UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
(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 0-16267
WALSHIRE ASSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2023240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
3350 Whiteford Road, P. O. Box 3849, York, PA 17402-0138
(Address of principal executive offices) (Zip code)
(717)757-0000
(Registrant s telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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.
Class: Outstanding at April 30, 1998:
Common stock - $.01 Par Value 4,714,858 shares
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 . . . . . . . . . 2
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 (unaudited) . . 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (unaudited) . . 5
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 7
Part II OTHER INFORMATION . . . . . . . . . . . . . . . . . 8
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 8
Item 2. Changes in Securities . . . . . . . . . . . . . . . 8
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders. 8
Item 5. Other Information . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
Assets 1998 1997
(Unaudited)
Investments:
Held to maturity:
Fixed maturities (fair value $16,499 and
$17,754) . . . . . . . . . . . . . . . . $ 16,001 $ 17,228
Available for sale:
Fixed maturities (cost $41,072 and
$37,722) . . . . . . . . . . . . . . . . 41,518 38,182
Equity securities (cost $7,875 and
$8,268). . . . . . . . . . . . . . . . . 8,445 8,205
Short-term investments . . . . . . . . . . . . 4,635 7,531
Other investments. . . . . . . . . . . . . . . 1,515 2,656
Total investments . . . . . . . . . . . . . 72,114 73,802
Cash. . . . . . . . . . . . . . . . . . . . . . . 539 254
Accrued investment income receivable. . . . . . . 804 800
Amounts receivable from reinsurers. . . . . . . . 3,360 3,698
Amounts receivable from reinsured company . . . . 573 542
Agents balances (net of allowance for doubtful
accounts of $120). . . . . . . . . . . . . . . 7,088 7,411
Installment premiums receivable . . . . . . . . . 8,323 7,681
Agents balances and installment premiums
receivable from related parties. . . . . . . . 1,486 1,897
Premium finance receivables (net of unearned
finance charges and allowance for credit
losses of $89 and $84) . . . . . . . . . . . . 4,046 4,283
Reinsurance receivable. . . . . . . . . . . . . . 25,030 24,370
Deferred acquisition costs. . . . . . . . . . . . 4,682 4,778
Property and equipment (net of accumulated
depreciation of $2,325 and $2,194) . . . . . . 3,348 3,462
Other assets. . . . . . . . . . . . . . . . . . . 1,375 1,464
Total assets. . . . . . . . . . . . . . . . $132,768 $134,442
See accompanying notes to consolidated financial statements.
2
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(In thousands,
except per share data)
March 31, December 31,
Liabilities and Shareholders Equity 1998 1997
(Unaudited)
Liabilities:
Unpaid claims and claim settlement expenses. $ 49,530 $ 48,964
Unearned premiums. . . . . . . . . . . . . . 26,749 27,384
Short-term notes payable . . . . . . . . . . 4,187 5,015
Long-term notes payable. . . . . . . . . . . 400 558
Deposits by insureds . . . . . . . . . . . . 2,437 2,445
Commissions payable to agents. . . . . . . . 1,401 1,442
Commissions payable to related parties . . . 126 163
Other liabilities. . . . . . . . . . . . . . _ 847 980
Total liabilities . . . . . . . . . . . . 85,677 86,951
Shareholders equity:
Preferred stock, par value $.01 per share;
2,000 shares authorized; 123 shares
issued and outstanding. . . . . . . . . . 1 1
Common stock, par value $.01 per share;
10,000 shares authorized; 4,714 and
4,710 shares issued and outstanding . . . 47 47
Additional paid-in capital . . . . . . . . . 38,825 38,812
Unrealized gains on investments available
for sale (net of deferred taxes of $345
and $135. . . . . . . . . . . . . . . . . 671 262
Retained earnings. . . . . . . . . . . . . . 7,547 8,369
Shareholders equity. . . . . . . . . . . 47,091 47,491
Total liabilities and shareholders equity . $132,768 $134,442
See accompanying notes to consolidated financial statements.
3
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands,
except per share data)
Three Months Ended
March 31,_____
1998 1997
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $ 13,539 $ 15,646
Premiums ceded. . . . . . . . . . . . . . . . . . ( 2,347) ( 3,499)
Net premiums earned . . . . . . . . . . . . . . . 11,192 12,147
Net investment income . . . . . . . . . . . . . . 1,066 982
Net realized gains on investments . . . . . . . . 227 636
Other . . . . . . . . . . . . . . . . . . . . . . 118 163
Total revenues . . . . . . . . . . . . . . . . 12,603 13,928
Expenses:
Claims and claim settlement expenses. . . . . . . 11,562 10,813
Reinsurance recoveries. . . . . . . . . . . . . . ( 1,919) ( 1,720)
Net claims and claim settlement expenses. . . . . 9,643 9,093
Amortization of deferred acquisition costs. . . . 2,018 1,600
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 1,538 2,236
Interest. . . . . . . . . . . . . . . . . . . . . 96 190
Total expenses . . . . . . . . . . . . . . . . 13,295 13,119
Income (loss) before income taxes. . . . . . . . . . ( 692) 809
Provision for income taxes (benefit) . . . . . . . . ( 276) 142
Net income (loss). . . . . . . . . . . . . . . . . . ( 416) 667
Dividends on convertible preferred stock . . . . . . 100 104
Net income (loss) applicable for common stock. . . . $( 516) $ 563
Net income (loss) per common share:
Basic and diluted:
Net income (loss). . . . . . . . . . . . . . . $( .11) $ .12
Weighted average shares outstanding. . . . . . 4,711 4,656
See accompanying notes to consolidated financial statements.
