<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 June 30, 1996.
OR
[ ] 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 0-11413
MERIDIAN INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1689161
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2955 North Meridian Street
P.O. Box 1980
Indianapolis, IN 46206
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 931-7000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
6,779,375 Common Shares at June 30, 1996
The Index of Exhibits is located at page 14 in the sequential
numbering system.
Total pages: 14
<PAGE> 2
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. In the opinion of management, the financial
information reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary for a
fair presentation of financial position, results of
operations and cash flows for the interim periods. The
results for the three and six months ended June 30, 1996,
are not necessarily indicative of the results to be
expected for the entire year.
These quarterly interim financial statements are
unaudited.
<PAGE> 3
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of June 30, 1996 and December 31, 1995
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Investments:
Fixed maturities--available for sale, at market
(cost $207,481,000 and $213,816,000) $208,644,735 $220,036,772
Equity securities, at market
(cost $29,108,000 and $26,961,000) 34,766,000 31,119,875
Short-term investments, at cost, which
approximates market 8,784,152 2,483,338
Other invested assets 1,071,871 1,053,905
Total investments 253,266,758 254,693,890
Cash 452,465 935,098
Premiums receivable, net of allowance for bad debts 2,763,023 2,642,425
Accrued investment income 2,798,540 2,942,194
Deferred policy acquisition costs 14,076,109 13,354,600
Goodwill 2,088,114 2,152,339
Reinsurance receivables 39,308,748 32,469,285
Prepaid reinsurance premiums 3,025,630 2,617,138
Due from Meridian Mutual Insurance Company 9,347,382 9,358,803
Other assets 4,177,832 1,422,444
Total assets $331,304,601 $322,588,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $129,946,509 $123,577,240
Unearned premiums 68,313,704 64,558,695
Other post-retirement benefits 1,358,096 1,298,378
Payable for securities 3,080,587 1,122,637
Reinsurance payables 8,903,236 6,863,626
Other liabilities 3,586,767 6,924,973
Total liabilities 215,188,899 204,345,549
Shareholders' equity:
Common shares, no par value, authorized 20,000,000
shares; issued 6,805,955 at June 30, 1996 and
6,803,385 at December 31, 1995; outstanding
6,779,375 at June 30, 1996, and 6,776,805 at
December 31, 1995 44,077,846 44,076,685
Contributed capital 15,058,327 15,058,327
Unrealized appreciation of investment securities,
net of deferred income tax 4,502,082 6,842,245
Retained earnings 52,477,447 52,265,410
Total shareholders' equity 116,115,702 118,242,667
Total liabilities and shareholders' equity $331,304,601 $322,588,216
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 4
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the three months ended June 30, 1996 and 1995
(Unaudited)
June 30,
1996 1995
Premiums earned $ 38,281,603 $ 35,653,703
Net investment income 3,530,629 3,673,903
Realized investment gains 1,270,172 210,656
Other income 179,157 94,387
Total revenues 43,261,561 39,632,649
Losses and loss adjustment expenses 31,610,326 27,015,909
General operating expenses 2,979,835 3,345,441
Amortization expenses 8,285,625 7,690,371
Total expenses 42,875,786 38,051,721
Income before income taxes 385,775 1,580,928
Income taxes (benefit):
Current (10,000) 182,000
Deferred (306,000) 138,000
Total income taxes (benefit) (316,000) 320,000
Net income $ 701,775 $ 1,260,928
Weighted average shares outstanding 6,779,375 6,773,304
Per share results:
Net income $ 0.10 $ 0.19
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 5
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the six months ended June 30, 1996 and 1995
(Unaudited)
June 30,
1996 1995
Premiums earned $ 75,428,046 $ 70,470,117
Net investment income 7,256,834 7,302,408
Realized investment gains 1,592,250 306,438
Other income 384,786 220,632
Total revenues 84,661,916 78,299,595
Losses and loss adjustment expenses 61,117,044 51,360,467
General operating expenses 6,363,623 6,918,300
Amortization expenses 16,326,511 14,934,817
