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, 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:
7,838,219 Common Shares at September 30, 2000
The Index of Exhibits is located at page 17 in the sequential
numbering system.
Total pages: 27
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, 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
September 30 December 31
2000 1999
(Unaudited)
ASSETS
Investments:
Fixed maturities, available for sale at market
(cost $232,467,000 and $232,090,000) $ 230,096,705 $ 226,431,532
Equity securities, at market
(cost $50,771,000 and $54,282,000) 57,031,025 69,002,099
Short-term investments, at cost, which
approximates market 1,776,743 2,822,215
Other invested assets 1,727,901 1,322,209
Total investments 290,632,374 299,578,055
Cash 2,560,717 1,381,888
Premium receivable, net of bad debt allowance 11,915,097 13,113,315
Accrued investment income 3,016,588 3,314,756
Deferred policy acquisition costs 21,032,680 19,974,450
Goodwill 13,542,114 14,070,480
Reinsurance receivables 34,301,838 34,057,786
Prepaid reinsurance premiums 3,594,358 3,592,121
Due from Meridian Mutual Insurance Company 9,215,929 4,620,574
Other assets 8,180,056 4,519,700
Total assets $ 397,991,751 $ 398,223,125
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $ 148,334,092 $ 145,962,418
Unearned premiums 93,514,962 88,698,507
Other post-employment benefits 2,257,965 2,204,739
Bank loan payable 7,000,000 8,500,000
Reinsurance payables 9,152,522 9,142,015
Other liabilities 6,018,575 6,906,277
Total liabilities 266,278,116 261,413,956
Shareholders' equity:
Common shares, no par value, Authorized 20,000,000 shares;
Issued 8,283,521 and 8,218,167; Outstanding 7,838,219 and
7,926,610 at September 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) 45,503,728 44,793,300
Treasury shares, at cost; 445,302 and
291,557 shares, respectively (6,549,079) (4,566,809)
Contributed capital 36,481,864 36,481,864
Retained earnings 53,479,036 54,112,519
Accumulated other comprehensive income 2,798,086 5,988,295
Total shareholders' equity 131,713,635 136,809,169
Total liabilities and shareholders' equity $ 397,991,751 $ 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
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Premiums earned $ 54,775,594 $ 50,891,817 $ 163,254,472 $ 148,562,929
Net investment income 3,979,975 4,023,052 11,955,390 12,262,807
Realized investment gains 1,300,766 1,838,706 9,882,789 4,455,718
Other income (expense) 341,151 (37,784) 948,469 36,172
Total revenues 60,397,486 56,715,791 186,041,120 165,317,626
Losses and loss adjustment expenses 47,590,208 37,362,633 136,690,833 110,995,307
General operating expenses 4,283,698 4,277,213 11,766,870 12,631,503
Interest expenses 135,771 134,530 401,449 404,741
Amortization expenses 12,613,597 11,653,519 37,476,077 33,909,757
Total expenses 64,623,274 53,427,895 186,335,229 157,941,308
Income (loss) before taxes and change
in accounting method (4,225,788) 3,287,896 (294,109) 7,376,318
Income taxes (benefit):
Current (874,000) 704,000 (231,000) 1,354,000
Deferred (1,111,000) (18,000) (1,321,000) 216,000
Total income taxes (benefit) (1,985,000) 686,000 (1,552,000) 1,570,000
Income (loss) before change in accounting method (2,240,788) 2,601,896 1,257,891 5,806,318
Cumulative effect of change in
accounting method, net of tax 0 0 0 (293,700)
Net Income (loss) $ (2,240,788)$ 2,601,896 $ 1,257,891 $ 5,512,618
Basic average shares outstanding 7,842,226 7,968,231 7,878,649 7,974,736
Weighted average shares outstanding 7,842,226 8,057,192 7,923,498 8,067,012
Per share results:
Basic earnings (loss) per share before
change in accounting method $ (0.29)$ 0.33 $ 0.16 $ 0.73
Accounting change, net of tax, per share 0.00 0.00 0.00 (0.04)
Basic earnings (loss) per share $ (0.29)$ 0.33 $ 0.16 $ 0.69
Diluted earnings (loss) per share before
change in accounting method $ (0.29)$ 0.32 $ 0.16 $ 0.72
