LAWRENCE INSURANCE GROUP, INC.
500 Fifth Avenue
New York, New York 10110
_______________
ANNUAL MEETING -- MAY 23, 1996
To the Stockholders of
Lawrence Insurance Group, Inc.:
You are cordially invited to attend the 1996 Annual Meeting of
your Company to be held at 10:00 a.m. on Thursday, May 23, 1996
at 430 State Street, Schenectady, New York 12305.
A report of current affairs of your Company will be presented
at the Meeting.
It is earnestly requested that you sign, date and mail your
proxy card whether or not you plan to attend the Annual Meeting.
We are grateful for your assistance and express our
appreciation in advance.
Sincerely yours,
ALBERT F. KILTS
President and
Chief Executive Officer
April 22, 1996
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LAWRENCE INSURANCE GROUP, INC.
500 Fifth Avenue
New York, New York 10110
_______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1996
_______________
To the Stockholders of Lawrence Insurance Group, Inc.:
Notice is hereby given that the 1996 Annual Meeting of
Stockholders of Lawrence Insurance Group, Inc. ("the Company"), a
Delaware corporation, will be held at 430 State Street,
Schenectady, New York 12305 on Thursday, May 23, 1996 at 10:00
a.m., Eastern Daylight Savings Time, for the following purposes:
(1) To elect seven (7) directors to serve until the 1997 Annual
Meeting of Stockholders or until their respective successors
have been duly elected and qualified;
(2) To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The close of business on April 10, 1996 has been fixed, by the
Board of Directors, as the date for the determination of
Stockholders entitled to notice of and to vote at the 1996 Annual
Meeting, and only Stockholders of record at such date will be
entitled to vote. A list of Stockholders will be open to
examination by Stockholders during ordinary business hours for a
period of ten (10) days prior to the meeting at the offices of the
Company, 430 State Street, Schenectady, New York 12305.
By Order of the Board of Directors
RANDALL J. EZICK
Secretary
New York, New York
April 22, 1996
IMPORTANT
If you do not plan to attend this meeting, please sign and
return the enclosed proxy. No postage is required if mailed in the
United States. PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
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LAWRENCE INSURANCE GROUP, INC.
500 Fifth Avenue
New York, New York 10110
-----------------
ANNUAL MEETING OF STOCKHOLDERS
-----------------
PROXY STATEMENT
General Information
THE ACCOMPANYING FORM OF PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF LAWRENCE INSURANCE GROUP, INC. (the"
COMPANY") FOR USE AT THIS ANNUAL MEETING OF THE COMPANY OR ANY
ADJOURNMENT THEREOF. THE PERSONS NAMED IN THE FORM OF PROXY HAVE
BEEN DESIGNATED AS PROXIES BY THE BOARD OF DIRECTORS. Such persons
are officers of the Company. Any Stockholder desiring to appoint
some other person to represent him at the Annual Meeting may do so
either by inserting such person's name in the blank space provided
in the enclosed form of proxy, or by completing another form of
proxy and, in either case, delivering the completed proxy to the
Secretary of the Company at the address indicated above, before the
time of the Annual Meeting. It is the responsibility of the
Stockholder appointing some other person to represent him to inform
such person of his appointment. The Company has first mailed these
proxy materials to holders of shares of Common Stock, $.01 par
value ("Stockholders") on or about May 3, 1996. The Company's
executive offices are located at 500 Fifth Avenue, New York,
New York 10110.
The proxies in the accompanying form which are properly
executed and duly returned to the Company and not revoked will be
voted as specified and, if no direction is made, will be voted for
Proposal 1, to elect each of Management's seven (7) nominees for
election as Directors. Stockholders may also be asked to consider
and take action with respect to such other matters as may properly
come before the Meeting or any adjournment or adjournments thereof.