Total expenses 83,807,178 73,213,584
Income before income taxes 854,738 5,086,011
Income taxes (benefit):
Current 92,000 962,000
Deferred (534,000) 112,000
Total income taxes (benefit) (442,000) 1,074,000
Net income $ 1,296,738 $ 4,012,011
Weighted average shares outstanding 6,779,191 6,763,648
Per share results:
Net income $ 0.19 $ 0.59
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 6
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the six months ended June 30, 1996 and 1995
(Unaudited)
Unrealized
Appreciation
Common Contributed (Depreciation) Retained
Shares Capital of Investments Earnings
Balance at January 1, 1995 $43,930,722 $15,058,327 $(7,281,724) $42,545,114
Net income -- -- -- 4,012,011
Unrealized appreciation of
investment securities, net
of deferred income taxes -- -- 9,532,320 --
Dividends ($0.14 per share) -- -- -- (948,018)
Exercise of stock options
for 39,146 common shares 215,089 -- -- --
Repurchase and retirement
of 6,479 common shares (77,033) -- -- --
Balance at June 30, 1995 $44,068,778 $15,058,327 $ 2,250,596 $45,609,107
Balance at January 1, 1996 $44,076,685 $15,058,327 $ 6,842,245 $52,265,410
Net income -- -- -- 1,296,738
Unrealized depreciation of
investment securities, net
of deferred income taxes -- -- (2,340,163) --
Dividends ($0.16 per share) -- -- -- (1,084,701)
Exercise of stock options
for 4,042 common shares 23,241 -- -- --
Repurchase and retirement
of 1,472 common shares (22,080) -- -- --
Balance at June 30, 1996 $44,077,846 $15,058,327 $ 4,502,082 $52,477,447
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 7
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(Unaudited)
June 30,
1996 1995
Cash flows from operating activities:
Net income $ 1,296,738 $ 4,012,011
Reconciliation of net income to net cash provided by
operating activities:
Deferred policy acquisition costs, net (721,509) (945,794)
Increase in unearned premiums 3,755,009 2,978,094
Increase in losses and loss adjustment expenses 6,369,269 1,056,986
Decrease (increase) in amount due from Meridian
Mutual Ins. Co. 11,421 (1,197,172)
Decrease (increase) in reinsurance receivables (6,839,463) 2,289,251
Increase in other assets (1,042,387) (52,470)
Increase in other post-employment benefits 59,718 48,798
Increase in reinsurance payables 2,039,610 3,003,296
Decrease in accrued commissions and other expenses (2,631,571) (1,040,453)
Decrease in payable for federal income taxes (1,002,352) (1,448,000)
Increase in other liabilities 227,743 255,106
Net realized investment gains (1,592,250) (306,438)
Other, net (557,948) 280,687
Net cash provided (used) by operating activities (627,972) 8,933,902
Cash flows from investing activities:
Purchase of fixed maturities, available for sale (19,094,373) (13,544,917)
Proceeds from sale of fixed maturities, available
for sale 15,650,720 2,328,180
Proceeds from calls, prepayments and maturity of
fixed maturities, available for sale 9,339,404 3,373,629
Purchase of equity securities (8,332,404) (4,217,534)
Proceeds from sale of equity securities 7,958,388 4,078,059
Net increase in short-term investments (6,300,814) (170,939)
Decrease (increase) in other invested assets (17,966) 78,864
Increase (decrease) in payable for securities 1,957,950 (476,501)
Net cash provided (used) in investing activities 1,160,905 (8,551,159)
Cash flows from financing activities:
Dividends paid (1,016,727) (878,304)
Repurchase and retirement of common stock (22,080) (77,033)
Exercise of stock options 23,241 215,089
Net cash used in financing activities (1,015,566) (740,248)
Decrease in cash (482,633) (357,505)
Cash at beginning of period 935,098 603,566
Cash at end of period $ 452,465 $ 246,061
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 8
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements should be read in
conjunction with the following notes and with the Notes to
Consolidated Financial Statements of Meridian Insurance Group, Inc.,
for the year ended December 31, 1995. In the opinion of management,
the financial information reflects all adjustments (consisting only
of normal recurring adjustments) which are necessary for a fair
presentation of financial position, results of operations and cash
flows for the interim periods. The results for the three and six
months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the entire year.