Accounting change, net of tax, per share 0.00 0.00 0.00 (0.04)
Diluted earnings (loss) per share $ (0.29)$ 0.32 $ 0.16 $ 0.68
</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 nine months ended September 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 -- -- -- 5,512,618 -- $ 5,512,618
Other comprehensive
income, net of tax:
Unrealized loss on securities,
net of reclassification
adjustment -- -- -- -- (9,039,282) (9,039,282)
Comprehensive income (loss) -- -- -- -- -- $ (3,526,664)
Repurchase of 41,951 common shares -- (728,010) -- -- --
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 ($0.22 per share) -- -- -- (1,740,520) --
Balance at September 30, 1999 $ 44,793,300 $ (4,005,791)$ 25,923,462 $ 63,568,333 $ 6,150,956
Balance January 1, 2000 $ 44,793,300 $ (4,566,809)$ 36,481,864 $ 54,112,519 $ 5,988,295
Comprehensive income:
Net income -- -- -- 1,257,891 -- $ 1,257,891
Other comprehensive
income, net of tax:
Unrealized loss on securities,
net of reclassification
adjustment -- -- -- -- (3,190,210) (3,190,210)
Comprehensive income (loss) -- -- -- -- -- $ (1,932,319)
Repurchase of 153,745 common
shares -- (1,982,270) -- -- --
Issuance of 7,758 restricted
shares 102,067 -- -- -- --
Exercise of stock options for 57,596
common shares 608,361 -- -- -- --
Dividends ($0.24 per share) -- -- -- (1,891,374) --
Balance at September 30, 2000 $ 45,503,728 $ (6,549,079)$ 36,481,864 $ 53,479,036 $ 2,798,085
</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
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,257,891 $ 5,512,618
Reconciliation of net income to net cash
provided (used) by operating activities:
Amortization 37,476,077 33,909,757
Deferred policy acquisition costs (38,005,941) (35,913,353)
Deferred income taxes (1,321,000) 216,000
Increase in unearned premiums 4,816,455 10,097,624
Increase (decrease) in losses and loss adjustment expenses 2,371,674 (5,908,747)
Decrease (increase) in premium receivables 1,198,218 (5,054,287)
Increase in amount due to Meridian Mutual Ins. Co. (4,595,355) (1,830,907)
Decrease (increase) in reinsurance receivables (244,052) 5,672,696
Increase in prepaid reinsurance premiums (2,237) (392,457)
Decrease (increase) in other assets 831,808 (747,313)
Increase (decrease) in reinsurance payables 10,507 (215,893)
Increase in accrued commissions and
other expenses 434,827 320,002
Increase (decrease) in payable for federal income taxes (1,453,629) 379,000
Increase (decrease) in other liabilities (687,227) 317,051
Net realized investment gains (9,882,789) (4,455,718)
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 66,666 (837,427)
Net cash provided (used) by operating activities (7,626,040) 1,425,528
Cash flows from investing activities:
Purchase of fixed maturities (47,204,626) (54,849,116)
Proceeds from sale of fixed maturities 32,873,070 38,000,779
Proceeds from calls, prepayments and maturity
of fixed maturities 13,413,993 16,251,814
Purchase of equity securities (19,053,973) (17,062,794)
Proceeds from sale of equity securities 33,273,727 18,122,621
Net decrease in short-term investments 1,045,472 1,338,431
Decrease (increase) in other invested assets (141,743) 36,259
Decrease in securities receivable/payable (466) (46,148)
Net cash provided by investing activities 14,205,454 1,791,846
Cash flows from financing activities:
Dividends paid (2,526,676) (1,740,694)
Repayment of bank loan (1,500,000) (1,125,000)
Repurchase of common shares (1,982,270) (728,010)
Exercise of stock options 608,361 393,439
Net cash used in financing activities (5,400,585) (3,200,265)
Increase in cash 1,178,829 17,109
Cash at beginning of period 1,381,888 854,522
Cash at end of period $ 2,560,717 $ 871,631
</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 nine months ended September 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 each of the periods ended September 30, 2000
and 1999 total 74 percent.
