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, 1997.
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, 1997
The Index of Exhibits is located at page 13 in the sequential
numbering system. Total pages: 13
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, 1997, 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, 1997 and December 31, 1996
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
Investments:
Fixed maturities--available for sale, at market
(cost $241,911,000 and $234,356,000) $242,689,537 $238,343,040
Equity securities, at market
(cost $33,115,000 and $33,779,000) 39,600,203 40,629,633
Short-term investments, at cost, which
approximates market 3,748,890 1,326,634
Other invested assets 1,389,027 1,390,176
Total investments 287,427,657 281,689,483
Cash 1,382,711 3,128,154
Premiums receivable, net of allowance for bad debts 4,437,608 4,674,984
Accrued investment income 3,280,801 3,241,125
Deferred policy acquisition costs 17,313,341 16,690,275
Goodwill 16,666,314 16,848,829
Reinsurance receivables 42,310,001 45,850,830
Prepaid reinsurance premiums 3,882,429 5,020,605
Due from Meridian Mutual Insurance Company 10,321,081 8,973,672
Other assets 7,132,513 11,679,744
Total assets $394,154,456 $397,797,701
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $163,990,935 $161,309,239
Unearned premiums 84,192,825 84,065,751
Other post-retirement benefits 1,447,673 1,417,814
Bank loan payable 11,750,000 11,875,000
Reinsurance payables 8,403,542 8,664,358
Other liabilities 4,750,776 8,291,558
Total liabilities 274,535,751 275,623,720
Shareholders' equity:
Common shares, no par value, authorized
20,000,000 shares; issued 6,805,955;
outstanding 6,779,375 44,077,846 44,077,846
Contributed capital 15,058,327 15,058,327
Unrealized appreciation of investment securities,
net of deferred income tax 4,818,856 7,141,846
Retained earnings 55,663,676 55,895,962
Total shareholders' equity 119,618,705 122,173,981
Total liabilities and shareholders' equity $394,154,456 $397,797,701
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, 1997 and 1996
(Unaudited)
March 31,
1997 1996
Premiums earned $ 47,946,514 $ 37,146,443
Net investment income 3,924,236 3,726,205
Realized investment gains 392,855 322,078
Other income 644,269 205,629
Total revenues 52,907,874 41,400,355
Losses and loss adjustment expenses 38,311,730 29,506,718
General operating expenses 4,309,977 3,383,788
Amortization expenses 10,336,825 8,040,886
Interest expense 184,278 --
Total expenses 53,142,810 40,931,392
Income (loss) before income taxes (234,936) 468,963
Income taxes (benefit):
Current (384,000) 102,000
Deferred (161,000) (228,000)
Total income taxes (benefit) (545,000) (126,000)
Net income $ 310,064 $ 594,963
Weighted average shares outstanding 6,779,375 6,779,008
Per share results:
Net income $ 0.05 $ 0.09
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, 1997 and 1996
(Unaudited)
Unrealized
Appreciation
Common Contributed (Depreciation) Retained
Shares Capital of Investments Earnings
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
Balance at January 1,
1997 $44,077,846 $15,058,327 $ 7,141,846 $55,895,962
Net income -- -- -- 310,064
Unrealized depreciation
of investment securities,
net of deferred
income taxes -- -- (2,322,990) --
Dividends ($0.08 per share) -- -- -- (542,350)
Balance at March 31,
1997 $44,077,846 $15,058,327 $ 4,818,856 $55,663,676
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, 1997 and 1996
(Unaudited)
March 31,
1997 1996
Cash flows from operating activities:
Net income $ 310,064 $ 594,963
Reconciliation of net income to net cash provided
by operating activities:
Deferred policy acquisition costs, net (623,066) 2,554
Increase in unearned premiums 127,074 74,194
Increase in losses and loss adjustment expenses 2,681,696 754,651
Decrease (increase) in amount due from Meridian
Mutual Ins. Co. (1,347,409) 2,706,563
Decrease in reinsurance receivables 3,540,829 1,355,053
Decrease (increase) in other assets 5,959,232 (243,715)
Increase in other post-employment benefits 29,859 29,859
Increase (decrease) in reinsurance payables (260,816) 1,268,399
Decrease in accrued commissions and other
expenses (1,718,175) (3,147,305)
Decrease in other liabilities (1,822,608) (527,736)
Net realized investment gains (392,855) (322,078)
Other, net 1,023,729 229,085
Net cash provided by operating activities 7,507,554 2,774,487
Cash flows from investing activities:
Purchase of fixed maturities (28,157,345) (9,988,112)
Proceeds from sale of fixed maturities 14,172,497 5,411,118
Proceeds from calls, prepayments and maturity of