4
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31, _______
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $( 416) $ 667
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Net realized gains on investments. . . . . . . ( 227) ( 636)
Decrease (increase) in assets:
Accrued investment income receivable. . . . . ( 4) ( 58)
Amounts receivable from reinsurers. . . . . . 338 ( 213)
Amounts receivable from reinsured company . . ( 31) ( 15)
Agents balances and installment premiums
receivable . . . . . . . . . . . . . . . . . ( 319) 58
Agents balances and installment premiums
receivable from related parties. . . . . . . 411 460
Premium finance receivables . . . . . . . . . 237 ( 235)
Reinsurance receivables . . . . . . . . . . . ( 660) ( 695)
Deferred acquisition costs. . . . . . . . . . 96 ( 256)
Other, net. . . . . . . . . . . . . . . . . . 221 ( 278)
(Decrease) increase in liabilities:
Unpaid claims and claim settlement expenses . 566 3,699
Unearned premiums . . . . . . . . . . . . . . ( 635) ( 57)
Deposits by insureds. . . . . . . . . . . . . ( 8) ( 107)
Other, net. . . . . . . . . . . . . . . . . . ( 219) ( 530)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . ( 650) 1,804
Cash flows from investing activities:
Purchase of investments:
Held to maturity . . . . . . . . . . . . . . . . - (2,334)
Available for sale . . . . . . . . . . . . . . . (8,722) (3,773)
Sale of investments:
Available for sale . . . . . . . . . . . . . . . 4,684 6,766
Maturity of investments. . . . . . . . . . . . . . 2,446 805
Net sale (purchase) of short term and other
investments . . . . . . . . . . . . . . . . . . . 4,120 (4,212)
Purchase of property and equipment . . . . . . . . ( 18) ( 147)
Sale of property and equipment . . . . . . . . . . - 13
Other, net . . . . . . . . . . . . . . . . . . . . ( 194) 288
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . 2,316 (2,594)
Cash flows from financing activities:
Cash dividends paid. . . . . . . . . . . . . . . . ( 406) ( 407)
Issuance of common stock . . . . . . . . . . . . . 12 78
Proceeds from notes payable . . . . . . . . . . . - 844
Payment of notes payable . . . . . . . . . . . . . ( 987) ( 130)
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . (1,381) 385
Net increase (decrease) in cash. . . . . . . . . . . 285 ( 405)
Cash at beginning of the period. . . . . . . . . . . 254 637
Cash at end of the period. . . . . . . . . . . . . . $ 539 $ 232
Se e accompanying notes to consolidated financial statements.
5
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated balance sheet as of March 31, 1998, the consolidated
statements of income for the three months ended March 31, 1998 and 1997 and the
consolidated statements of cash flows for the three months then ended have been
prepared by Walshire Assurance Company ( the Company ) without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1998 and for all periods presented, have
been made.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these unaudited consolidated financial
statements be read in conjunction with the financial statements and notes
thereto
included in the Company s 1997 Annual Report. The results of operations for the
period ended March 31, 1998 are not necessarily indicative of the results of
operations for the full year.
3. Basic net income per share is computed by dividing net income applicable for
common stock by the weighted average number of common shares outstanding during
the year. Diluted earnings per share includes the additional shares that would
have been outstanding had the 6 1/2% Convertible Preferred Stock been converted
to common, if dilutive, as well as the diluted effect of the Company's stock
option and stock purchase plans.
4. Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", was issued by the Financial Accounting Standards Board
(FASB) in 1997. As defined in SFAS 130, comprehensive income is composed of net
income, as well as other revenues, expenses, gains and losses that are currently
excluded from net income, but are accounted for separately in the shareholders'
equity section of the balance sheet. SFAS 130 requires that all items of
comprehensive income be reported in a financial statement. Total comprehensive
income (loss) is as follows:
(In thousands)
Three Months Ended
March 31, _______
1998 1997
(Unaudited) (Unaudited)
Net income (loss) . . . . . . . . . . . . . . . . . $(416) $ 667
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax:
Unrealized holding gains (losses) arising
during period . . . . . . . . . . . . . . . . 559 (106)
Less: reclassification adjustment for gains
realized in net income. . . . . . . . . . . . 150 420
Net unrealized gain (loss). . . . . . . . . . . 409 (526)
Other comprehensive income (loss) . . . . . . . . . 409 (526)
Total comprehensive income (loss) . . . . . . . . . $( 7) $ 141
6
5. Forward Looking Statements. The information contained in this Quarterly
Report contains forward looking statements (as such term is defined in the
Securities Exchange Act of 1934 and the regulations thereunder), including
without limitation, statements as to the allowances for doubtful accounts and
credit losses, reserves for unpaid claims and claim settlement expenses, the
classification of the Company's investment portfolio and other statements as to
management's beliefs, expectations or opinions. Such forward looking statements
are subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the forward
looking statements. Certain of these risks, uncertainties and other factors are
discussed in this Quarterly Report or in the Company's Annual Report on Form
10-K
for the year ended December 31, 1997, a copy of which may be obtained from the
Company upon request and without charge (except for the exhibits thereto).
