Net premiums earned $5,533 $5,221 $121,015 $131,799 $118,324
Net investment income 3,101 3,313 7,165 12,188 11,599
Realized gains (losses)
on investments (743) (598) (5,471) 5,888 4,813
----- ----- ------- ------ ------
Total revenues 7,891 7,936 122,709 149,875 134,736
Operating expenses:
Losses and loss
adjustment expenses 5,402 4,019 148,437 107,583 85,631
Losses-government pools - - 897 2,864 6,551
Policy acquisition
expenses 1,863 2,068 35,378 24,799 19,033
Other operating
expenses 1,769 1,360 14,771 14,706 13,574
----- ----- ------ ------ ------
Total operating expenses 9,034 7,447 199,483 149,952 124,789
----- ----- ------- ------- -------
Operating income (loss) (1,143) 489 (76,774) (77) 9,947
Equity in loss of non-
consolidated subsidiary - (7,309) - - -
Equity in earnings
(loss) of investee - (103) 632 413 -
------ ----- ------ ------ ------
Income (loss) before
income taxes, minority
interest and extra-
ordinary items (1,143) (6,923) (76,142) 336 9,947
Income tax
expense (benefit) (282) 168 962 (919) 2,704
---- ---- ----- ----- -----
Income (loss) before
minority interest and
other items (861) (7,091) (77,104) 1,255 7,243
Minority interest 219 - - - -
Extraordinary gain 38,387 - - - -
Change in accounting
principle - - - (233) -
------ ------ ------ ----- -----
Net income (loss) $37,745 $(7,091) $(77,104)$ 1,022 $7,243
====== ===== ====== ===== =====
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
1995 1994 1993 1992 1991
(Amounts in thousands, except per share data)
Balance Sheet Data:
Total investments $16,935 $27,994 $121,036 $181,818 $188,280
Total assets 46,502 67,041 257,315 305,018 265,305
Reserves for losses
and loss adjustment
expenses (1) 30,974 47,165 200,845 160,857 131,159
Total stockholders'
equity (deficiency) 145 (56,252) (19,251) 58,908 65,804
Per Share Data:
Net income before
extraordinary items $ (.05) $ (.50) $ (5.46) $ .09 $ .51
Net income (loss) 2.67 (.50) (5.46) .07 .51
Dividends - - .27 .46 .46
Total stockholders'
equity (deficiency) $ .01 $ (3.98) $ (1.36) $ 4.17 $ 4.66
Average shares
outstanding 14,121 14,121 14,121 14,121 14,121
Certain GAAP
Financial Ratios:
Loss and LAE ratio 97.6% 77.0% 122.7% 81.6% 72.4%
Losses - government
pools ratio - - .7 2.2 5.5
Acquisition expense
ratio 33.7 39.6 29.2 18.8 16.1
Dividend ratio - - .2 .2 .3
Underwriting expense
ratio 32.0 26.0 12.0 11.0 11.2
Combined ratio 163.3% 142.6% 164.8% 113.8% 105.5%
(1) Reserves for loss and loss adjustment expenses have been
restated for the years ended December 31, 1992 and 1991, to
reflect the gross reporting provisions of Statement of
Financial Accounting Standard No. 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts".
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The year 1995 represented a substantial turnaround compared
with 1994 and 1993 which were the most difficult and challenging in
the history of the Lawrence Insurance Group, Inc. (Company or LIG)
although it was unfortunate that the Company was compelled by
circumstances to agree to placing United Community Insurance
Company (UCIC) into liquidation. This action was taken in order
for the Company to devote its focus and resources to the healthy
parts of the Company. The Company recorded a net loss before
extraordinary gain of $642,000 for the year. This compares with
a net loss of $7,091,000 in 1994, and a net loss of $77,104,000
for 1993. The Company also recorded an extraordinary gain of
$38,387,000 in 1995 related to the liquidation of UCIC. The losses
in 1994 and 1993 were essentially attributable to the operations of
UCIC.
The consolidated financial statements for 1993 include the
accounts of LIG and all of its wholly owned subsidiaries. All
significant intercompany transactions have been eliminated in
consolidation. Amounts in 1994 exclude UCIC except as follows. 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 exercised any decision making authority or
control over UCIC. These functions were 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 loss of non-consolidated subsidiary" and the Company's
investment as "Deficit of non-consolidated subsidiary"). In 1995,
as a result of the formal order of liquidation entered on November
10, 1995 the Company reversed these amounts resulting in the
extraordinary gain described above.
The Texas Department of Insurance (TDI) conducted its regular
examination of United Republic Insurance Company (URIC) as of March
31, 1993. TDI issued its audit report on May 25, 1994. As a
result of that report URIC was placed under confidential
supervision on June 22, 1994 by the TDI. This order was based upon
disagreements with valuations of several assets, chief among them
Alpha Trust, in financial statements filed by URIC with the TDI and
upon net operating losses reported during the first quarter of
1994. On August 25, 1995 this Order was lifted. In exchange the
Company agreed to certain minimum financial targets. URIC met the
interim goals but has not met the December 31, 1995 policyholder
25
<PAGE>
surplus target of $8.0 million. If URIC does not meet this target,
the TDI can place URIC into conservatorship without the consent of
the Company, although it has not evinced any inclination to do so.
Results of Operations
As a result of the NYID taking control of UCIC on July 7,
1994, the results of UCIC for the 1994 year are included on a
deconsolidated basis and only through the first six months of 1994.
As a result of deconsolidation, the results of UCIC are included in
LIG results as "Equity in loss of non-consolidated subsidiary" for
1994 operations and "Deficit of non-consolidated subsidiary" for
UCIC's cumulative stockholder's deficiency. All other balances and
amounts of individual balance sheet and operating accounts for 1994
exclude UCIC. Comparisons between 1993 and 1994 generally exclude
UCIC from 1993 amounts. The reversal of the "Equity in loss of
non-consolidated subsidiary" in 1995 is reflected as an
extraordinary gain.
For 1995, the Company recorded net income of $37,745,000
including the extraordinary gain related to UCIC of $38,387,000.
Net loss from ongoing operations was $642,000. The loss was
attributable to the adverse development related to URIC's pooling
agreement with UCIC partially offset by Company,s ability to
commute several reinsurance agreements at favorable terms.
For 1994, the Company lost $7,091,000 as LIG recorded a loss
related to UCIC of $7,307,000 for the first six months of 1994. In
addition to the loss related to UCIC's own operations since UCIC
owns 21.4% of URIC, LIG does not consolidate the full amount of
income or loss earned by URIC. For 1994, this amounted to $2,000
in URIC earnings not consolidated by LIG. Excluding UCIC for
1994, the Company would have earned $216,000.
Net Premiums Earned: Net premiums earned represent the pro
rata portion of the business written in the calendar year plus
amounts carried over from the prior year that are taken into
revenue in the current period reduced by applicable reinsurance.
Net earned premiums for 1995 totaled $5,533,000 compared with
$5,221,000 for 1994. The increase from 1994 was attributable
primarily to favorable adjustments to URIC assumed premiums
partially offset by the decrease in Senate Insurance Company's
(Senate) stop loss business. For 1994, net premiums earned
decreased by $35,180,000 excluding UCIC vs. 1993. The decrease was
attributable primarily to the termination of the pooling agreement
between URIC and UCIC and the impact of the halt by URIC and Global
Insurance Company (Global) on writing new and renewal business.
Senate's premiums earned declined by $419,000 primarily due to
adverse publicity surrounding UCIC and some customers self-insuring
at higher retention levels.
26
<PAGE>
During 1993 and 1992, UCIC had been a party to several
different quota share reinsurance treaties which covered all lines
of business written by UCIC. The Company ceded $21,700,000 of
premiums and $12,902,000 in losses and earned $8,380,000 in
commissions in 1993. UCIC determined that the contract did not pass
the risk transfer criteria of SFAS No. 113. Accordingly, the
Company applied deposit accounting to this contract in 1993 and the
premiums, losses and commissions are excluded from the income
statements and reflected as a net deposit on the balance sheet at
December 31, 1993.
Net Investment Income: Net investment income was $3,101,000
for 1995. 1994 totaled $3,313,000 compared with $2,978,000 for
1993, excluding UCIC. The decrease for 1995 compared with 1994 was
due to the lower level of invested assets as yields were higher.
The increase in 1994 over 1993 was attributable to higher yields.
The Company's net investment income for the year ended December 31,
1993 was approximately $7,165,000 including UCIC.
All securities in the Company's fixed investment portfolio at
December 1995, are rated A or better by Standard & Poor's
Corporation or Moody's Investor Services.
Realized Gains (Losses) on Investments: Realized losses for
1995 totaled $946,000 and were related to the loss on the
disposition of notes of Aquatic Development Corporation and losses
on fixed investments. Realized gains totaled $203,000. Realized
losses totaled $598,000 for the year 1994 with approximately
$503,000 due to the write down of an equity investment in Aquatic
Development Corporation. The Company realized net gains on the
sale of investments of approximately $3,616,000 for 1993. The
investment transactions for the year ended December 31, 1993 were
made to take advantage of favorable market conditions and capital
appreciation on selected securities. For 1993 the Company wrote
down amounts on two investments that were deemed to be permanently
impaired. These write downs totaled $9,087,000 and offset the net
gain from the sale of investments above resulting in a net realized
loss for 1993 of $5,471,000. These items are discussed below.
During 1992, the Company purchased approximately 49% of the
outstanding common stock of Mechanical Technology, Inc. (MTI) for
$4,757,500. This investment in common stock, was presented in
the Consolidated Balance Sheets as Equity in Common Stock of
Investee, and accounted for under the equity method. Accordingly,
the Company's pro rata share of MTI's undistributed earnings for
1993 which amounted to $632,000 has been included in the
accompanying Consolidated Statements of Operations for the year
ended December 31, 1993. After December 31, 1993, MTI reported a
substantial loss. The Company as of December 31, 1993 wrote down
its investment in MTI to $216,000, which represented the fair value
of the Company's investment in MTI's stock. The fair value was
27
<PAGE>
determined by the average quoted market value of the stock on
November 1, 1994. During 1994, the remaining investment balance
was reduced to $0.
During December 1993, UCIC made a loan to First Commercial
Credit Corp. (FCCC), an unrelated finance company in the principal
amount of $5,000,000. Because FCCC's unencumbered assets consisted
largely of the claim participation receivable guaranteed by MTI, a
commensurate portion of UCIC's term loan with FCCC was considered
to be collateral dependent. As of December 31, 1993, UCIC wrote
down its investment in connection with this loan by $3,500,000.
Losses and Loss Adjustment Expenses: For the year 1995 losses
and LAE totaled $5,402,000 compared with $4,019,000 for 1994 and
$39,322,000 for the year 1993, excluding UCIC. The increase for
1995 vs 1994 was attributable to the adverse impact of URIC's
pooling agreement with UCIC partially offset by favorable results
related to the commutation of several reinsurance agreements and
the reduced business volume at Senate. In addition, for 1994 the
Company incurred losses of approximately $1,600,000 related to the
Northbridge, California earthquake for which it had no counterpart
in 1995. The decrease for 1994 compared with 1993 is related
primarily to the termination of the pooling agreement between URIC
and UCIC and the resultant decline in premium volume and related
losses. In 1993, URIC was also significantly impacted by the
adverse loss and LAE experienced by UCIC as a result of the pooling
agreement. For the year ended December 31, 1993, losses and LAE
totaled approximately $148,437,000 including UCIC. The change in
reinsurance due to SFAS No.113 added $12.9 million to losses and
LAE. During 1993, the projection of ultimate costs for business
written by the Company prior to the current year was increased by
approximately $57.1 million.
The reinsurance assumed business had negative loss and LAE in
1995 as the cost of commuting several reinsurance agreements were
less than amounts provided in prior periods. Earned premium in 1994
was negative as a result of a moratorium on new business and
adjustments to retrospectively rated treaties as some of these
treaties showed favorable loss experience in 1994. The
favorability was offset by losses incurred of approximately
$1,600,000 related to the Northbridge California earthquake.
The accident and health (A&H) business, which constitutes the
current majority of the Company's business, continues to enjoy
favorable results. The loss and LAE ratio was 52%, 38% and 51% for
1995, 1994 and 1993, respectively. The decrease in the ratio for
1994 was attributable primarily to very favorable experience on its
medical stop loss program.
Loss and LAE are based on the ability to collect from
28
<PAGE>
reinsurers amounts due under reinsurance contracts. Management
believes that the credit exposure is not significant. URIC's
reinsurance is allocated to numerous companies. Senate reinsured
through Lloyd's of London on a combined quota share/excess of loss
basis. Senate claims with insureds are settled quickly and
reimbursed by Lloyd's of London promptly. This minimizes any
significant credit risk associated with longer tail business
where premiums are remitted to reinsurers long before claims are
paid and reimbursed. Global has minimal reinsurance.
Losses - Government Pools: Most states have established joint
underwriting associations of insurance carriers which are commonly
referred to as pools. The purpose of these pools is to provide
individuals, businesses and other entities with a guaranteed means
to obtain certain mandated insurance coverage when they would not
otherwise be reasonably obtainable through the traditional
insurance market from an individual insurance carrier.
Participation in these pools by the individual insurance carriers
is not voluntary.
Each member carrier essentially guarantees its share of the
solvency of the pool. The pool administrator collects the premium,
pays the losses and administrative costs, and passes a
proportionate share of the costs to each member. If the losses and
expenses exceed the premiums, the members may be subject to an
assessment by the pool to fund the pool's deficit.
The Company's expense for government pool losses, which
represents the net assessments from various pools to fund their
deficits, was approximately $897,000 in 1993. These amounts were
related to UCIC.
