<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
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
incorporation or organization) No.)
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:
6,776,405 Common Shares at September 30, 1995
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 nine months ended September 30,
1995, 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 September 30, 1995 and December 31, 1994
September 30 December 31
1995 1994
(Unaudited)
ASSETS
Investments:
Fixed maturities--held to maturity,
at amortized cost (market value
$3,500,000 and $4,757,000) $ 3,266,137 $ 4,389,117
Fixed maturities--available for sale, at market
(cost $209,760,000 and $201,577,000) 212,158,333 191,483,830
Equity securities, at market
(cost $26,436,000 and $19,323,000) 28,766,709 18,377,530
Short-term investments, at cost, which
approximates market 10,598,679 4,124,829
Other invested assets 1,044,565 1,085,271
----------- -----------
Total investments 255,834,423 219,460,577
Cash 131,193 603,566
Premiums receivable, net of allowance for bad debts 2,841,452 2,491,976
Accrued investment income 3,123,163 3,063,515
Deferred policy acquisition costs 13,169,998 11,977,429
Goodwill 2,184,451 2,280,788
Reinsurance receivables 29,272,979 32,703,457
Prepaid reinsurance premiums 2,690,043 2,619,792
Due from Meridian Mutual Insurance Company 7,120,994 6,810,483
Other assets 3,853,654 9,394,448
----------- -----------
Total assets $320,222,350 $291,406,031
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums $ 63,775,379 $ 59,663,286
Losses and loss adjustment expenses 123,585,386 123,754,650
Other post-retirement benefits 1,174,352 1,101,155
Payable for securities 7,454,064 5,282
Reinsurance payables 7,657,384 5,890,675
Other liabilities 5,770,960 6,738,544
----------- -----------
Total liabilities 209,417,525 197,153,592
Shareholders' equity:
Common shares, no par value, authorized 20,000,000
shares; issued 6,802,985 at September 30, 1995,
and 6,769,343 at December 31, 1994; outstanding
6,776,405 at September 30, 1995, and 6,742,763 at
December 31, 1994 44,074,385 43,930,722
Contributed capital 15,058,327 15,058,327
Unrealized appreciation (depreciation) of investment
securities, net of deferred income tax 3,133,476 (7,281,724)
Retained earnings 48,538,637 42,545,114
----------- -----------
Total shareholders' equity 110,804,825 94,252,439
----------- -----------
Total liabilities and shareholders' equity $320,222,350 $291,406,031
=========== ===========
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 September 30, 1995 and 1994
(Unaudited)
September 30 September 30
1995 1994
Premiums earned $ 36,883,914 $ 34,926,059
Net investment income 3,674,414 3,475,474
Realized investment gains 867,665 125,189
Other income (expense) (25,648) 15,128
---------- ----------
Total revenues 41,400,345 38,541,850
Losses and loss adjustment expenses 25,413,362 24,044,929
General operating expenses 3,444,584 3,611,105
Amortization expenses 7,982,521 7,604,879
---------- ----------
Total expenses 36,840,467 35,260,913
Income before income taxes 4,559,878 3,280,937
Income taxes (benefit):
Current 1,164,000 767,000
Deferred (8,000) (118,000)
---------- ----------
Total income taxes 1,156,000 649,000
---------- ----------
Net income $ 3,403,878 $ 2,631,937
========== ==========
Weighted average shares outstanding 6,776,144 6,742,146
========== ==========
Per share results:
Net income $ 0.50 $ 0.39
========== ==========
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 nine months ended September 30, 1995 and 1994
(Unaudited)
September 30 September 30
1995 1994
Premiums earned $107,354,031 $100,286,241
Net investment income 10,976,822 10,440,283
Realized investment gains 1,174,103 305,396
Other income 194,984 332,125
----------- -----------
Total revenues 119,699,940 111,364,045
Losses and loss adjustment expenses 76,773,829 73,782,514
General operating expenses 10,362,884 10,628,988
Amortization expenses 22,917,338 21,593,843
----------- -----------
Total expenses 110,054,051 106,005,345
----------- -----------
Income before income taxes 9,645,889 5,358,700
Income taxes (benefit):
Current 2,126,000 1,247,000
Deferred 104,000 (598,759)
----------- -----------
Total income taxes 2,230,000 648,241
----------- -----------
Net income $ 7,415,889 $ 4,710,459
----------- -----------
Weighted average shares outstanding 6,767,859 6,738,726
----------- -----------
Per share results:
Net income $ 1.10 $ 0.70
=========== ===========
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 nine months ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Appreciation
Common Contributed (Depreciation) Retained
Shares Capital of Investments Earnings
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $43,855,319 $15,058,327 $ 491,027 $35,041,862