1. Related Party Transactions
Meridian Insurance Group, Inc. (the "Company") is an insurance
holding company principally engaged in underwriting property and
casualty insurance through its wholly-owned subsidiary, Meridian
Security Insurance Company ("Meridian Security"). Meridian
Security participates in a pooling arrangement with Meridian
Mutual Insurance Company ("Meridian Mutual"), a principal
shareholder of the Company, in which the underwriting income and
expenses of both Meridian Mutual and Meridian Security are
shared. Meridian Security's participation for the three and six
months ended June 30, 1996 and 1995 were 74 percent.
2. Reinsurance
For the six months ended June 30, 1996 and 1995, the effects of
reinsurance on the Company's written and earned premiums are as
follows:
June 30, 1996 June 30, 1995
Written Earned Written Earned
Direct $82,551,768 $77,636,806 $76,497,408 $73,424,242
Assumed 2,823,327 3,983,278 2,501,438 2,596,509
Ceded (6,600,532) (6,192,038) (5,631,487) (5,550,634)
Net $78,774,563 $75,428,046 $73,367,359 $70,470,117
Reinsurance recoveries recognized during the six month periods
ended June 30, 1996 and 1995 were approximately $10,734,000 and
$852,000, respectively.
3. Pending Acquisition
On February 8, 1996, the Company announced its intent to acquire
Citizens Security Group Inc. ("Citizens") for approximately $29
million in cash. On March 22, 1996, the Company and Citizens
executed a definitive acquisition agreement, which is
conditioned upon the approval of Citizens' shareholders,
Citizens Security Mutual Insurance Company's policyholders and
the insurance departments of Indiana, Minnesota and Ohio. It is
expected that the acquisition will be completed by July 31,
1996. Upon completion of the acquisition, the Company's
operating territory will expand into four additional states:
Minnesota, Missouri, North Dakota, and South Dakota; and its
revenue base will increase in Iowa, Ohio and Wisconsin. As a
result of this acquisition, the Company will gain control of
Citizens Security Mutual Insurance Company. Direct written
premiums for the Citizens' affiliated companies were
approximately $50 million in 1995. The underwriting results of
Citizens are expected to be incorporated into the pooling
arrangement between Meridian Mutual and Meridian Security.
<PAGE> 9
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
Item 2:Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Financial Position
Total assets for Meridian Insurance Group, Inc. at June 30,
1996 were $331.3 million, a growth of 2.7 percent over
December 31, 1995's $322.6 million. This growth was
primarily attributed to increases in the Company's
reinsurance receivables and its deferred federal income tax
asset. The growth of approximately $6.8 million in
reinsurance receivables resulted from the heavy volume of
property damage claims that were associated with severe wind
and hail storms that affected Meridian's operating territory
during the second quarter of 1996. Losses incurred from
these storms exceeded the Company's retention limits on both
its single occurrence and aggregate catastrophe reinsurance
contracts. The increase in the deferred tax asset was
largely attributed to a decline in the net unrealized
appreciation of the Company's fixed maturity investment
portfolio of approximately $5.1 million. The reduction in
the market value of the fixed maturity portfolio also
contributed to a slight decline in total invested assets to
$253.3 million at June 30, 1996 compared to the 1995 year-
end total of $254.7 million. The Company's short-term
investments increased to $8.8 million as the Company began
accumulating cash in anticipation of the July 31 closing of
the acquisition of Citizens Security Group, Inc.
The Company's total liabilities of $215.2 million at June
30, 1996 were 5.3 percent higher than December 31, 1995's
total of $204.3 million. Contributing to the liability
growth were the increased reserves for losses and loss
adjustment expenses and unearned premiums. The high volume
of claims associated with the severe weather was the primary
cause for the increased loss and loss adjustment expense
reserves. The unearned premium reserve growth was
reflective of the Company's increased 1996 premium volume.
The Company's shareholders' equity at June 30, 1996 was
$116.1 million, a decrease of 1.8 percent from $118.2
million at December 31, 1995. The reduction in unrealized
appreciation of fixed maturities, net of unrealized gains on
equity securities and deferred income taxes, was a major
factor in the decrease in shareholders' equity. The
Company's net income of $1.3 million, or $0.19 per share,
for the first half on 1996 was largely offset by the first
and second quarter dividends totaling $0.16 per share. The
book value per share for Meridian Insurance Group, Inc. at
June 30, 1996 decreased to $17.13 as compared to $17.45 at
December 31, 1995.
