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, 1998.
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:
6,641,519 Common Shares at March 31, 1998
The Index of Exhibits is located at page 14 in the sequential
numbering system.
Total pages: 14
<PAGE>
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, 1998, are
not necessarily indicative of the results to be expected
for the entire year.
These quarterly interim financial statements are unaudited.
<PAGE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Investments:
Fixed maturities--available for sale, at market
(cost $239,881,000 and $239,662,000) $247,733,905 $248,404,304
Equity securities, at market
(cost $41,234,000 and $41,430,000) 60,622,762 54,378,947
Short-term investments, at cost, which
approximates market 6,136,331 3,996,232
Other invested assets 1,685,757 1,647,102
Total investments 316,178,755 308,426,585
Cash 46,694 1,188,423
Premiums receivable, net of allowance for bad debts 4,405,373 4,343,157
Accrued investment income 3,035,748 3,130,712
Deferred policy acquisition costs 17,315,798 17,651,544
Goodwill 15,303,334 15,479,456
Reinsurance receivables 46,998,397 48,850,066
Prepaid reinsurance premiums 3,552,960 3,861,507
Due from Meridian Mutual Insurance Company 9,391,846 7,723,277
Other assets 1,523,017 2,931,077
Total assets $417,751,922 $413,585,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $168,458,231 $169,801,326
Unearned premiums 81,028,566 82,839,333
Other post-retirement benefits 1,971,563 1,933,181
Bank loan payable 11,000,000 11,375,000
Reinsurance payables 9,546,365 9,078,076
Other liabilities 7,973,240 6,664,653
Total liabilities 279,977,965 281,691,569
Shareholders' equity:
Common shares, no par value, authorized 20,000,000
shares; issued 6,796,019 and 6,781,364,
outstanding 6,641,519 and 6,626,864 at March 31,
1998 and December 31, 1997, respectively 44,306,119 44,110,416
Treasury shares, at cost; 154,500 shares (2,308,188) (2,308,188)
Contributed capital 15,058,327 15,058,327
Retained earnings 62,669,994 60,684,448
Accumulated other comprehensive income 18,047,705 14,349,232
Total shareholders' equity 137,773,957 131,894,235
Total liabilities and shareholders' equity $417,751,922 $413,585,804
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the three months ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended
March 31,
1998 1997
Premiums earned $ 47,989,638 $ 47,946,514
Net investment income 4,227,863 3,924,236
Realized investment gains 381,401 392,855
Other income 33,712 644,269
Total revenues 52,632,614 52,907,874
Losses and loss adjustment expenses 33,819,821 38,311,730
General operating expenses 4,381,138 4,309,977
Amortization expenses 10,901,806 10,336,825
Interest expense 183,982 184,278
Total expenses 49,286,747 53,142,810
Income (loss) before income taxes 3,345,867 (234,936)
Income taxes (benefit):
Current 705,000 (384,000)
Deferred 124,000 (161,000)
Total income taxes (benefit) 829,000 (545,000)
Net income $ 2,516,867 $ 310,064
Weighted average shares outstanding 6,630,242 6,779,375
Per share results:
Basic earnings per share $ 0.38 $ 0.05
Diluted earnings per share $ 0.38 $ 0.05
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three months ended March 31, 1998 and 1997
(Unaudited)
<CAPTION>
Accumulated
Other
Common Treasury Contributed Retained Comprehensive Comprehensive
Shares Shares Capital Earnings Income (Loss) Income (Loss)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $44,077,846 $ 0 $15,058,327 $55,895,962 $ 7,141,846
Comprehensive income:
Net income -- -- -- 310,064 -- $ 310,064
Other Comprehensive
income, net of tax:
Unrealized loss on
securities, net of
reclassification
adjustment -- -- -- -- (2,322,990) (2,322,990)
Comprehensive income (loss) -- -- -- -- -- $(2,012,926)
Dividends ($0.08 per share) -- -- -- (542,350) --
Balance at March 31, 1997 $44,077,846 $ 0 $15,058,327 $55,663,676 $ 4,818,856
Balance at January 1, 1998 $44,110,416 $(2,308,188) $15,058,327 $60,684,448 $14,349,232
Comprehensive income:
Net income -- -- -- 2,516,867 -- $ 2,516,867
Other comprehensive
income, net of tax:
Unrealized gain on
securities, net of
reclassification
adjustment -- -- -- -- 3,698,473 3,698,473
Comprehensive income -- -- -- -- -- $ 6,215,340
Dividends ($0.08 per share) -- -- -- (531,321) --
Exercise of stock options
for 10,989 common shares 130,494 -- -- -- --
Issuance of 3,666 restricted
common shares 65,209 -- -- -- --
Balance at March 31, 1998 $44,306,119 $(2,308,188) $15,058,327 $62,669,994 $18,047,705
<FN>
<F1>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited)
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 2,516,867 $ 310,064