Policy Acquisition Costs: Commissions and other acquisition
expenses were approximately $1,863,000 in 1995, $2,068,000 in
1994, $35,378,000 in 1993. The changes in policy acquisition
costs for these years are attributable to the change in the volume
of business, changes in the mix of business from premium with a
lower commission rate to premium with a higher commission rate and
changes in reinsurance ceding commission income. The Company
offsets reinsurance ceding commission income against commissions
and other acquisition costs to arrive at the Company's net expense
The Company's net expense is impacted by changes in reinsurance
ceding commission, in addition to changes in direct commissions
associated with the Company's direct and assumed premium.
Policy acquisition expenses for 1995 decreased by $205,000
compared with 1994 primarily as a result of lower premium volume at
Senate. Policy acquisition expenses for 1994 were $2,068,000
compared with $7,821,000 for 1993, excluding UCIC. The decrease
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<PAGE>
was attributable primarily to the reduction in premium volume,
partially offset by an increase in the average commission rate as
a higher percentage of the total business was related to A&H, which
has a higher commission rate, but a lower loss ratio than the other
lines.
Other Operating Expenses: The Company's other operating
expenses were approximately $1,769,000, $1,360,000 and $14,771,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Other operating expenses for 1995 reflected increased costs of
litigation relative to URIC and the TDI as well as costs associated
with complying with other regulatory agencies as well as additional
costs associated with positioning the company to be able to move
forward in 1996. The Company's other operating expenses were
$1,360,000 for the year 1994, compared with $5,962,000 for the year
1993, exclusive of UCIC. The decrease is attributable primarily to
the termination of the pooling agreement between URIC and UCIC
effective January 1, 1994 and cost reduction efforts related to
reduced business activity. Under that agreement URIC was
allocated a portion of UCIC's operating expenses as well as
premiums and loss and LAE. Excluding the impact of pooling in 1993,
operating expenses decreased by approximately $1,232,000.
Equity in Earnings of Investee: During 1992, the Company
acquired 49% of the outstanding common stock of MTI, a
high-technology manufacturer primarily within the defense/aerospace
industry. The Company's pro rata share of MTI's undistributed
earnings since the date of acquisition has been included in the
Company's operating results in the amount of $(102,000) for 1994
and $632,000 for 1993. Based upon events subsequent to December
31, 1993, the investment was written down as of December 31, 1993
to reflect an impairment.
Income Taxes: For 1995 the company recorded a tax benefit of
$282,000 representing an amount recoverable against prior expense
by URIC partially offset by a provision for state income taxes of
Senate. For 1994, the Company recorded a tax expense of
approximately $168,000 which consisted of state income taxes due.
For 1993, the Company recorded a tax expense of approximately
$962,000 which consisted of a deferred tax expense of $6,568,000
principally related to the establishment of a tax valuation
allowance partially offset by a tax benefit of $5,605,000 resulting
from a tax loss carryback against prior years income. The
statutory Federal rate was 34% for 1995, 1994 and 1993.
Liquidity and Capital Resources
Insurance premiums generally are collected prior to the
disbursement of claims and related expenses resulting in a
favorable cash flow from operations for the insurance subsidiaries.
Funds are then used to purchase investments ranging in maturity
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from short-term to long-term, reflecting the varying duration of
insurance liabilities for losses, as well as the investment market
conditions.
During 1994 the Company implemented SFAS No. 115 - "Accounting
for Certain Investment in Debt and Equity Securities." This
requires that fixed investments be classified into categories
for financial statement presentation: Fixed Maturities Held to
Maturity and Fixed Maturities Available for Sale. Fixed Maturities
Held to Maturity are carried at amortized cost. Securities to be
held for indefinite periods of time and not intended to be held to
maturity are classified as available for sale. Securities
available for sale include securities that Management intends to
use as part of its asset/liability management strategy and that may
be sold in response to changes in interest rates, prepayment risk
and other similar economic factors, as well as to fund catastrophic
losses and other unexpected cash needs. Fixed Maturities Available
for Sale are carried at fair value after 1993. For 1995 the
Company considered all fixed investments to be available for sale.
During 1993, the Company liquidated most of its long-term GNMA
and FNMA fixed maturity portfolio and replaced them with short-term
investments and an increased cash position.
Operating activities used cash and cash equivalents of
approximately $8,233,000, $18,221,000 and $24,221,000 in 1995, 1994
and 1993, respectively. The decrease in operating cash flow for
the three years reflects the reduction in premiums written and the
change in income from underwriting operations, which was adversely
impacted by the increase in losses and LAE, as well as the increase
in policy acquisition costs in 1993. In addition, in January,
1994, UCIC and URIC loaned $13,000,000 and $14,000,000,
respectively, to Alpha Trust. These loans consisted of term notes
with differing maturities and repayment schedules with the initial
principal repayment commencing April 1, 1996 and ending on January
1, 2001. Interest is at the prime rate plus 2%. Interest is
payable quarterly beginning April 1, 1994. Alpha Trust loaned
$27,000,000 to Lawrence Group, which owns approximately 93% of the
Company. This represented a use of cash by URIC of $14,000,000.
For 1993, the positive cash flow from investing activities
served to offset the negative cash flow from operations, to finance
the payment of dividends to stockholders of approximately
$3,813,000 and to purchase equipment of $617,000, net of disposals.
The positive cash flow from investing activities resulted in a
decrease in the Company's invested asset portfolio of approximately
$57,670,000, net of disposals; and excluding realized gains,
changes in net unrealized gains/losses and equity in earnings
of investee. The net effect of these activities in 1993 was to
generate cash of approximately $29,019,000.
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<PAGE>
A significant portion of the parent company's internal sources
of funds historically consisted of dividends from its subsidiaries.
Since the insurance subsidiaries are subject to regulatory
restrictions on the amount of dividends that may be paid, their
earnings are not necessarily available to the Company on a current
basis. The restrictions are generally based on specific levels of
statutory surplus and investment income, as determined under
statutory insurance accounting practices. Based upon their
restrictions as of December 31, 1995, the insurance subsidiaries
will not be able to pay any dividends to the Company during 1996
without prior approval of regulatory authorities. Dividend
payments from the Company's subsidiaries have been suspended since
the fourth quarter of 1993 due to statutory limitations. Dividends
from the Company to its shareholders have also been suspended
pending future dividends from the subsidiaries. During 1993, the
insurance subsidiaries paid $3,915,000 in dividends to the Company.
In the absence of dividends from its subsidiaries the Company
has had to rely on tax refunds and other miscellaneous sources of
cash to fund its own activities. While these requirements are not
substantial it is uncertain to what degree they can be met in the
future. The insurance subsidiaries are deemed to have ample cash
and invested assets to meet their foreseeable cash requirements.
Economy
Periods of economic recession and inflation have varying
effects on the Company's subsidiaries, as well as other companies
in the insurance industry. Fluctuations in the economy will
contribute to changing loss, LAE and operating costs. Investment
income will be reflective of changes in available investment
yields, as dictated by the general state of the economy. Premium
rates, however, are not significantly affected by economic swings
since competitive forces generally control such rates. The
underwriting policy of each subsidiary is geared to obtaining an
adequate return for the risk it is underwriting. For example,
policies exclude environmental and pollution coverages, due to
their uncertainty. Net premiums earned may therefore increase or
decrease at a lower rate than increases in losses and expenses.
Inflation, however, could adversely affect a subsidiary's results
of operations if it occurs during a period of declining premium
rates.
New Accounting Pronouncements
There were no new accounting pronouncements that would upon
implementation have a significant impact on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The consolidated financial statements required in response to
this Item are submitted as part of ITEM 14 (a) of this report.
32
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company at
December 31, 1995 were as follows:
Name Age Position
Albert W. Lawrence 67 Chairman of the Board
F. Herbert Brantlinger 56 Chief Executive Officer
President, Director
Albert F. Kilts 50 Vice President,Treasurer,
Director
R. Wayne Diesel (1) 50 Director
Barbara C. Lawrence 67 Secretary, Director
Lawrence A. Shore (1) 68 Director
Nevin D. Harkness (2) 74 Director
Milos R. Knorr (2) 77 Director
William J. Mather 58 Director
Rita E. Harfield 52 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee. All members of the Audit
Committee serve only as Directors and have no management
responsibilities with respect to the Company.
All Directors hold office until the next annual meeting of
stockholders and until their successors are duly elected and
qualified. Officers are elected annually by the Board of Directors
and serve at the discretion of the Board of Directors. Mr.
Lawrence and Mr. Shore have been Directors since June 30, 1986.
Ms. Lawrence and Messrs. Harkness and Knorr became Directors on
October 19, 1986. Mr. Mather became a Director on October 7, 1987.
Mr. Brantlinger became a Director on December 14, 1989. Mr. Diesel
became a Director on December 10, 1992, Mr. Kilts became a
Director on December 8, 1994 and Ms. Harfield became a Director on
March 30, 1995. On March 30 and April 2, 1996, Messrs Shore and
Diesel resigned as Directors in order to avoid any potential
conflict with their positions at MTI.
Albert W. Lawrence is the founder of Lawrence Group and its
subsidiaries. He is the Chairman of the Board and Chief Executive
Officer of Lawrence Group and has held various offices in the
subsidiaries of Lawrence Group since prior to 1989. Mr. Lawrence
serves as a Director of MTI.
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<PAGE>
F. Herbert Brantlinger has been Chief Executive Officer and
President of Lawrence Insurance Group, Inc. since July 1990 and
Chief Executive Officer and President of URIC since September 1992.
He also holds various offices in certain subsidiaries of Lawrence
Group. He also served as First Executive Vice President of UCIC
from September 1989 to July 1990 and as President of UCIC from July
1990 to July 1994.
Albert F. Kilts has been Vice President and Treasurer of
Lawrence Insurance Group, Inc. since December 1994 and Chief
Operating Officer of LIG since May 1994. From October 1993 to July
1994 he also held several positions within UCIC. He previously
served as Corporate Auditor for Lawrence Management Group, Inc.
from August, 1991 through September, 1993. From 1975 until
joining the Lawrence Group in August, 1991, Mr. Kilts was
affiliated with Key Corp where he most recently served as
Senior Vice President of Banking Administration at the parent
company.
R. Wayne Diesel is President and Chief Executive Officer of
Mechanical Technology Incorporated (MTI), and serves on its Board
of Directors. Previously he served as President and Chief
Financial Officer of Lawrence Management Group, Inc. He became a
Director of the Company in 1992 and served as its Treasurer in
1993. Prior to his association with the Lawrence Group, he was
Administrative Vice President of Key Corp, a bank holding company;
and previously had held various executive positions with the State
of New York. He served as a Director of several companies.
Barbara C. Lawrence, the wife of Albert W. Lawrence, is the
Secretary of Lawrence Insurance Group, Inc. and also holds offices
in various subsidiaries of Lawrence Group, Inc. since prior to
1989. She has been active in financial, philanthropic, civic and
church activities in New York and New England since 1950.
Lawrence A. Shore retired from the office of President of
Lawrence Management Group, Inc. during 1993, a position he held
since July, 1990. Mr. Shore also retired as Treasurer of the
Company, a position he had held since his appointment in 1991. In
his previous capacity with the Company, he served as Chief
Executive Officer and President of Lawrence Insurance Group, Inc.
and President of UCIC, offices which he had held since September
1986 and September 1985, respectively. Mr. Shore serves as
Chairman of the Board of MTI.
Nevin D. Harkness had been a Director of UCIC since October
1983. During 1993, Mr. Harkness retired from the position of Chief
Executive Officer and President of The Olympic Regional Development
Authority, Lake Placid, New York. Mr. Harkness has been involved
in the field of athletics as administrator and coach since prior to
1989 and is currently acting as a consultant to the Company and its
affiliates in the marketing of sports related coverages.
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<PAGE>
Milos R. Knorr is active as an independent consultant and
advisor in insurance, reinsurance and related fields, and acts as
an arbitrator. He also serves as a Director of several companies.
Prior to 1982, he held various senior executive positions with the
INA Group (now CIGNA), including head of European Reinsurance
Operations, President of INA Insurance Company of Canada and Senior
Vice President of INA Reinsurance Company.
William J. Mather is President of Global, Senate, SNLIC and
holds various offices in various subsidiaries of Lawrence Group.
He is currently the Chief Marketing Officer of Lawrence Group and
President of the Lawrence Agency Corp. where he has been employed
since prior to 1989.
Rita E. Harfield is currently Vice President for Lawrence
Agency Corporation. She has held various positions within Lawrence
Group since 1976.
With the exception of Barbara C. Lawrence, all of the officers
of the Company spent substantially all of their time on the affairs
of the Company during 1995.
Under the securities laws of the United States, the Company's
Directors, its Executive Officers, and any persons holding more
than ten percent of the Company's common stock are required to
report their ownership of the Company's common stock and any
changes in that ownership to the SEC. Specific due dates for these
reports have been established and the Company is required to report
in this Form 10-K any failure to file by these dates during 1995.
In making these statements, the Company has relied upon the
written representations of its incumbent Directors and Officers and
its ten percent holders and copies of the reports that they have
filed with the SEC.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation that the
Company and its subsidiaries paid or accrued for the year ended
December 31, 1995 for F. Herbert Brantlinger as President and Chief
Executive Officer of LIG. The Company did not have any other
Executive Officer whose compensation exceeded $100,000 during
1995.
All other
Year Salary Bonus Compensation
----- ------ ------- -----------
1995 $118,922 $ - $ -
1994 96,827 - -
1993 201,400 - 2,014
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<PAGE>
The Company does not have any long-term compensation plans
based upon the issuance of restricted stock awards, stock options
and/or stock appreciation rights (SARs).
During the period July 7, 1994 through December 1, 1995 a
portion of Mr. Brantlinger's salary was paid by UCIC which was
under the control of the NYID. These amounts have been excluded
from the above table. On a annual basis Mr. Brantlinger's salary
is $208,600.
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee consist of Lawrence A.
Shore, Chairman and Vincent P. Brennan prior to his resignation in
March, 1995 and R. Wayne Diesel. Mr. Shore was formerly President
and CEO of the Company and of UCIC prior to his retirement in 1991.
