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 March 31, 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 March 31, 1996
The Index of Exhibits is located at page 12 in the sequential
numbering system.
Total pages: 12
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 months ended March 31, 1996, are
not necessarily indicative of the results to be expected
for the entire year.
These quarterly interim financial statements are
unaudited.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of March 31, 1996 and December 31, 1995
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Investments:
Fixed maturities--available for sale, at market
(cost $212,241,000 and $213,816,000) $214,917,810 $220,036,772
Equity securities, at market
(cost $29,039,000 and $26,961,000) 34,660,362 31,119,875
Short-term investments, at cost, which
approximates market 2,100,584 2,483,338
Other invested assets 1,042,584 1,053,905
Total investments 252,721,340 254,693,890
Cash 1,631,625 935,098
Premiums receivable, net of allowance for bad debts 2,549,783 2,642,425
Accrued investment income 2,915,958 2,942,194
Deferred policy acquisition costs 13,352,046 13,354,600
Goodwill 2,120,227 2,152,339
Reinsurance receivables 31,114,232 32,469,285
Prepaid reinsurance premiums 2,703,176 2,617,138
Due from Meridian Mutual Insurance Company 6,652,240 9,358,803
Other assets 2,882,665 1,422,444
Total assets $318,643,292 $322,588,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $124,331,891 $123,577,240
Unearned premiums 64,632,889 64,558,695
Other post-retirement benefits 1,328,237 1,298,378
Reinsurance payables 8,132,025 6,863,626
Other liabilities 3,317,907 8,047,610
Total liabilities 201,742,949 204,345,549
Shareholders' equity:
Common shares, no par value, authorized
20,000,000 shares; issued 6,805,955 at March
31, 1996 and 6,803,385 at December 31, 1995;
outstanding 6,779,375 at March 31, 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 5,446,147 6,842,245
Retained earnings 52,318,023 52,265,410
Total shareholders' equity 116,900,343 118,242,667
Total liabilities and shareholders' equity $318,643,292 $322,588,216
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the three months ended March 31, 1996 and 1995
(Unaudited)
March 31,
1996 1995
Premiums earned $37,146,443 $34,816,414
Net investment income 3,726,205 3,628,505
Realized investment gains 322,078 95,782
Other income 205,629 126,245
Total revenues 41,400,355 38,666,946
Losses and loss adjustment expenses 29,506,718 24,344,558
General operating expenses 3,383,788 3,572,859
Amortization expenses 8,040,886 7,244,446
Total expenses 40,931,392 35,161,863
Income before income taxes 468,963 3,505,083
Income taxes (benefit):
Current 102,000 780,000
Deferred (228,000) (26,000)
Total income taxes (benefit) (126,000) 754,000
Net income $ 594,963 $ 2,751,083
Weighted average shares outstanding 6,779,008 6,753,885
Per share results:
Net income $ 0.09 $ 0.41
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the three months ended March 31, 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 -- -- -- 2,751,083
Unrealized appreciation of
investment securities, net
of deferred income taxes -- -- 6,306,988 --
Dividends ($0.06 per share) -- -- -- (473,738)
Exercise of stock options
for 24,920 common shares 133,290 -- -- --
Balance at March 31, 1995 $44,064,012 $15,058,327 $ (974,736) $44,822,459
Balance at January 1, 1996 $44,076,685 $15,058,327 $ 6,842,245 $52,265,410
Net income -- -- -- 594,963
Unrealized depreciation of
investment securities, net
of deferred income taxes -- -- (1,396,098) --
Dividends ($0.08 per share) -- -- -- (542,350)
Exercise of stock options
for 4,042 common shares 23,241 -- -- --
Repurchase and retirement
of 1,472 common shares (22,080) -- -- --
Balance at March 31, 1996 $44,077,846 $15,058,327 $ 5,446,147 $52,318,023
The accompanying notes are an integral part of the consolidated
financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
March 31,
1996 1995
Cash flows from operating activities:
Net income $ 594,963 $ 2,751,083
Reconciliation of net income to net cash
provided by operating activities:
Deferred policy acquisition costs, net 2,554 (389,093)
Increase in unearned premiums 74,194 499,055
Increase in losses and loss adjustment expenses 754,651 1,742,009
Decrease (increase) in amount due from Meridian
Mutual Ins. Co. 2,706,563 (166,686)
Decrease (increase) in reinsurance receivables 1,355,053 (583,175)
Increase in other assets (243,715) (55,049)
Increase in other post-employment benefits 29,859 24,399
Increase in reinsurance payables 1,268,399 1,075,210
Decrease in accrued commissions and other expenses(3,147,305) (1,837,345)
Decrease in payable for federal income taxes (713,000) (335,000)
Increase in other liabilities 185,264 326,628
Net realized investment gains (322,078) (95,782)
Other, net 229,085 408,915
Net cash provided by operating activities 2,774,487 3,365,169
Cash flows from investing activities:
Purchase of fixed maturities, available for sale (9,988,112) (4,565,620)
Proceeds from sale of fixed maturities, available
for sale 5,411,118 831,020
Proceeds from calls, prepayments and maturity of
fixed maturities, available for sale 6,095,577 1,667,278
Purchase of equity securities (4,496,347) (1,739,408)
Proceeds from sale of equity securities 2,419,087 3,178,559
Net decrease in short-term investments 382,754 234,820
Decrease in other invested assets 11,321 51,281
Decrease in payable for securities (1,440,143) (2,123,354)
Net cash used in investing activities (1,604,745) (2,465,424)
Cash flows from financing activities:
Dividends paid (474,376) (404,566)
Repurchase and retirement of common stock (22,080) --
Exercise of stock options 23,241 133,290
Net cash used in financing activities (473,215) (271,276)
Increase in cash 696,527 628,469
Cash at beginning of period 935,098 843,398
Cash at end of period $ 1,631,625 $ 1,471,867
The accompanying notes are an integral part of the consolidated
financial statements.
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 months
ended March 31, 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 months
ended March 31, 1996 and 1995 was 74 percent.
2. Reinsurance
For the three months ended March 31, 1996 and 1995, the effects
of reinsurance on the Company's written and earned premiums are
as follows:
March 31, 1996 March 31, 1995
Written Earned Written Earned
Direct $38,344,632 $38,199,183 $36,887,060 $36,225,241
Assumed 1,768,994 1,840,248 1,284,220 1,350,046
Ceded (2,979,026) (2,892,988) (2,691,770) (2,758,873)
Net $37,134,600 $37,146,443 $35,479,510 $34,816,414
Reinsurance recoveries recognized during the three month periods
ended March 31, 1996 and 1995 were approximately $96,000 and
$1,745,000, 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 mid-year
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.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Financial Position
At March 31, 1996, Meridian Insurance Group, Inc. reported
total assets of $318.6 million, or 1.2 percent less than the
December 31, 1995 total of $322.6 million. Contributing to
the asset decline were reduced market values in the
Company's fixed maturity investments, of which the entire
portfolio is classified as available for sale and carried at
fair market value. Net unrealized appreciation of fixed
maturities declined approximately $3.5 million during the
first quarter of 1996. Total liabilities of $201.7 million
at March 31, 1996 reflects a decrease of 1.3 percent from
$204.3 million at year-end 1995. The first quarter payments
of certain year end liabilities such as contingent
commissions, employee incentive bonuses, federal income
taxes, and other unpaid operating expenses resulted in the
reduction.
The Company's shareholders' equity of $116.9 million at
March 31, 1996 reflects a decrease of 1.1 percent from year-
end 1995's $118.2 million. A reduction in unrealized
appreciation of investments, net of deferred income taxes of
approximately $1.4 million was the principal factor. The
quarterly dividend, which was increased to $0.08 per common
share in March 1996, largely offset the first quarter
earnings of $0.09 per share. The Company's book value per
share at March 31, 1996 was $17.24, a 1.2 percent decrease
from $17.45 at December 31, 1995.