Each proxy granted is revocable and may be revoked at any time
prior to its exercise by giving notice to the Company of its
revocation. A Stockholder who attends the Meeting in person may,
if he wishes, vote by ballot at the Meeting, thereby canceling any
proxy previously given. The outstanding voting stock of the
Company as of April 10, 1996, the record date, consisted of
14,121,482 shares of Common Stock, $.01 par value per share (the
Common Stock"), with each share entitled to one vote. Only
Stockholders of record at the close of business on April 10, 1996
are entitled to vote at the Meeting.
A copy of the Company's Annual Report for the year ended
December 31, 1995, is being mailed to Stockholders, simultaneously
herewith. The financial statements of the Company for the year
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ended December 31, 1995, and the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the
three years ended December 31, 1995, contained in such Annual
Report, are specifically incorporated herein by reference and made
a part hereof.
Subsidiaries of the Company include United Republic Insurance
Company "URIC", Global Insurance Company "Global", Senate Insurance
Company "Senate", Senate Syndicate, Inc. "Syndicate", and Senate
National Life Insurance Company "SNLIC". Senate and Global are
wholly owned subsidiaries if URIC. SNLIC is a wholly 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 control to
the New York Insurance Department (NYID) and the subsequent Order
of Liquidation entered on November 10, 1995. Both orders had been
consented to by the Company's Management and Board. As a result of
this loss of control, UCIC results are included only through the
date of the rehabilitation order on a deconsolidated basis This
liability for UCIC was reversed in 1995 resulting in a significant
extraordinary gain.
OWNERSHIP OF VOTING SECURITIES
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the holdings of Common Stock by
each of the Company's Directors and nominees and by all Officers
and Directors as a group as of April 10, 1996. 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.
Percent of
Name of Beneficial Owner Beneficial Ownership Outstanding Shares
Albert W. Lawrence (1) 13,157,769 93.2%
Albert F. Kilts - *
Nevin D. Harkness 300 *
Milos R. Knorr 3,000 *
William J. Mather (2) 27,664 *
Rita E. Harfield 952 *
All Officers and Directors
as a group (1)(2) 13,189,685 93.4%
*Less than 1%
(1) Includes 13,144,395 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 26,839 shares in the account of Mr. Mather in the
401(k) Plan.
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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.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide for the Company to have not
less than three nor more than twenty-one Directors. Management
proposes the election of the seven nominees named below to
constitute the entire Board of Directors of the Company until the
next Annual Meeting of Stockholders and until any successor shall
be duly elected and shall qualify. Except for Mr. Ezick each of
the nominees is a current director of the Company. In the event
any nominee is unable or declines to serve, which the Board does
not anticipate, it is intended that the proxies will be voted for
the balance of those named and for any substitute nominees that the
Board may designate, unless the Board has taken prior action to
reduce its membership.
MANAGEMENT RECOMMENDS A VOTE "FOR" THIS PROPOSAL
NOMINEES FOR DIRECTOR ARE AS FOLLOWS:
Name Age Position
Albert W. Lawrence 67 Chairman of the Board
Albert F. Kilts 50 Chief Executive Officer
President, Director
Randall F. Ezick 47 Secretary
Nevin D. Harkness (1) 74 Director
Milos R. Knorr (1) 77 Director
William J. Mather 58 Director
Rita E. Harfield 52 Director
OTHER EXECUTIVE OFFICER
Floyd N. Adams 53 Treasurer
(1) 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.
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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 has been a Director since June 30, 1986. Messrs. Harkness
and Knorr became Directors on October 19, 1986. Mr. Mather became
a Director on October 7, 1987. Mr. Kilts became a Director on
December 8, 1994 and Ms. Harfield became a Director on March 30,
1995.
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.
Albert F. Kilts has been President and Chief Executive
Officer since April 1996. Prior to that he was Vice President and
Treasurer of Lawrence Insurance Group, Inc. since December 1994 and
Chief Operating Officer of LIG from 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.
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.
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.
