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, 2000.
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:
7,852,411 Common Shares at June 30, 2000
The Index of Exhibits is located at page 17 in the sequential
numbering system.
Total pages: 17
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, 2000, 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 June 30, 2000 and December 31, 1999
June 30 December 31
2000 1999
(Unaudited)
ASSETS
Investments:
Fixed maturities, available for sale at market
(cost $232,013,000 and $232,090,000) $ 226,556,830 $ 226,431,532
Equity securities, at market
(cost $49,222,000 and $54,282,000) 56,797,150 69,002,099
Short-term investments, at cost, which
approximates market 2,396,397 2,822,215
Other invested assets 1,300,834 1,322,209
Total investments 287,051,211 299,578,055
Cash 8,271,957 1,381,888
Premium receivable, net of bad debt allowance 12,919,940 13,113,315
Accrued investment income 3,254,916 3,314,756
Deferred policy acquisition costs 21,478,479 19,974,450
Goodwill 13,718,236 14,070,480
Reinsurance receivables 38,250,798 34,057,786
Prepaid reinsurance premiums 3,796,082 3,592,121
Due from Meridian Mutual Insurance Company 12,019,167 4,620,574
Other assets 5,782,841 4,519,700
Total assets $ 406,543,627 $ 398,223,125
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $ 150,390,114 $ 145,962,418
Unearned premiums 95,622,603 88,698,507
Other post-employment benefits 2,315,755 2,204,739
Bank loan payable 7,500,000 8,500,000
Payable for securities 70,154 0
Reinsurance payables 13,046,662 9,142,015
Other liabilities 4,112,679 6,906,277
Total liabilities 273,057,967 261,413,956
Shareholders' equity:
Common shares, no par value, Authorized 20,000,000 shares;
issued 8,281,901 and 8,218,167; outstanding 7,852,411 and
7,926,610 at June 30, 2000 and December 31, 1999,
respectively (including 10% stock dividend issued
on January 11, 2000, for 721,872 shares, and
January 6, 1999, for 658,493 shares) 45,489,704 44,793,300
Treasury Shares, at cost; 429,490 and
291,557 shares, respectively (6,350,462) (4,566,809)
Contributed capital 36,481,864 36,481,864
Retained earnings 56,346,411 54,112,519
Accumulated other comprehensive income 1,518,143 5,988,295
Total shareholders' equity 133,485,660 136,809,169
Total liabilities and shareholders' equity $ 406,543,627 $ 398,223,125
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the three and six months ended June 30, 2000
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Premiums earned $ 55,286,084 $ 49,955,752 $ 108,478,878 $ 97,671,112
Net investment income 4,172,251 4,084,476 7,975,415 8,239,755
Realized investment gains 7,263,089 1,674,579 8,582,023 2,617,012
Other income 321,375 45,763 607,318 73,956
Total revenues 67,042,799 55,760,570 125,643,634 108,601,835
Losses and loss adjustment expenses 50,517,115 37,131,731 89,100,625 73,632,674
General operating expenses 3,432,220 4,053,093 7,483,172 8,354,290
Interest expenses 124,975 117,237 265,678 270,210
Amortization expenses 12,499,623 11,374,235 24,862,480 22,256,238
Total expenses 66,573,933 52,676,296 121,711,955 104,513,412
Income before taxes and change
in accounting method 468,866 3,084,274 3,931,679 4,088,423
Income taxes (benefit):
Current 44,000 526,000 643,000 650,000
Deferred (409,000) 278,000 (210,000) 234,000
Total income taxes (365,000) 804,000 433,000 884,000
Income before change in accounting
method 833,866 2,280,274 3,498,679 3,204,423
Cumulative effect of change in
accounting method, net of tax 0 0 0 (293,700)
Net Income $ 833,866 $ 2,280,274 $ 3,498,679 $ 2,910,723
Basic average shares outstanding 7,876,114 7,982,065 7,897,060 7,978,006
Weighted average shares outstanding 7,895,698 8,063,168 7,917,884 8,072,083
Per share results:
Basic earnings per share before
change in accounting method $ 0.11 $ 0.28 $ 0.44 $ 0.40
Accounting change, net of tax, per share 0.00 0.00 0.00 (0.04)
Basic earnings per share $ 0.11 $ 0.28 $ 0.44 $ 0.36
Diluted earnings per share before
change in accounting method $ 0.11 $ 0.28 $ 0.44 $ 0.40
Accounting change, net of tax, per share 0.00 0.00 0.00 (0.04)
Diluted earnings per share $ 0.11 $ 0.28 $ 0.44 $ 0.36
