<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1996
- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9460
LAWRENCE INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3370656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Fifth Avenue, New York, New York 10110
(Address of principal executive offices)
(212) 944-8242
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement
for the past 90 days: Yes X No
As of September 30, 1996, there were 14,121,482 shares of common
stock, $.01 par value, issued and outstanding. The aggregate
market value on September 30, 1996 of voting stock held by non-
affiliates of the registrant was $572,000.
Page 1 of 12
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LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
($ IN THOUSANDS)
September 30, December 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- ------------
Investments:
Fixed maturities available for sale
at fair value (Cost: 1996-$9,688;
1995-$3,875) $ 9,485 $ 3,921
Equity securities, at fair value
(Cost: 1996 and 1995-$997) 940 941
Real estate at cost 2,600 -
Short-term investments, at cost which
approximates fair value 3,434 11,898
Mortgage loans on real estate, at
aggregate outstanding principal balance 158 171
Other invested assets, at fair value:
(Cost: 1996-$186; 1995-$4) 186 4
------ ------
Total investments 16,803 16,935
Cash and cash equivalents 1,428 5,688
Accrued investment income 234 475
Accounts receivable (Net of allowance
for doubtful accounts of $0 in 1996 and 1995) 5,183 10,777
Reinsurance recoverable 2,588 5,690
Reinsurance receivable 3,941 5,764
Deferred policy acquisition costs 90 68
Property and equipment, net 16 23
Other assets 1,230 1,082
------ ------
Total assets $31,513 $46,502
====== ======
See accompanying notes to consolidated financial statements.
Page 2 of 12
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LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
September 30, December 31,
1996 1995
(UNAUDITED) (AUDITED)
---------- ----------
Liabilities:
Reserves for losses and loss
adjustment expenses $22,850 $30,974
Unearned premiums 571 505
Reinsurance balances payable 2,971 11,526
Other liabilities 2,430 2,923
------- -------
Total liabilities 28,822 45,928
------- -------
Contingencies and commitments - -
Minority interest 758 429
--- ---
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 tax of $0 in 1996 and 1995) (260) (8)
Receivable from Alpha Trust (10,291) (11,004)
Accumulated deficit (27,396) (28,723)
------ ------
Total stockholders' equity 1,933 145
------ ------
Total liabilities and
stockholders' equity $31,513 $46,502
====== ======
See accompanying notes to consolidated financial statements.
Page 3 of 12
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LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months Nine months
Ended September 30, Ended September 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net premiums earned $ 982 $1,342 $2,889 $ 2,881
Net investment income 341 807 1,554 2,383
Realized gains (losses) on
investments - (568) 659 (568)
----- ----- ----- -----
Total revenues 1,323 1,581 5,102 4,696
Operating expenses:
Losses and loss
adjustment expenses 694 334 1,949 1,479
Policy acquisition expenses 87 721 451 1,400
Other operating expenses 295 343 1,167 1,255
----- ----- ----- -----
Total operating expenses 1,076 1,398 3,567 4,134
----- ----- ----- -----
Operating income (loss) 247 183 1,535 562
Equity in (earnings) loss of
non-consolidated subsidiary - 83 - 83
----- ----- ----- -----
Income before income taxes 247 100 1,535 479
----- ----- ----- -----
Income tax expense (benefit) 20 (364) 5 (380)
----- ----- ----- -----
Net income before minority
interest 227 464 1,530 859
Minority interest 3 - 203 -
----- ----- ----- -----
Net income $ 224 $464 $1,327 $ 859
=== === ===== =====
Average shares outstanding 14,121 14,121 14,121 14,121
====== ====== ====== ======
Per share data:
Net income per share $ 0.02 $ 0.03 $ 0.09 $ 0.06
==== ==== ==== ====
See accompanying notes to consolidated financial statements.
Page 4 of 12
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LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
($ IN THOUSANDS)
Net
unreal-
Addi- ized
tional gains Receiv-
paid- (losses) able Accum- Total
Com- in on from ulated stock
mon cap- invest- Alpha defic- holders'
stock ital ments Trust iency Equity
-----------------------------------------------------
Balance at 1/1/96 $141 $39,739 $ (8) $(11,004) $(28,723) $ 145
Net income - - - - 1,327 1,327
Change in receivable
from Alpha Trust - - - 713 - 713
Change in net unreal-
ized gains (losses - - (252) - - (252)
--- ------ ----- ------ ------ ------
Balance at 9/30/96 $141 $39,739 $ (260) $(10,291) $(27,396) $ 1,933
=== ====== ==== ====== ====== =====
See accompanying notes to consolidated financial statements.