Reconciliation of net income to net cash
provided by operating activities:
Amortization 10,901,806 10,336,825
Deferred policy acquisition costs (10,389,938) (10,777,376)
Increase (decrease) in unearned premiums (1,810,767) 127,074
Increase (decrease) in losses and loss
adjustment expenses (1,343,095) 2,681,696
Increase in amount due from Meridian Mutual
Insurance Company (1,668,569) (1,347,409)
Decrease in reinsurance receivables 1,851,669 3,540,829
Decrease in prepaid reinsurance premiums 308,547 1,138,176
Decrease in other assets 84,462 6,177,654
Increase in other post-employment benefits 38,382 29,859
Increase (decrease) in reinsurance payables 468,289 (260,816)
Decrease in accrued commissions and other expenses(1,299,046) (1,718,175)
Increase (decrease) in payable for federal
income taxes 1,720,400 (218,422)
Decrease in other liabilities (945,316) (1,822,608)
Net realized investment gains (381,401) (392,855)
Issuance of restricted common stock 65,209 --
Other, net (235,953) (296,962)
Net cash provided (used) by operating activities (118,454) 7,507,554
Cash flows from investing activities:
Purchase of fixed maturities (35,731,596) (28,157,345)
Proceeds from sale of fixed maturities 29,801,199 14,172,497
Proceeds from calls, prepayments and maturity of
fixed maturities 6,436,775 6,286,472
Purchase of equity securities (2,973,405) (2,837,118)
Proceeds from sale of equity securities 3,357,185 3,971,363
Net increase in short-term investments (2,140,099) (2,422,256)
Decrease (increase) in other invested assets (38,655) 1,149
Increase in payable for securities 1,039,976 399,591
Net cash used in investing activities (248,620) (8,585,647)
Cash flows from financing activities:
Dividends paid (530,149) (542,350)
Repayment of bank loan (375,000) (125,000)
Exercise of stock options 130,494 --
Net cash used in financing activities (774,655) (667,350)
Decrease in cash (1,141,729) (1,745,443)
Cash at beginning of period 1,188,423 3,128,154
Cash at end of period $ 46,694 $ 1,382,711
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
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, 1997. 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, 1998 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"). Since August 1, 1996, Meridian
Security, Citizens Fund and ICO have participated in a pooling
arrangement with Meridian Mutual Insurance Company ("Meridian
Mutual"), the principal shareholder of the Company, and Citizens
Security Mutual Insurance Company, in which the underwriting
income and expenses of each entity are shared. The participation
percentages of the Company's insurance subsidiaries for the
periods ended March 31, 1998 and 1997 total 74 percent.
2. Reinsurance
For the three months ended March 31, 1998 and 1997, the effects
of reinsurance on the Company's premiums written, premiums earned
and losses and loss adjustment expenses are as follows:
Three Months Ended
March 31,
1998 1997
Premiums written:
Direct $50,177,777 $52,279,235
Assumed 179,388 342,144
Ceded (3,869,747) (3,409,615)
Net $46,487,418 $49,211,764
Premiums earned:
Direct $51,956,039 $51,743,253
Assumed 211,894 751,052
Ceded (4,178,295) (4,547,791)
Net $47,989,638 $47,946,514
Losses and loss adjustment expenses:
Direct $34,980,160 $39,626,643
Assumed 29,620 465,195
Ceded (1,189,959) (1,780,108)
Net $33,819,821 $38,311,730
<PAGE>
3. Earnings Per Share
The following table represents the reconciliation of the
numerators and decnominators of the Company's basic earnings per
share and diluted earnings per share computations reported on the
Consolidated Statement of Income for the three month periods
ended March 31, 1998 and 1997:
Three Months Ended
March 31,
1998 1997
Basic net income per share computation:
Numerator (net income) $ 2,516,867 $ 310,064
Denominator:
Common shares outstanding 6,630,242 6,779,375
Basic earnings per share $ 0.38 $ 0.05
Diluted net income per share computation:
Numerator (net income) $ 2,516,867 $ 310,064
Denominator:
Common shares outstanding 6,630,242 6,779,375
Stock options 69,447 35,724
Total shares 6,699,689 6,815,099
Diluted earnings per share $ 0.38 $ 0.05
4. Comprehensive Income
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
which establishes standards for the reporting and displaying of
comprehensive income and its components. All items required to
be recognized as components of comprehensive income must be
reported in a financial statement that is displayed with the
same prominence as other financial statements. SFAS No. 130
became effective for financial statements with fiscal years
beginning after December 15, 1997. All prior period information
presented has been restated to conform with this pronouncement.
