UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1997
- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9460
LAWRENCE INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3370656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 State Street, Schenectady, New York 12309
(Address of principal executive offices)
(518) 372-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes X No
As of June 30, 1997, there were 14,121,482 shares of common
stock, $.01 par value, issued and outstanding. The aggregate
market value on February 28, 1997 of voting stock held by non-
affiliates of the registrant was $361,000. February 28, 1997 was the
date of the last trade before delisting by the American Stock Exchange.
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
($ IN THOUSANDS)
June 33, December 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
Investments:
Fixed maturities available for sale
at fair value (Cost: 1997-$8,117;
1996-$9,915) $ 7,959 $ 9,682
Equity securities, at fair value
(Cost: 1997-$1,311; 1996-$997) 1,666 942
Short-term investments, at cost which
approximates fair value 3,015 2,862
Real estate at cost less depreciation 2,547 2,581
Mortgage loans on real estate, at
aggregate outstanding principal balance 145 154
Other invested assets, at cost which
Approximates fair value 144 120
------ ------
Total investments 15,476 16,341
Cash and cash equivalents 1,070 943
Accrued investment income 101 159
Accounts receivable (Net of allowance
for doubtful accounts of $90 in 1997
and 1996) 4,838 5,279
Reinsurance recoverable 649 1,695
Reinsurance receivable 3,823 3,891
Prepaid reinsurance premiums 857 243
Deferred policy acquisition costs 20 64
Property and equipment, net 10 11
Other assets 1,177 1,075
------ ------
Total assets $ 28,020 $29,701
====== ======
See accompanying notes to consolidated financial statements.
LAWRENCE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
($ IN THOUSANDS)
June 30, December 31,
1997 1996
(UNAUDITED) (AUDITED)
---------- ----------
Liabilities:
Reserves for losses and loss
adjustment expenses $23,104 $26,441
Unearned premiums 977 719
Reinsurance balances payable 4,834 3,401
Other liabilities 2,046 1,940
------- -------
Total liabilities 30,961 32,501
------- -------
Contingencies and commitments - -
Minority interest - -
--- ---
Stockholders' deficiency:
Preferred stock, $.01 par value;
2,000,000 shares authorized; no
shares outstanding - -
Common stock, $.01 par value;
20,000,000 shares authorized;
14,121,482 shares issued and
outstanding 141 141
Additional paid-in-capital 39,739 39,739
Net unrealized gains (losses)
on investments (net of deferred
income tax of $0 in 1997 and 1996) 187 (226)
Accumulated deficit (43,008) (42,454)
------ ------
Total stockholders' deficiency (2,941) (2,800)
------ ------
Total liabilities and
stockholders' deficiency $28,020 $29,701
====== ======
See accompanying notes to consolidated financial statements.
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months Six months
Ended June 30 Ended June 30
1997 1996 1997 1996
----- ----- ---- ----
Revenues:
Net premiums earned $ 584 $ 751 $1,280 $ 1,907
Net investment income 196 582 415 1,213
Realized gains (losses) on investments (15) (74) (16) 659
----- ----- ----- ------
Total revenues 763 1,259 1,679 3,779
Operating expenses:
Losses and loss adjustment expenses 446 435 780 1,255
Policy acquisition expenses (27) 118 200 364
Other operating expenses 626 412 1,248 872
----- ----- ------ ------
Total operating expenses 1,045 965 2,228 2,491
----- ----- ------ ------
Operating income (loss) (282) 294 (549) 1,288
----- ----- ------ ------
Income before income taxes (282) 294 (549) 1,288
----- ----- ------ ------
Income tax expense (benefit) - (1) 5 (15)
----- ----- ---- ------
Net income before minority interest 282) 295 (554) 1,303
Minority interest - 41 - 200
----- ----- ----- ------
Net income $ (282) $ 254 $ (554) $1,103
=== === === ====
Average shares outstanding 14,121 14,121 14,121 14,121
==== ==== ==== ====
Per share data:
Net income (loss)per share $(0.02) $ 0.02 $(0.04) $0.08
==== ==== ==== ====
See accompanying notes to consolidated financial statements.