While Mr. Diesel was treasurer of LIG, he was also the Chief
Financial Officer for LIG's parent company and his compensation was
established at that level. There were no compensation interlocks.
Compensation programs for the Company's executive officers are
administered by the Compensation Committee of the Company's Board
of Directors. The Committee is composed of non-employee directors
who are not eligible to participate in any of the executive
compensation programs.
The Company's executive compensation policies are designed to
attract and retain qualified executives and ensure that their
efforts are directed toward the long-term interests of the Company
and the Company's shareholders. The executive compensation program
is designed to provide value to the executive only if individual
performance, Company performance versus budgeted earnings targets,
longer term earnings per share growth and share price appreciation
meet or exceed expectations while also taking into consideration
challenges faced by the Company. The policies have been held in
abeyance since the assumption of control of UCIC by the NYID. For
1995, there was no change in compensation levels for executive
officers.
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<PAGE>
Five Year Performance Graph
Comparison of Five-Year Cumulative Returns Among the Company,
American Stock Exchange Composite ("AMEX") and the Insurance
Industry Listed Companies:
Year ended December
----------------------------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
LIG 100 167 138 61 41 26
AMEX Stock Market(US companies) 100 138 145 171 160 206
NYSE,AMEX,NASDAQ listed
insurance carriers 100 136 174 189 177 255
The Stock Performance Graph, as presented above, reflects the
cumulative return on the common stocks of the Company, AMEX and the
Insurance Industry, respectively, assuming an original investment
in each of $100 on December 31, 1990 (the "base") and reinvestment
of quarterly dividends. Cumulative returns for each fiscal year
subsequent to 1990 are measured as a change from this base.
The Company's return tracked the AMEX and Insurance indices
for 1991. Since that time, the Company's return declined substant-
ially, reflecting an earnings decline in 1992 and significant loss-
es for 1993 and 1994. Trading in the Company's stock was suspended
on May 13, 1994. The suspension was lifted on August 30, 1995.
Trading has been in a narrow range since the suspension was lifted.
Retirement Plans
URIC, Global and Senate are participating employers in a
profit sharing plan under Section 401(k) of the Internal Revenue
Code, maintained by Lawrence Group (401(k) Plan). The 401(k) Plan
covers all employees of URIC, Global and Senate who have completed
one year of service and have attained age twenty and one-half.
Each year, URIC, Global and Senate contribute to the 401(k) Plan
such amounts as the Boards of Directors, in their discretion, may
determine. In addition, participants may elect to reduce their
salary and to have such amounts contributed by the Company to the
401(k) Plan. The participants' accounts are fully vested at all
times. The 401(k) Plan was adopted effective as of January 1,
1986. The cost to the Company, including UCIC through July 7, 1994
of the 401(k) Plan was approximately $17,500, $23,000 and $66,000
for 1995, 1994 and 1993, respectively. These costs include $0
in 1995, $0 in 1994 and $4,000 in 1993 for executive officers.
Directors' Fees
Directors of the Company are paid $600 for each regular
meeting of the Board of Directors which they attend.
37
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the holdings of Common Stock by
each of the Company's Directors and by all Officers and Directors
as a group as of December 31, 1995. Except as otherwise indicated,
to the Company's knowledge all shares are beneficially owned, and
investment and voting power is held by the persons named as owners.
Name of Beneficial Owner Beneficial Ownership Outstanding Shares
Albert W. Lawrence (1) 6,585,571 46.6
F. Herbert Brantlinger (2) 2,872 *
Barbara C. Lawrence (3) 6,575,348 46.6
R. Wayne Diesel - *
Lawrence A. Shore 14,173 *
Nevin D. Harkness 300 *
Milos R. Knorr 3,000 *
William J. Mather (4) 27,664 *
Albert F. Kilts - *
Rita E. Harfield 952 *
All Officers and Directors
as a group (1)(2)(3)(4) 13,209,880 93.5
*Less than 1%
(1) Includes 6,572,197.5 shares held by Lawrence Group. In
addition, there are 8,374 shares in the account of Mr. Lawrence in
the 401(k) Plan.
(2) Includes 2,872 shares in the account of Mr. Brantlinger in the
401(k) Plan.
(3) Includes 6,572,197.5 shares held by Lawrence Group.
(4) Includes 26,839 shares in the account of Mr. Mather in the
401(k) Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid $0, $0, and $3,548,000 in dividends to
Lawrence Group in 1995, 1994 and 1993, respectively.
The Company and its subsidiaries supplemented the activities
that were performed in-house by obtaining various services from
A.W. Lawrence and Co., Inc. (AWL), a subsidiary of Lawrence Agency
Corp. (LAC), which is a subsidiary of Lawrence Group, pursuant to
agreements between the Company's subsidiaries and AWL. Under the
terms of the Agency Agreement, AWL and its affiliates receive
commissions when they are the agent for the transaction. UCIC
received a substantial portion of its written premiums through AWL.
38
<PAGE>
In 1993 UCIC incurred $21,903,000 in commissions. AWL pays a
substantial portion of these commissions to external brokers and
subagents.
Under a management consultant agreement with AWL in effect
since 1982, UCIC received technical, accounting and management
assistance in various administrative areas. These costs were
$915,000 in 1993.
UCIC subleased various office space from LAC. Rent expense
totaled $493,000 for 1993.
In September 1992, Global entered into a sublease agreement
with LAC to rent space located in Atlanta, Georgia. The sublease
is for a term ending on September 1, 1995. Annual rent expense is
$7,000 under this sublease.
The Company's subsidiaries held various notes receivable from
other Lawrence Group affiliates at December 31, 1994. The notes
are included in Other Invested Assets on the accompanying
Consolidated Balance Sheets and amounted to $269,000 at December
31, 1994, All notes were repaid in 1995. Interest rates charged
on these notes are Prime plus 1%. Interest income earned with
respect to these loans totalled $11,000, $40,000 and $106,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company and its subsidiaries hold mortgage loans from
employees of Lawrence Group as well as officers and directors of
the Company and its subsidiaries. These loans totalled $34,000
and $186,000 December 31, 1995 and 1994, respectively. Interest
rates on the mortgages include variable and fixed rates, with the
fixed rates ranging from 7% to 8.5% and variable rates ranging from
one-year Treasury Bill rate plus 3% to Prime plus 1%.
Senate ceded a portion of its accident/health business to
UCIC. Written premiums ceded to UCIC under this arrangement
amounted to $1,462,000 in 1994. Benefits and other underwriting
expenses ceded to UCIC totalled $1,299,000. As a result of the
reinsurance arrangement, Senate's accounts reflect a net
recoverable from UCIC of $53,000 at December 31, 1995.
Senate obtains a significant portion of its business from LAC
to which it pays commissions. These commission expenses totalled
$605,000, $963,000 and $942,000 in 1995, 1994 and 1993,
respectively. LAC pays a portion of these to external brokers and
subagents. Senate pays AWL for management services associated with
Senate business. These payments were $264,000, $60,000 and $60,000
for 1995, 1994 and 1993, respectively.
URIC loaned $14,000,000 Alpha Trust which in turn invested in
notes issued by Lawrence Group, which owns approximately 93% of the
Company during 1994.
39
<PAGE>
In addition to the quota share treaty with UCIC, URIC and UCIC
also had a pooling agreement in effect during 1992 and 1993. The
agreement was terminated effective January 1, 1994; however, each
company is responsible for its share of all premium, losses and LAE
incurred prior to that date. At December 31, 1995, URIC had a net
liability to UCIC under these reinsurance agreements of
approximately $6,187,000.
At December 31, 1995 URIC carried a note payable due to LGI
of $300,000. Interest is at 8%. LIG had received an advance of
$185,000 from LGI the balance of which was outstanding at the end
of 1995.
At December 31, 1995 the Company had income taxes payable to
Lawrence Group of $113,000.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The 1995 financial statements listed on the accompanying Index
to Financial Statements and Financial Statement Schedules Covered
by Report of Independent Accountants are filed as part of this
report.
2. Schedules
The 1995 schedules listed on the accompanying Index to
Financial Statements and Financial Statement Schedules Covered by
Report of Independent Accountants are filed as part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
(b) Reports on Form 8-K
On August 29, 1995, the Company reported that the TDI had
released URIC from confidential supervision which had been imposed
on June 22, 1994. The release was conditioned upon URIC achieving
certain capital surplus goals. In the event URIC failed to meet
those requirements the TDI would have the authority to place URIC
into conservatorship. In the same filing it was reported that the
American Stock Exchange agreed to allow the resumption of trading
of LIG stock as of August 30, 1995. It was noted, however, that
since the Company did not meet its minimum financial guidelines,
delisting procedures could be reinitiated in the future.
On November 17, 1995, the Company reported that by Order of
Supreme Court of the State of New York entered on November 10,
1995, UCIC with the consent of the Company was ordered to be
liquidated with the Superintendent of the NYID appointed as
liquidator.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
LAWRENCE INSURANCE GROUP, INC.
(Registrant)
Dated: April 12, 1996 By: /s/ F. HERBERT BRANTLINGER
------------------------------
F. Herbert Brantlinger
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Name Title Date
/s/ ALBERT W. LAWRENCE Chairman of the Board April 12, 1996
Albert W. Lawrence
/s/ F. HERBERT BRANTLINGER President and Director April 12, 1996
F. Herbert Brantlinger (Principal Executive Officer)
/s/ ALBERT F. KILTS Treasurer and Director April 12, 1996
Albert F. Kilts ( Principal Accounting
and Financial Officer)
/s/ BARBARA C. LAWRENCE Secretary and Director April 12, 1996
Barbara C. Lawrence
/s/ NEVIN D. HARKNESS Director April 12, 1996
Nevin D. Harkness
/s/ MILOS R. KNORR Director April 12, 1996
Milos R. Knorr
/s/ WILLIAM J. MATHER Director April 12, 1996
William J. Mather
/s/ RITA E. HARFIELD Director April 12, 1996
Rita E. Harfield
42
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14 (a)
Form 10-K
Page
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-9
Schedules:
I - Summary of Investments Other than Investments
in Related Parties at December 31, 1995 S-2
II - Condensed Financial Information of Registrant
at December 31, 1995 and 1994 and for the Years
Ended December 31, 1995, 1994 and 1993 S-3
III - Supplementary Insurance Information for the
Years Ended December 31, 1995, 1994 and 1993 S-6
IV - Reinsurance for the Years Ended December 31,
1995, 1994 and 1993 S-10
V - Valuation and Qualifying Accounts for the
Years Ended December 31, 1995, 1994 and 1993 S-11
VI - Supplementary Information Concerning Property
and Casualty Insurance Operations for the
Years Ended December 31, 1995, 1994 and 1993 S-12
43
<PAGE>
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the consolidated financial statements and the
financial statement schedules of Lawrence Insurance Group, Inc. and
subsidiaries listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and the
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
audited standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Lawrence Insurance Group, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally
accepted principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be
included therein.
The accompanying consolidated financial statements and financial
statement schedules have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1, a
subsidiary, United Republic Insurance Company (URIC), was under
confidential supervision by the Texas Department of Insurance (TDI)
under an order issued in June 1994. On August 25, 1995, the
Commissioner of Insurance of the TDI issued a Release From
Confidential Supervision Order and an Article 1.32 Order of
Consent for URIC. The effect of these orders was to release URIC
from confidential supervision contingent upon increasing its
statutory policyholder surplus to $8 million and other
administrative requirements. In addition, an Appointment of
Conservator by Consent has been signed by URIC and could be
executed by TDI should URIC fail to abide by the above mentioned
financial and other administrative requirements. URIC has failed
to meet several of these requirements, including the policyholder
F-1
<PAGE>
surplus requirements. URIC could be placed in to conservatorship by
the TDI at any time. The above actions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in
Note 1. The consolidated financial statements and financial
statement schedules do not include any adjustments that might
result from the outcome of these uncertainties.
