<PAGE> 1
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 Quarterly period ended September 30, 1995
/ / Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from _________ to __________
Commission file number 0-15404
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3468795
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 DELAWARE AVENUE, SUITE 1704
WILMINGTON, DE
(Address of Principal Executive Offices) 19801
Registrant's telephone number, including Zip Code
area code (302) 427-5800
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 / /
Number of shares of common stock outstanding:
NUMBER OUTSTANDING
CLASS AS OF SEPTEMBER 30,1995
----- -----------------------
$1.00 par value common 2,659,318
<PAGE> 2
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities held for sale at market
(Amortized cost: 1995 - $58,181,670; 1994 - $53,909,188) . . . . . . . . $ 59,304,352 $ 52,283,318
Non-redeemable preferred equities at market (Amortized cost:
1995 - $5,820,257: 1994 - $6,189,589) . . . . . . . . . . . . . . . . . 5,879,478 5,785,356
Common Stock at market (Cost: 1995 - $3,662,997; 1994 - $2,578,971) . . . . 4,373,865 2,493,450
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,696,107 4,673,778
------------- --------------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,253,802 65,235,902
OTHER ASSETS
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563,194 3,251,227
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,671,673 2,831,922
Premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,724,050 2,934,056
Reinsurance recoverable on paid losses . . . . . . . . . . . . . . . . . . . 313,794 160,587
Reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . 6,598,823 6,424,110
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . 726,717 594,748
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,202,056 2,330,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,729,016 1,185,357
------------- --------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,529,323 19,712,007
------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,783,125 $ 84,947,909
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Reserves for unpaid losses and loss adjustment expenses . . . . . . . . . . $ 34,546,320 $ 32,967,809
Unearned permium reserves . . . . . . . . . . . . . . . . . . . . . . . . . 6,678,459 4,233,747
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,616,176 4,516,220
Funds withheld from reinsurers . . . . . . . . . . . . . . . . . . . . . . . 2,671,673 2,831,922
Excess of acquired net assets over cost . . . . . . . . . . . . . . . . . . 1,272,658 1,614,555
------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,785,286 46,164,253
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value. 75,000 shares authorized; no
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Common stock, $1 par value. 6,000,000 shares authorized; 3,366,618
shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,366,618 2,923,404
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 35,717,126 29,534,302
Treasury stock, at cost (1995 - 707,300 shares; 1994 -
746,700 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,471,628) (7,016,554)
Unrealized investment gains, (losses) net of taxes . . . . . . . . . . . . . 1,229,430 (1,562,822)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,156,293 14,905,326
------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 44,997,839 38,783,656
------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 95,783,125 $ 84,947,909
============= ==============
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 3
FIANANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Premiums earned . . . . . . . . . . . . . . . $ 8,109,700 $ 5,942,829 $ 2,897,719 $ 2,357,680
Net investment income . . . . . . . . . . . . 3,073,920 2,339,427 938,169 712,619
Net realized gains on investments . . . . . . 839,963 582,808 480,109 246,699
Other income . . . . . . . . . . . . . . . . 450,339 507,041 117,784 165,159
------------- ------------- ------------ ------------
Total revenue . . . . . . . . . . . . . . 12,473,922 9,372,105 4,433,781 3,482,157
LOSSES AND EXPENSES
Losses and loss adjustment expenses . . . . . 3,647,457 2,446,340 1,351,250 987,013
Commissions expenses . . . . . . . . . . . . 1,786,488 1,452,061 477,742 716,872
Other operating and management expenses . . . 2,701,066 2,483,014 826,129 746,924
------------- ------------- ------------ ------------
Total losses and expenses . . . . . . . . 8,135,011 6,381,415 2,655,121 2,450,809
------------- ------------- ------------ ------------
Income before income taxes . . . . . . . . . . . 4,338,911 2,990,689 1,778,660 1,031,347
Provisiion for income taxes . . . . . . . . . . . 909,778 359,313 378,588 142,518
------------- ------------- ------------ ------------
Net income . . . . . . . . . . . . . . . . . . . $ 3,429,133 $ 2,631,376 $ 1,400,072 $ 888,829
============= ============= ============ ============
Net income per common share . . . . . . . . . . . $ 1.24 $ 0.95 $ 0.50 $ 0.32
============= ============= ============ ============
Weighted average number of shares outstanding
for the entire period . . . . . . . . . . . . 2,763,305 2,766,222 2,775,802 2,773,070
------------- ------------- ------------ ------------
</TABLE>
3
<PAGE> 4
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . $ 4,198,736 $ 3,114,452
INVESTING ACTIVITIES
Net purchases of short term investments . . . . . . . . . . . . . . . . . . . . (2,022,329) (1,779,481)
Purchases of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . (19,852,016) (27,359,446)
Dispositions of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . 16,288,334 34,433,454
Net (purchases) dispostions of preferred equities . . . . . . . . . . . . . . . 192,472 (4,299,089)
Net purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . (1,084,026) (1,845,725)
------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (6,477,565) (850,287)
FINANCING ACTIVITIES
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,754 --
Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (529,958) (423,898)
------------- --------------
NET CASH USED BY FINANCING ACTIVITIES (409,204) (423,898)
------------- --------------
INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,688,033) $ 1,840,267
============= ==============
</TABLE>
See the accompanying notes to the condensed consolidated financial statements
4
<PAGE> 5
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,1995
(unaudited)
A. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Registrant without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and reflect
all adjustments, consisting of normal recurring accruals, which are,
in the opinion of management, necessary for a fair presentation of the
results of operations for the periods shown. These statements are
condensed and do not include all information required by generally
accepted accounting principles to be included in a full set of
financial statements. It is suggested that these financial statements
be read in conjunction with the consolidated financial statements at,
and for the year ended, December 31, 1994 and notes thereto, included
in the Registrant's annual report as of that date. Certain prior year
amounts have been reclassified to conform with the 1995 presentation.