fixed maturities 6,286,472 6,095,577
Purchase of equity securities (2,837,118) (4,496,347)
Proceeds from sale of equity securities 3,971,363 2,419,087
Net decrease (increase) in short-term investments (2,422,256) 382,754
Decrease in other invested assets 1,149 11,321
Increase (decrease) in payable for securities 399,591 (1,440,143)
Net cash used in investing activities (8,585,647) (1,604,745)
Cash flows from financing activities:
Dividends paid (542,350) (474,376)
Repayment of bank loan (125,000) --
Repurchase and retirement of common stock -- (22,080)
Exercise of stock options -- 23,241
Net cash used in financing activities (667,350) (473,215)
Increase (decrease) in cash (1,745,443) 696,527
Cash at beginning of period 3,128,154 935,098
Cash at end of period $ 1,382,711 $ 1,631,625
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, 1996. 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, 1997 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 subsidiaries,
Meridian Security Insurance Company ("Meridian Security"),
Citizens Fund Insurance Company ("Citizens Fund") and Insurance
Company of Ohio ("ICO"). Both Citizens Fund and ICO, along with
their holding company, Citizens Security Group, Inc. ("CSGI"),
were purchased by the Company on July 31, 1996 (see Note 3
below). Effective August 1, 1996, Meridian Security, Citizens
Fund and ICO all participated in a pooling arrangement with
Meridian Mutual Insurance Company ("Meridian Mutual"), the
principal shareholder of the Company, and Citizens Mutual
Insurance Company, the former majority shareholder of CSGI, in
which the underwriting income and expenses of each entity are
shared. Beginning August 1, 1996, the participation percentages
of the Company's insurance subsidiaries total 74 percent. Prior
to August 1, Meridian Security and Meridian Mutual were the only
participants in the aforementioned pooling arrangement, of which
Meridian Security assumed 74 percent of the combined underwriting
income and expenses of the two companies.
2. Reinsurance
For the three months ended March 31, 1997 and 1996, the effects
of reinsurance on the Company's written and earned premiums are
as follows:
March 31, 1997 March 31, 1996
Written Earned Written Earned
Direct $52,279,235 $51,743,253 $38,344,632 $38,199,183
Assumed 342,144 751,052 1,768,994 1,840,248
Ceded (3,409,615) (4,547,791) (2,979,026) (2,892,988)
Net $49,211,764 $47,946,514 $37,134,600 $37,146,443
Reinsurance recoveries recognized during the three month period
ended March 31, 1997 and 1996 were approximately $1,315,000 and
$96,000, respectively.
3. Acquisition
On July 31, 1996, the Company acquired Citizens Security Group Inc. and
its property and casualty insurance subsidiaries, Citizens Fund Insurance
Company and Insurance Company of Ohio, for a cash purchase price of
approximately $30,262,000, including capitalized acquisition
costs. The acquisition was accounted for as a purchase with the
assets acquired and liabilities assumed being recorded at their
estimated fair value at the date of acquisition. The excess
cost over the fair value of the net assets resulted in goodwill
of approximately $15,140,000, which is being amortized over 25
years on the straight-line basis.
The consolidated financial statements include the results of operations
of the acquired entities from the date of acquisition. The following
unaudited pro-forma condensed consolidated results of operations for the
three months ended March 31, 1996 assume the acquisition and
financing of the transaction had occurred at the beginning of
the period presented:
Three months ended
March 31, 1996
Premiums $ 44,895,000
Revenues $ 49,653,000
Net income $ 614,000
Net income per share $ 0.09
These unaudited pro-forma results are not necessarily indicative
of the results of operations that would have occurred had the
acquisition taken place at the beginning of each period, or of
future operations of the combined companies.
4. Earnings Per Share:
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share", which requires changes in the
computation, presentation, and disclosure of earnings per share.
This Statement requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all
companies with complex capital structures, regardless of whether
both computations are the same. SFAS No. 128 also replaces the
presentation of primary earnings per share with a basic earnings
per share computation and eliminates the modified treasury stock
method and the three percent materiality provision as were
required under the Accounting Principles Board Opinion No. 15.