Page 5 of 12
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LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30,
($ IN THOUSANDS)
1996 1995
---- ----
Net cash and cash equivalents
(used) by operating activities $ (5,623) $(7,024)
Investing activities:
Proceeds on redemptions
of long-term investments:
Fixed maturities available for sale 951 3,877
Other 16 477
Proceeds on sale of fixed maturities
available for sale 2,037 5,631
Proceeds on sale of equity securities 739 -
Proceeds on sale of other investments - 682
Purchase of long-term investments:
Fixed maturities available for sale (8,966) (2,111)
Real estate (2,600) -
Other (9) -
(Increase) decrease in short-term investments 8,288 (2,059)
----- -----
Net cash and cash equivalents
provided or (used) by
investing activities 456 6,497
---- -----
Financing activities:
Receivable from Alpha Trust 907 -
Note payable to affiliate - 300
---- ----
Increase (decrease) in cash
and cash equivalents (4,260) (227)
Cash and cash equivalents-beginning of period 5,688 2,500
------ ------
Cash and cash equivalents-end of period $1,428 $ 2,273
===== =====
Supplemental disclosure of
Income taxes paid $ - $ 31
Interest expense paid - -
See accompanying notes to consolidated financial statements.
Page 6 of 12
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LAWRENCE INSURANCE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------
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.
(a) BASIS OF PRESENTATION
The consolidated financial statements for 1996 and 1995,
include the accounts of LIG and all of its wholly owned
subsidiaries (collectively, the Company) except as noted below.
On July 7, 1994, UCIC, with the consent of UCIC management, was
placed in Rehabilitation by court order. Consequently, LIG
management no longer exercises any decision making authority
or control over UCIC. These functions are the responsibility of
the New York Insurance Department (NYID). As a result of this loss
of control, the Company has included the financial results of UCIC
only through the date of the Order of Rehabilitation and then on an
unconsolidated basis. IE. results of operations are reflected as
"Equity in earnings (loss) of non-consolidated subsidiary" and the
Company's investment as "Deficit of non-consolidated subsidiary".
As a result of the Order of Liquidation, UCIC's 21.4% ownership
of URIC which had been included in the accounts described above, is
now included as "Minority interest."
Page 7 of 12
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The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. While the
Company reported net income of $1,327,000 for the nine months ended
September 30, 1996, liquidity for the parent company is weakened and is
expected to remain in that condition for the foreseeable future. In
addition, as a condition of its release from confidential supervision on
August 25, 1995, URIC was to achieve certain financial goals, including
a statutory surplus of $8.0 million by December 31, 1995. It reported
a statutory surplus of $6.6 million as of that date. The statutory surplus
as of September 30, 1996 is $8,008,000, an amount which does not
record the effect of a difference in loss and loss adjustment expense
(LAE) arising from a reinsurance pooling agreement with UCIC which
is the subject of disagreement between URIC and UCIC. The difference
at December 31, 1995 was $4.0 million and is included in the accompanying
balance sheets. The statements also assume that the Texas Department of
Insurance will not place URIC into conservatorship. If it should do so,
URIC would be accounted for as a non-consolidated subsidiary. On
September 19,1996, the Department of Insurance, State of Arizona (ADI)
issued a Notice of Determination and Order of Supervision for Senate
and SNLIC. This Order arose over Senate's purchase of real estate from
a former officer and director and the subsequent loan of those proceeds to
Lawrence Group Inc. The Order can be abated upon demonstrating that
the purchase of the real estate was fair and reasonable and complies with
applicable Arizona statutes and that Senate's controlling persons can meet
their financial obligations without utilizing the assets of Senate or SNLIC
except for dividends. If the Company should be unable to satisfy these items
the ADI could place either or both companies under conservatorship. A hearing
was scheduled for November 18, 1996 but has been postponed at the request of
the ADI.. The financial statements do not reflect any adjustments necessary
to reflect such events. The accompanying consolidated financial statements
are presented in accordance with generally accepted accounting principles,
and in the opinion of Management, reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and results of operations for the interim periods. Results of interim
periods are not necessarily indicative of results for the full year.
These consolidated financial statements should be read in conjunction with
the following notes and with the Notes to Consolidated Financial Statements
included in the Company's Form 10-K for the year ended December 31, 1995.
Page 8 of 12
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(b) CASH AND CASH EQUIVALENTS
The Company considers cash to be funds held in checking and money
market accounts. Non-negotiable certificates of deposit are considered
to be cash equivalents.
PER SHARE DATA
Net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
As discussed in Note 1, UCIC has been placed under the
control and management of the NYID and as a consequence, has not
been consolidated with the Company's results. The operating
results which includes UCIC's share of URIC's operations for the
1995 periods are included in "Equity in earnings (loss) of
non-consolidated subsidiary", based upon the equity method of
accounting. Subsequent to November 10, 1995, UCIC's share of
URIC's results are included in "Minority interest".
URIC and Global voluntarily ceased writing new and renewal
business during the first quarter of 1994 and the fourth quarter
of 1993, respectively. Earned premiums and associated losses and
expenses for these subsidiaries, relate primarily to business generated
prior to 1994. Global has resumed writing new business effective
September 1996 and expects fourth quarter results to reflect this activity.
Earned premium decreased approximately $360,000 reflecting primarily
a decrease in Senate's premiums earned. Investment income decreased by
$466,000 due primarily to the impact of lower average invested assets and the
reversal of the interest accrual related to the Alpha Trust note due to the
non-payment of the October installment.