Cumulative effect of accoun-
ting change for certain
investments, net of deferred
income taxes -- -- 4,417,201 --
Net income -- -- -- 4,710,459
Unrealized depreciation of
investment securities, net
of deferred income taxes -- -- (7,808,464) --
Dividends ($0.18 per share) -- -- -- (1,213,247)
Vested restricted common
shares 35,584 -- -- --
Exercise of stock options
for 6,525 common shares 37,519 -- -- --
---------- ---------- ---------- ----------
Balance at September 30, 1994 $43,928,422 $15,058,327 $(2,900,236) $38,539,074
========== ========== ========== ==========
Balance at January 1, 1995 $43,930,722 $15,058,327 $(7,281,724) $42,545,114
Net income -- -- -- 7,415,889
Unrealized appreciation of
investment securities, net
of deferred income taxes -- -- 10,415,200 --
Dividends ($0.21 per share) -- -- -- (1,422,366)
Exercise of stock options for
40,121 common shares 220,696 -- -- --
Repurchase and retirement of
6,479 common shares (77,033) -- -- --
---------- ---------- ---------- ----------
Balance at September 30, 1995 $44,074,385 $15,058,327 $ 3,133,476 $48,538,637
========== ========== ========== ==========
</TABLE>
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 nine months ended September 30, 1995 and 1994
(Unaudited)
September 30 September 30
1995 1994
Cash flows from operating activities:
Net income $ 7,415,889 $ 4,710,459
Reconciliation of net income to net cash provided by
operating activities:
Deferred policy acquisition costs, net (1,192,569) (243,291)
Increase in unearned premiums 4,112,093 2,023,997
Increase (decrease) in losses and loss adjustment
expenses (169,264) 5,864,232
Increase in amount due from Meridian Mutual Ins. Co (310,511) (2,315,084)
Decrease (increase) in reinsurance receivables 3,430,478 (2,985,377)
Decrease (increase) in other assets 35,552 (3,165,562)
Increase in reinsurance payables 1,766,709 297,071
Decrease in other liabilities (964,169) (1,047,170)
Net realized investment gains (1,174,103) (305,396)
Other, net 223,338 2,568,845
---------- ----------
Net cash provided by operating activities 13,173,443 5,402,724
---------- ----------
Cash flows from investing activities:
Purchase of fixed maturities, held to maturity -- (598,781)
Purchase of fixed maturities, available for sale (26,155,168) (28,068,758)
Proceeds from sale of fixed maturities, available
for sale 6,352,960 17,495,780
Proceeds from calls, prepayments and maturity of
fixed maturities, available for sale 11,000,094 13,525,876
Proceeds from calls, prepayments and maturity of
fixed maturities, held to maturity 364,298 --
Proceeds from sale of fixed maturities, held-to-
maturity 775,625 --
Purchase of equity securities (13,850,408) (15,007,947)
Proceeds from sale of equity securities 8,060,066 8,895,495
Net decrease (increase) in short-term investments (6,473,850) 162,871
Decrease (increase) in other invested assets 40,706 (366,086)
Increase in payable for securities 7,448,782 1,796,299
---------- ----------
Net cash used in investing activities (12,436,895) (2,165,251)
---------- ----------
Cash flows from financing activities:
Dividends paid (1,352,584) (1,213,154)
Repurchase and retirement of common stock (77,033) --
Exercise of stock options 220,696 37,519
---------- ----------
Net cash used in financing activities (1,208,921) (1,175,635)
---------- ----------
Increase (decrease) in cash (472,373) 2,061,838
Cash at beginning of period 603,566 1,307,654
---------- ----------
Cash at end of period $ 131,193 $ 3,369,492
========== ==========
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, 1994. 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 nine months ended September 30, 1995 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 ("Security"). Security participates in a
pooling arrangement with Meridian Mutual Insurance Company ("Meridian
Mutual"), a principal shareholder of the Company, in which the under-
writing income and expenses of both Meridian Mutual and Security are
shared. Security's participation for the three and nine months ended
September 30, 1995 and 1994 was 74 percent.
2. Reinsurance
For the nine months ended September 30, 1995 and 1994, the effect of
reinsurance on the Company's written and earned premium are as follows:
September 30, 1995 September 30, 1994
Written Earned Written Earned
Direct $115,640,954 $111,516,528 $106,447,742 $104,963,393
Assumed 4,152,602 4,157,814 4,775,117 4,344,059
Ceded (8,397,684) (8,320,311) (8,826,778) (9,021,211)
----------- ----------- ----------- -----------
Net $111,395,872 $107,354,031 $102,396,081 $100,286,241
=========== =========== =========== ===========
Reinsurance recoveries recognized during the nine month periods ended
September 30, 1995 and 1994 were approximately $159,000 and $2,241,000,
respectively.