As discussed in Note 1 to the consolidated financial statements, in
1994 the Company changed its method of accounting for United
Community Insurance Company, a former wholly owned subsidiary.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
April 8, 1996
F-2
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(SEE NOTES 1 & 2)
($ in thousands) December 31,
-------------------
1995 1994
-------- -------
Investments:
Fixed maturities held to maturity, at
amortized cost (Fair value: 1994 -
$7,684) $ - $ 7,698
Fixed maturities available for sale, at
fair value (Cost: 1995 - $3,875, 1994
- $6,228) 3,921 5,784
Equity in common stock of investee at
equity (Cost: 1995-$0, 1994-$103) - -
Equity securities, at fair value
(Cost: 1995 and 1994 - $997) 941 917
Short-term investments, at cost which
approximates fair value 11,898 11,523
Collateral loan at cost which
approximates fair value - 1,033
Mortgage loans on real estate, at
aggregate outstanding principal balance 171 186
Other invested assets, at cost which
approximates fair value
Notes receivable from affiliates - 269
Other 4 584
------- -------
Total investments 16,935 27,994
Cash and cash equivalents 5,688 2,500
Accrued investment income 475 668
Accounts receivable (Net of allowance for
doubtful accounts of $0 in 1995 and 1994 10,777 12,467
Reinsurance recoverable 5,690 13,708
Reinsurance receivable 5,764 7,320
Prepaid reinsurance premiums 44 468
Deferred policy acquisition costs 68 289
Property and equipment, net 23 52
Income taxes recoverable 69 151
Other assets 969 1,424
------- -------
Total assets $46,502 $67,041
======= =======
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(SEE NOTES 1 & 2)
($ in thousands) December 31,
_________________
1995 1994
-------- --------
Liabilities:
Reserves for losses and loss adjustment
expenses $30,974 $ 47,165
Deficit of non-consolidated subsidiary - 56,879
Unearned premiums 505 1,384
Reinsurance balances payable 11,526 13,316
Accrued expenses and other liabilities 955 1,166
Payable to affiliate, net 441 407
Income taxes payable 113 468
Excess of fair value of acquired subsidiaries
over purchase price 1,414 2,508
------- -------
Total liabilities 45,928 123,293
------- -------
Contingencies and commitments (Notes 8 & 9) - -
Minority interest 429 -
--- ---
Stockholders' equity (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 losses on investments
(Net of deferred income tax of $0
in 1995 and 1994) (8) (2,664)
Receivable from Alpha Trust (Note 8) (11,004) (27,000)
Accumulated deficit (28,723) (66,468)
------- --------
Total stockholders' equity (deficiency) 145 (56,252)
------- -------
Total liabilities and stockholders'
equity (deficiency) $46,502 $67,041
======= =======
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(SEE NOTES 1 & 2 )
(Amounts in thousands except Year Ended December 31,
per share data) --------------------------
1995 1994 1993
-------- -------- --------
Revenues:
Net premiums earned $5,533 $5,221 $121,015
Net investment income 3,101 3,313 7,165
Realized losses on investments (743) (598) (5,471)
------ ------ --------
Total revenues 7,891 7,936 122,709
Operating expenses:
Loss and loss adjustment expenses 5,402 4,019 148,437
Loss - government pools - - 897
Policy acquisition expenses 1,863 2,068 35,378
Other operating expenses 1,769 1,360 14,771
------ ------ -------
Total operating expenses 9,034 7,447 199,483
----- ----- -------
Operating income (loss) (1,143) 489 (76,774)
Equity in loss of non-consolidated
subsidiary - (7,309) -
Equity in earnings (loss) of investee - (103) 632
------ ------ -------
Loss before income taxes,
minority interest and
extraordinary gain (1,143) (6,923) (76,142)
------ ------ ------
Income tax expense (benefit) (282) 168 962
------ ------ -------
Net loss before minority
interest and extraordinary gain (861) (7,091) (77,104)
Minority interest 219 - -
------ ------ -------
Net Loss before extraordinary gain (642) (7,091) (77,104)
Extraordinary gain (net of $0 tax) 38,387 - -
------- ------- --------
Net income (loss) $37,745 $(7,091) $(77,104)
======= ======= ========
Per share data:
Loss before
extraordinary gain $ (.05) $ (.50) $ (5.46)
Extraordinary gain 2.72 - -
------- ------- --------
Net income (loss) $ 2.67 $ (.50) $ (5.46)
===== ===== =====
Average shares outstanding 14,121 14,121 14,121
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
($ in thousands) Net unreal-
ized gains
Add'l (losses) on
Preferred Common Paid-in investments
Stock Stock Capital net of tax
-------- ------ -------- ----------
Balance at January 1, 1993 $ - $141 $39,739 $ (817)
Change in net unrealized losses 1,063
------ ------ ------- -------
Balance at December 31, 1993 - 141 39,739 246
Change in net unrealized gains (2,910)
------ ------ ------- -------
Balance at December 31, 1994 - 141 39,739 (2,664)
Change in net unrealized losses 2,656
------ ------ ------- -------
Balance at December 31, 1995 $ - $141 $39,739 $ (8)
====== ==== ====== =====
Receivable Retained Stockholders'
from earnings equity
Alpha Trust (deficit) (deficiency)
----------- ---------- -----------
Balance at January 1, 1993 $ - $19,845 $58,908
Change in net unrealized losses 1,063
Net loss (77,104) (77,104)
Cash dividends declared:
Common stock $.15 per share (2,118) (2,118)
-------- -------- --------
Balance at December 31, 1993 - (59,377) (19,251)
Change in net unrealized gains (2,910)
Net loss (7,091) (7,091)
Receivable from Alpha Trust (27,000) (27,000)
-------- -------- -------
Balance at December 31, 1994 (27,000) (66,468) (56,252)
Change in net unrealized losses 2,656
Net income 37,745 37,745
Liquidation of subsidiary 15,996 15,996
------- -------- --------
Balance at December 31, 1995 $(11,004) $(28,723) $ 145
====== ====== =====
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands) Year Ended December 31,
-----------------------
1995 1994 1993
------- ------- --------
Operating activities:
Net income (loss) $37,745 $(7,091) $(77,104)
Adjustments to reconcile net income
(loss) to net cash and cash
equivalents used in
operating activities:
Realized losses on investments 743 598 5,471
Equity in loss of
non-consolidated subsidiary - 7,309 -
Equity in (earnings) loss of investee - 103 (632)
Minority interest in subsidiary (219) - -
Deferred income taxes - - 6,568
Extraordinary gain (38,387) - -
Depreciation and amortization (1,061) (1,047) (85)
Accrued investment income 194 (426) 445
Accounts receivable 1,690 3,959 13,951
Reinsurance recoverable 8,018 (3,289) 4,981
Reinsurance receivable 1,557 3,382 (3,982)
Prepaid reinsurance premiums 424 (111) 11,322
Reinsurers deposits - - (16,543)
Deferred policy acquisition costs 220 2,220 (79)
Income taxes recoverable 81 2,503 (4,343)
Other assets 454 3,876 2,565
Reserves for losses and loss
adjustment expenses (16,191) (30,654) 39,988
Unearned premiums (880) (12,880) (14,476)
Reinsurance balances payable (1,790) 14,287 7,132
Accrued expenses and other
liabilities (831) (960) 600
-------- -------- --------
Net cash and cash equivalents
used by operating activities (8,233) (18,221) (24,221)
-------- -------- --------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
($ in thousands) Year Ended December 31,
-----------------------
1995 1994 1993
------- ------- -------
Investing activities:
Proceeds on sales of:
Fixed maturities held to maturity $ 3,179 $ - $ -
Fixed maturities available for sale 5,090 7,760 324,514
Other 682 - 9,946
Proceeds on redemptions of:
Fixed maturities held to maturity 3,850 - 2,156
Fixed maturities available for sale 286 2,192 873
Other 520 - -
Payments for purchases of:
Fixed maturities held to maturity - - (1,997)
Fixed maturities available for sale (2,111) (12,997) (245,859)
Other - (2,259) (7,356)
(Increase)decease short-term investments (375) 23,144 (24,607)
Purchase of equipment-net - (1) (617)
------- ------- -------
Net cash & cash equivalents provided
by investing activities 11,121 17,839 57,053
------ ------ ------
Financing activities:
Receivable from Alpha Trust - (14,000) -
Dividends paid - - (3,813)
Notes payable to affiliate 300 - -
------ ------ ------
Net cash and cash equivalents (used)
provided by financing activities 300 (14,000) (3,813)
------ ------ ------
Increase (decrease) in cash and cash
equivalents 3,188 (14,382) 29,019
Cash and cash equivalents -
beginning of year 2,500 35,276 6,257
Cash & cash equivalents of non-consol-
idated subsidiary at December 31, 1993 - (18,394) -
----- ------ ------
Cash and cash equivalents-end of year $5,688 $ 2,500 $ 35,276
===== ===== ======
Supplemental disclosure of cash flow information:
Cash paid (received) for income taxes $ 24 $(3,324) $(1,306)
Non cash financing - elimination of Alpha
Trust receivable due to liquidation
of subsidiary $15,996 - -
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Lawrence Insurance Group, Inc. (the Company or LIG) was
incorporated in Delaware on June 30, 1986, as an insurance holding
company, which is presently 93% owned by Lawrence Group, Inc.
(Lawrence Group).
Subsidiaries of the Company include 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. United Community Insurance Company (UCIC) is
no longer considered a subsidiary of the Company as a result of the
Order of Rehabilitation issued on July 7, 1994 which transferred
management and control to the New York Insurance Department (NYID)
and the subsequent Order of Liquidation entered on November 10,
1995 by the New York Supreme Court, Schenectady County. URIC and
Global, which are property and casualty insurance companies, have
been in run-off since early 1994. Senate is an accident and health
insurer doing business almost exclusively in New York. SNLIC and
Syndicate are inactive.
(a) BASIS OF PRESENTATION
The consolidated financial statements for 1993 include the
accounts of LIG and all wholly owned subsidiaries (collectively,
the Company) including UCIC. All significant intercompany
transactions have been eliminated in consolidation. Amounts in
1995 and 1994 exclude UCIC except as noted below. On July 7, 1994,
UCIC, with the consent of UCIC management, was placed in Rehabil-
itation by court order. Consequently, LIG and UCIC management no
longer exercised any decision making authority or control over UCIC
These functions became the responsibility of the NYID. As a result
of this loss of control, the Company included the financial results
of UCIC only through the date of the Order of Rehabilitation and
then on an unconsolidated basis, that is results of operations are
reflected as "Equity in loss of non-consolidated subsidiary" and
the Company's investment as "Deficit of non-consolidated
subsidiary". Prior years financial statements have not been
restated. The Company continued to reflect this liability until
UCIC was entered into liquidation on November 10, 1995. See Note 2.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The Company
incurred substantial losses in 1993 and 1994 and even though UCIC's
stockholder's deficiency has been eliminated, the Company's
subsidiaries continue to be adversely impacted by UCIC's demise.
F-9
<PAGE>
Liquidity for the parent company has deteriorated significantly and
is expected to remain in that condition as its principal source of
cash was dividends from its subsidiaries. In addition, URIC had
been under a confidential order of supervision by the Texas
Department of Insurance (TDI) since June, 1994, until its release
on August 25, 1995. As a condition to the release of the order the
Company agreed to achieving certain financial goals. The financial
goals include increasing statutory surplus to $8 million at
December 31, 1995. The statutory surplus as filed with the TDI at
December 31, 1995 was $6.6 million. This amount does not include
the effect of the loss and LAE adjustment of approximately $4
million described under (f) of Note 1. The TDI could place URIC
under conservatorship. Under conservation, the TDI assumes all
control and decision making authority during the rehabilitation
period. Under conservatorship, URIC would be accounted for as a
non-consolidated subsidiary and any income or loss subsequent to
the rehabilitation order would not be recorded in the financial
statements of the Company until the rehabilitation order was
lifted.
The accompanying consolidated financial statements are present-
ed in accordance with generally accepted accounting principles,
which differ in certain respects from those followed by subsidiar-
ies of the Company in their reports to regulatory authorities. See
Note 8. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Certain amounts in the accompanying 1994 and 1993 consolidated
financial statements have been reclassified to conform with the
1995 presentation. These reclassifications have no effect on
consolidated net income (loss) or stockholders' equity (deficit).
(b) INVESTMENTS
Fixed maturities, which consist of bonds and notes, are presented
in two categories on the accompanying Consolidated Balance Sheets:
Fixed Maturities Held to Maturity and Fixed Maturities Available
for Sale. If Management has the intent and the Company has the
ability to hold such securities until maturity, such securities are
classified as being held to maturity. Securities classified as
being held to maturity are carried at amortized cost. At December
31, 1994, securities classified as held to maturity included
securities on deposit with various regulatory authorities in so
far as they are usually not available to meet current liquidity
needs of the Company. Securities to be held for indefinite periods
of time and not intended to be held to maturity are classified as
F-10
<PAGE>
available for sale and carried at fair value. In 1995, all
securities were considered available for sale. Unrealized gain or
losses on securities carried at fair value are recorded directly in
stockholders' equity, net of applicable deferred income tax. The
estimated fair value of financial instruments has been determined
using available information and appropriate value methodologies.
The estimated fair value of financial instruments are not necess-
arily indicative of the amounts the company might pay or receive in
actual market transactions. Potential taxes and other transaction
costs have not been considered in estimating fair value.
Equity in Common Stock of Investee at December 31, 1995
consists of a 23% interest in the common stock of a high technology
manufacturing and research company. The accompanying Consolidated
Balance Sheets reflect the Company's original investment plus its
pro rata share of undistributed earnings (loss) since the date of
acquisition of the common stock. See Note 3.
Equity Securities, which consist of common stock and preferred
stock, are carried at fair value. Negotiable certificates of
deposit are carried at cost which approximates fair value.
Mortgage Loans on Real Estate are recorded at their aggregate
outstanding principal balance; and Short-Term Investments are
stated at cost which approximates market. Short-Term Investments
consist primarily of commercial paper, repurchase agreements with
banks and other financial institutions and treasury bills.
Collateral loans are carried at cost which approximates fair value.
Other Invested Assets, are carried at fair value. See Note 3.
Realized gains and losses on disposition of investments are
reported in the Statement of Operations based upon the average cost
method. Unrealized gains and losses on securities carried at fair
value are recorded directly in stockholders' equity, net of
applicable deferred income taxes. Provision for impairments of
investments that are considered other than temporary is included in
realized capital loss. See Note 3.
(c) CASH AND CASH EQUIVALENTS
The Company considers cash to be funds held in checking and
money market accounts. Non-negotiable certificates of deposit with
original maturity less than thirty days are considered to be cash
equivalents.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
premium taxes and certain underwriting expenses, are deferred and
amortized as the related premiums are earned. Ceding commission
income, which is realized on a written basis, is also deferred and
amortized over the periods in which the underlying premiums are
F-11
<PAGE>
earned. The method used in computing deferred acquisition costs
limits the amounts of such deferred costs to their net realizable
value based upon the related unearned premiums and investment
income less anticipated losses and loss adjustment expenses. The
amortization of deferred acquisition costs results in a charge
against current operations as follows:
($ in thousands) 1995 1994 1993
----- ------- -------
Direct commission expense $1,803 $ 1,962 $32,346
Ceding commission (income) expense - - 508
Premium taxes 60 106 2,524
------ ------- -------
1,863 2,068 35,378
Underwriting expenses - - 2,620
------ ------ -------
$1,863 $ 2,068 $37,998
===== ====== ======
On the accompanying Consolidated Statements of Operations,
commissions and premium taxes are presented as Policy Acquisition
Expenses, and underwriting expenses are included in Other Operating
Expenses.