B. DIVIDENDS PAID
The Registrant has paid the following common share dividends in 1995
to outstanding stockholders of record:
<TABLE>
<CAPTION>
Payment Stockholder Dividend Paid
Date Record Date Per Common Share
---- ----------- ----------------
<S> <C> <C>
February 23, 1995 January 26, 1995 $0.075
May 25, 1995 April 20, 1995 $0.075
August 24, 1995 July 27, 1995 $0.075
August 24, 1995 July 27, 1995 20% common stock
</TABLE>
In addition, the Registrant has declared the following common share
dividends in 1995 to outstanding stockholders of record:
<TABLE>
<CAPTION>
Payment Stockholder Dividend Paid
Date Record Date Per Common Share
---- ----------- ----------------
<S> <C> <C>
November 24, 1995 October 26, 1995 $0.075
</TABLE>
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
GENERAL BUSINESS
Financial Institutions Insurance Group, Ltd. (the "Registrant") is an insurance
holding company which, through its subsidiaries, underwrites insurance and
reinsurance. The principal lines of business include professional liability,
directors' and officers' liability, property catastrophe reinsurance and other
lines of property and casualty reinsurance.
The Registrant conducts its business by operating an insurance company and
managing insurance and reinsurance assumptions through two underwriting
agencies.
The First Reinsurance Company of Hartford ("First Re") is the largest
subsidiary. Through affiliated subsidiaries, First Re provides insurance
coverage and has entered into reinsurance treaties whereby companies cede a
portion of their premiums, commissions and related incurred losses to First Re.
The principal underwriting activity of the group is managed by a wholly-owned
subsidiary, Oakley Underwriting Agency, Inc. ("Oakley"). Formed in 1993,
Oakley underwrites directors' and officers' liability insurance and
professional liability insurance principally on behalf of First Re and Virginia
Surety Company, Inc. ("VSC"). VSC is an unaffiliated insurance company that
maintains an underwriting contract with Oakley.
The profitability of the property-casualty business is dependent on competitive
influences, the efficiency and costs of operations, investment results between
the time premiums are collected and losses are paid, the level of ultimate
losses paid, and the ability to estimate each of those factors in setting
premium rates. Investment results are dependent on the selection of investment
vehicles, investment market performance, the ability to project ultimate loss
payments, and the timing of those loss payments. Ultimate loss payments are
dependent on the types of coverages provided, results of litigation and the
geographic areas of the country covered.
LIQUIDITY
General convention in the insurance industry has established an informal
guideline ratio of premiums written to capital that is deemed appropriate.
Typically, this ratio provides that premiums be no greater than three times the
capital and surplus of the company. The Registrant has maintained a ratio of
less than $ .40 of premium written for each $1.00 of its capital and surplus
since its inception. Additionally, the Registrant must file certain reports
with various regulatory agencies. These reports measure the liquidity, capital
resources and profitability of the Registrant to insurance industry standards.
Based on these reports, for the 1994 year and first three quarters of 1995, the
liquidity and capital resources of the Registrant exceed the insurance industry
standards.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Registrant's fixed investment portfolio has been structured such that the
average maturity of the portfolio does not exceed three years. The length of
time needed to settle claims from reinsured policies is influenced by the type
of coverage involved and the complexity of the individual loss occurrence.