<PAGE> 9
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Financial Position
At September 30, 1995, Meridian Insurance Group, Inc., reported
total assets of $320.2 million, a 9.9 percent increase from the
December 31, 1994 total of $291.4 million. This growth was primarily
attributed to a larger invested asset base and increased market values
in the Company's fixed maturity investment portfolio. At September
30, 1995, this portfolio had unrealized appreciation before deferred
income taxes of approximately $2.4 million compared to an unrealized
loss of $10.1 million at year end 1994. The Company has approximately
98 percent of it's fixed maturity investments classified as
available-for-sale, which are carried at market value. Investments
in equity securities increased from $18.4 million at December 31,
1994 to $28.8 million at September 30, 1995 as a result of
approximately $3.3 million in unrealized appreciation and net
purchases of $7.1 million of equities.
Meridian's liabilities at September 30, 1995 totaled $209.4 million,
or 6.2 percent more than the 1994 year-end total of $197.2 million.
The reserve for unearned premiums and investments payable were the
main contributors to the increased liabilities. The unearned
premium growth was a result of the Company's increased premium
volume in 1995. The payable for investments was caused by the
purchase of equity securities near the end of September that were not
settled until October.
Meridian's shareholders' equity of $110.8 million at September 30,
1995 reflects an increase of 17.6 percent over December 31, 1994's
94.3 million. The majority of this increase resulted from
unrealized investment appreciation, net of deferred income taxes, of
$10.4 million and net income of $7.4 million. The Company's book value
per share increased to $16.35 from $13.98 at year end 1994. The
September 30, 1995 shareholders' equity and book value per share are
the highest in the Company's history.
Results of Operations
Quarter
Meridian Insurance Group, Inc., recorded net income of $3.4
million, or $0.50 per common share for the three-month period ending
September 30, 1995. This compares favorably to the 1994 third-quarter
net income of $2.6 million, or $0.39 per share.
The improved earnings were essentially the result of increased
revenues. Total revenues for the 1995 third quarter increased 7.4
percent to $41.4 million from $38.5 million for the same 1994 period.
Earned premiums increased 5.6 percent to $36.9 million from $34.9
million for the prior year quarter. The Company experienced
third quarter growth in virtually all major lines of business led by
the farmowners and voluntary workers' compensation lines with 10.8
percent and 10.3 percent growth, respectively. Action taken in
several states to control the unprofitable involuntary National
Workers' Compensation Pool (NWCP) assessments resulted in a reduction
in assumed earned premiums of $900,000, or 29.7 percent for the 1995
third quarter when compared to the same 1994 period. Exclusive of
this decrease, 1995 third quarter net earned premiums increased 8.3
percent compared with the prior year. Net investment income of $3.7
million increase 5.7 percent over the $3.5 million for the comparable
1994 period resulting from a larger invested asset base. The Company
realized
<PAGE> 10
gains on the sale of investments of $868,000, or $0.08 per share,
compared to $125,000, or $0.01 per share for the same 1994 three-
month period. The gains resulted primarily from the sale of certain
equity securities as the Company took advantage of stock market
opportunities during the 1995 third quarter.
Losses and loss adjustment expenses incurred for the three months
ended September 30, 1995 were $25.4 million, or 5.7 percent higher
than the $24.0 million reported for the same 1994 period. Current
period losses were impaced by adverse development on second quarter
catastrophe storm losses. These storms contributed approximately
1.5 percentage points on the Company's statutory loss and loss
adjustment expense ratio of 68.9 percent. The 1994 ratio for the
same three-month period was 68.8 percent and contained minimal
catastrophe impact. Partially offsetting the 1995 storm losses were
improved underwriting results from business assumed from the NWCP.
These NWCP results adversely impacted the 1995 third quarter loss
ratio by only 0.6 of a percentage point compared to a 1.7 percentage
point effect on the 1994 third quarter loss ratio.
General operating expenses for the three months ended September 30,
1995 were $3.4 million, or 4.6 percent lower than 1994's third quarter
total of $3.6 million. Reductions in state income taxes and in
assessments from the NWCP were the primary contributors to the reduced
operating expenses. Amortization expenses of $8.0 million reflected a
5.0 percent increase over the comparable 1994 period, which is related
to the Company's increased premium volume for the current period. The
statutory expense ratio was 30.6 percent for the 1995 third quarter,
which compares favorable to 31.6 percent for the same 1994 period.