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 2000 and 1999
(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 January 1, 1999 $ 44,336,679 $ (3,277,781) $ 25,923,462 $ 59,796,235 $ 15,190,238
Comprehensive income:
Net income -- -- -- 2,910,723 -- $ 2,910,723
Other comprehensive
income, net of tax:
Unrealized loss on securities,
net of reclassification
adjustment -- -- -- -- (3,517,184) (3,517,184)
Comprehensive income (loss) -- -- -- -- -- $ (606,461)
Repurchase of 32,651 common shares -- (573,697) -- -- --
Issuance of 3,104 restricted
common shares 57,618 -- -- -- --
Issuance of 290 common shares 5,564 -- -- -- --
Exercise of stock options for 36,389
common shares 393,439 -- -- -- --
Dividends ($0.14 per share) -- -- -- (1,163,513) --
Balance at June 30, 1999 $ 44,793,300 $ (3,851,478)$ 25,923,462 $ 61,543,445 $ 11,673,054
Balance January 1, 2000 $ 44,793,300 $ (4,566,809)$ 36,481,864 $ 54,112,519 $ 5,988,295
Comprehensive income:
Net income -- -- -- 3,498,679 -- $ 3,498,679
Other comprehensive
income, net of tax:
Unrealized loss on securities,
net of reclassification
adjustment -- -- -- -- (4,470,152) (4,470,152)
Comprehensive income (loss) -- -- -- -- -- $ (971,473)
Repurchase of 137,933 common
shares -- (1,783,653) -- -- --
Issuance of 7,758 restricted
shares 102,067 -- -- -- --
Exercise of stock options for 55,976
common shares 594,337 -- -- -- --
Dividends ($0.16 per share) -- -- -- (1,264,787) --
Balance at June 30, 2000 $ 45,489,704 $ (6,350,462)$ 36,481,864 $ 56,346,411 $ 1,518,143
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
June 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,498,679 $ 2,910,723
Reconciliation of net income to net cash
provided by operating activities:
Amortization 24,862,480 22,256,238
Deferred policy acquisition costs (26,284,265) (23,799,276)
Deferred income taxes (210,000) 234,000
Increase in unearned premiums 6,924,096 7,497,868
Increase (decrease) in losses and loss adjustment expenses 4,427,696 (2,155,465)
Decrease (increase) in premium receivables 193,375 (2,969,954)
Increase in amount due to Meridian Mutual Ins. Co. (7,398,594) (1,694,116)
Increase in reinsurance receivables (4,193,012) (936,890)
Increase in prepaid reinsurance premiums (203,961) (311,446)
Decrease (increase) in other assets 1,061,392 (837,273)
Increase (decrease) in reinsurance payables 3,904,647 (1,364,575)
Decrease in accrued commissions and
other expenses (1,235,914) (436,312)
Increase (decrease) in payable for federal income taxes 293,000 (325,000)
Increase (decrease) in other liabilities (922,380) 586,374
Net realized investment gains (8,582,023) (2,617,012)
Issuance of restricted common stock 102,067 57,618
Issuance of common stock --- 5,564
Cumulative effect of change in accounting method --- 293,700
Other, net (358,403) (1,230,850)
Net cash used by operating activities (4,121,120) (4,836,084)
Cash flows from investing activities:
Purchase of fixed maturities (28,082,833) (27,240,272)
Proceeds from sale of fixed maturities 20,142,995 24,666,870
Proceeds from calls, prepayments and maturity
of fixed maturities 7,727,296 11,352,109
Purchase of equity securities (11,423,547) (12,446,911)
Proceeds from sale of equity securities 25,519,774 13,690,234
Net decrease in short-term investments 425,818 794,644
Decrease (increase) in other invested assets 86,100 (8,169)
Increase (decrease) in securities receivable/payable 69,689 (2,811,898)
Net cash provided by investing activities 14,465,292 7,996,607
Cash flows from financing activities:
Dividends paid (1,264,787) (1,160,747)
Repayment of bank loan (1,000,000) (750,000)
Repurchase of common shares (1,783,653) (573,697)
Exercise of stock options 594,337 393,439
Net cash used in financing activities (3,454,103) (2,091,005)
Increase in cash 6,890,069 1,069,518
Cash at beginning of period 1,381,888 854,522
Cash at end of period $ 8,271,957 $ 1,924,040
</TABLE>
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, 1999. 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, 2000, 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 Citizens
Security Insurance Company and Insurance Company of Ohio.