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
($ IN THOUSANDS)
Net
unreal-
Addi- ized
tional gains Total
paid- (losses) Accum- stock-
Com- in on ulated holders'
mon cap- invest- def- def-
stock ital ments ciency ciency
- -----------------------------------------------------------------
Balance at
1/1/97 $141 $39,739 $ (226) $(42,454) $ (2,800)
Net loss - - - (554) (554)
Change in
net
unreal-
ized
gains
(losses) - - 413 - 413
--- ------ ----- ------ ------
Balance at
6/30/97 $141 $39,739 $ 187 $ (43,008) $ (2,941)
=== ====== === ====== =====
See accompanying notes to consolidated financial statements.
LAWRENCE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30,
($ IN THOUSANDS)
1997 1996
---- ----
Net cash and cash equivalents
(used) by operating activities $ (1,102) $(5,988)
Investing activities:
Proceeds on redemptions
of long-term investments:
Fixed maturities available for sale 1,308 734
Other 26 10
Proceeds on sale of: Equity securities - 739
Fixed maturities available for sale 408 1,636
Purchase of long-term investments:
Fixed maturities available for sale - (5,556)
Equity securities (314) -
Other (45) (2,435)
(Increase) decrease in short-term
investments (154) 6,420
----- ------
Net cash and cash equivalents
provided or (used) by
investing activities 1,229 1,548
----- ------
Financing activities:
Receivable from Alpha Trust - 454
----- ------
Increase (decrease) in cash
and cash equivalents 127 (3,986)
Cash and cash equivalents-beginning
of period 943 5,688
----- ------
Cash and cash equivalents-end
of period $ 1,070 $1,702
==== ====
Supplemental disclosure of cash
flow information:
Cash paid during period for
income taxes $ 40 $ -
=== ===
See accompanying notes to consolidated financial statements.
LAWRENCE INSURANCE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
- --------------
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, had been in run-off since early 1994. Global resumed
writing business during the fourth quarter 1996. 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 include the accounts of LIG and
all wholly owned subsidiaries (collectively, the Company). All significant
intercompany transactions have been eliminated in consolidation.
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 1996 and even though UCIC's stockholder's
deficiency has been eliminated, the Company's subsidiaries continue to be
adversely impacted by UCIC's demise.
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 included 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 and $3.6 million
at December 31, 1996. These amounts did not include the effect of the loss and
LAE adjustments of approximately $7 million and $4 million at December 31,
1996 and 1995, respectively, described under (e) of Note 1. The TDI could
have placed URIC under conservatorship at any time. Under conservation, the
TDI assumes all control and decision making authority during the rehabilitation
period. On February 28, 1997, as a result of the bankruptcy filing by LIG's
parent and eleven of its subsidiaries the TDI did place URIC into
conservatorship. Under Texas insurance regulations an insurance company can
remain in conservatorship 180 days before other action must be taken.
Subsequent to the filing of URIC's 1996 Statutory financial statement which
reflected policyholder surplus of $3.5 million, the Company received reports
from its actuary that the loss and LAE reserves related to pooling with UCIC
could be between $6 million and $8 million higher than reported on URIC's
statutory statement. This information has been received by the TDI. Based
on minimum capital requirements and insolvency provisions of the Texas
insurance law, the TDI has indicated that unless these reserves can be commuted
or otherwise modified at an amount significantly less than presently stated the
alternative would be to place URIC in liquidation. On August 8, 1997 a Special
Master was appointed by the District Court of Travis County, Texas to oversee
the receivership of URIC. The Court also issued a temporary injunction and
affirmed an Order dated July 8, 1997 appointing the Commissioner of Insurance
for Texas as Temporary Receiver until such time as a hearing is held before the
Special Master to determine if a Permanent Injunction should be granted. The
hearing has been scheduled for September 29, 1997.
Senate and SNLIC were placed under supervision of the State of Arizona
Department of Insurance (ADI) on September 19, 1996 as a result of Senate's
purchase of real estate from Barbara Lawrence (a former director and owner of
the Company) and concern over whether the ultimate parent (LGI) obligations
could be met without utilizing the assets of Senate and SNLIC. They remain
under supervision.
In addition, 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.
Company management continues to discuss these and other issues with the
respective insurance during the fourth quarter of 1996 Global was permitted
to resume writing business. In addition, the Company has also filed suit
against its former outside accountant and actuary seeking to recover damages
for breach of contract and inaccurate certifications of the Company's 1992 and
prior loss and loss adjustment expense (LAE) reserves. The amount being
sought is $250 million. The litigation is in its early stages.