2. Reinsurance
For the three and nine months ended September 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Premiums written:
Direct $ 56,616,167 $ 57,549,674 $ 179,461,228 $ 170,023,414
Assumed 69,680 104,924 230,747 267,194
Ceded (3,816,169) (4,244,036) (11,623,284) (12,022,512)
Net $ 52,869,678 $ 53,410,562 $ 168,068,691 $ 158,268,096
Premiums earned:
Direct $ 58,730,919 $ 54,956,223 $ 174,620,967 $ 159,888,209
Assumed 62,568 98,619 254,553 304,775
Ceded (4,017,893) (4,163,025) (11,621,048) (11,630,055)
Net $ 54,775,594 $ 50,891,817 $ 163,254,472 $ 148,562,929
Losses and loss adjustment expenses:
Direct $ 50,074,735 $ 38,968,685 $ 147,504,123 $ 119,474,376
Assumed 210,955 315,405 728,359 120,887
Ceded (2,695,482) (1,921,457) (11,541,649) (8,599,956)
Net $ 47,590,208 $ 37,362,633 $ 136,690,833 $ 110,995,307
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 nine month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic earnings per share computation:
Numerator:
Net income (loss) before change
in accounting method $ (2,240,788) $ 2,601,896 $ 1,257,891 $ 5,806,318
Denominator:
Weighted average common
shares outstanding 7,842,226 7,968,231 7,878,649 7,974,736
Basic earnings (loss) per share
before change in
accounting method $ (0.29) $ 0.33 $ 0.16 $ 0.73
Cumulative effect of change
in accounting method --- --- --- (0.04)
Basic earnings (loss) per share $ (0.29) $ 0.33 $ 0.16 $ 0.69
Diluted earnings per share computation:
Numerator:
Net income (loss) before change
in accounting method $ (2,240,788) $ 2,601,896 $ 1,257,891 $ 5,806,318
Denominator:
Weighted average common
shares outstanding 7,842,226 7,968,231 7,878,649 7,974,736
Stock options - 88,961 44,849 92,276
Total shares 7,842,226 8,057,192 7,923,498 8,067,012
Diluted earnings (loss) per share
before change in
accounting method $ (0.29) $ 0.32 $ 0.16 $ 0.72
Cumulative effect of change
in accounting method --- --- --- (0.04)
Diluted earnings (loss) per share $ (0.29) $ 0.32 $ 0.16 $ 0.68
</TABLE>
The earnings per share information in the above table reflects the ten
percent stock dividend declared in December 1999.
4. Income Taxes
For the nine months ended September 30, 2000, the Company's
tax loss is substantially greater than its loss before taxes
as determined under generally accepted accounting principles
primarily due to tax-exempt interest income and the dividends
received deduction. The tax benefit recorded reflects the
carryback of the current period loss and the generation of
additional alternative minimum tax credits expected to be
realized in future periods.
5. Comprehensive Income
The Company's other comprehensive income (loss) consists
solely of net unrealized gains (losses) on securities. The
total net unrealized gains (losses) on securities for the
nine month periods ended September 30, 2000 and 1999 consist
of the following:
Nine Months Ended
September 30,
2000 1999
Unrealized holding gains (losses) before
deferred income taxes $ 5,434,318 $ (8,682,043)
Deferred income tax (expense) benefit (1,902,000) 3,039,000
Subtotal 3,532,318 (5,643,043)
Less: Reclassification adjustment for
realized gains 10,342,527 5,224,239
Income tax expense related to
realized gains (3,620,000) (1,828,000)
Subtotal 6,722,527 3,396,239
Other comprehensive loss $ (3,190,209)$ (9,039,282)
6. 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 nine months ended September 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 is
allocated based upon the relative size of each segment. Asset
information by reportable segment is not reported, since the
Company does not internally produce such information.