Since August 1, 1996, the companies have participated in a
pooling arrangement with Meridian Mutual Insurance Company
("Meridian Mutual"), the principal shareholder of the Company,
and Meridian Citizens 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 June 30, 2000 and 1999
total 74 percent.
2. Reinsurance
For the three and six months ended June 30, 2000 and 1999, the effects
of reinsurance on the Company's premiums written, premiums earned and losses
and loss adjustment expenses are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Premiums written:
Direct $ 62,407,665 $ 58,293,034 $ 122,845,061 $ 112,473,740
Assumed 68,115 (418) 161,067 162,270
Ceded (3,566,742) (3,711,489) (7,807,115) (7,778,476)
Net $ 58,909,038 $ 54,581,127 $ 115,199,013 $ 104,857,534
Premiums earned:
Direct $ 58,615,397 $ 53,556,870 $ 115,890,048 $ 104,931,986
Assumed 98,488 (400) 191,985 206,156
Ceded (3,427,801) (3,600,718) (7,603,155) (7,467,030)
Net $ 55,286,084 $ 49,955,752 $ 108,478,878 $ 97,671,112
Losses and loss adjustment expenses:
Direct $ 59,174,567 $ 39,510,992 $ 97,429,388 $ 80,505,691
Assumed 249,985 53,513 517,404 (194,518)
Ceded (8,907,437) (2,432,774) (8,846,167) (6,678,499)
Net $ 50,517,115 $ 37,131,731 $ 89,100,625 $ 73,632,674
3. Earnings Per Share
The following table represents the reconciliation of the numerators and
denominators of the Company's basic earnings per share and diluted earnings
per share computation reported on the Consolidated Statement of Income
for the three and six month periods ended June 30, 2000 and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Basic earnings per share computation:
Numerator (net income) before change
in accounting method $ 833,866 $ 2,280,274 $ 3,498,679 $ 3,204,423
Denominator:
Weighted average common
shares outstanding 7,876,114 7,982,065 7,897,060 7,978,006
Basic earnings per share
before change in
accounting method $ $ 0.28 $ 0.44 $ 0.40
Cumulative effect of change
in accounting method --- --- --- (0.04)
Basic earnings per share $ 0.11 $ 0.28 $ 0.44 $ 0.36
Diluted earnings per share computation:
Numerator (net income) before change
in accounting method $ 833,866 $ 2,280,274 $ 3,498,679 $ 3,204,423
Denominator:
Weighted average common
shares outstanding 7,876,114 7,982,065 7,897,060 7,978,006
Stock options 19,584 81,103 20,824 94,077
Total shares 7,895,698 8,063,168 7,917,884 8,072,083
Diluted earnings per share
before change in
accounting method $ 0.11 $ 0.28 $ 0.44 $ 0.40
Cumulative effect of change
in accounting method --- --- --- (0.04)
Diluted earnings per share $ 0.11 $ 0.28 $ 0.44 $ 0.36
The earnings per share information in the above table reflects the ten
percent stock dividend declared in December 1999 and 1998.
4. Comprehensive Income
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
June 30, 2000 and 1999 consist of the following:
Six Months Ended
June 30,
2000 1999
Unrealized holding gains (losses) before
deferred income taxes $ 2,001,882 $ (2,349,121)
Deferred income tax (expense) or benefit (701,000) 822,000
Subtotal 1,300,882 (1,527,121)
Less: Reclassification adjustment for
realized gains 8,880,034 3,062,063
Income tax expense related to
realized gains (3,109,000) (1,072,000)
Subtotal 5,771,034 1,990,063
Other comprehensive income (loss) $ (4,470,152)$ (3,517,184)
5. Segment Information
The following tables display the Company's reportable segments, a
reconciliation of segment data to total consolidated financial
data, and related disclosure information concerning revenues as
required by SFAS No. 131 for the six months ended June 30, 2000
and 1999. Segments were defined based upon the Company's
structure and decision making processes. Personal, commercial,
and farm lines are segmented within all internal reporting
mechanisms to aid chief decision makers in achieving profitable
results within each business segment. Amortization was allocated
by segment based upon a ratio of premium. Investment income was
determined consistent with statutory modeling requirements for
the Insurance Expense Exhibit. These guidelines rely on
historical reserve patterns by line of business. Asset
information by reportable segment is not reported, since the
Company does not internally produce such information.