This Statement becomes effective for financial statements
beginning with fiscal years after December 15, 1997 and does not
allow for early adoption. Management has not yet determined the
impact of this pronouncement, however, it is not expected to
have a material effect on the Company's financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Financial Position
Total assets of Meridian Insurance Group, Inc. at March 31,
1997 were $394.2 million, or 0.9 percent below the December
31, 1996 total of $397.8 million. Contributing to the asset
decline was a reduction in the market value of the Company's
fixed maturity investments. Net unrealized appreciation of
fixed maturities declined approximately $3.2 million during
the first quarter of 1997. Despite the reduction in the
market value of fixed maturities, total cash and invested
assets increased 1.4 percent to $288.8 million from $284.8
million at year-end 1996. Total liabilities at March 31,
1997 of $274.5 million were slightly lower in comparison to
the $275.6 million reported at December 31, 1996. The first
quarter payments of certain year-end liabilities such as
contingent commissions and other accrued expenses resulted
in the reduction. Partially offsetting the decline in total
liabilities was an increase of 1.7 percent in loss and loss
adjustment expense reserves. The high volume of claims
associated with severe weather in the Company's operating
territory near the end of the first quarter was the primary
cause for the reserve increase.
The Company's shareholders' equity at March 31, 1997 was
$119.6 million, a 2.1 percent decrease from $122.2 million
at year-end 1996. Net unrealized depreciation of
approximately $2.3 million was the primary factor in the
decline. Also contributing was the Company's quarterly
dividend of $0.5 million, or $0.08 per share. As a result
of the reduction in shareholders' equity, the Company's book
value per share declined from $18.02 at December 31, 1996 to
$17.64 at March 31, 1997.
Results of Operations
For the three months ended March 31, 1997, the Company
recorded net income of approximately $0.3 million, or $0.05
per common share. This compares to 1996 first quarter net
income of approximately $0.6 million, or $0.09 per share.
As was the case in the prior year, the first quarter of 1997
was negatively affected by a large number of property damage
claims associated with severe weather that occurred in the
Company's operating territory. Weather-related catastrophe
losses were estimated at $2.5 million in the 1997 first
quarter, compared to approximately $2.2 million for the same
1996 period. In addition, similar amounts of weather-
related non-catastophic claims added to the property damage
losses incurred for the two periods. Total incurred losses
and loss adjustment expenses for the first three months of
1997 were $38.3 million compared to $29.5 million for the
same 1996 period. Most of this increase was attributed to
the July 31, 1996 acquisition of Citizens Security Group.
The loss and loss adjustment expense ratio for the 1997
first quarter was 79.9 percent compared to 79.4 percent for
the corresponding period in 1996.
The Company's total revenues for the 1997 first quarter were
$52.9 million, an increase of 27.8 percent over the $41.4
million reported for the same 1996 period. The increase in
revenues was attributed primarily to a 29.1 percent growth
in premiums earned to $47.9 million from $37.1 million for
the 1996 first quarter. Much of this increase resulted from
the acquisition of Citizens Security Group, Inc. Net
written premiums, exclusive of the acquisition, increased
9.1 percent during the first quarter of 1997 when compared
to the same 1996 period. All major lines of business
contributed to the growth. Such premium growth was net of a
decrease of approximately $1.0 million in assumed written premiums
from the Company's involuntary participation in the National Workers'
Compensation Pool ("NWCP"). This resulted primarily from
reductions of the Company's participation in the assigned
risk pools for the states of Kentucky and Tennessee. Net
investment income for the three months ended March 31, 1997
reflected growth of 5.3 percent to $3.9 million from $3.7
million for the comparable 1996 period. A larger asset base
resulting primarily from the Citizens Security Group
acquisition was the principal contributor to the increased
investment income. Through the first quarter of 1997, the
Company realized gains on the disposition of investments of
approximately $0.4 million versus $0.3 million for the first
three months of 1996.
The Company's total expenses, which includes general
operating, amortization and interest expenses, for the 1997
three month period ended March 31 were $14.8 million, or
29.8 percent higher than 1996's first quarter total of $11.4
million. This increase is due principally to the
acquisition of Citizens Security Group. Relative to net
written premiums, the Company's statutory underwriting
expense ratio was flat at 31.0 percent for both the first
quarters of 1997 and 1996.
An income tax benefit of $0.5 million for the first quarter
of 1997 resulted from the Company's pre-tax loss and the
relative amount of tax-exempt investment income.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. a. Exhibits. See index to exhibits.
b. No reports on Form 10-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 24, 1997 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: April 24, 1997 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, 1997
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) 27.01 Financial Data Schedule
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