Management believes that it has positioned its investment portfolio to ensure
that it can meet its obligations without adverse deviation from its current
investment objectives. It is also believed that the Registrant's current
investment policies permit it to continue to take advantage of favorable
changes that might occur in the investment marketplace.
On December 30, 1993, the Registrant adopted SFAS 115 and classified all of its
fixed maturity investments as held for sale and carries them at market value,
because the Registrant will likely sell such investments prior to maturity.
Non-redeemable preferred equity securities and common stocks are also carried
at market value. Short-term investments are carried at the lower of amortized
cost or market value.
The net tax effected unrealized loss of $1,562,822 at December 31, 1994
improved to a net tax effected unrealized gain of $1,229,430 as of September
30, 1995, due to a favorable stock and bond market.
Management does not plan to liquidate investments to fund operations or pursue
financing activities, but will continue to manage the portfolio seeking the
maximum total return while keeping the duration and credit profile at
approximately the same historical levels. Following this policy, the Registrant
realized $839,963 of capital gains from the held for sale portfolio in the
first nine months of 1995 by selling securities and reinvesting the proceeds.
The Registrant and its investment advisors believe that, given the current
uncertainties in the fixed income market, it was appropriate to realize these
gains. This activity did not affect the liquidity or quality of the portfolio.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following table outlines the respective reserve components and their
balances as of September 30, 1994 and at quarterly intervals through the period
to September 30, 1995.
DIRECT AND ASSUMED
<TABLE>
<CAPTION>
RESERVES ON
REPORTED IBNR
DATE RESERVES % CLAIMS % RESERVES %
<S> <C> <C> <C> <C> <C> <C>
9/30/94 $33,250,399 100% $13,117,104 40% $20,133,295 60%
12/31/94 $32,967,809 100% $12,814,155 38% $20,153,654 62%
3/31/95 $33,048,655 100% $13,551,763 41% $19,496,892 59%
6/30/95 $33,794,332 100% $13,106,992 39% $20,687,340 61%
9/30/95 $34,546,320 100% $12,486,310 36% $22,060,010 64%
</TABLE>
CEDED
<TABLE>
<CAPTION>
RESERVES ON
REPORTED IBNR
DATE RESERVES % CLAIMS % RESERVES %
<S> <C> <C> <C> <C> <C> <C>
9/30/94 $5,983,568 100% $4,367,754 73% $1,615,814 27%
12/31/94 $6,424,110 100% $4,006,925 62% $2,417,185 38%
3/31/95 $6,228,220 100% $4,282,499 69% $1,945,721 31%
6/30/95 $6,712,578 100% $5,503,357 82% $1,209,221 18%
9/30/95 $6,598,823 100% $5,058,984 77% $1,539,839 23%
</TABLE>
NET
RESERVES
<TABLE>
<CAPTION>
RESERVES ON
REPORTED IBNR
DATE RESERVES % CLAIMS % RESERVES %
<S> <C> <C> <C> <C> <C> <C>
9/30/94 $27,266,831 100% $8,749,350 32% $18,517,481 68%
12/31/94 $26,543,699 100% $8,807,230 33% $17,736,469 67%
3/31/95 $26,820,435 100% $9,269,264 35% $17,551,171 65%
6/30/95 $27,081,754 100% $7,603,635 28% $19,478,119 72%
9/30/95 $27,947,497 100% $7,427,326 27% $20,520,171 73%
</TABLE>
The Registrant regularly monitors the relative proportions of its gross
reserves to ensure that they are adequate. In the event such reserves are
deemed to be either excessive or insufficient, adjustments are made at the time
of such determination.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
For income tax purposes, the liability for unpaid losses and loss adjustment
expenses is discounted to values less than those reported for accounting
purposes. The effect of the discounting is to increase the amount of taxable
income and current income tax liability. The tax based adjustments are more
fully explained in Notes A and D to the consolidated financial statements of
the Registrant in the Registrant's Form 10-K for the year ended December 31,
1994.
Management considers the Registrant's current capitalization, investments and
net reserves to be adequate to meet the Registrant's operating needs and to
support the level of reinsurance premiums currently being assumed.
Payments of future cash dividends are reviewed and voted on at regularly
scheduled Board of Directors' meetings of the Registrant and its subsidiaries.
In declaring the most recent dividend, the Registrant considered its current
financial condition, with special attention to current income, retained
earnings and its Stockholder Dividend Policy. These decisions, further, are
based upon the subsidiaries' performances, taking into account regulatory
restrictions on payment of dividends by such subsidiaries. The Registrant also
declared and issued a 20% stock dividend in the third quarter of 1995. This
stock dividend reduced retained earnings and increased outstanding shares and
paid in capital. Aggregate dividends will increase, as it is anticipated that
to the extent feasible, the Registrant will maintain the same cash dividend as
was declared prior to the stock dividend.