<TABLE>
Six months ended June 30, 2000
<CAPTION>
Segment Non-segment
Personal Farm Commercial Total Total Total
<S> <C> <C> <C> <C> <C> <C>
Premiums earned $ 64,342,551 $ 5,630,820 $ 38,505,507 $ 108,478,878 $ --- $ 108,478,878
Net investment income 4,730,493 413,980 2,830,942 7,975,415 --- 7,975,415
Net realized investment gains --- --- --- --- 8,582,023 8,582,023
Other income --- --- --- --- 607,318 607,318
Total revenues 69,073,044 6,044,800 41,336,449 116,454,293 9,189,341 125,643,634
Loss and LAE 55,935,555 4,155,472 29,009,598 89,100,625 --- 89,100,625
General operating expenses 4,129,964 428,537 2,924,671 7,483,172 --- 7,483,172
Interest expense --- --- --- --- 265,678 265,678
Amortization expenses 13,721,606 1,423,794 9,717,080 24,862,480 --- 24,862,480
Total expenses 73,787,125 6,007,803 41,651,349 121,446,277 265,678 121,711,955
Income (loss) before taxes (4,714,081) 36,997 (314,900) (4,991,984) 8,923,663 3,931,679
Income taxes (benefit) (519,167) 4,074 (34,680) (549,773) 982,773 433,000
Net income (loss) (4,194,914) 32,923 (280,220) (4,442,211) 7,940,890 3,498,679
Six months ended June 30, 1999
Premiums earned $ 57,569,212 $ 5,616,800 $ 34,485,100 $ 97,671,112 $ --- $ 97,671,112
Net investment income 4,856,668 473,846 2,909,241 8,239,755 --- 8,239,755
Net realized investment gains --- --- --- --- 2,617,012 2,617,012
Other income --- --- --- --- 73,956 73,956
Total revenues 62,425,880 6,090,646 37,394,341 105,910,867 2,690,968 108,601,835
Loss and LAE 46,975,917 4,911,143 21,745,614 73,632,674 --- 73,632,674
General operating expenses 4,460,096 495,704 3,398,490 8,354,290 --- 8,354,290
Interest expense --- --- --- --- 270,210 270,210
Amortization expenses 11,881,915 1,320,580 9,053,743 22,256,238 --- 22,256,238
Total expenses 63,317,928 6,727,427 34,197,847 104,243,202 270,210 104,513,412
Income (loss) before taxes
and accounting change (892,048) (636,781) 3,196,494 1,667,665 2,420,758 4,088,423
Income taxes (benefit) (207,807) (148,342) 744,639 388,490 495,510 884,000
Income (loss) before
accounting change (684,241) (488,439) 2,451,855 1,279,175 1,925,248 3,204,423
Cumulative effect of change
in accounting method,
net of tax --- --- --- --- (293,700) (293,700)
Net income (loss) $ (684,241) $ (488,439) $ 2,451,855 $ 1,279,175 $ 1,631,548 $ 2,910,723
</TABLE>
As required by SFAS No. 131, the following table delineates the Company's
products and revenues in a manner which is consistent with segment
reporting:
Six months ended June 30,
2000 1999
Personal Lines:
Automobile $ 50,460,732 $ 43,635,647
Homeowners 12,557,004 12,613,890
Other 1,324,815 1,319,675
Total Personal Lines 64,342,551 57,569,212
Commercial Lines:
Automobile 10,291,040 8,859,028
Workers Compensation 12,902,738 10,829,101
Commercial Multi-Peril 12,779,873 12,519,696
Other 2,531,856 2,277,275
Total Commercial Lines 38,505,507 34,485,100
Farm Lines:
Farmowners 4,553,242 4,552,143
Other 1,077,578 1,064,657
Total Farm Lines 5,630,820 5,616,800
Total All Lines Combined $ 108,478,878 $ 97,671,112
6. Changes in Accounting for Insurance-Related Assessments
Effective January 1, 1999, the Company adopted SOP 97-3
"Accounting by Insurance and Other Enterprises for Insurance-
Related Assessments." This statement requires that a liability
for insurance-related assessments be recognized when the
assessments have been imposed or it is probable that an
assessment will be imposed, the event obligating the Company has
occurred, and the amount can be reasonably estimated. SOP 97-3
requires that a liability for the current calendar year
experience be recognized and that the initial application be
treated as a cumulative effect type accounting change. The
Company recorded an additional liability and a charge to the
statement of income of $293,700 net of income tax, to reflect the
cumulative effect of the accounting change in 1999.
7. Accounting for Derivative Instruments and Hedging Activities
In June 1998 the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." In July 1999, the FASB released SFAS No.