The Company's other comprehensive income consists solely of net
unrealized gains (losses) on securities. The total net
unrealized gains (losses) on securities for the periods ended
March 31, 1998 and 1997 consist of the following:
Three Months Ended
March 31,
1998 1997
Unrealized holding gains (losses) before
deferred income taxes $ 6,676,269 $(3,101,135)
Deferred income tax (expense) or benefit (2,327,000) 1,090,000
Less: Reclassification adjustment for
realized gains 986,796 472,855
Income tax expense related to
realized gains (336,000) (161,000)
Net unrealized gains (losses) on securities $ 3,698,473 $(2,322,990)
<PAGE>
5. Segment Information
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131,"Disclosures about Segments of an Enterprise and
Related Information", which establishes standards for the
financial statement reporting of information regarding operating
segments. SFAS No. 131 also sets standards for related
disclosures about products and services, activities in
geographic areas and reliance on major customers.
As permitted by SFAS No. 131, the Company has elected not to
disclose the segment information for the interim periods in the
initial year of implementation. The Company plans to adopt SFAS
No. 131 in the fourth quarter of 1998. Interim period
information will be included for comparative purposes beginning
in 1999.
<PAGE>
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 March 31,
1998 were $417.8 million, a 1.0 percent increase from the
December 31, 1997 total of $413.6 million. This increase
was largely due to unrealized appreciation of equity
security investments. At March 31, 1998, the Company
recorded unrealized appreciation before deferred income
taxes on equity securities of approximately $19.4 million
compared to $12.9 million at year-end 1997. The Company's
unrealized appreciation on its fixed maturity portfolio
declined slightly from $8.7 million at December 31, 1997 to
$7.9 million at the end of the 1998 first quarter. This
reduction resulted primarily from the Company realizing
gains on the sale of a portion of its tax-exempt bond
portfolio during the 1998 first quarter.
Total liabilities at March 31, 1998 of $280.0 million were
slightly lower in comparison to the $281.7 million reported
at December 31, 1997. The decline in total liabilities
resulted primarily from reductions in the Company's reserves
for losses and loss adjustment expenses and unearned
premiums. The slight decrease in reserves for losses and
loss adjustment expenses resulted primarily from improved
claim experience. The reduction in unearned premium
reserves resulted from the amount and timing of premiums
written.
The Company's shareholders' equity at March 31, 1998 grew
4.5 percent to $137.8 million compared to the December 31,
1997 total of $131.9 million. The primary factors leading
to this increase were unrealized appreciation of investment
securities, net of deferred income taxes, of $3.7 million
and net income of $2.5 million. The Company's book value
per share at March 31, 1998 reached a record high of $20.74,
an increase of $0.84 from the $19.90 book value per share at
year-end 1997.
Results of Operations
For the three months ended March 31, 1998, the Company
recorded net income of $2.5 million, or $0.38 per common
share for both basic and diluted earnings. This compares to
net income of $0.3 million, or $0.05 per share, basic and
diluted, for the corresponding 1997 period. Improvement in
the Company's loss and loss adjustment expense ratio of 9.4
percentage points from 79.9 percent in the 1997 first
quarter to 70.5 percent for the 1998 three month period was
the primary factor that led to the improved earnings. The
Company's combined ratio for the 1998 first quarter improved
to approximately 102 percent compared to nearly 111 percent
for the same 1997 period.
The Company's total revenues for the 1998 first quarter were
$52.6 million compared to $52.9 million for the
corresponding 1997 period. Flat growth in earned premiums
resulted from a combination of underwriting and agency
management actions taken by the Company in an effort to
improve profitability and from continued competitive market
conditions, particularly in commercial lines. The Meridian
book of business had an earned premium increase of 4.4
percent in the personal and farm lines, offset by a 6.0
percent reduction in commercial lines of business. In
addition to the highly competitive environment, commercial
lines volume was also negatively affected by a reduction of
approximately $0.4 million in assumed premiums from the
Company's participation in the National Workers'
Compensation Pool. Net earned premium volume from the
Citizens Security operations reflected a decrease of 2.4
percent for the 1998 first quarter in comparison to the same
1997 period. For the three months ended March 31, 1998,
direct written premiums subject to the Company's pooling
agreement for the Meridian and Citizens Security companies
decreased 1.0 percent and 16.2 percent, respectively, when
compared to 1997's first quarter. With a number of actions
taken in 1997 and early 1998 to improve underwriting
profitability, the Company has recently initiated several
sales and agency efforts to generate increased premium
production for the remainder of the year.