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Randall J. Ezick has been Secretary of Lawrence Insurance
Group, Inc. since April 1996. He has been General Counsel for
Lawrence Group, Inc. since August, 1995. Prior to that time he was
a partner in the law firm of Roemer and Featherstonaugh P.C. since
1989. During that time he was actively involved in providing legal
services to Lawrence Group, Inc. and its subsidiaries. He is a
member of the New York State and Albany County Bar Associations and
the Defense Research Institute.
The Board of Directors met five times during 1995 and had one
telephonic meeting and the audit committee met once during 1995.
The directors attended 100% of these meetings of the Board and
appropriate committee meetings.
On July 7, 1994, with the consent of UCIC, UCIC was placed in
Rehabilitation by order of the Supreme Court of the State of New
York, Schenectady County. Mr. Lawrence was Chairman of the Board
of UCIC at the time and for several years prior.
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.
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 former President
and Chief Executive Officer of LIG. Mr. Brantlinger resigned from
his positions with the Company effective April 19, 1996. 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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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.
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee consisted of Lawrence A.
Shore, Chairman and R. Wayne Diesel prior to their resignations in
March, 1996. 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. These 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.
Five Year Performance Graph
Comparison of Five-Year Cumulative Returns Among the Company,
American Stock Exchange Composite ("AMEX") and the NYSE,AMEX,NASDAQ
listed insurance carriers is as follows:
Year ended December 31,
----------------------------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
LIG 100 167 138 61 41 26
AMEX Stock Market 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
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NYSE,AMEX NASDAQ listed insurance carriers, 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.
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.
In 1993 UCIC incurred $21,903,000 in commissions. AWL pays a
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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.
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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.
ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
Management does not know of any other matters to be
brought before the Meeting except those set forth in the notice
thereof. If other business is properly presented for consideration
at the Meeting, it is intended that the proxies will be voted by
the persons named therein in accordance with their judgment on
such matters.
Stockholder Approval
Approval of Proposal 1 requires the affirmative vote of
the holders of a majority of the total number of shares of Common
Stock represented at the Annual Meeting. Stockholders are entitled
to one vote per share on all matters submitted for consideration at
the Annual Meeting.
OTHER MATTERS
Absence of Dissenters' or Appraisal Rights
Under Section 262 of the Delaware General Corporation Law,
Stockholders have the right to dissent from certain corporate
actions. In such cases, dissenting Stockholders are entitled to
have their shares appraised and paid the fair value of their shares
provided that certain procedures perfecting their rights are
followed. The proposals described in this proxy statement do not
entitle a Stockholder to exercise any such dissenters' or appraisal
rights.
Form 10-K Annual Report
UPON WRITTEN REQUEST BY A STOCKHOLDER, THE COMPANY WILL
FURNISH THAT PERSON, WITHOUT CHARGE, A COPY OF THE FORM 10-K ANNUAL
REPORT FOR 1995 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE
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COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO. Requests should be addressed to Lawrence Insurance Group,
Inc., Attn: Public Relations Department, 3000 Troy Road,
Schenectady, New York 12309-1614. This information may also be
accessed through the internet via: http://www.sec.gov
Solicitation and Expenses of Solicitation
Officers and employees of the Company may solicit proxies.
Proxies may be solicited by personal interview, mail, telegraph and
telephone. Brokerage houses and other institutions, nominees and
fiduciaries will be requested to forward soliciting material to the
beneficial owners of Common Stock, and will be reimbursed for their
reasonable out-of-pocket expenses in forwarding such soliciting
material. the costs of preparing this Proxy Statement and all
other costs in connection with the solicitation of proxies for the
Annual Meeting of Stockholders are being borne by the Company. It
is estimated that said costs will be nominal.
Shareholder proposals
Shareholder proposals intended to be presented to next year's
Annual Meeting of Shareholders expected to be held during May,
1997, must be received by the Company by December 12, 1996 for
inclusion in the Company's proxy material relating to that meeting.