The current period statutory combined ratio of 99.5 percent was one
percentage point better than the 100.5 percent reflected the third
quarter of 1994.
Nine Months
For the nine months ended September 30, 1995, the Company's net income
was $7.4 million, or $1.10 per share compared to $4.7 million, or $0.70
per share, for the same first nine months of 1994. The improved 1995
results were primarily attributed to increased revenues and reductions
in all three components of the statutory combined ratio. Total
revenues for the first three quarters of 1995 reflect a 7.5 percent
increase to $119.7 million from $111.4 million for the comparable 1994
period. The major component of the Company's revenue, premiums
earned, reflected a 7.0 percent growth to $107.4 million compared to
$100.3 million in 1994. The Company has experienced premium growth
in all major lines of business and has met Company expectations for
personal and farm lines of business. Although the commercial lines
of business reflect growth, continued soft market conditions has
resulted in premium growth below Company objectives. Net investment
income of $11.0 million over the first nine months of 1995 has
increased 5.1 percent from the $10.4 million reported during the
same 1994 period. This growth was primarily the result of a larger
invested asset base. The Company realized investment gains through
September 30, 1995 of $1.1 million, or $0.11 per share, compared to
$305,000, or $0.03 per share, for the same period in 1994.
The Company's incurred losses and loss adjustment expenses of $76.8
million for the first nine months of 1995 increased 4.1 percent over
1994's $73.8 million primarily as a result of the increased volume
of business. The 1995 loss and loss adjustment expense ratio improved
to 71.5 percent from 73.6 percent in 1994. Improved results in the
commercial multiple peril and homeowners lines and the assumed NWCP
business were the principal factors in the ratio reduction. Partially
offsetting this reduction was a deterioration in the results of the
Company's personal and commercial automobile lines of business. The
unfavorable experience was caused primarily by increased severity
during the current period.
<PAGE> 11
Catastrophe related losses for the nine months ended September 30,
1995 and 1994 were relatively similar and negatively impacted each
period's ratio by approximately 4.1 percentage points.
General operating expenses for the nine month period ended September
30, 1995 decreased 2.5 percent to $10.4 million from 1994's $10.6
million. This reduction primarily resulted from lower state income
taxes and reduced assessments from the NWCP. The Company's statutory
expense ratio for the current nine month period improved to 30.7
percent from 31.5 percent for the comparable 1994 period. Current
period amortization expenses of $22.9 million increased 6.1 percent
from 1994's $21.6 million as a result of the Company's growth in
premium volume. The 1995 year-to-date combined ratio improved 2.4
percentage points to 102.6 percent compared with last year's 105.0
percent.
<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: October 26, 1995 By: /s/ Norma J. Oman
---------------------------
Norma J. Oman, President and
Chief Executive Officer
DATE: October 26, 1995 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 September 30, 1995
Index to Exhibits
Exhibit Number
Assigned in Regulation S-K
Item 601 Description of Exhibit
(2) No 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.)
(11) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(20) No exhibit.
(23) No exhibit.
(24) No exhibit.
(25) No exhibit.
(27) Financial Date Schedule
(28) No exhibit.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 212,158
<DEBT-CARRYING-VALUE> 3,266
<DEBT-MARKET-VALUE> 10,599
<EQUITIES> 28,767
<MORTGAGE> 729
<REAL-ESTATE> 0
<TOTAL-INVEST> 255,834
<CASH> 131
<RECOVER-REINSURE> 1,172
<DEFERRED-ACQUISITION> 13,170
<TOTAL-ASSETS> 320,222
<POLICY-LOSSES> 123,585
<UNEARNED-PREMIUMS> 63,775
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 44,074
<OTHER-SE> 66,731
<TOTAL-LIABILITY-AND-EQUITY> 320,222
107,354
<INVESTMENT-INCOME> 10,977
<INVESTMENT-GAINS> 1,174
<OTHER-INCOME> 195
<BENEFITS> 76,774
<UNDERWRITING-AMORTIZATION> 22,917
<UNDERWRITING-OTHER> 10,363
<INCOME-PRETAX> 9,646
<INCOME-TAX> 2,230
<INCOME-CONTINUING> 7,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,416
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
<RESERVE-OPEN> 123,755
<PROVISION-CURRENT> 38,006
<PROVISION-PRIOR> 56,850
<PAYMENTS-CURRENT> 43,734
<PAYMENTS-PRIOR> 29,479
<RESERVE-CLOSE> 123,585
<CUMULATIVE-DEFICIENCY> (4,966)