<TABLE>
Nine months ended September 30, 2000
<CAPTION>
Segment Non-segment
Personal Farm Commercial Total Total Total
<S> <C> <C> <C> <C> <C> <C>
Premiums earned $ 96,932,893 $ 8,462,209 $ 57,859,370 $ 163,254,472 $ --- $ 163,254,472
Net investment income 7,098,553 619,701 4,237,136 11,955,390 --- 11,955,390
Net realized investment gains --- --- --- --- 9,882,789 9,882,789
Other income --- --- --- --- 948,469 948,469
Total revenues 104,031,446 9,081,910 62,096,506 175,209,862 10,831,258 186,041,120
Loss and LAE 84,513,519 6,935,818 45,241,496 136,690,833 --- 136,690,833
General operating expenses 6,250,263 665,653 4,850,954 11,766,870 --- 11,766,870
Interest expense --- --- --- --- 401,449 401,449
Amortization expenses 19,906,342 2,120,026 15,449,709 37,476,077 --- 37,476,077
Total expenses 110,670,124 9,721,497 65,542,159 185,933,780 401,449 186,335,229
Income (loss) before taxes (6,638,678) (639,587) (3,445,653) (10,723,918) 10,429,809 (294,109)
Income taxes (benefit) (3,220,584) (310,279) (1,671,570) (5,202,433) 3,650,433 (1,552,000)
Net income (loss) (3,418,094) (329,308) (1,774,083) (5,521,485) 6,779,376 1,257,891
Nine months ended September 30, 1999
Premiums earned $ 87,727,512 $ 8,356,442 $ 52,478,975 $ 148,562,929 $ --- $ 148,562,929
Net investment income 7,241,279 689,765 4,331,763 12,262,807 --- 12,262,807
Net realized investment gains --- --- --- --- 4,455,718 4,455,718
Other income --- --- --- --- 36,172 36,172
Total revenues 94,968,791 9,046,207 56,810,738 160,825,736 4,491,890 165,317,626
Loss and LAE 69,577,909 7,034,975 34,382,423 110,995,307 --- 110,995,307
General operating expenses 6,743,567 749,494 5,138,442 12,631,503 --- 12,631,503
Interest expense --- --- --- --- 404,741 404,741
Amortization expenses 18,103,367 2,012,045 13,794,345 33,909,757 --- 33,909,757
Total expenses 94,424,843 9,796,514 53,315,210 157,536,567 404,741 157,941,308
Income (loss) before taxes
and accounting change 543,948 (750,307) 3,495,528 3,289,169 4,087,149 7,376,318
Income taxes (benefit) 120,577 (166,320) 774,851 729,108 840,892 1,570,000
Income (loss) before
accounting change 423,371 (583,987) 2,720,677 2,560,061 3,246,257 5,806,318
Cumulative effect of change
in accounting method,
net of tax --- --- --- --- (293,700) (293,700)
Net income (loss) $ 423,371 $ (583,987) $ 2,720,677 $ 2,560,061 $ 2,952,557 $ 5,512,618
</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:
Nine months ended September 30,
2000 1999
Personal Lines:
Automobile $ 76,176,734 $ 67,050,892
Homeowners 18,773,782 18,710,637
Other 1,982,377 1,965,983
Total Personal Lines 96,932,893 87,727,512
Commercial Lines:
Automobile 15,673,613 13,617,703
Workers Compensation 19,249,974 16,777,474
Commercial Multi-Peril 19,131,885 18,659,508
Other 3,803,898 3,424,290
Total Commercial Lines 57,859,370 52,478,975
Farm Lines:
Farmowners 6,841,778 6,753,294
Other 1,620,431 1,603,148
Total Farm Lines 8,462,209 8,356,442
Total All Lines Combined $ 163,254,472 $ 148,562,929
7. 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.
8. 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.
9. Supplemental Cash Flow Disclosures
Interest on the bank loan paid for the nine month periods ended
September 30, 2000 and 1999 was $399,849 and $420,303,
respectively.
Federal income taxes paid for the nine month periods ended
September 30, 2000 and 1999 were $1,222,629 and $1,320,213,
respectively.
10. Subsequent Event
On October 25, 2000, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger
(the "MIGI Merger") of the Company with a newly-formed, wholly-
owned subsidiary of State Automobile Mutual Insurance Company
("State Auto"). At the same time, the Company's largest
shareholder, Meridian Mutual, entered into an Agreement to Merge
with and into State Auto (the "Mutual Merger" and together with
the MIGI Merger, the "Mergers"). As a result of the Mergers, (a)
the operations of Meridian Mutual and State Auto will be
combined, with State Auto as the surviving corporation of the
Mutual Merger, (b) the Company will become a wholly-owned
subsidiary of State Auto, and (c) the public shareholders of the
Company will receive $30.00 per share in cash. Each Merger is
conditioned upon consummation of the other Merger, receipt of
insurance regulatory approvals and receipt of antitrust
clearance. In addition, the MIGI Merger must be approved by the
shareholders of the Company and the Mutual Merger must be
approved by the policyholders of Meridian Mutual and State Auto
and reapproved by the board of directors of each party. Meridian
Mutual and State Auto have each agreed to vote all Company shares
owned by them in favor of the MIGI Merger. Together, the mutual
companies own approximately 53% of the Company's outstanding
shares. The Merger Agreement also provides for the payment of a
break-up fee or liquidated damages to State Auto or liquidated
damages to the Company if the Merger Agreement is terminated
under certain circumstances.