Your cooperation in giving this matter your immediate
attention and in returning your proxies promptly will be
appreciated.
By Order of the Board of Directors.
RANDALL J. EZICK
Secretary
New York, New York
April 22, 1996
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APPENDIX
GRAPH 1 - Five year performance graph has been filed in paper
format under Form SE in accordance with Rules 311 and 304(d)(1) of
Regulation S-T.
FORM OF PROXY -
Front side
PROXY
LAWRENCE INSURANCE GROUP, INC.
500 Fifth Ave
New York, New York 10110-10002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ALBERT W. LAWRENCE and ALBERT F. KILTS or either of them, are
hereby appointed as Proxies by the undersigned to vote all shares
of stock of LAWRENCE INSURANCE GROUP, INC., which the undersigned
would be entitled to vote at the 1996 Annual Meeting of
Stockholders to be held at 430 State Street, Schenectady, New York
12305, at 10:00 A.M. on Thursday, May 23, 1996, and at all
adjournments thereof.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE COMPLETE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROXY
PROMPTLY.
Reverse side
This proxy when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no such
directions are given with respect to all or some items as to such
items, the shares represented by this Proxy will be voted FOR
Proposal 1.
Please mark your
your votes with an X
The Board of Directors Recommends a Vote FOR the following
proposal.
Proposal 1: Election of the following nominees as Directors:
Ms. Rita Harfield, Messrs. Randall J. Ezick, Nevin D. Harkness,
Albert F. Kilts, Milos R. Knorr, Albert W. Lawrence, William J.
Mather.
__ FOR all nominees listed above (except as marked to the contrary)
__ WITHHOLD AUTHORITY to vote for all nominees listed above
__ WITHHOLD FOR THE FOLLOWING ONLY(Write the name of the nominee(s)
on the space below)
________________________________________________________________
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FORM OF PROXY (continued)
__ Will attend
Please mark, date and sign your name as it appears
hereon and return in the enclosed envelope. When signing as an
attorney, executor, administrator, trustee or guardian please give
title as such. If signer is a corporation, please sign full
corporate name by authorized officer and attach corporate seal.
for joint account, each joint owner should sign.
Date ________________,1996
Signature ________________
Signature ________________
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LAWRENCE INSURANCE GROUP, INC.
1995 ANNUAL REPORT
TO OUR SHAREHOLDERS
With considerable progress made on meeting the challenges of
the past, Lawrence Insurance Group, Inc. looks forward to focusing
its energies and resources on improving results of Global Insurance
Company, Senate Insurance Company, Senate National Life Insurance
Company and United Republic Insurance Company.
In August 1995, the Texas Department of Insurance (TDI)
released United Republic Insurance Company (URIC) from Supervision.
Although URIC had not met all of the conditions of the release by
year end, sufficient progress was made so that TDI did not find it
necessary to place URIC into Conservatorship. While there is no
assurance the requirements will be met, Management continues to
work with TDI to fully achieve all of the agreed upon financial and
operating conditions.
After genuine attempts to rehabilitate United Community
Insurance Company (UCIC), Lawrence Insurance Group, Inc.'s Board of
Directors regretfully consented in November 1995, to its
liquidation by the New York Insurance Department. Ultimately, the
Board believes this action will be in the best interests of its
shareholders and the public. The liquidation of UCIC had a
positive impact on Lawrence Insurance Group, Inc.'s net income of
$38,387,000.
With the support of its dedicated employees, the Company will
continue its positive transition to the future through
restructuring, increased operational efficiency and rebuilding. We
are proud of the support of the community and of our fellow
business associates and our clients.
Most of all, we truly appreciate the patience of you, our
shareholders, for whom we intend to do our utmost to build
shareholder equity and to return the Company to consistent
profitability.