Page 9 of 12
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Loss and LAE increased by $360,000. This increase was related
primarily to adjustments to several reinsurance agreements. The increase
was offset by a decrease in policy acquisition expenses.
Policy acquisition expenses decreased by $634,000 reflecting the
lower levels of premiums earned and adjustments to retrospectively rated
reinsurance agreements noted above.
Operating expenses decreased by $45,000.
Equity in earnings of non-consolidated subsidiary was $83,000
representing UCIC's minority interest in URIC for 1995. For 1996,
this is reflected as minority interest and was $3,000.
Income tax expense for 1996 represents state income taxes as
the Company, which files a consolidated federal return, has a NOL
carry forward. For 1995 there was a favorable adjustment of $364,000..
As a result of the above, the Company recorded net income of
$224,000 for the three months ended September 30, 1996 compared
with net income of $464,000 for the same period in 1995.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Earned premium was at the same level as 1995 reflecting primarily
favorable adjustments in URIC's retrospectively rated premiums
compared with 1995 when the adjustments were negative partially offset
by lower premiums earned at Senate. The increase URIC's premium
was partially offset by higher loss and LAE related to these contracts.
Investment income decreased by $829,000 due to the impact of
lower average invested assets and the reversal of the Alpha Trust interest
accrual as a result of non-payment of the interest and principal of the
Alpha Trust note due in October..
Realized gains represents a gain on the disposition of the
company's investment in equity securities partially offset by a
loss from the disposition of fixed investments. In 1995 the Company
recorded a loss of $568,000 related primarily to the disposition of
various investments in Aquatic Development Corporation.
Page 10 of 12
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Loss and LAE increased by $470,000. This increase was offset
by adjustments to policy acquisition expenses.
Policy acquisition expenses decreased by $949,000 as a result
of lower premium levels at Senate in 1996 and commission
adjustments on reinsurance assumed in 1995.
Operating expenses decreased by $84,000 with the decrease
attributable largely to the tapering off of costs associated with
defending the Company's subsidiaries in disputes with state
insurance departments and partially offset by market development
costs associated with the Company's plans to resume writing
business in Global and URIC.
Equity in earnings of non-consolidated subsidiary was $83,000
representing UCIC's minority interest in URIC for 1995. For 1996,
this is reflected as minority interest and totaled $203,000.
Income tax expense for 1996 represents state income taxes as
the Company, which files a consolidated federal return, has a NOL
carry forward.
As a result of the above, the Company recorded net income of
$1,327,000 for the nine months ended September 30, 1996 compared
with net income of $859,000 for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
AS OF SEPTEMBER 30, 1996
For the nine months ended September 30, 1996, the Company used cash
for operations of $5,629,000. The significant use of cash was attribut-
able largely to the commutation and settlement of several reinsurance
contracts during the period. These commutations had a favorable impact
on 1995 and 1996 operations. It is not expected that this level of cash
outflows will continue although to the extent that URIC and Global
continue in a run off situation, it is possible that operations could be
partially funded by proceeds from the disposition of investments. For
the third quarter cash generated from operations was $349,000. Cash
generated from investing totaled $1,548,000 for the nine months.
Maturing short term investments were reinvested in part in longer term
securities and the purchase of home office real estate for $2,600,000.
Page 11 of 12
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Cash received from financing activities was $908,000 representing
scheduled receipts from Alpha Trust.
The parent Company obtained the majority of its cash from
dividends paid by its insurance subsidiaries. Due to regulatory
restrictions, there are no dividends that can be paid to the parent
at this time. It is anticipated that URIC will be able to meet its
projected cash requirements as will the subsidiaries owned by URIC.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
As discussed in the notes to the unaudited consolidated financial statements,
Senate and SNLIC have been placed under supervision by the Department of
Insurance of Arizona pending the outcome of a hearing. The hearing was
scheduled for November 18, 1996 but has been postponed at the request of
the ADI.
SIGNATURES
SEPTEMBER 30, 1996
_____________________________
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAWRENCE INSURANCE GROUP, INC.
/s/ ALBERT W. LAWRENCE
-----------------------------------------
Albert W. Lawrence, Chairman of the Board
/s/ ALBERT F. KILTS
---------------------------------
Albert F. Kilts, President
/s/ FLOYD N. ADAMS
--------------------------
Floyd N. Adams, Treasurer
Page 12 of 12
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<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from Lawrence
Insurance Group, Inc.'s consolidated financial statements as of and for the
nine months ended September 30, 1996 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 940
<MORTGAGE> 158
<REAL-ESTATE> 2,600
<TOTAL-INVEST> 16,803
<CASH> 1,428
<RECOVER-REINSURE> 2,588
<DEFERRED-ACQUISITION> 90
<TOTAL-ASSETS> 31,513
<POLICY-LOSSES> 22,850
<UNEARNED-PREMIUMS> 571
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<NOTES-PAYABLE> 300
0
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<COMMON> 141
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<INVESTMENT-INCOME> 1,554
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