(e) REINSURANCE RECEIVABLE/PREPAID REINSURANCE PREMIUMS
Effective January 1, 1993, the Company adopted SFAS No. 113
"Accounting for Reinsurance of Short-Duration and Long-Duration
Contracts". SFAS No. 113 eliminates the practice of reporting
assets and liabilities relating to reinsured contracts net of the
effects of reinsurance and provides guidance in assessing transfer
of insurance risk in reinsurance, including gain and loss
recognition. Two of the UCIC's reinsurance contracts did not meet
the risk transfer criteria of SFAS No. 113 for 1993. See Note 4.
(f) RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses (LAE)
represent estimates of reported losses and estimates of incurred
but not reported (IBNR) losses based on past and current
experience. Such liability is net of salvage and subrogation to be
received, and is increased for reinsurance assumed. To the extent
claims settlement underlying the recent losses and LAE may differ
perhaps significantly from those underlying the historical losses
and LAE, this adds uncertainty to the estimated reserves for loss
and LAE. Accordingly, the ultimate settlement of losses and LAE
may vary perhaps significantly from the amounts included in the
accompanying financial statements.
As discussed in Note 4, URIC has a reinsurance pooling
arrangement with UCIC. UCIC has provided the Company with an
estimate of URIC's share of its reserve for loss and LAE under the
F-12
<PAGE>
pooling agreement of approximately $12 million as of December 31,
1995. The Company has included this amount in the accompanying
balance sheet.
The Company filed URIC's 1995 statutory financial statements
that includes a reserve for loss and LAE expenses under the above
pooling arrangement of approximately $8 million. The Company's
independent actuary certified URIC's loss and LAE reserves of which
this was a part.
The recording of the UCIC estimates for loss and LAE had the
effect of decreasing the Company's net income and stockholders'
equity by approximately $3.2 million.
The following table provides a reconciliation of the Company's
beginning and ending loss and LAE liability balances for 1995, 1994
and 1993.
Year Ended December 31,
-------------------------
($ in thousands) 1995 1994 1993
------- ------- -------
Reserves for losses and LAE
at January 1, $47,165 $189,599 $149,076
Less reserves related to
deconsolidating UCIC - 111,081 -
Less reinsurance receivable 7,320 10,701 17,828
------- ------- -------
Net balance at January 1 39,845 67,817 131,248
Provision for losses & LAE for claims
occurring in the current year 2,926 7,332 91,349
Increase (decrease) in estimated
losses and LAE for claims
occurring in prior years 2,476 (3,313) 57,088
------- ------- -------
Total incurred losses and LAE 5,402 4,019 148,437
------- ------- -------
Losses and LAE payments for claims
occurring during:
Current year 1,772 4,555 33,805
Prior years 18,265 27,436 78,091
------- ------- -------
Total losses and LAE payments 20,037 31,991 111,896
------- ------- -------
Net reserves for losses and LAE
at December 31, 25,210 39,845 167,789
Reinsurance receivables 5,764 7,320 21,810
------- ------- -------
Gross reserves $30,974 $47,165 $189,599
======= ======= =======
The previous table as presented exclude the reserves for losses
F-13
<PAGE>
and LAE on government pools recognized on the UCIC's P&C business
in 1993. The reserves for government pools are not under the
control of the Company and reflect the operating results and
reserving practices of servicing carriers and regulators who
administer these assigned risk pools in which the Company is
obligated to participate. Accordingly, these reserves have been
excluded from the tables. As of December 31, 1993 the Company's
loss and LAE reserves related to these government pools were
approximately $11,246,000. The above table for 1995 and 1994
excludes UCIC as a result of it being deconsolidated.
(g) PREMIUM REVENUE
Premium revenue, which is net of reinsurance ceded, is
recognized as earned on a pro rata basis over the terms of the
policies and includes audit premiums and estimates for
retrospectively rated premiums. Unearned premiums for
property/casualty lines, excluding workers' compensation, are
calculated on a daily basis. Accident/health unearned premiums are
calculated on a monthly basis. Unearned premiums on the remaining
lines of business are calculated on a monthly pro rata basis.
(h) LOSSES - GOVERNMENT POOLS
Most states have established associations of insurance
carriers which are commonly referred to as pools. The purpose of
these pools is to provide a guaranteed means to obtain certain
mandated insurance coverages which would not otherwise be
reasonably obtainable through the traditional insurance market from
an individual insurance carrier. Participation in these pools by
the individual insurance carriers is not voluntary. The level of
participation in the pool is often based upon the premium volume of
selected lines written by the individual carriers in the state for
which the pool has been established.
Each member carrier essentially guarantees its share of the
solvency of the pool. The pool administrator collects the premium,
pays the losses and administrative costs, and passes a
proportionate share of the costs to each member. If the losses and
expenses exceed the premiums, the members may be subject to an
assessment by the pool to fund the pool's deficit. On the
accompanying 1993 Consolidated Statements of Operation, these
assessments for pool deficits are reflected as Losses -
Government Pools.
(i) AMORTIZATION OF EXCESS OF FAIR VALUES OF ACQUIRED SUBSIDIARIES
OVER PURCHASE PRICES
The excess of the fair value of the net assets of URIC and
Global over the respective purchase prices at the dates of
acquisition is being amortized on the straight-line basis over a
F-14
<PAGE>
period of seven years. Amortization in the amount of $1,094,000 is
reflected in the accompanying Consolidated Statements of Operations
as a reduction of Other Operating Expenses for 1995, 1994 and 1993.
(j) INCOME TAXES
The Company and its subsidiaries are included in the
consolidated Federal income tax return of Lawrence Group. The
current income tax provision has been computed as if each company
filed a separate return. See Note 6.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(k) EARNINGS PER SHARE
Net income (loss) per share is calculated by dividing net
income (loss) by the weighted average number of shares outstanding
during the period.
NOTE 2 - NON-CONSOLIDATED SUBSIDIARY
As a result of the order of rehabilitation and assumption of
management and control of UCIC on July 7, 1994 by the NYID, the
Company has included the results of UCIC for 1994 on a decon-
solidated basis up to the point of the court order. On November
10, 1995 UCIC with the Company's consent was ordered liquidated and
as a consequence the Company has no further legal or financial
interest in UCIC except for any contractual arrangements that arose
in the ordinary course of business and any tax consequences that
may result from UCIC's continued inclusion in the consolidated
federal income tax return. The following table presents condensed
financial information for UCIC through July 7, 1994. Amounts
exclude the effect of eliminating UCIC's 21.4% ownership of URIC
which is included in the "Deficit of non-consolidated subsidiary"
and "Equity in loss of non-consolidated subsidiary" on the balance
F-15
<PAGE>
sheet and statement of operations, respectively for 1994 and as
"Minority interest" for 1995.
($ in thousands) As of and for the period:
------------------------
January 1, Year ended
to July 7, December 31,
1994 1993
----------- -----------
(Unaudited) (Unaudited)
Cash and invested assets $ 50,872 $ 94,631
Amounts due from reinsurers 48,990 34,961
Premiums receivable 1,808 14,204
Deferred policy acquisition expenses 3,424 9,386
Other assets 5,626 11,775
------ ------
Total assets $110,720 $164,957
======= =======
Reserves for loss and LAE expenses $132,201 $129,508
Unearned premiums 18,249 40,106
Amounts due to reinsurers 17,221 25,213
Other liabilities 670 2,254
------- -------
Total liabilities 168,341 197,081
Stockholder's deficiency (57,621) (32,124)
------- -------
Total liabilities and stockholder's
(deficiency) $110,720 $164,957
======= =======
Revenues $ 43,959 $ 80,614
Operating loss (3,531) (64,671)
Net loss (7,307) (67,023)
In the fourth quarter of 1995 the Company recorded the follow-
ing to eliminate the stockholder's deficiency carried for UCIC and
record minority interest:
Extraordinary gain $ 38,387
Minority interest 429
Stockholders's equity-
Receivable from Alpha Trust 15,996
Unrealized loss on investments 1,953
Deficit of non-consolidated subsidiary (56,765)
In January 1994, UCIC loaned $13,000,000 to the Alpha Trust,
a business trust, which in turn invested in notes issued by
Lawrence Group, which owns 93% of LIG. This loan and unrealized
losses on investments for the period January 1, 1994 to July 7,
1994, is included in the Company's statement of stockholders'
equity for the year ended December 31, 1994.
F-16
<PAGE>
NOTE 3 - INVESTMENTS
Net investment income for the Company was as follows:
($ in thousands) Year Ended December 31,
-----------------------
1995 1994 1993
------ ------ ------
Investment income:
Fixed maturities held to maturity $ 237 $ 531 $1,395
Fixed maturities available for sale 433 538 2,719
Equity securities 55 46 392
Short-term investments 778 786 2,832
Collateral loans 1,514 1,258 -
Mortgage loans on real estate 15 19 76
Other 119 166 238
----- ----- -----
Total investment income 3,151 3,344 7,652
Less: Investment expenses 50 31 487
----- ----- -----
Net investment income $ 3,101 $3,313 $7,165
===== ===== =====
Realized gains (losses) on investments of the Company were as
follows:
($ in thousands) Year Ended December 31,
----------------------
1995 1994 1993
----- ----- -----
Net realized gains (losses):
Fixed maturities held to maturity $ 203 $ - $ 14
Fixed maturities available for sale (249) (95) 2,308
Equity in common stock of investee - - (5,587)
Equity securities - (503) 1,337
Short-term investments (1) - (43)
Collateral loans (683) - -
Other invested assets (13) - (3,500)
------ ----- -----
Total net realized gains (losses)
on investments $ (743) $(598) $(5,471)
===== ===== =====
Proceeds from the sale of fixed maturities held to maturity
with an amortized cost of $2,976,000 were $3,179,000 in 1995. Gross
gains were $203,000. There were no losses. These securities
were sold to meet cash requirements. Based upon the circumstances
leading to the sale of held to maturity securities in 1995, all
remaining investments which were classified as held to maturity
were transferred to available for sale. The amortized cost of the
investments were $795,000 with unrealized gains of $14,000 at the
date transferred. There were no sales of securities held to
maturity in prior years.
F-17
<PAGE>
Proceeds from sales of fixed maturities available for sale
during 1995, 1994 and 1993 were $5,090,000, $7,760,000 and
$324,514,000, respectively. Gross gains of $37,000, $0 and
$2,424,000, for 1995, 1994 and 1993, respectively, were realized on
those proceeds. Gross losses of $286,000, $95,000 and $116,000
for 1995, 1994 and 1993, respectively were realized.
The amortized cost and estimated fair values of the Company's
investments as of December 31, 1995 are as follows:
($ in thousands) ------- Gross ------ Esti-
Amort- Unrealized mated
ized ---------- Fair
Cost Gains Losses Value
------ ------ ------ ------
Available for sale:
Fixed maturities
US Treasury securities and
obligations of US government
corporations and agencies $ 2,336 $ 22 $ - $ 2,358
Obligations of states and
political subdivisions 590 13 - 603
Mortgage-backed securities 949 11 - 960
------ ------ ----- ------
Total fixed maturities
available for sale 3,875 46 - 3,921
Equity securities 997 - 56 941
Short term investments 11,898 - - 11,898
All other 175 - - 175
------ ---- ---- ------
Total investments available
for sale $16,945 $ 46 $ 56 $16,935
====== ==== ==== ======
F-18
<PAGE>
The amortized cost and estimated fair values of the Company's
investments as of December 31, 1994 are as follows:
($ in thousands) ------- Gross ------ Esti-
Amort- Unrealized mated
ized ------------ Fair
Cost Gains Losses Value
------ ------ ------ ------
Fixed maturities held to maturity:
US Treasury securities and
obligations of US government
corporations and agencies $5,931 $ 1 $ 20 $5,912
Obligations of states and
political subdivisions 1,767 28 24 1,772
----- ----- ----- -----
Total fixed maturities held
to maturity $7,698 $ 29 $ 44 $7,684
===== ===== ===== =====
Available for sale:
Fixed maturities
US Treasury securities and
obligations of US government
corporations and agencies $ 20 $ - $ - $ 20
Obligations of states and
political subdivisions 355 6 - 361
Corporate securities 994 - 3 991
Mortgage-backed securities 4,859 - 447 4,412
------ ----- ----- ------
Total fixed maturities
available for sale 6,228 6 450 5,784
Equity securities 1,100 - 183 917
Short term investments 11,523 - - 11,523
All other 2,072 - - 2,072
------ ----- ----- ------
Total investments available
for sale $20,923 $ 6 $ 633 $20,296
====== ==== ==== ======
The amortized cost and estimated market value of fixed
maturities at December 31, 1995 and 1994 , by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities are stated separately as such securities
produce a principal return on a monthly basis. Fixed maturities
F-19
<PAGE>
held to maturity are carried at amortized cost, while fixed
maturities available for sale are carried at fair value.
December 31, 1995
($ in thousands) Fixed maturities
Available for sale
------------------
Amortized Estimated
Cost Fair value
------- --------
Due in one year or less $ 2,286 $ 2,301
Due after one year through five years 150 155
Due after five years through ten years 385 396
Due after ten years 105 109
------ ------
Subtotal 2,926 2,961
Mortgage-backed securities 949 960
----- ------
Total $3,875 $3,921
====== ======
December 31, 1994
($ in thousands) Fixed maturities Fixed maturities
Held to maturity Available for sale
---------------- ------------------
Amort- Esti- Amort- Esti-
ized mated ized mated
Fair Fair
Cost Value Cost Value
------ ------ ------ ------
Due in one year or less $3,852 $3,840 $ 250 $ 253
Due after one year
through five years 1,002 1,031 1,014 1,011
Due after five years
through ten years 2,844 2,813 - -
Due after ten years - - 105 108
----- ------ ----- -----
Subtotal 7,698 7,684 1,369 1,372
Mortgage-backed securities - - 4,859 4,412
----- ----- ----- -----
Total $7,698 $7,684 $6,228 $5,784
===== ===== ===== =====
At December 31, 1995 and 1994, bonds and short-term
investments with a carrying amount of $4,695,000 and $7,593,000,
respectively, were on deposit with various regulatory authorities.