Sincerely,
/s/ F. HERBERT BRANTLINGER /s/ ALBERT F. KILTS
PRESIDENT AND CHIEF EXECUTIVE VICE PRESIDENT AND CHIEF
OFFICER OPERATING OFFICER
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TO OUR SHAREHOLDERS
In April 1996, F. Herbert Brantlinger stepped down as President
and Chief Executive Officer to return to his home in Connecticut.
We are very thankful to Herb for his devotion, steadiness and
ability during a most challenging time. His successor, Albert F.
Kilts has proven experience in the Company as Vice President,
Treasurer and Chief Operating Officer. The Company is in capable
hands at this turning point in its history.
Sincerely,
/s/ ALBERT W. LAWRENCE
CHAIRMAN OF THE BOARD
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TABLE OF CONTENTS
Management's Discussion and Analysis of
Condition and Results of Operations 4
Changes and Disagreements with Accountants on
Accounting and Financial Disclosures 11
Market for Registrant's Common Stock
and Related Stockholder Matters 12
Five Year Financial Summary 13
Report of Independent Accountants 15
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 23
Directors and Officers 46
Shareholder Information 47
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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
4
<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.
5
<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
6
<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
7
<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
8
<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
9
<PAGE>
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.
10
<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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
11
<PAGE>
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.
12
<PAGE>
FIVE YEAR FINANCIAL SUMMARY
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
====== ====== ====== ===== =====
13
<PAGE>
FIVE YEAR FINANCIAL SUMMARY
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".
14
<PAGE>
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Lawrence Insurance Group, Inc.
We have audited the accompanying consolidated balance sheets of
Lawrence Insurance Group, Inc. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements 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.
The accompanying consolidated financial statements 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 $8 million and
other administrative requirements. In addition, an Appointment of
Conservator by Consent has been signed by URIC and could be
executed by TDI should URIC fail to abide by the above mentioned
financial and other administrative requirements. URIC has failed
to meet several of these requirements, including the policyholder
15
<PAGE>
surplus requirements. URIC could be placed in to conservatorship by
the TDI at any time. The above actions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in
Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
As discussed in Note 1 to the consolidated financial statements, in
1994 the Company changed its method of accounting for United
Community Insurance Company, a former wholly owned subsidiary.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
April 8, 1996
16
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(SEE NOTES 1 & 2)
($ 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 $67,041
====== ======
See accompanying notes to consolidated financial statements.
17
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(SEE NOTES 1 & 2)
($ 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.
18
<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.
19
<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.
20
<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) $(77,104)
Adjustments to reconcile net income
(loss) to net cash and cash
equivalents used in
operating activities:
Realized losses on investments 743 598 5,471
Equity in loss of
non-consolidated subsidiary - 7,309 -
Equity in (earnings) loss of investee - 103 (632)
Minority interest in subsidiary (219) - -
Deferred income taxes - - 6,568
Extraordinary gain (38,387) - -
Depreciation and amortization (1,061) (1,047) (85)
Accrued investment income 194 (426) 445
Accounts receivable 1,690 3,959 13,951
Reinsurance recoverable 8,018 (3,289) 4,981
Reinsurance receivable 1,557 3,382 (3,982)
Prepaid reinsurance premiums 424 (111) 11,322
Reinsurers deposits - - (16,543)
Deferred policy acquisition costs 220 2,220 (79)
Income taxes recoverable 81 2,503 (4,343)
Other assets 454 3,876 2,565
Reserves for losses and loss
adjustment expenses (16,191) (30,654) 39,988
Unearned premiums (880) (12,880) (14,476)
Reinsurance balances payable (1,790) 14,287 7,132
Accrued expenses and other
liabilities (831) (960) 600
------ ------ ------
Net cash and cash equivalents
used by operating activities (8,233) (18,221) (24,221)
------ ------ -------
See accompanying notes to consolidated financial statements.
21
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
($ 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.
22
<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.