On February 8, 1996, the Company announced that its
subsidiary, Meridian Security had entered into a letter of
intent to acquire Citizens Security Group, Inc. of Red Wing,
Minnesota for approximately $29 million in cash. A
definitive acquisition agreement was executed on March 22,
1996 and the subsequent acquisition was closed on July 31,
1996. Approximately 60 percent of the cash was generated
from the sale of a portion of Meridian Security's investment
portfolio. The remaining $12 million was financed by the
parent company as bank debt and contributed to Meridian
Security. The loan was financed through First Chicago/NBD
Corporation and is to be amortized over seven years with the
interest rate of LIBOR plus 50 basis points. The
acquisition is expected to generate approximately $35 to $40
million of net premium writings in seven states, four of
which the Company did not previously operate in.
<PAGE> 10
Results of Operations
Quarter
For the three months ended June 30, 1996, the Company
reported net income of $0.7 million, or $0.10 per common
share. This compares to the 1995 second quarter net income
of $1.3 million, or $0.19 per share. The results for both
periods were affected by severe weather in the Midwest with
the heaviest impact caused by wind and hail storms in April
and May of 1996. This year's total second quarter
catastrophe losses represent the largest quarterly
catastrophe losses in the Company's history. Estimated
total weather-related catastrophe losses for the 1996 second
quarter were $6.3 million before tax, or approximately $0.60
per share after tax. This compares to the 1995 second
quarter storm losses of approximately $3.8 million, or $0.37
per share.
The Company's total revenues of $43.3 million for the 1996
second quarter increased 9.2 percent over the $39.6 million
reported for the comparable 1995 period. This was primarily
attributed to strong premium growth in nearly all lines of
business as premiums earned increased 7.4 percent to $38.3
million from $35.7 million for the 1995 second quarter.
Direct premiums written for the total Meridian pool
increased 11.6 percent in the second quarter, exceeding the
Meridian's growth goal for the quarter. Net investment
income for the three months ended June 30, 1996, of $3.5
million declined slightly from the comparable 1995 total of
$3.7 million. This resulted primarily from a higher
proportion of equity securities and tax-exempt bonds in the
investment portfolio. During the second quarter, the
Company realized net gains on the sale of investments of
$1.3 million, which compares to $0.2 million for the same
1995 period. The additional gains in the current period
were largely the result of market conditions and the Company
selling a portion of its equity portfolio to generate cash
in anticipation of the July closing of the acquisition of
Citizens Security Group Inc.
Heavily impacted by catastrophe losses, the Company's
incurred losses and loss adjustment expenses of $31.6
million for the quarter ended June 30, 1996, were 17.0
percent higher than 1995 second quarter's $27.0 million.
The Company's statutory loss and loss adjustment expense
ratio of 82.6 percent for the second quarter of 1996
increased 6.6 percentage points from 76.0 percent reported
for the same 1995 period. For the three month period ended
June 30, 1996, the Company's general operating and
amortization expenses of $11.3 million increased 2.1
percent from $11.0 million reported for the same 1995
period. Relative to premium volume, the Company's statutory
expense ratio of 27.8 percent for the 1996 second quarter
improved 2.5 percentage points when compared to the 1995
second quarter ratio of 30.3 percent. Such expenses were
favorably affected by decreases in accruals for employee
incentive compensation and agent profit-sharing. The
statutory combined ratio for the three months ended June 30,
1996 was 110.4 percent compared to the 1995 ratio of 106.3
percent for the same three months of 1995.
The income tax benefit of $0.3 million recorded for the
three months ended June 30, 1996 resulted primarily from the
amount of tax-exempt investment income in relation to pre-
tax income.
Six Months
For the six months ended June 30, 1996, Meridian Insurance
Group, Inc. reported net income of $1.3 million, or $0.19
per share. This compares to net income of $4.0 million, or
$0.59 per share, for the corresponding 1995 period. The
1996 results were hampered by a series of severe storms that
produced an unusually large volume of property damage claims
throughout the Company's operating territory during the
first five months of 1996. The after-tax impact of weather-
<PAGE> 11
related catastrophe and non-catastrophe claims is estimated
to be approximately $1.00 per share through June 30, 1196,
compared to $0.37 per share through June 30, 1995.