The Company at December 31, 1993 wrote down its investment in
F-20
<PAGE>
common stock of investee by $5,587,000 to $216,000 due to the
bankruptcy filing of one of the investee's principal subsidiaries
and the reporting of a negative stockholders' equity.
UCIC, at December 31, 1993, wrote down its investment of
$5,000,000 in an unrelated finance company, First Commercial Credit
Corporation (FCCC) by $3,500,000 to $1,500,000 due to the
substantial reduction in the value of the collateral supporting the
investment.
NOTE 4 - REINSURANCE
Reinsurance is ceded under both pro rata and excess of loss
arrangements. The Company utilizes reinsurance principally to
reduce the net liability of its subsidiaries on individual risks
and to protect against catastrophic losses.
During 1993 UCIC had been a party to a quota share reinsurance
treaty which covered all lines of business written by UCIC. For
1993, this reinsurance contract was considered a financing
arrangement under SFAS No. 113. UCIC ceded $21,700,000 of premiums
and $12,902,000 in losses and earned $8,380,000 in commissions in
1993. UCIC determined that the contract did not pass the risk
transfer criteria of SFAS No. 113. Accordingly, the Company
applied deposit accounting to this contract in 1993 and the
premiums, losses and commissions are excluded from the Statement of
Operations and were reflected as a net deposit on the balance sheet
at December 31, 1993.
In addition to the quota share agreements with unaffiliated
reinsurers, UCIC had also entered into several quota share
agreements with URIC. In order to spread the risk, URIC retroceded
amounts to other reinsurers. All retrocession agreements were
commuted prior to October 1, 1992.
In addition to the quota share treaty with UCIC, URIC and UCIC
also had a pooling agreement in effect during 1992 and 1993. The
agreement was terminated effective January 1, 1994; however, each
company is responsible for its share of all premium, losses and LAE
incurred prior to that date. At December 31, 1995, URIC had a net
liability to UCIC under these reinsurance agreements of
approximately $6,187,000.
Senate ceded a portion of its accident/health business to
UCIC. Written premiums ceded to UCIC under this arrangement
amounted to $1,462,000 in 1994. Benefits and other underwriting
expenses ceded to UCIC totalled $1,299,000. As a result of the
reinsurance arrangement, Senate's accounts reflect a net
recoverable from UCIC of $53,000 at December 31, 1995. Senate
F-21
<PAGE>
reinsures a portion of its exposure on a quota share/excess of loss
basis principally through Lloyd's of London.
Premiums written, premiums earned and losses and loss
adjustment expenses information by direct, assumed and ceded for
the years ended December 31 is as follows:
($ in thousands) 1995 1994 1993
------ ------ --------
Premiums written:
Direct business $5,374 $ 9,257 $122,139
Reinsurance assumed 1,281 (12,172) 9,027
Reinsurance ceded (1,520) (4,855) (13,305)
----- ------ -------
Premiums written $5,135 $ 7,770 $117,861
===== ====== =======
Premiums Earned:
Direct business $5,444 $ 9,515 $129,813
Reinsurance assumed 2,091 451 15,829
Reinsurance ceded (2,002) (4,745) (24,627)
----- ----- ------
Premiums earned $5,533 $ 5,221 $121,015
===== ===== =======
Losses and LAE
Direct business $4,292 $ 3,646 $149,285
Reinsurance assumed 3,510) 4,054 15,327
Reinsurance ceded (2,400) (3,681) (16,175)
----- ----- ------
Losses and LAE $5,402 $ 4,019 $148,437
===== ===== =======
Contingent liabilities exist with respect to reinsurance
ceded, which would become liabilities of the Company in the event
the assuming reinsurers were unable to meet their obligations under
reinsurance agreements. The Company evaluates the financial
condition of its reinsurers to minimize its exposure to losses and
an allowance for uncollectible reinsurance is provided
when collection is in doubt.
NOTE 5 - EMPLOYEE BENEFIT PLAN
URIC, Global and Senate are participating employers in a
401(k) Profit Sharing Plan (401(k) Plan) adopted by Lawrence Group
on January 1, 1986. The 401(k) Plan covers all employees of URIC,
Global and Senate who have completed one year of service and have
attained age twenty and one-half. Each year, URIC, Global and
Senate contribute to the 401(k) Plan such amounts as the Boards
of Directors, in their discretion, may determine. Each eligible
employee is vested immediately at 100%. The cost associated with
the plan was approximately $18,000 in 1995 and $23,000 in 1994 and
$66,000 in 1993.
F-22
<PAGE>
NOTE 6 - INCOME TAXES
The Company's current taxable income is included in the
consolidated Federal tax return of Lawrence Group. The
consolidated tax or benefit is allocated proportionately between
the subsidiaries of Lawrence Group pursuant to a tax allocation
agreement (Tax Agreement) based on the contribution of each company
in the consolidated Federal tax return as if each company
calculated its tax on a separate return basis. The Tax Agreement
provides that if the Company's tax liability as calculated on a
separate return basis exceeds the Company's portion of the
consolidated tax liability, the Company is to pay the excess of the
separate return liability over its allocated portion of the
consolidated tax liability to Lawrence Group. If the Company
should have a claim for refund of Federal income taxes, Lawrence
Group will pay to the Company an amount equal to the refund that
would have been received from the Internal Revenue Service if a
separate return would have been filed. In 1994, approximately
$2,900,000 of income tax recoveries was paid by Lawrence Group to
the Company.
At December 31, 1995, the Company had income taxes payable of
$113,000 which represented federal income taxes due to Lawrence
Group pursuant to the tax sharing agreement and income taxes
recoverable of $69,000 from various states.
Income tax benefit of $282,000 for the year ended December 31,
1995 represent a federal income tax benefit partially offset by
state income tax expense. The expense for the year ended December
31, 1994, was attributable to various state income taxes. Income
tax expense of $962,000 for the year ended December 31, 1993 was
attributable primarily to the establishment of a valuation
allowance for deferred tax assets as discussed below.
Income tax expense (benefit) attributable to income from
operations consists of:
($ in thousands) 1995 1994 1993
------ ------ ------
Current U.S. Federal $ (307) $ - $(6,124)
Current State 25 168 519
----- ----- -----
Total current (282) 168 (5,605)
----- ----- -----
Deferred U.S. Federal - - 6,989
Deferred State - - (422)
----- ----- -----
Total deferred - - 6,567
----- ----- -----
Total income taxes (benefit) $ (282) $ 168 $ 962
===== ===== =====
F-23
<PAGE>
Income tax expense (benefit) attributable to pretax operating
income (excluding equity in loss of non-consolidated subsidiary)
differed from the expected amounts computed by applying the U.S.
Federal income tax rate of 34% as a result of the following:
Year Ended December 31,
-----------------------
($ in thousands) 1995 1994 1993
------ ----- --------
Computed expected Federal tax
expense (benefit) $ (389) $ 131 $(25,888)
State income taxes, net of Federal
income tax benefit 17 109 (89)
Change in valuation allowance 702 105 27,928
Amortization of negative goodwill (372) (372) (372)
Tax exempt investment income (17) (44) (276)
Dividends received deduction - - (68)
Amortization of bonds - (11) (187)
Other,net (223) 250 (86)
----- ---- ------
Total income tax expense (benefit) $ (282) $ 168 $ (962)
===== ==== =====
The tax effects of the Company's temporary differences that
give rise to significant portions of the deferred tax assets and
liabilities at December 31, 1995 and 1994 (excluding those assoc-
iated with its non-consolidated subsidiary) are presented below:
($ in thousands) 1995 1994
------ ------
Deferred tax assets:
Reserves for losses, due to discounting
for Federal tax purposes $ 1,563 $ 2,472
Tax loss carryforwards 5,394 3,710
Valuation allowances on investments 924 1,096
Other 87 62
----- ------
Total gross deferred tax assets 7,968 7,340
----- -----
Deferred tax liabilities:
Deferred policy acquisition costs,
principally due to deferral for
financial reporting purposes (27) (101)
Equity in undistributed earnings
(losses) of investee (137) (137)
----- -----
Total gross deferred tax liabilities (164) (238)
------ ------
Net deferred tax asset before
valuation allowance 7,804 7,102
Less valuation allowance (7,804) (7,102)
----- -----
Net deferred tax asset $ - $ -
===== =====
F-24
<PAGE>
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company's valuation allowance for deferred tax
assets was $7,102,000 at December 31, 1994. The valuation
allowance increased $702,000 from December 31, 1994 to a balance of
$7,804,000 at December 31, 1995. The Company's conclusion is that
more likely than not, it will not realize the benefit of all of its
deductible temporary differences and net operating loss carryovers
and as a result has maintained a full valuation allowance against
its net deferred tax assets.
The Company has approximately $63 million in net operating
loss carryforwards at December 31, 1995, of which approximately $46
million attributable to the non-consolidated subsidiary, UCIC, may
be limited in their availability to offset future taxable income of
the Company. The net operating loss carryforwards begin to expire
in 2008.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company paid $0, $0, and $3,548,000 in dividends to
Lawrence Group in 1995, 1994 and 1993, respectively.
The Company and its subsidiaries supplemented the activities
that were performed in-house by obtaining various services from
AWL, a subsidiary of Lawrence Agency Corp. (LAC), which is a
subsidiary of Lawrence Group, pursuant to agreements between the
Company's subsidiaries and AWL. Under the terms of the Agency
Agreement, AWL and its affiliates receive commissions when they are
the agent for the transaction. UCIC received a substantial portion
of its written premiums through AWL.
In 1993 UCIC incurred $21,903,000 in commissions. AWL paid
a substantial portion of these commissions to external brokers and
subagents.
Under a management consultant agreement with AWL in effect
since 1982, UCIC received technical, accounting and management
assistance in various administrative areas. These costs were
$915,000 in 1993.
UCIC subleased various office space from LAC. Rent expense
totaled $493,000 for 1993.
In September 1992, Global entered into a sublease agreement
with LAC to rent space located in Atlanta, Georgia. The sublease
is for a term ending on September 1, 1995. Annual rent expense is
$7,000 under this sublease.
The Company's subsidiaries held various notes receivable from
other Lawrence Group affiliates at December 31, 1994. The notes
F-25
<PAGE>
are included in Other Invested Assets on the accompanying
Consolidated Balance Sheets and amounted to $269,000 at December
31, 1994, All notes were repaid in 1995. Interest rates charged
on these notes are Prime plus 1%. Interest income earned with
respect to these loans totalled $11,000, $40,000 and $106,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company and its subsidiaries hold mortgage loans from
employees of Lawrence Group as well as officers and directors of
the Company and its subsidiaries. These loans totalled $34,000
and $186,000 December 31, 1995 and 1994, respectively. Interest
rates on the mortgages include variable and fixed rates, with the
fixed rates ranging from 7% to 8.5% and variable rates ranging from
one-year Treasury Bill rate plus 3% to Prime plus 1%.
Senate ceded a portion of its accident/health business to
UCIC. Written premiums ceded to UCIC under this arrangement
amounted to $1,462,000 in 1994. Benefits and other underwriting
expenses ceded to UCIC totalled $1,299,000. As a result of the
reinsurance arrangement, Senate's accounts reflect a net
recoverable from UCIC of $53,000 at December 31, 1995.
Senate obtains a significant portion of its business from LAC
to which it pays commissions. These commission expenses totalled
$605,000, $963,000 and $942,000 in 1995, 1994 and 1993,
respectively. LAC pays a portion of these to external brokers and
subagents. Senate pays AWL for management services associated with
Senate business. These payments were $264,000, $60,000 and $60,000
for 1995, 1994 and 1993, respectively.
URIC loaned $14,000,000 Alpha Trust which in turn invested in
notes issued by Lawrence Group, which owns approximately 93% of the
Company during 1994.
In addition to the quota share treaty with UCIC, URIC and UCIC
also had a pooling agreement in effect during 1992 and 1993. The
agreement was terminated effective January 1, 1994; however, each
company is responsible for its share of all premium, losses and LAE
incurred prior to that date. At December 31, 1995, URIC had a net
liability to UCIC under these reinsurance agreements of
approximately $6,187,000.
At December 31, 1995, URIC carried a note payable due to LGI
of $300,000. Interest is at 8%. LIG had received an advance of
$185,000 from LGI the balance of which was outstanding at the end
of 1995.
At December 31, 1995 the Company had income taxes payable to
Lawrence Group of $113,000. See Note 6.
F-26
<PAGE>
NOTE 8 - STATE EXAMINATIONS, DIVIDEND RESTRICTIONS, INSURANCE
DEPARTMENT REGULATIONS AND RELATED LEGAL PROCEEDINGS
The NAIC, which is not itself a regulatory authority but makes
recommendations to and takes other actions affecting state
regulatory authorities, adopted a Risk-Based Capital (RBC) standard
in the fourth quarter of 1993 for use by state insurance
regulators. RBC is intended to be a "tool" for regulators to
assess the capital adequacy of property and casualty insurers and
to take action when capital under the standard is judged to be
inadequate. This standard has four action levels based upon the
relationship of actual capital to RBC. The mildest action occurs
at a level of 2.5:1. Based upon the RBC standards developed by the
NAIC, all consolidated subsidiaries capital except URIC exceeded
the authorized control level RBC by a substantial margin. URIC's
ratio was 2.0:1. At this level, the TDI could require that URIC
submit a business plan, however, they are currently under more
stringent requirements than those imposed by the RBC standards.
Texas Insurance Law provides that the maximum amount of
dividends that URIC may make without prior regulatory approval is
the greater of adjusted net investment income or 10% of statutory
surplus as of the preceding year-end subject to minimum earned
surplus requirements. At December 31, 1995, URIC did not meet the
earned surplus requirements for dividend purposes and, therefore,
cannot pay dividends to LIG and UCIC in 1996. The Company's
principal source of cash flow had been dividends from UCIC and
URIC.