<PAGE>
Net investment income of approximately $4.2 million for the
1998 first quarter increased 7.7 percent in comparison to
$3.9 million for the same 1996 period. A larger invested
asset base and a slight increase in the Company's net
investment yield were contributors to the increased
investment income. For both the quarters ended March 31,
1998 and 1997, the Company realized net investment gains on
investments of approximately $0.4 million, or $0.04 per
share.
The Company's total incurred losses and loss adjustment
expenses for the 1998 first quarter decreased 11.7 percent
to $33.8 million from $38.3 million for the comparable 1997
quarter. Several major lines of business contributed to the
improved loss experience. The Meridian lines of business
produced a loss and loss adjustment expense ratio of 65.9
percent for the three months ended March 31, 1998 compared
to 80.0 percent for the 1997 period. The operations of the
Citizens Security companies experienced an increase in
incurred losses of approximately 4.9 percent in the 1998
first quarter compared to the same 1997 period. This was
attributed to tornadoes that hit Minnesota in late March.
Net weather-related catastrophe losses incurred by the
Company during the first three months of 1998 were estimated
to be $3.2 million, of which approximately $2.5 million
related to the Citizens Security operations. For the
comparable 1997 first quarter, approximately $2.5 million in
weather related catastrophe losses were incurred by the
Company. The impact of such catastrophes on the Company's
loss ratio for the 1998 and 1997 periods was estimated to be
approximately 6.6 and 5.2 percentage points, respectively.
The Company's total expenses, which includes general
operating, amortization, and interest expenses, of $15.5
million for the 1998 first quarter increased 4.3 percent
over the comparable 1997 total of $14.8 million.
Contributing to the increased expenses were higher costs
related to state taxes, legal fees and assessments paid to
the Minnesota Workers' Compensation Reinsurance Association.
For the quarter ended March 31, 1998, the Company recorded
income tax expense of approximately $0.8 million which
corresponds to an effective tax rate of 24.8 percent. This
compares to an income tax benefit of $0.5 million recorded
for the corresponding 1997 period. This increase in tax
expense resulted primarily from the larger pre-tax operating
income for the current quarter. The Company's non-taxable
interest income and dividends received deductions had less
relative impact in proportion to the 1997 first quarter pre-
tax income.
<PAGE>
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>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
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 29, 1998 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: April 29, 1998 By: /s/ Steven R. Hazelbaker
Steven R. Hazelbaker,
Vice President, Chief Financial
Officer and Treasurer
<PAGE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
FORM 10-Q
For the quarter ended March 31, 1998
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
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 247,734
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 6,136
<EQUITIES> 60,623
<MORTGAGE> 0
<REAL-ESTATE> 350
<TOTAL-INVEST> 316,179
<CASH> 47
<RECOVER-REINSURE> 46,998
<DEFERRED-ACQUISITION> 17,316
<TOTAL-ASSETS> 417,752
<POLICY-LOSSES> 168,458
<UNEARNED-PREMIUMS> 81,029
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 11,000
0
0
<COMMON> 41,998
<OTHER-SE> 95,776
<TOTAL-LIABILITY-AND-EQUITY> 417,752
47,990
<INVESTMENT-INCOME> 4,228
<INVESTMENT-GAINS> 381
<OTHER-INCOME> 34
<BENEFITS> 33,820
<UNDERWRITING-AMORTIZATION> 10,902
<UNDERWRITING-OTHER> 4,565
<INCOME-PRETAX> 3,346
<INCOME-TAX> 829
<INCOME-CONTINUING> 2,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,517
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<RESERVE-OPEN> 169,801
<PROVISION-CURRENT> 36,040
<PROVISION-PRIOR> (2,220)
<PAYMENTS-CURRENT> 11,951
<PAYMENTS-PRIOR> 21,314
<RESERVE-CLOSE> 168,458
<CUMULATIVE-DEFICIENCY> (2,220)
</TABLE>