The Registrant's cash flow in the first nine months of 1995 reflects a decrease
in net cash of $2,688,033. The net cash outflow is comprised of $6,477,565
related to cash used for purchasing of investments, cash inflow of $4,198,736
related to operations and a cash outflow of $409,204 related to the payments of
dividends and stock options being exercised. The prior year 1994 reflects a
net cash increase of $1,840,267 comprised of the purchases of investments of
$850,287, cash provided by operations of $3,114,452 and cash used to pay
dividends in the amount of $423,898. The increase in cash provided by
operations is primarily due to the increase in premiums being retained by First
Re on the Oakley business.
As of April 1, 1995, First Re increased its net participation in the lower
layer of the Oakley treaties and eliminated its participations in the two upper
layers. The net exposure per risk will increase by less than 1% from $495,000
to $500,000 but will be concentrated in the first layer of coverage rather than
spread among the policy limits of up to $5,000,000. The net premium writings
will increase from approximately 44% of the gross premiums, to approximately
70% of the gross premiums. This change in participation will create a
proportional increase in the commission expenses and incurred losses on the
program.
During the first quarter of 1995, the Registrant made a formal offer to
acquire, in a cash transaction, AmerInst Insurance Group, Inc. ("AIIG"), a
publicly held reinsurer of accountants professional liability insurance, at a
discount to its book value. The proposed acquisition price was approximately
$10.9 million. On June 29, 1995 the AIIG board of directors notified the
Registrant that it considered the offer not in the best interests of AIIG
shareholders. The Registrant is currently evaluating its options with respect
to this matter.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Registrant is unaware of any other trends or uncertainties that have had,
or that the Registrant reasonably expects will have, a material effect on its
liquidity, capital resources or operations. Management feels that the
Registrant's liquidity and capital resources are adequate to meet future needs.
RESULTS OF OPERATIONS
Earnings per share in the nine and three months ended September 30, 1995,
amounted to $1.24 and $0.50 respectively. This represents an increase of
30.5% and an increase of 56.3% from the comparable periods of 1994. Earnings
per share are calculated on a diluted basis.
Net income for the nine months ended September 30, 1995 is 30.3% higher than
for the same period in 1994 ($3,429,133 vs. $2,631,376). The 1995 third
quarter net income is 57.5% higher than the same period in 1994 ($1,400,072 vs.
$888,829).
Premiums earned, investment income and realized capital gains all increased
from the prior year results and caused the total revenue to increase $3,101,817
or 33.1% for the nine months and $951,624 or 27.3% for the three month period.
Incurred losses and commission expenses increased proportionally to the premium
increase, but favorable development in losses in the financial institution
reinsurance programs continued to contribute significantly to the Registrants'
net income.
The favorable loss development recorded in each nine month period was
approximately the same, but underlying claims actions influencing the favorable
development occurred principally in the second quarter of 1994. The 1995
development was earned throughout 1995. Similarly, the realized capital gains
were earned principally in the first quarter of 1994 and the third quarter of
1995.
PREMIUMS EARNED
The nine month premiums earned as of September 30, 1995 increased 36.5%
($8,109,700 vs. $5,942,829) over 1994. This increase is primarily due to earned
premiums from business produced by the Registrant's Oakley subsidiary and
reflects a 30.0% increase in gross premium written and an increase in retention
from approximately 44.0% to 70.0% of the gross premium, which occurred in the
second quarter of 1995.
The nine months of 1994 benefited from $811,000 of premium revenue from the
financial institutions insurance program. The expiring premiums related to
this run-off program were fully earned during the first six months of 1994
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
NET INVESTMENT INCOME AND REALIZED INVESTMENT GAINS
Net investment income in the nine months ended September 30, 1995 increased
approximately 31.4% ($3,073,920 vs. $2,339,427). This was due to higher
available interest rates during the nine months of 1995 and a change from tax
advantaged into higher yielding taxable securities during the third and fourth
quarters of 1994. The cash flow related to increased premium writings also
contributed to the increase in investment income.
Net realized gains on investments in the nine months ended September 30
increased approximately 44.1%, ($839,963 vs. $582,808). The gains earned in
1995 represented repositioning of securities from tax advantaged to fully
taxable to take advantage of market opportunities and sale of certain
convertible securities that were fully valued. In 1994, the Registrant realized
capital gains as part of a strategy to capture a tax benefit that was scheduled
to expire at December 31, 1994. This goal was achieved principally in the
first quarter of 1994.