Total revenues have grown 8.1 percent to $84.7 million from
$78.3 million for the same 1995 period. Premiums earned
have increased 7.0 percent through the first six months of
1996 to $75.4 million from $70.5 million for the same 1995
period. All of the Company's major lines of business
contributed to the earned premium growth. Total net
investment income for the first six months of 1996 of nearly
$7.3 million was relatively unchanged from 1995. Although
invested assets grew, the net yield decreased due largely to
a greater proportion of assets invested in equity securities
and tax-exempt bonds. Over the first half of 1996, the
Company realized net gains on the sale of invested assets of
$1.6 million compared to $0.3 million for the same period
one year ago.
Through the first six months of 1996, the Company's incurred
losses and loss adjustment expenses totaled $61.1 million,
which are 19.0 percent higher than 1995's $51.4 million.
Approximately $10.5 million of the current period losses
resulted from the weather-related catastrophe and non-
catastrophic claims, compared to $3.8 million incurred for
the 1995 period. The loss and loss adjustment expense ratio
for the 1996 six month period was 81.0 percent, a
deterioration of approximately 8.0 percentage points from
1995's ratio. The deterioration in the Company's property
lines of business have been somewhat offset by improved
results in the personal and commercial auto liability and
workers' compensation lines of business.
General operating and amortization expenses of $22.7 million
for the six months ended June 30, 1996, were 3.8 percent
higher than the 1995 total of $21.9 million. Relative to
net written premiums the statutory expense ratio for the six
months ended June 30, 1996 was 29.3 percent, which compares
favorably to the 30.7 percent ratio for the same 1995
period. The statutory combined ratio for the most recent
six-month period was 110.3 percent, or over 6.0 percentage
points higher than 1995's ratio.
For the six months ended June 30, 1996, the Company has
recorded an income tax benefit of approximately $0.4
million, primarily the result of the amount of tax-exempt
investment income in relation to pre-tax income.
<PAGE> 12
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. a. Exhibits. See index to exhibits.
b. No reports on Form 8-K were filed during the
period covered by this statement.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MERIDIAN INSURANCE GROUP, INC.
DATE: July 23, 1996 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: July 23, 1996 By: /s/ Steven R. Hazelbaker
Steven R. Hazelbaker,
Vice President, Chief Financial
Officer and Treasurer
<PAGE> 14
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
FORM 10-Q
For the quarter ended June 30, 1996
Index to Exhibits
Exhibit Number
Assigned in Regulation S-K
Item 601 Description of Exhibit
(4) 4.01 Text of Certificate for Common Shares
of Meridian Insurance Group, Inc.
(Incorporated by reference to Exhibit
4.01 to the registrant's Form S-1
Registration Statement No. 33-11413.)
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 208,645
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 8,784
<EQUITIES> 34,766
<MORTGAGE> 707
<REAL-ESTATE> 0
<TOTAL-INVEST> 253,267
<CASH> 452
<RECOVER-REINSURE> 2,029
<DEFERRED-ACQUISITION> 14,076
<TOTAL-ASSETS> 331,305
<POLICY-LOSSES> 129,947
<UNEARNED-PREMIUMS> 68,314
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 44,078
<OTHER-SE> 72,038
<TOTAL-LIABILITY-AND-EQUITY> 331,305
75,428
<INVESTMENT-INCOME> 7,257
<INVESTMENT-GAINS> 1,592
<OTHER-INCOME> 385
<BENEFITS> 61,117
<UNDERWRITING-AMORTIZATION> 16,326
<UNDERWRITING-OTHER> 6,364
<INCOME-PRETAX> 855
<INCOME-TAX> (442)
<INCOME-CONTINUING> 1,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,297
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<RESERVE-OPEN> 123,577
<PROVISION-CURRENT> 65,972
<PROVISION-PRIOR> (4,855)
<PAYMENTS-CURRENT> 36,558
<PAYMENTS-PRIOR> 24,265
<RESERVE-CLOSE> 129,947
<CUMULATIVE-DEFICIENCY> (4,855)
</TABLE>