Results of Operations
For the three months ended March 31, 1996, the Company
recorded net income of approximately $0.6 million, or $0.09
per common share. This compares to the 1995 first quarter
net income of approximately $2.8 million, or $0.41 per
share. The current period reduction in earnings is
primarily attributable to an unusually large number of
property damage claims associated with severe winter storms
that affected Meridian's operating territory during the
first three months of 1996. Estimated total weather-related
catastrophe losses were $2.2 million. In addition,
approximately $2.0 million of weather-related non-
catastrophic claims were incurred. The total after-tax
impact of such weather-related claims is estimated to be
approximately $0.40 per share. The 1995 results were not
materially impacted by catastrophe or other weather-related
claims.
The Company's total revenue of $41.4 million for the first
three months of 1996 increased 7.1 percent over the $38.7
million reported for the same 1995 period. The increased
revenues were largely attributable to a 6.7 percent growth
in premiums earned to $37.1 million from $34.8 million in
the 1995 first quarter. All of the Company's major lines of
business contributed to the earned premium growth, with
personal lines increasing 7.5 percent, commercial lines 5.8
percent and farm lines 4.6 percent. Net investment income
for the 1996 first quarter increased 2.7 percent to $3.7
million from $3.6 million for the comparable 1995 period.
Through the first three months of 1996, the Company realized
gains on the disposition of investments of $0.3 million
compared to $0.1 million for the same 1995 period.
Largely as a result of the weather-related claims, the
Company's incurred losses and loss adjustment expenses of
$29.5 million for the quarter ended March 31, 1996, were
21.2 percent higher than the $24.3 million for the first
quarter of 1995. The Company's statutory loss and loss
adjustment expense ratio of 79.4 percent for the 1996 first
quarter increased 8.6 percentage points from the 70.8
percent reported for the 1995 first quarter.
For the three months ended March 31, 1996, the Company's
total general operating and amortization expenses of $11.4
million increased 5.6 percent from $10.8 million in the 1995
first quarter. This percentage increase is less than the
Company's 6.7 percent increase in premium volume for the
three months ended March 31, 1996. The statutory expense
ratio for the 1996 first quarter improved slightly to 31.0
percent compared to 1995's first quarter ratio of 31.2
percent due primarily to lower average commission expenses.
The statutory combined ratio of 110.4 percent for the 1996
first quarter increased 8.3 percentage points over 1995's
first quarter ratio of 102.1 percent.
An income tax benefit of $0.1 million in the first quarter
of 1996 resulted from the amount of tax-exempt investment
income relative to pre-tax income.
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.
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: April 23, 1996 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: April 23, 1996 By: /s/ Steven R. Hazelbaker
Steven R. Hazelbaker,
Vice President, Chief Financial
Officer and Treasurer
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
FORM 10-Q
For the quarter ended March 31, 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
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<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 214,918
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 2,101
<EQUITIES> 34,660
<MORTGAGE> 708
<REAL-ESTATE> 0
<TOTAL-INVEST> 252,721
<CASH> 1,632
<RECOVER-REINSURE> 1,601
<DEFERRED-ACQUISITION> 13,352
<TOTAL-ASSETS> 318,643
<POLICY-LOSSES> 124,331
<UNEARNED-PREMIUMS> 64,633
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 44,078
<OTHER-SE> 72,822
<TOTAL-LIABILITY-AND-EQUITY> 318,643
37,146
<INVESTMENT-INCOME> 3,726
<INVESTMENT-GAINS> 322
<OTHER-INCOME> 206
<BENEFITS> 29,507
<UNDERWRITING-AMORTIZATION> 8,041
<UNDERWRITING-OTHER> 3,384
<INCOME-PRETAX> 469
<INCOME-TAX> (126)
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<RESERVE-OPEN> 123,577
<PROVISION-CURRENT> 31,146
<PROVISION-PRIOR> (1,639)
<PAYMENTS-CURRENT> 11,403
<PAYMENTS-PRIOR> 15,658
<RESERVE-CLOSE> 124,332
<CUMULATIVE-DEFICIENCY> (1,639)
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