137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No.
133, An Amendment of FASB Statement No. 133." SFAS No. 137
defers the effective date of this pronouncement to fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments
(including derivative instruments that are embedded in other
contracts) and hedging activities. All items that are required
to be recognized must be displayed according to accounting
standards in the statement of financial position at fair value.
The Company does not hold any derivative instruments and does not
currently participate in hedging activities. The Company does
not anticipate a material impact upon adoption of this statement.
8. Supplemental Cash Flow Disclosures
Interest on the bank loan paid for the six month periods ended
June 30, 2000 and 1999 was $268,078 and $286,773, respectively.
Federal income taxes paid for the six month periods ended June
30, 2000 and 1999 were $350,000 and $1,275,000, respectively.
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, 2000 were $406.5 million, an increase from the
December 31, 1999 total of $398.2 million. Unrealized
depreciation on the Company's fixed maturity portfolio
declined by approximately $0.2 million from $5.7 million
at December 31, 1999 to $5.5 million at June 30, 2000.
The effective duration of the Company's fixed maturity
portfolio is approximately 5.0 years. Net unrealized
appreciation of equity securities decreased approximately
$7.1 million from $14.7 million at December 31, 1999 to
approximately $7.6 million at June 30, 2000. This has
been substantially affected by the year-to-date level of
realized gains on sales of equity securities. The June
30, 2000 cash balance of approximately $8.3 million
resulted from the proceeds from certain of these equity
sales near the end of the quarter. Reinsurance
receivables increased by approximately $4.2 million since
year-end, due to anticipated reinsurance recoveries on
catastrophe losses.
Total liabilities at June 30, 2000 of $273.1 million
increased in comparison to the $261.4 million reported at
December 31, 1999. Loss and loss adjustment expense
reserves increased by $4.4 million due to the level and
timing of claim activity and unearned premiums increased
by $6.9 million from December 31, 1999, related to
increased premium volume.
The Company's shareholders' equity at June 30, 2000
decreased approximately 2.4 percent to $133.5 million
compared to the December 31, 1999 total of $136.8 million.
The primary factors leading to this decrease were net
unrealized losses on investment securities of $4.5
million, treasury share repurchases in the open market of
$1.8 million and shareholder dividends of $1.3 million.
These factors were partially offset by $3.5 million of net
income and $0.6 million of stock option exercises. The
Company's book value per share at June 30, 2000 was
$17.00, compared with $17.26 at year-end 1999.
Results of Operations
Quarter
For the three months ended June 30, 2000, the Company
recorded net income of $0.8 million, or $0.11 per common
share for both basic and diluted earnings. This compares
to net income of $2.3 million, or $0.28 earnings per share
for both basic and diluted earnings for the corresponding
1999 period. Quarterly earnings per share included an
operating loss of $0.49 for 2000 compared to earnings of
$0.15 in 1999. Net realized investment gains were $0.60
per diluted share in the second quarter of 2000 compared
with $0.13 per diluted share in 1999. The Company's
statutory combined ratio for the second quarter of 2000
increased to approximately 118.9 percent, compared to
103.4 percent in 1999.
The Company's total revenues for the second quarter of
2000 were $67.0 million compared to $55.8 million for the
same 1999 period. The Company had an increase of $5.3
million, or 10.7 percent, in earned premiums compared to
1999. Net written premiums increased 7.9 percent in the
second quarter of 2000 over 1999. The growth in written
premiums was generated by a combination of rate increases
and new business in commercial lines, with personal lines
growth resulting from increased sales of the non-standard
auto product and sales to affinity group members in
certain states.
Net investment income of approximately $4.2 million for
the second quarter of 2000 increased slightly in
comparison to $4.1 million for 1999. This increase is due
in part to focused efforts to raise book yield. This
included selective sales of several tax advantaged
securities, with reinvestment into taxable bonds with
higher yields. For the quarter ended June 30, 2000, the
Company realized net gains on the sale of investments of
approximately $7.3 million, or $0.60 per diluted share
after tax, compared to approximately $1.7 million or $0.13
per diluted share after tax for the second quarter of
1999. The 2000 realized gains were primarily generated
from reducing or eliminating the Company's holdings of 17
common stocks. Certain of the proceeds from these sales
are being invested in fixed maturities to generate higher
investment income.