23
<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
24
<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
25
<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
26
<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
27
<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
28
<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
29
<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 $13,000,000 to the Alpha Trust,
a business trust, which in turn invested in notes issued by
Lawrence Group, which owns 93% of LIG. This loan and unrealized
losses on investments for the period January 1, 1994 to July 7,
1994, is included in the Company's statement of stockholders'
equity for the year ended December 31, 1994.
30
<PAGE>
NOTE 3 - INVESTMENTS
Net investment income for the Company was as follows:
($ 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.
31
<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 $16,935
====== === === ======
32
<PAGE>
The amortized cost and estimated fair values of the Company's
investments as of December 31, 1994 are as follows:
($ 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 $20,296
====== ==== ==== ======
The amortized cost and estimated market value of fixed
maturities at December 31, 1995 and 1994 , by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities are stated separately as such securities
produce a principal return on a monthly basis. Fixed maturities
33
<PAGE>
held to maturity are carried at amortized cost, while fixed
maturities available for sale are carried at fair value.
December 31, 1995
($ 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
34
<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 $53,000 at December 31, 1995. Senate
35
<PAGE>
reinsures a portion of its exposure on a quota share/excess of loss
basis principally through Lloyd's of London.
Premiums written, premiums earned and losses and loss
adjustment expenses information by direct, assumed and ceded for
the years ended December 31 is as follows:
($ 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.
36
<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
===== ===== =====
37
<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 $ - $ -
===== =====
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<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
39
<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.
40
<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
41
<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
42
<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
43
<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.
44
<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.
45
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Albert W. Lawrence Albert F. Kilts
Chairman of the Board President and Chief Executive
Lawrence Insurance Group, Inc. Officer, Lawrence Insurance
and Lawrence Group, Inc. Group, Inc
Nevin "Ned" Harkness * Rita E. Harfield
Retired President and Chief Vice President, Lawrence
Executive Officer, The New York Agency Corporation
Olympic Authority
Milos R. Knorr * William J. Mather
Reinsurance Consultant President, Senate Insurance
Retired Senior Executive Company, Global Insurance
INA Group (CIGNA) Company and Lawrence
Agency Corporation
* Member of the Audit Committee
OFFICERS
Albert W. Lawrence Albert F. Kilts
Chairman President and Chief
Executive Officer
Randall J. Ezick Floyd N. Adams
Secretary Treasurer
46
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS CORPORATE MAILING ADDRESS
Lawrence Insurance Group, Inc. Lawrence Insurance Group, Inc.
500 Fifth Avenue 430 State Street
New York, New York 10110-0002 Schenectady, New York 12305-2394
(212) 944-8242
NOTICE OF ANNUAL MEETING STOCK EXCHANGE LISTING
The Annual Meeting will be held The Company's stock is traded on
on Thursday, May 23rd at the American Stock Exchange
10:00 a.m. at 430 State Street, under the symbol "LWR". It is
Schenectady, New York 12305 listed in the newspaper under
"LawrG".
STOCK TRANSFER AGENT INVESTOR RELATIONS
Chemical Mellon Shareholder Investors, analysts, brokers and
Services others seeking information about
450 West 33rd Street the Company should contact:
New York, New York 10001-2697 Gail Reynolds, Public Relations
(800) 851-9677 Department. (518) 783-8081
FORM 10-K AVAILABILITY
STOCKHOLDERS CAN OBTAIN ADDITIONAL INFORMATION ON THE OPERATIONS OF
THE COMPANY FROM FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. A COPY OF FORM 10-K IS AVAILABLE WITHOUT CHARGE BY
WRITING: LAWRENCE INSURANCE GROUP, INC.
PUBLIC RELATIONS DEPARTMENT
3000 TROY ROAD
SCHENECTADY, NEW YORK 12309
The 10-K is also available on the internet. The address is:
http://www.sec.gov
47
<PAGE>
LAWRENCE INSURANCE GROUP, INC.
1995 ANNUAL REPORT