The accompanying consolidated financial statements are presented in
accordance with generally accepted accounting principles, which differ in
certain respects from those followed by subsidiaries of the Company in their
reports to regulatory authorities. 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.
(b) CASH AND CASH EQUIVALENTS
The Company considers cash to be funds held in checking and money market
accounts. Non-negotiable certificates of deposit are considered to be cash
equivalents.
PER SHARE DATA
Net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
LAWRENCE INSURANCE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Earned premium decreased approximately $167,000 reflecting
primarily a reduction in premiums earned be Senate and favorable
adjustments in URIC's retrospectively rated premiums in 1996 for
which there was no counterpart in 1997. These decreases were
partially offset by higher premiums earned by Global as it resumed
writing new business during the fourth quarter of 1996.
Investment income decreased by $386,000 due primarily to non
payment of rental and interest income from several affiliated companies.
These companies filed for bankruptcy on February 28, 1997. Realized
losses for 1997 were $59,000 less than the same period in 1996.
Loss and LAE increased by $11,000 compared with 1996 higher losses
on medical stop loss business partially offset lower levels of business written.
Policy acquisition expenses were favorable by $145,000 reflecting the lower
level of earned premiums in 1997 and commissions received on reinsurance
business written by Global.
Operating expenses increased by $214,000 with the increase attributable
largely to the completion of amortization of negative goodwill related to
the acquisition of URIC in 1989 and a provision for uncollectible receivables
of totaling $90,000.
Minority interest was $0 for 1997 and $41,000 for 1996.
Income tax expense represents state income taxes as the Company, which
files a consolidated federal return, has a NOL carry forward.
As a result of the above, the Company recorded a net loss of $282,000
for the second quarter of 1997 compared with net income of $254,000 for
the same period in 1996.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN
THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Earned premium decreased approximately $627,000 reflecting
primarily a favorable adjustments in URIC's retrospectively rated
premiums in 1996 for which there was no counterpart in 1997 and
a reduction in premiums earned by Senate. These decreases were
partially offset by higher premiums earned by Global as it resumed
writing new business during the fourth quarter of 1996.
Investment income decreased by $798,000 due primarily to non
payment of rental and interest income from several affiliated companies.
These companies filed for bankruptcy on February 28, 1997.
Realized gains for 1996 represented a gain from the disposition of the
Company's investment in Mechanical Technologies, Inc. which was sold to
Lawrence Group, Inc.
Loss and LAE decreased by $475,000 compared with 1996. This
decrease was largely offset by adjustments to premiums earned.
Policy acquisition expenses decreased by $164,000 reflecting the lower
level of earned premiums in 1997 and commission income earned by Global
on its reinsurance ceded.
Operating expenses increased by $376,000 with the increase attributable
largely to the completion of amortization of negative goodwill related to
the acquisition of URIC in 1989 and a provision for uncollectible receivables.
Minority interest was $0 for 1997 and $200,000 for 1996.
Income tax expense represents state income taxes as the Company, which
files a consolidated federal return, has a NOL carry forward.
As a result of the above, the Company recorded a net loss of
$554,000 for the first six months of 1997 compared with net income
of $1,103,000 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
AS OF JUNE 30, 1997
For the six months ended June 30, 1997, the Company used cash
for operations of $1,102,000. The use of cash was attributable largely
ongoing operations plus the impact of running off prior year loss reserves.
It is anticipated that cash outflows will continue negative until such
time as new business begins to generate more cash than is used in
the runoff of prior year claims. It is likely that operations will be partially
funded by proceeds from the disposition of investments. Net cash generated
from investing activities totaled $1,229,000 during the period.
The Company obtains the majority of its cash from dividends paid by its
two insurance subsidiaries. Due to regulatory restrictions, those
subsidiaries currently can not pay dividends to the parent.
LAWRENCE INSURANCE GROUP, INC.
SIGNATURES
JUNE 30, 1997
_____________________________
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAWRENCE INSURANCE GROUP, INC.
/s/ ALBERT W. LAWRENCE
-----------------------------------------
Albert W. Lawrence, Chairman of the Board
/s/ ALBERT F. KILTS
---------------------------------
Albert F. Kilts, President
/s/ FLOYD N. ADAMS
--------------------------
Floyd N. Adams, Treasurer
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<NAME> LAWRENCE INSURANCE GROUP, INC.
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