Georgia Insurance Law provides that Global may pay dividends
only out of its earned surplus up to the lesser of net income,
excluding realized capital gains, but including realized capital
losses, or 10% of statutory surplus as of the preceding year-end
without regulatory approval. Global may pay dividends to URIC only.
Global does not meet the requirement for the payment of dividends
in 1996.
Arizona Insurance Law provides that Senate and SNLIC may pay
dividends only out of their earned surplus up to the lesser of net
gain from operations or 10% of statutory surplus as of the
preceding year-end without regulatory approval. Senate may pay
dividends to URIC only. SNLIC may pay dividends to Senate only.
The maximum amount of dividends payable in 1996 by Senate without
prior regulatory approval is $214,000. The maximum dividend payable
by SNLIC in 1996 is $14,000.
The NYID completed an examination of UCIC for the years 1989
through 1993 in 1994 and found UCIC to be insolvent, its capital
impaired and a shortfall of $37,624,941 in its required surplus to
policyholders at December 31, 1993. As a result of that
examination UCIC was placed in rehabilitation on July 7, 1994 and
F-27
<PAGE>
following continued discussions and negotiations between the
Company and the NYID, UCIC with the consent of the Company was
placed into liquidation by court order on November 10, 1995. As
part of the order, the Company, its directors, officers and
employees were relieved of any liability for the deficit of UCIC
except for obligations incurred in the ordinary course of business
or due to fraudulent acts. URIC was also given the right of first
refusal to purchase the shares of its stock owned by UCIC.
The Texas Department of Insurance (TDI) conducted its regular
examination of URIC as of March 31, 1993. TDI issued their audit
report on May 25, 1994. On June 22, 1994, the TDI issued a
confidential order creating a state of supervision and appointing
a supervisor of the operations of URIC. The order was based upon
disagreements with valuations of several assets, chief among them
Alpha Trust, in financial statements filed by URIC with the TDI and
upon net operating losses reported during the first quarter of
1994. On August 25, 1995 URIC was released from this order
conditioned upon it achieving certain minimum policyholders'
surplus and other goals. If URIC did not achieve these goals the
TDI could place URIC into conservatorship. Under conservatorship
the TDI would assume all control and decision making authority
during the period of conservatorship. As of December 31, 1995,
URIC had not achieved all of these goals.
Global, Senate and SNLIC underwent their regular examinations
as of December 31, 1993, by the respective insurance departments.
The reports showed no material findings.
In January, 1994, UCIC and URIC loaned $13,000,000 and
$14,000,000, respectively, to Alpha Trust, the trustee of which is
The Bank of New York. These loans consisted of term notes with
differing maturities and repayment schedules with the initial
principal repayment commencing April 1, 1996 and ending on January
1, 2001. Interest is at the prime rate plus 2%. Interest is
payable quarterly beginning April 1, 1994. The Alpha Trust loaned
$27,000,000 to Lawrence Group, which owns approximately 93% of the
Company. The only assets of the Alpha Trust are these collateral
loans to Lawrence Group. The NYID and TDI have taken the position
that the loans from UCIC and URIC, respectively, did not qualify as
admitted assets. For Statutory reporting purposes the investment
in Alpha Trust was treated as a non-admitted asset at December 31,
1995.
UCIC and URIC had a pooling agreement in effect during 1992
and 1993. Under the terms of the agreement, the premiums and
losses incurred during 1992 and 1993 were to be combined between
the carriers and then split: 65% going to UCIC and 35% to URIC.
The contract was incorrectly administered for the 1992 and 1993
statutory statements. The correction had the effect of decreasing
F-28
<PAGE>
UCIC's statutory policyholder's surplus by $8,300,000 and
increasing URIC's by the same amount from the 1993 statutory
statements filed June 7, 1994. The NYID and TDI have agreed that
the agreement covered only the years 1992 and 1993. The agreement
was terminated effective January 1, 1994; however, each company is
responsible for its share of all premium, losses and LAE incurred
prior to that date.
Net income (loss) and policyholders' surplus of UCIC, URIC,
Global, Senate and SNLIC as filed with insurance regulatory
authorities, are as follows:
STATUTORY NET INCOME (LOSS)
($ in thousands) (Unaudited) Year ended December 31,
------------------------
1995 1994 1993
------ ------ ------
United Community Insurance Company $ N/A $ N/A $(3,592)
United Republic Insurance Company 631 75 (2,003)
Global Insurance Company (290) (1,488) (726)
Senate Insurance Company 134 731 922
Senate National Life Insurance Company 10 (11) 15
POLICYHOLDERS' SURPLUS
($ in thousands) (Unaudited) December 31
--------------------
1995 1994
------ ------
United Community Insurance Company $ N/A $ N/A
United Republic Insurance Company 6,611(2) 17,063(1)
Global Insurance Company 3,429 3,211
Senate Insurance Company 4,705 4,745
Senate National Life Insurance Company 654 644
(1) Includes $14,000,000 receivable from Alpha Trust as an
admitted asset. The TDI has taken the position that this
loan did not quality as an admitted asset. For 1995 it
was reflected as a non-admitted asset.
(2) Does not include $4,000,000 in loss and LAE expense. See
Note 1
Statutory accounting differs from GAAP primarily as follows:
(1) the costs related to acquiring business are charged to
income in the year incurred and thus are not amortized over the
periods benefitted, whereas the related premiums are taken into
income on a pro rata basis over the periods covered by the
policies; (2) adjustments reflecting the equity in earnings of
affiliated companies are carried to the surplus account as net
unrealized capital gains or losses rather than income; (3)
adjustments reflecting the revaluation of stocks and bonds are
carried to the surplus account as unrealized investment gains or
F-29
<PAGE>
losses, without provision for federal income taxes, or income tax
reductions; (4) assets must be included in the statutory
statements of admitted assets, liabilities, and surplus at
"admitted asset value" and "non-admitted assets" are excluded
through a charge against surplus; (5) deferred federal income taxes
are not provided for temporary differences between book and tax
income; (6) certain income and expense items are charged or
credited to surplus; (7) majority owned subsidiaries are not
consolidated; (8) no provision is made for the effect of Financial
Accounting Standards Board Statement No. 115, whereby equity
securities that have readily determinable fair values and all
investments in debt securities are classified into three
categories: held to maturity; trading; and available for sale; and
would be reported in the financial statements at amortized cost;
fair value, with unrealized gains and losses included in earnings;
fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of surplus, respectively; and
(9) insurance liabilities (reserves for policy and contract claims
and loss and LAE and unearned premium) are presented net of
reinsurance ceded.
NOTE 9 - CONTINGENCIES AND COMMITMENTS
The Company leases office space and equipment under the terms
of various operating leases. The future minimum lease payments
with initial or remaining noncancelable lease terms in excess of
one
year at December 31, 1995 are as follows:
Year Ending
($ in thousands) December 31, Amount
------------ ------
1996 $ 19
Thereafter -
----
Total minimum lease payments $ 19
====
Rent expense under all operating leases for office space was
approximately $62,000, 56,000 and $684,000 for 1995, 1994 and 1993.
The Company is a defendant in other legal proceedings which
Management believes will not have a material impact on the
Company's financial statements. Management is defending these
cases.
The Company had outstanding letters of credit in favor of
insureds of approximately $1,300,000 and $2,151,000 at December 31,
1995 and 1994, respectively. These letters of credit were
collateralized by investments of approximately $2,150,000 and
$2,701,000 at December 31, 1995 and 1994, respectively.
F-30
<PAGE>
NOTE 10 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly unaudited financial information for the periods
since LIG resumed trading on the AMEX are as follows:
(Amounts in thousands except Quarter ended
per share data) ------------------------
December 31 September 30,
1995 1995
-------- --------
Revenues:
Net premiums earned $2,652 $1,342
Net investment income 718 807
Realized (losses) on investments (175) (568)
------ ------
Total revenues 3,195 1,581
Operating expenses 4,900 1,398
----- -----
Operating income (1,705) 183
Equity in loss of non-consolidated
subsidiary 83 (83)
----- -----
Income (loss) before income taxes,
minority interest and
extraordinary gain (1,622) 100
Income tax expense (benefit) 98 (364)
----- -----
Net income (loss) before minority
interest and extraordinary gain (1,720) 464
Minority interest 219 -
------ -----
Net Income before extraordinary gain (1,501) 464
Extraordinary gain 38,387 -
------- -----
Net income (loss) $36,886 $ 464
====== =====
Per share data:
Income (loss) before extraordinary
gain $ (.11) $ .03
Extraordinary gain 2.72 -
----- ----
Net income (loss) $ 2.61 $ .03
==== ===
Average shares outstanding 14,121 14,121
Operating results for the quarter ended December 31, 1995
should not be considered indicative of future results as the
quarter included the favorable impact of the commutation of several
reinsurance treaties.
F-31
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
I - Summary of Investments Other than Investments
in Related Parties at December 31, 1995 S-2
II - Condensed Financial Information of Registrant
at December 31, 1995 and 1994 and for the Years
Ended December 31, 1995, 1994 and 1993 S-3
III - Supplementary Insurance Information for the
Years Ended December 31, 1995, 1994 and 1993 S-6
IV - Reinsurance for the Years Ended December 31,
1995, 1994 and 1993 S-10
V - Valuation and Qualifying Accounts for the
Years Ended December 31, 1995, 1994 and 1993 S-11
VI - Supplementary Information Concerning Property
and Casualty Insurance Operations for the
Years Ended December 31, 1995, 1994 and 1993 S-12
April 14, 1996
S-1
<PAGE>
Schedule I
LAWRENCE INSURANCE GROUP, INC.
SUMMARY OF INVESTMENTS
DECEMBER 31, 1995
($ in thousands)
Amount at
Which Shown
Estimated on the
Fair balance
Cost Value sheet
------ -------- ----------
Fixed maturities available for sale:
United States government and
government agencies and
political subdivisions 2,336 2,358 2,358
States, municipalities and
political subdivisions 590 603 603
Mortgage backed securities 949 960 960
------ ------ ------
Total fixed maturities
available for sale 3,875 3,921 3,921
------ ------ ------
Common Stock 997 941 941
Short-term investments 11,898 11,898 11,898
Mortgage loans on real estate 171 171 171
Other 4 4 4
------ ------ ------
Total investments $16,945 $16,935 $16,935
====== ====== ======
S-2
<PAGE>
Schedule II
LAWRENCE INSURANCE GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
($ in thousands) December 31,
--------------
1995 1994
------ ------
ASSETS
Investment in subsidiaries $ 649 $ 905
Other invested assets, at fair value 4 24
Cash 2 3
Other assets 68 260
----- -----
Total assets $ 723 $1,192
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Liabilities:
Accrued expenses and other liabilities $ 578 $ 565
Deficit of non-consolidated subsidiary - 56,879
----- ------
Total liabilities 578 57,444
--- ------
Stockholders' equity:
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
taxes of $0 in 1995 and 1994) (8) (2,664)
Receivable from Alpha Trust (11,004)(27,000)
Accumulated deficit (28,723)(66,468)
------ ------
Total stockholders' equity
(deficiency) 145 (56,252)
----- ------
Total liabilities and stockholders'
equity (deficiency) $ 723 $ 1,192
====== ======
S-3
<PAGE>
Schedule II
Continued
LAWRENCE INSURANCE GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
($ in thousands) Year Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
Net investment income $ 1 $ (7) $ 8
Equity in net income (loss) of
subsidiaries (424) (6,625) (76,854)
Other operating expenses (232) (688) (279)
Income tax benefit 13 229 21
Extraordinary gain 38,387 - -
------ ------- ------
Net income (loss) $37,745 $(7,091) $(77,104)
====== ===== ======
S-4
<PAGE>
Schedule II
Continued
LAWRENCE INSURANCE GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
($ in thousands) Year Ended December 31,
-----------------------
1995 1994 1993
------ ------ ------
Operating activities:
Net income (loss) $37,745 $ (7,091) $(77,104)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Equity in net (income) loss of
subsidiaries 424 6,625 76,854
Extraordinary gain (38,387) - -
Other assets 191 (153) (194)
Accrued expenses and liabilities
and all other 6 444 97
------ ----- ------
Net cash used by operating
activities (21) (175) (347)
------ ------ ------
Investing activities:
(Increase) decrease in short-term
investments - - 325
Repayment of long-term investments:
Mortgage loans on real estate - 22 -
Other invested assets 20 21 20
Dividends from subsidiaries - - 3,915
------ ------ ------
Net cash provided by investing
activities 20 43 4,260
------ ------ ------
Financing activities:
Dividends paid - - $(3,813)
---- ---- -----
Increase (decrease) in cash (1) (132) 100
Cash-beginning of year 3 135 35
---- ---- ----
Cash-end of year $ 2 $ 3 $ 135
==== ==== ====
Supplemental disclosure of
cash flow information:
Cash paid (received) during
year for income taxes $ (13) $ 70 $ 67
S-5
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INSURANCE INFORMATION
YEAR ENDED DECEMBER 31, 1995
($ in thousands) Schedule III
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1995 Future
Policy
Deferred Benefits,
Policy Losses,
Acquisition Claims & Unearned
Segment Costs Loss expense Premium
- --------------- ----------- ----------- ----------
Property/casualty $ 7 $ 849 $ 33
Reinsurance assumed 3 27,860 12
Accident & Health 58 2,265 459
--------- --------- --------
Total(3) $ 68 $ 30,974 $ 504
========= ========= ========
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Benefits,
Claims,
Other policy Net Losses and
Claims and Premium Investment Settlement
Benefits payable Revenue Income(1) Expenses(2)
- -------------- ----------- ----------- ----------
$ - $ 222 $ 278 $ 311
- 1,490 2,463 3,108
- 3,821 360 1,983
---------- --------- --------- --------
- $ 5,533 $ 3,101 $ 5,402
========= ========= ========= ========
Column I Column J Column K
- --------------- ----------- ------------
Amortization
of deferred
Policy Other
Acquisition Operating Premiums
Costs Expenses(1) Written
-------------- ----------- --------
$ 51 $ 285 $ 137
926 413 1,063
886 1,062 3,935
- ----------- --------- ---------
$ 1,863 1,760 5,135
========== ========= =========
S-6
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INSURANCE INFORMATION
YEAR ENDED DECEMBER 31, 1995
($ in thousands) Schedule III (cont)
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1994 Future
Policy
Deferred Benefits,
Policy Losses,
Acquisition Claims & Unearned
Segment Costs Loss expense Premium
- --------------- ----------- ----------- ----------
Property/casualty $ 24 $ 2,369 $ 119
Reinsurance assumed 231 43,191 822
Accident & Health 34 1,605 443
--------- --------- --------
Total(3) $ 289 $ 47,165 $ 1,384
========= ========= ========
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Benefits,
Claims,
Other policy Net Losses and
Claims and Premium Investment Settlement
Benefits payable Revenue Income(1) Expenses(2)
- -------------- ----------- ----------- ----------
$ - $ 641 $ 378 $ 839
- (973) 2,678 1,076
- 5,553 257 2,104
----------- --------- --------- --------
$ - $ 5,221 $ 3,313 $4,109
========= ========= ========= ========
Column I Column J Column K
- --------------- ----------- ------------
Amortization
of deferred
Policy Other
Acquisition Operating Premiums
Costs Expenses(1) Written
-------------- ----------- -----------
$ (27) $ 297 $ 273
565 60 (13,802)
1,530 1,003 5,759
- ----------- --------- ---------
$ 2,068 $ 1,360 $ (7,770)
========== ========= =========
S-7
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INSURANCE INFORMATION
YEAR ENDED DECEMBER 31, 1995
($ in thousands) Schedule III (cont)
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1993 Future
Policy
Deferred Benefits,
Policy Losses,
Acquisition Claims & Unearned
Segment Costs Loss expense Premium
- --------------- ----------- ----------- ----------
Property/casualty $ 10,709 $129,449 $ 49,590
Reinsurance assumed 1,120 68,470 3,956
Accident & Health 66 2,926 675
--------- --------- --------
Total $ 11,895 $200,845 $ 54,222
======= ======== ======
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Benefits,
Claims,
Other policy Net Losses and
Claims and Premium Investment Settlement
Benefits payable Revenue Income(1) Expenses(2)
- -------------- ----------- ----------- ---------
$ - $ 96,875 $ 4,675 $107,491
- 13,862 2,316 35,726
- 10,278 174 5,220
------------ --------- --------- --------
$ - $121,015 $ 7,165 $148,437
========= ======= ======= =======
Column I Column J Column K
- --------------- ----------- ------------
Amortization
of deferred
Policy Other
Acquisition Operating Premiums
Costs Expenses(1) Written
-------------- ----------- -----------
$ 27,604 $ 13,071 $100,541
5,910 920 7,093
1,864 559 10,227
- ----------- --------- ---------
35,378 14,550 $117,861
========== ========= =========
S-8
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INSURANCE INFORMATION
YEAR ENDED DECEMBER 31, 1995
($ in thousands) Schedule III (cont)
(1) The allocation among segments is based upon the actual income
or expense of each underlying subsidiary of the parent. Each
subsidiary generally represents only one segment.