6. Investment Considerations. In analyzing whether to make, or to continue,
an investment in the Company, investors should consider, among other factors,
certain investment considerations more particularly described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Revenues for the three month period ended March 31, 1998 decreased $1.3 million,
or 9.5%, from revenues for the three month period ended March 31, 1997. This
decrease was primarily the result of a decrease in net premiums earned, a direct
result of a decrease in direct premiums written over the past twelve months, and
a decrease in net realized gains on investments. Direct premiums written
decreased 21.3% in the three month period ended March 31, 1998 when compared to
the same period in 1997. This decrease is a result of continued price
competition within the property and casualty insurance industry. The following
table sets forth the direct premiums written by the Company for the three month
periods ended March 31, 1998 and 1997 by line of business.
(In thousands)
Three months ended March 31,
1998 1997 %Change
Auto liability $ 6,375 $ 7,626 (16.4)%
Auto physical damage 3,448 4,898 (29.6)%
Inland marine 804 1,024 (21.5)%
Workers compensation 580 1,178 (50.8)%
Homeowners 500 590 (15.3)
Other 1,191 1,064 11.9 %
Total $12,898 $16,380 (21.3)%
Expenses for the three month period ended March 31, 1998 increased $.2 million,
or 1.3%, over expenses for the three month period ended March 31, 1997. The
increase was primarily the result of increases in net claims and claim
settlement
expenses, offset, in part by a decrease in underwriting, general and
administrative expenses. Increases in net claims and claim settlement expenses
were the result of an increase in the statutory loss ratio from 76.4% in 1997 to
87.2% in 1998. The increase in the statutory loss ratio was primarily the result
of a higher loss ratio in the company's commercial auto liability business. The
increase in the loss ratio is the result of the continued price competition
within the industry, resulting in less premium per insured unit. Decreases in
underwriting, general and administrative expenses
7
were primarily the result of a reduction in staffing and other related expenses
during the third quarter of 1997. The statutory combined ratio for the three
month period ended March 31, 1998 was 117.7%, an increase from 107.8% for the
three month period ended March 31, 1997.
Liquidity and Capital Resources
Historically, the Company has generated funds sufficient to support its
operations and has maintained a high degree of liquidity in its investment
portfolio. The primary sources of funds to meet the demands of claim
settlements
and operating expenses are premiums, ceding commissions, investment income and
existing lines of credit. The Company s funds generally are invested in
securities with maturities intended to provide adequate funds to pay claims and
expenses without the forced sale of investments. The Company believes that its
current cash and short term investments, together with funds generated from
operations, will be sufficient to meet its operating and capital requirements
for
the foreseeable future.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
8
SIGNA TURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALSHIRE ASSURANCE COMPANY
(Registrant)
DATE: May 11, 1998 /s/ Kenneth R. Taylor
Kenneth R. Taylor
President and Chief
Executive Officer
DATE: May 11, 1998 /s/ Gary J. Orndorff
Gary J. Orndorff
Vice President/Treasurer
and Chief Financial Officer
9
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 41,518
<DEBT-CARRYING-VALUE> 16,001
<DEBT-MARKET-VALUE> 16,499
<EQUITIES> 8,445
<MORTGAGE> 95
<REAL-ESTATE> 0
<TOTAL-INVEST> 72,114
<CASH> 539
<RECOVER-REINSURE> 3,933
<DEFERRED-ACQUISITION> 4,682
<TOTAL-ASSETS> 132,768
<POLICY-LOSSES> 49,780
<UNEARNED-PREMIUMS> 26,749
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,437
<NOTES-PAYABLE> 4,587
<COMMON> 47
0
1
<OTHER-SE> 46,878
<TOTAL-LIABILITY-AND-EQUITY> 132,768
11,192
<INVESTMENT-INCOME> 1,066
<INVESTMENT-GAINS> 227
<OTHER-INCOME> 118
<BENEFITS> 9,893
<UNDERWRITING-AMORTIZATION> 2,018
<UNDERWRITING-OTHER> 1,538
<INCOME-PRETAX> (942)
<INCOME-TAX> (361)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (581)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<RESERVE-OPEN> 48,964
<PROVISION-CURRENT> 9,185
<PROVISION-PRIOR> 707
<PAYMENTS-CURRENT> 1,936
<PAYMENTS-PRIOR> 5,688
<RESERVE-CLOSE> 48,940
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