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. were
$398.0 million at September 30, 2000, a slight decrease
from the December 31, 1999 total of $398.2 million.
Unrealized depreciation on the Company's fixed maturity
portfolio decreased by approximately $3.3 million since
December 31, 1999. The modified duration of the Company's
fixed maturity portfolio is approximately 4.9 years. Net
unrealized appreciation on equity securities decreased by
$8.5 million since December 31, 1999. This has been
substantially affected by the recognition of realized
gains on sales of equity securities. The increase in
other assets from year-end 1999 is primarily related to
federal income tax assets.
Total liabilities at September 30, 2000 of $266.3 million
increased by 1.9 percent in comparison to $261.4 million
reported at December 31, 1999. Loss and loss adjustment
expense reserves increased due to the level and timing of
claim activity. Unearned premiums increased by $4.8
million related to the increase in premium volume. These
were offset somewhat by the $1.5 million decrease in the
bank loan.
The Company's shareholders' equity at September 30, 2000
decreased approximately 3.7 percent to $131.7 million
compared to $136.8 million reported at December 31, 1999.
The primary factors leading to this decrease were net
unrealized losses on investment securities of $3.2
million, treasury share repurchases in the open market of
$2.0 million and shareholder dividends of $1.9 million.
These factors were partially offset by $1.3 million of net
income and $0.6 million related to the exercise of stock
options. The Company's book value per share at September
30, 2000 was $16.80, compared to $17.26 reported at year-
end 1999.
Results of Operations
The Company has decided to withdraw from the personal
lines market in the state of Michigan. This withdrawal
includes policies written through the GROUPadvantage
program marketed to Sam's Club members. Additionally, the
Company has ceased writing new business through the
GROUPadvantage program in other states and will non-renew
such existing business. In total, the Michigan personal
lines and GROUPadvantage business represents approximately
six percent of the Company's premium volume. This
business has consistently failed to meet the Company's
profitability objectives.
Quarter
For the three months ended September 30, 2000, the Company
recorded a net loss of $2.2 million, or $0.29 per diluted
common share. This compares to net income during the
third quarter of 1999 of $2.6 million, or $0.32 per
diluted common share. The Company's third quarter 2000
per share results included an operating loss of $0.40 per
diluted common share compared to operating earnings of
$0.17 per diluted common share for the same period in
1999. Net realized investment gains were $0.11 per
diluted common share in the third quarter of 2000 compared
to $0.15 in 1999. The Company's third quarter 2000
statutory combined ratio increased to approximately 115.9
percent, compared to 103.9 percent for the third quarter
of 1999 due primarily to a higher overall loss and loss
adjustment expense ratio.
The Company's total revenues for the third quarter of 2000
were $60.4 million compared to $56.7 million for the same
period in 1999. Premiums earned increased 7.6 percent to
$54.8 million from $50.9 million during the third quarter
of 1999. During the third quarter of 2000, earned premium
for personal automobile, the Company's largest line of
business, increased by 9.8 percent over the third quarter
of 1999. Earned premiums for commercial and farm lines
improved during the third quarter of 2000 with growth of
approximately 7.6 percent and 3.3 percent, respectively.
The Company's third quarter 2000 net written premiums
decreased slightly in comparison to the same period of
1999. GROUPadvantage and commercial lines net premiums
written declined 13.1 percent and 2.6 percent,
respectively. Offsetting this was a 13.2 percent increase
in non-standard automobile premiums and a 4.0 percent
increase in farm lines.
Net investment income for the third quarter of 2000 was
approximately $4.0 million, consistent with the same
period in 1999. For the quarter ended September 30, 2000,
the net realized gain from the sale of investments was
approximately $1.3 million, or $0.11 per diluted share
after tax, compared to approximately $1.8 million or $0.15
per diluted share after tax for the second quarter of
1999. Realized gains in both periods resulted primarily
from the sale of equity securities. The Company has
focused on increasing book yield by selling lower yielding
and tax advantaged securities and reinvesting the proceeds
in higher yielding fixed maturities.
The Company's total incurred losses and loss adjustment
expenses for the third quarter of 2000 increased to $47.6
million from $37.4 million for the third quarter of 1999.
The third quarter 2000 loss and loss adjustment expense
ratio increased to 86.9 percent compared to 73.4 percent
for the third quarter of 1999. The increase is primarily
due to rising loss costs in the personal automobile line
of business, adverse development for workers compensation
coverage, and an increase in non-catastrophe homeowners
claims. Weather-related property losses were
approximately $0.3 million during the third quarter of
2000 versus $4.3 million during the same period of 1999.