The Company's total incurred losses and loss adjustment
expenses for the second quarter of 2000 increased to $50.5
million from $37.1 million for the comparable 1999
quarter. The second quarter 2000 loss and loss adjustment
expense ratio deteriorated to 91.4 compared to 74.3
percent for the second quarter of 1999. Results for most
major lines of business deteriorated in the second quarter
of 2000 compared to the same period of 1999. These
results were impacted by weather-related property losses
of approximately $7.3 million during the second quarter of
2000 versus $6.6 million during the same period of 1999.
Also contributing to the Company's loss deterioration were
increased frequency and severity of claims during the 2000
period. The Company has taken and is continuing to take a
number of pricing and underwriting actions to address such
experience.
The Company's total of general operating and amortization
expenses of $15.9 million for the 2000 second quarter
compared to the second quarter 1999 total of $15.4
million. Relative to earned premiums, this results in an
improved 28.8 percent expense ratio, compared to the 30.9
percent ratio for the second quarter of 1999. While the
total of such expenses increased modestly, when spread
over the larger earned premium base, this resulted in the
improved ratio. The level of acquisition costs relative
to premium remained similar to the prior period, while
general operating costs were lower due to factors such as
cost savings resulting from the year-end closing of the
Minnesota office of Meridian Citizens and the absence of
Y2K compliance costs.
Six Months
For the six months ended June 30, 2000, the Company
recorded net income of $3.5 million, or $0.44 per common
share for both basic and diluted earnings. This compares
to net income of $2.9 million, or $0.36 per common share
for both basic and diluted earnings for the corresponding
1999 period. The reduction in 2000 operating earnings
compared to 1999 was more than offset by increased
realized investment gains. Realized gains on investments
were $8.6 million, or $0.70 per diluted share after tax in
2000, compared to $2.6 million or $0.11 per diluted share
after tax, recorded for the same six month period of 1999.
Operating earnings fell from $0.19 per diluted share
through June 1999 to a loss of $0.26 through June 2000.
The Company's total revenues for the six months ended June
30, 2000 were $125.6 million compared to $108.6 million
for the corresponding 1999 period. The Company's earned
premium increased $10.8 million, or 11.1 percent compared
to the same period of 1999. This included an increase of
11.8 percent in personal lines, an 11.7 percent increase
in commercial lines, with farm lines remaining steady.
The approximate 9.9 percent growth in net written premiums
was largely due to growth initiatives with the non-
standard automobile product, personal lines sales to Sam's
Club members in certain states, and a combination of
commercial line rate increases and new business.
Net investment income of approximately $8.0 million for
the first six months of 2000 declined slightly in
comparison to $8.2 million for the same 1999 period, due
to slight reductions in yields on preferred and common
equities and from a slightly smaller base of invested
assets.
The Company's total incurred losses and loss adjustment
expenses for the six months of 2000 increased to $89.1
million from $73.6 million for the comparable 1999 period.
The loss and loss adjustment expense ratio increased from
75.4 percent in 1999 to 82.1 percent in 2000. Net weather-
related property losses incurred by the Company during the
first six months of 2000 were estimated to be
approximately $8.0 million. Such claims largely resulted
from May wind and hail storms in Indiana and Wisconsin.
For the comparable 1999 period, approximately $9.8 million
of such losses were incurred by the Company. In addition
to these losses, both the frequency and severity of claims
worsened in 2000.
The Company's total expenses, which includes general
operating, amortization, and interest expenses, of $32.6
million for the first six months of 2000 increased
compared to the 1999 total of $30.9 million. Relative to
earned premiums, general operating and amortization
expenses represented 30.1 percent of earned premiums
through June 30, 2000, an improvement over the 31.6
percent relationship for the first half of 1999.
Earnings through June 1999 also reflected a non-recurring
charge of $0.04 per share after tax, representing the
cumulative effect of a change in accounting method for
certain insurance-related assessments.
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held May
10, 2000. At that meeting, the three management nominees
for Director were elected, as follows:
Nominee Shares For Shares Withheld
Joseph D. Barnette, Jr. 6,039,589 1,590,746
Ramon L. Humke 6,036,383 1,593,952
Thomas H. Sams 6,039,589 1,590,746
Item 6. a. Exhibits. See index to exhibits.
b. No reports on Form 8-K were filed during the
period covered by this statement.
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: July 26, 2000 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: July 26, 2000 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 June 30, 2000
Index to Exhibits
Exhibit Number
Assigned in Regulation S-K
Item 601 Description of Exhibit
(10) 10.01 Written Description of 2000
Meridian Insurance Group, Inc.,
Long-Term Incentive
Plan for Executive Staff
(27) 27.01 Financial Data Schedule