(2) Excludes amounts related to involuntary pools of $0, $0 and
$897 for 1995, 1994 and 1993, respectively.
(3) Excludes UCIC
S-9
<PAGE>
Schedule IV
LAWRENCE INSURANCE GROUP, INC.
REINSURANCE
($ in thousands)
Ceded Assumed
Gross To From Net Assumed
Amount Others Others Amount To Net
------ ------ ------ ------ ------
For year ended
December 31, 1995
Premiums earned:
Property/casualty $ 222 $ - $ - $ 222 -%
Accident/health 5,222 1,401 - 3,821 -%
Reinsurance assumed - 601 2,091 1,490 140.3%
----- ----- ----- -----
Total $5,444 $2,002 $2,091 $5,533
===== ===== ===== =====
For year ended
December 31, 1994
Premiums earned:
Property/casualty $ 658 $ 17 $ - $ 641 -%
Accident/health 8,857 3,303 - 5,554 -%
Reinsurance assumed - 1,425 451 (974) -%
----- ----- ----- -----
Total $9,515 $4,745 $ 451 $5,221
===== ===== === =====
For year ended
December 31, 1993 (1)
Premiums earned:
Property/casualty $118,266 $22,741 $ 1,349 $ 96,874 1.4%
Accident/health 11,547 1,268 - 10,279 -
Reinsurance assumed - 618 14,480 13,862 104.4
------- ------ ------ ------
Total $129,813 $24,627 $15,829 $121,015
======= ====== ====== =======
(1) Includes UCIC.
S-10
<PAGE>
LAWRENCE INSURANCE GROUP, INC. Schedule V
VALUATION ACCOUNTS
($ in thousands) Additions
-------------
Charged to
Balance -------------- Balance
Jan 1, Cost & Other Deduct- Dec 31,
of year expenses Accounts ions of year
------ ------ ------ ------ ------
December 31, 1995
Equity securities $ 502 $ - $ - $ (502) $ -
Deferred Income
Taxes - 7,102 702 - 7,804
Reinsurance
Recoverable - 148 - - 148
----- ---- ---- ----- -----
Total (1) $ 7,604 $ 148 $ 702 $ (502) $ 7,952
===== ===== ===== ====== ======
December 31, 1994
Equity in common
stock of investee $ 2,651 $ - $ - $ (2,651) $ -
Equity securities - 502 - - 502
Deferred Income
Taxes - 6,997 - 105 - 7,102
------ ---- ---- ------ -----
Total (1) $ 9,648 $ 502 $ 105 $ (2,651) $ 7,604
===== ==== ==== ===== =====
December 31, 1993
Equity in Common
stock of investee $ - $ 5,587 $ - $ - $ 5,587
Other invested
assets (Other) - 3,500 - - 3,500
Allowance for
doubtful
accounts 180 119 - 119 180
Deferred Income
Taxes - - 27,928 - 27,928
---- ----- ------ ---- ------
Total $ 180 $ 9,206 $27,928 $ 119 $ 37,195
==== ===== ====== ==== ======
(1) Excludes UCIC.
S-11
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY
INSURANCE OPERATIONS
DECEMBER 31, 1995
($ in thousands) SCHEDULE VI
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1995 Future policy
Deferred Benefits
Policy Losses,claims Discount
Acquisition and loss Deducted in
Company Costs Expenses Column C
- --------------- ----------- ----------- ----------
United Republic
Insurance Company $ 3 $ 27,860 $ -
Global Insurance
Company 7 849 -
--------- --------- --------
Total $ 10 $ 28,709 $ -
========= ========= ========
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Claim and
Net Settlement
Unearned Premium Investment Expense
Premiums Revenue Income Current Yr
- -------------- ----------- ----------- ----------
$ 12 $ 1,490 $ 2,462 $ 288
33 222 278 80
- ------------ --------- --------- --------
$ 45 $ 1,712 $ 2,740 $ 368
======== ======== ======== =======
Column H Column I Column K Column K
- --------------- ----------- ------------ ---------
Claim and Amortization Paid claims,
Settlement deferred policy and claim
Expense Acquisition Adjustment Premium
Prior Yrs Costs Expenses Written
----------- ----------- ----------- ---------
$ 2,820 $ 926 $ 15,897 $ 1,063
231 51 1,901 137
---------- --------- --------- ---------
$ 3,051 $ 977 $ 17,798 $ 1,200
========== ========= ========= =========
S-12
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY
INSURANCE OPERATIONS
DECEMBER 31, 1995
($ in thousands) SCHEDULE VI(cont)
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1994 Future policy
Deferred Benefits
Policy Losses,claims Discount
Acquisition and loss Deducted in
Company Costs Expenses Column C
- --------------- ----------- ----------- ----------
United Republic
Insurance Company $ 231 $ 43,191 $ -
Global Insurance
Company 24 2,369 -
--------- --------- --------
Total $ 255 $ 45,560 $ -
========= ========= ========
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Claim and
Net Settlement
Unearned Premium Investment Expense
Premiums Revenue Income Current Yr
- -------------- ----------- ----------- ----------
$ 822 $ (896) $ 2,684 $ 4,106
119 565 378 508
- ------------ --------- --------- --------
$ 941 $ (331) $ 3,062 $ 4,614
========= ========= ========= ========
Column H Column I Column K Column K
- --------------- ----------- ------------ ---------
Claim and Amortization Paid claims,
Settlement Deferred Policy and claim
Expense Acquisition Adjustment Premium
Prior Yrs Costs Expenses Written
----------- ----------- ----------- ---------
$ (3,030) $ 565 $ 24,315 $ (13,726)
331 (28) 4,832 197
- ----------- --------- --------- ---------
$ (2,699) $ 537 $ 29,147 $ (13,529)
========== ========= ========= =========
S-13
<PAGE>
LAWRENCE INSURANCE GROUP INC.
SUPPLEMENTARY INFORMATION PROPERTY & CASUALTY INSURANCE OPERATIONS
DECEMBER 31, 1995
($ in thousands) SCHEDULE VI(cont)
Column A Column B Column C Column D
- --------------- ----------- ------------ ----------
1993 Deferred Future policy
Policy Benefits Discount
Acquisition Losses, claims Deducted in
Company Costs Loss expense Column C
- --------------- ----------- ----------- ----------
United Community
Insurance Company $ 10,614 $122,520 $ -
United Republic
Insurance Company 1,120 68,470 -
Global Insurance
Company 94 6,929 -
--------- --------- --------
Total $ 11,828 $197,919 $ -
========= ========= ========
Column E Column F Column G Column H
- --------------- ----------- ------------ ----------
Net Clm & Settle-
Unearned Premium Investment ment expense
Premiums Revenue Income Current Yr
- -------------- ----------- ----------- ----------
$ 49,096 $ 95,976 $ 4,194 $ 68,863
3,956 13,860 2,280 10,953
494 898 481 967
- ------------ --------- --------- --------
$ 53,546 $110,734 $ 6,955 $ 80,783
========= ========= ========= ========
Column H Column I Column K Column K
- --------------- ----------- ------------ ---------
Claim and Amortization Paid claims,
Settlement of deferred and claim
Expense Policy Acqui- Adjustment Premium
Prior Yrs sition costs Expenses Written
----------- ----------- ----------- ---------
$ 36,332 $ 27,153 $ 82,799 $ 99,426
24,773 5,909 15,616 7,091
1,329 451 3,937 1,115
- ----------- --------- --------- ---------
$ 62,434 $ 33,513 $102,352 $107,632
========== ========= ========= =========
S-14
<PAGE>
LAWRENCE INSURANCE GROUP INC
INDEX TO EXHIBITS
ITEM 601
Exhibit
Number Description Reference
1 Certification of Incorporation (1)
2-1 Bylaws (2)
4-1 Specimen Certificate of Common Stock (3)
10-1 Management Agreement between Senate Insurance
Company and A.W.Lawrence and Company Inc. (2)
21-1 Subsidiaries of Registrant EX-21
27-1 Financial Data Schedule EX-27
28-1 Information from reports furnished to
State insurance Regulatory Authorities EX-28
(1) Previously filed on December 10,1986 in Amendment No. 3 to Form
S-1 Registration Statement (Registration No. 33-9898)
(2) Previously filed on October 31, 1986 in Form S-1 Registration
Statement (Registration No. 33-9898)
(3) Previously filed on December 29, 1986 in Amendment No. 5 to
Form S-1 Registration Statement (Registration No. 33-9898)
<PAGE>
LAWRENCE INSURANCE GROUP INC
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
YEAR ENDED DECEMBER 31, 1995
Percent
Owned
_____
Lawrence Insurance Group Inc. Del.
United Republic Insurance Company Tx. 78.6%
Global Insurance Company Ga. 100.0%
Senate Insurance Company Az. 100.0%
Senate National Life Insurance Company Az. 100.0%
Senate Syndicate Inc. NY. 100.0%
EX 21-1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extrated from Lawrence
Insurance Group Inc.'s consolidated financial statements as of and for the year
ended December 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000805266
<NAME> LAWRENCE INSURANCE GROUP INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 3921
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 941
<MORTGAGE> 171
<REAL-ESTATE> 0
<TOTAL-INVEST> 16935
<CASH> 5688
<RECOVER-REINSURE> 5690
<DEFERRED-ACQUISITION> 68
<TOTAL-ASSETS> 46502
<POLICY-LOSSES> 30974
<UNEARNED-PREMIUMS> 505
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 300
<COMMON> 141
0
0
<OTHER-SE> 4
<TOTAL-LIABILITY-AND-EQUITY> 46502
5533
<INVESTMENT-INCOME> 3101
<INVESTMENT-GAINS> (743)
<OTHER-INCOME> 0
<BENEFITS> 5402
<UNDERWRITING-AMORTIZATION> 1863
<UNDERWRITING-OTHER> 1769
<INCOME-PRETAX> (1143)
<INCOME-TAX> (282)
<INCOME-CONTINUING> (642)
<DISCONTINUED> 0
<EXTRAORDINARY> 38387
<CHANGES> 0
<NET-INCOME> 37745
<EPS-PRIMARY> 2.67
<EPS-DILUTED> 2.67
<RESERVE-OPEN> 47165
<PROVISION-CURRENT> 2926
<PROVISION-PRIOR> 2476
<PAYMENTS-CURRENT> 1772
<PAYMENTS-PRIOR> 18265
<RESERVE-CLOSE> 30974
<CUMULATIVE-DEFICIENCY> (2476)
</TABLE>