Future realized gains will be dependent on portfolio positions and market
conditions. Consistent with its investment guidelines, the Registrant will
continue to invest for the highest total return possible while maintaining its
portfolio's current liquidity and credit characteristics.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Incurred losses and loss adjustment expenses were $3,647,457 and $2,446,340, a
49.1% increase for the nine month period ended September 30, 1995 and 1994. The
increase in premium earnings caused a proportional increase in losses
incurred. The nine months ended September 30, 1995 reflected a loss ratio of
45.0% as compared to 41.2% in 1994. Favorable liability re-estimations of loss
reserves on First Re's reinsurance assumed contracts issued prior to 1993
provided approximately $2,300,000 of reduction in incurred losses for each
period.
The Registrant's exposure to catastrophe losses that have occurred throughout
the third quarter and at the beginning of the fourth quarter of 1995 did not
materially impact incurred losses.
COMMISSIONS EXPENSES
The nine months ended September 30, 1995 had a commissions expense increase of
approximately 23% ($1,786,488 vs. $1,452,061) from the same period in 1994.
The three months ended September 30, 1995 decreased 33.4%($477,742 vs.
$716,872) from the same period in 1994. The 1995 increase in commission
expenses is proportional to the increased premiums earned. The effective
commission rate on premiums earned in 1995 decreased from 24.4% to 22.0% from
the comparable period in 1994. The lower acquisition cost decreased due the
change in retention levels on Oakley business at the April 1, 1995 treaty
renewal date and the lower acquisition costs associated with writing more
business directly in First Re.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONT.)
OTHER OPERATING AND MANAGEMENT EXPENSES
Other operating and management expenses increased 8.8% for the nine months
ending September 30, 1995 ($2,701,066 vs. $2,483,014) and increased 10.6% for
the three months ending September 30, 1995 ($826,129 vs. $746,924) when
compared to the same periods of 1994. The increase relates to expenses
incurred with the higher levels of premium production and professional fees
incurred in attempting to acquire the AmerInst Insurance Group and resolving
other shareholder issues.
The Company continues to identify and initiate expense saving strategies as it
becomes more efficient in operating its Oakley subsidiary and managing its
run-off liabilities. The result of these efforts allowed the nine month
increase in premium revenue of 36.5%, while only incurring an 8.8% increase in
operating expenses.
PROVISION FOR INCOME TAXES
The nine months ended September 30, 1995 reflected a 21.0% effective tax rate
as compared to a 12.0% tax rate for the 1994 period. This increase is due to a
higher proportion of fully taxed investment income and the fact that capital
gains were fully taxed in 1995, but were partially offset with a capital loss
carry-forward in 1994.
REGULATORY ENVIRONMENT
The insurance (and reinsurance) industry is being scrutinized by the Executive
and Legislative branches of government as well as regulatory agencies. Items
presently being given attention are individual state regulatory issues (i.e.
solvency) and federal regulation of the reinsurance and insurance industry. It
is not possible to predict at this time the impact that these initiatives will
have on the Registrant's business.
The Registrant will continue to monitor these developments and will respond
when necessary to the changing environment.
12
<PAGE> 13
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
PART II
OTHER INFORMATION
ITEMS 1-3 Have been omitted as they are either not applicable or result
in a negative answer.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Not applicable.
ITEM 5 OTHER MATTERS
(a) In the third quarter of 1995, the Registrant received
an unsolicited proposal from its Chairman of the
Board, R. Keith Long, to acquire the Company at a
cash price of $16.00 per share. The Board of
Directors of the Registrant has appointed a Special
Committee to evaluate various alternative actions to
position the Company for the future. Among other
things, the Special Committee will evaluate the
proposal received from R. Keith Long. The Special
Committee has engaged William Blair & Company to act
as its financial advisor in connection with its
evaluation.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) The Registrant has filed no current reports on Form
8-K for the quarter ended 9/30/95.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
- --------------------------------------------
(Registrant)
November 13, 1995
John A. Dore
----------------------------------------------------
John A. Dore
(President and Chief Executive Officer, duly
authorized to sign this report in such capacities
and on behalf of the Registrant.)
November 13, 1995
Lonnie L. Steffen
----------------------------------------------------
Lonnie L. Steffen
(Chief Financial Officer , Executive Vice President,
Treasurer, duly authorized to sign this report in
such capacities and on behalf of the Registrant.)
14
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,234,867
<SECURITIES> 76,253,802
<RECEIVABLES> 12,636,667
<ALLOWANCES> 3,657,789
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0
0
<OTHER-SE> 41,631,221
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