Policies written through the GROUPadvantage program
experienced a loss and loss adjustment expense ratio of
122.9 percent for the third quarter of 2000 compared to
118.4 percent for the same period of 1999.
The Company's total general operating and amortization
expenses were $16.9 million for the third quarter of 2000
compared to $15.9 million for the same period in 1999.
Relative to earned premiums, the expense ratio improved to
30.8 percent compared to 31.3 percent for the third
quarter of 1999. General operating expenses in the third
quarter of 2000 include approximately $0.6 million of
legal and investment banking costs incurred in connection
with a hostile tender offer made for the Company. The
level of acquisition costs relative to written premiums
was similar to the prior period, while the remaining
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.
Nine Months
For the nine months ended September 30, 2000, the Company
recorded net income of $1.3 million, or $0.16 per diluted
common share. This compares to net income of $5.5
million, or $0.68 earnings per diluted common share for
the nine months ended September 30, 1999. Realized gains
on investments were $9.9 million, or $0.81 per diluted
common share after tax in 2000, compared to $4.5 million
or $0.36 per diluted common share after tax for the same
nine month period of 1999. Operating earnings fell from
$0.36 per diluted common share for the nine months ended
September 1999 to a loss of $0.65 per diluted common share
through September 2000.
The Company's total revenues for the nine months ended
September 30, 2000 were $186.0 million compared to $165.3
million for the same period in 1999. Earned premium
increased by $14.7 million, or 9.9 percent compared to
$148.6 million reported in the same period of 1999. This
included a 10.5 percent increase in personal lines, a 10.3
percent increase in commercial lines, and a 1.3 percent
increase in farm lines. Net written premiums for the nine
months ended September 30, 2000, increased 6.2 percent
over 1999. The increase is primarily attributable to non-
standard automobile and GROUPadvantage premiums. As
discussed above, the Company has taken actions to cease
writing new business and non-renew existing GROUPadvantage
business. The growth in year to date GROUPadvantage
premiums occurred in the first six months of the year
2000.
Net investment income of approximately $12.0 million for
the first nine months of 2000 declined slightly in
comparison to $12.3 million for the same period in 1999.
The levels of investments, on average, were relatively the
same in both periods.
The Company's total incurred losses and loss adjustment
expenses for the nine months of 2000 increased to $136.7
million from $111.0 million for the nine months ended
September 1999. The loss and loss adjustment expense
ratio increased from 74.9 percent in 1999 to 83.7 percent
in 2000. Consistent with the quarter-to-quarter
comparison, the increase is primarily due to rising loss
costs in the automobile lines of business, adverse
development for workers compensation coverage, and an
increase in homeowners claims. Weather-related
catastrophic property losses incurred by the Company
during the first nine months of 2000 were estimated to be
approximately $8.3 million compared to $14.1 million in
the same period of 1999. Such claims in 2000 largely
resulted from May wind and hail storms in Indiana and
Wisconsin. The GROUPadvantage program experienced a loss
and loss adjustment expense ratio of 122.6 percent in 2000
compared to 115.7 percent in 1999.
The Company's total expenses, which include general
operating, amortization, and interest expenses, of $49.6
million for the first nine months of 2000 increased by 5.8
percent compared to 1999 total of $46.9 million. Relative
to earned premiums, general operating and amortization
expenses represented 30.2 percent of earned premiums
through September 30, 2000, an improvement over the 31.3
percent result for the first nine months of 1999.
Earnings through September 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 6. a. Exhibits. See index to exhibits.
b. No reports on Form 8-K were filed during
the period covered by this statement.
A Form 8-K was filed on October 25, 2000, related
to the acceptance of a proposed merger with State
Automobile Mutual Insurance Company.
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: November 13, 2000 By: /s/ Norma J. Oman
Norma J. Oman, President and
Chief Executive Officer
DATE: November 13, 2000 By: /s/ Steven E. English
Steven E. English,
Chief Financial Officer and
Treasurer
MERIDIAN INSURANCE GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
For the quarter ended September 30, 2000
Index to Exhibits
Exhibit Number
Assigned in Regulation S-K
Item 601 Description of Exhibit
(3) 3.01 Bylaws of Meridian Insurance Group, Inc.
as amended through April 1, 2000
(27) 27.01 Financial Data Schedule
