<PAGE>
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, 1996
[ ] 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 0-17676
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AMERINST INSURANCE GROUP, INC.
------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-1534560
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1751 W. 47th Street, Chicago, Illinois 60609
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (312) 523-4416
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.
[X] YES [ ] NO
Number of shares of common stock outstanding:
Number outstanding
Class as of August 10, 1996
----- ---------------------
$0.01 par value common 334,504
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AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed-maturity securities, at market...................... $35,545,154 $35,114,791
Short-term investments at market.......................... 1,749,862 2,734,633
Mutual fund shares, at market............................. 1,250,378
Common stock, at market................................... 2,043,237
----------- ----------
Total investments..................................... 39,338,253 39,099,802
OTHER ASSETS
Cash...................................................... 631,458 1,070,639
Balances due from reinsurers.............................. 2,716 1,126,426
Reinsurance recoverable on outstanding losses............. 2,976,675 3,159,561
Accrued investment income................................. 519,235 440,567
Deferred acquisition costs................................ 602,101 562,475
Deferred federal income taxes............................. 1,370,469 732,964
Income tax refunds receivable............................. 675,703 396,992
Other assets.............................................. 81,705 80,250
----------- -----------
Total other assets.................................... 6,860,062 7,569,874
----------- -----------
Total assets.......................................... $46,198,315 $46,669,676
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses....................... $22,245,239 $21,789,036
Unearned premiums......................................... 2,112,635 2,095,462
Reinsurance balances payable.............................. 3,054,262 3,235,492
Accrued liabilities....................................... 441,630 489,893
----------- -----------
Total liabilities.................................... 27,853,766 27,609,883
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares authorized:
1996: 334,590 issued and outstanding
1995: 334,872 issued and outstanding................. 3,346 3,349
Additional paid-in capital................................ 7,200,483 7,206,283
Retained earnings......................................... 11,112,569 11,274,797
Unrealized investment gains, net of taxes................. 28,151 575,364
----------- -----------
Total stockholders' equity........................... 18,344,549 19,059,793
----------- -----------
Total liabilities and stockholders' equity........... $46,198,315 $46,669,676
=========== ===========
</TABLE>
See the accompanying note to the condensed consolidated financial statements.
2
<PAGE>
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Premiums earned ............................... $ 2,457,001 $2,495,660 $ 1,279,972 $1,260,257
Net investment income ......................... 1,252,236 1,335,235 617,450 704,827
Net realized capital gain (loss) .............. 39,265 (255,957) (130,157) (173,102)
----------- ---------- ----------- ----------
Total revenue ............................. 3,748,502 3,574,938 1,767,265 1,791,982
Losses and expenses
Losses and loss adjustment expenses ........... 2,248,717 2,433,170 1,161,896 1,136,175
Commissions expense ........................... 665,269 536,591 355,531 270,873
Other operating and management expenses ....... 457,310 466,672 237,016 257,363
----------- ---------- ----------- ----------
Total losses and expenses ................. 3,371,296 3,436,433 1,754,443 1,664,411
----------- ---------- ----------- ----------
Income before income taxes ........................ 377,206 138,505 12,822 127,571
Provision for income taxes .................... 97,149 19,794 (6,672) 2,874
----------- ---------- ----------- ----------
Net income ........................................ $ 280,057 $ 118,711 $ 19,494 $ 124,697
=========== ========== =========== ==========
Retained earnings, beginning of period ............ $11,274,797 $8,635,931 $11,314,987 $8,629,945
Net income ........................................ 280,057 118,711 19,494 124,697
Dividend paid ..................................... (435,123) (217,516)
Excess of purchase price on stock redemptions ..... (7,162) (4,972) (4,396) (4,972)
----------- ---------- ----------- ----------
Retained earnings, end of period .................. $11,112,569 $8,749,670 $11,112,569 $8,749,670
=========== ========== =========== ==========
Per common share data
Net income ........................................ $ 0.84 $ 0.35 $ 0.06 $ 0.37
=========== ========== =========== ==========
Dividend paid ..................................... $ 1.30 $ - $ 0.65 $ -
=========== ========== =========== ==========
Weighed average number of shares outstanding
for the entire period ....................... 334,703 335,972 334,773 335,378
=========== ========== =========== ==========
</TABLE>
See the accompanying note to the condensed consolidated financial statements.
3
<PAGE>
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Net Cash Provided (Used) by Operating Activities.. $ 1,083,018 $ (1,265,064)
------------ ------------
Investing Activities
Proceeds from sales of investments............... 11,597,311 12,021,724
Purchases of fixed-maturity securities........... (13,656,195) (10,662,275)
Net purchases of short-term investments.......... 984,770
------------ ------------
Net Cash (Used) Provided by Investing Activities.. (1,074,114) 1,359,449
Financing Activities
Redemption of shares............................. (12,962) (57,883)
Shareholder dividend............................. (435,123) 0
------------ ------------
Net Cash Used by Financing Activities............. (448,085) (57,883)
------------ ------------
Increase (decrease) in cash....................... $ (439,181) $ 36,502
============ ============
</TABLE>
See the accompanying note to the condensed consolidated financial statements.
4
<PAGE>
AMERINST INSURANCE GROUP, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1996
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Registrant without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and reflect all adjustments consisting
of normal recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the results of operations for the periods shown.
These statements are condensed and do not include all information required by
generally accepted accounting principles to be included in a full set of
financial statements. It is suggested that these condensed statements be read in
conjunction with the consolidated financial statements at and for the year ended
December 31, 1995 and notes thereto, included in the Registrant's annual report
as of that date. Certain prior period amounts have been reclassified to conform
with current period presentations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS
Three months ended June 30, 1996 compared to three months ended June 30, 1995:
Net income decreased by $105,203 from $124,697 in the second quarter of 1995 to
$19,494 in the second quarter of 1996 due primarily to fluctuations in
investment results. Net investment income for the quarter was $617,450, compared
to $704,827 for same quarter of 1995. The second quarter 1996 net investment
income represents an effective annualized yield of 6.3%, as compared to a yield
of 7.2% for the second quarter of 1995. The 6.3% yield in the current period is
trending downward slightly from the 6.5% yield recorded in recent quarters, as
older higher-yielding investments mature and are replaced by lower yielding
issues. The 7.2% yield in the second quarter of 1995 is skewed upward due to
adjustments to accrued interest related to funds held by Virginia Surety which
were tranferred to AmerInst during that quarter.
Capital losses of $(130,157) were realized during the second quarter of 1996 as
a result of sales of some lower-yielding fixed-maturity securities for
reinvestment in higher-yielding bonds and equities.
The net underwriting loss for the most recent quarter of $(474,471) exceeded the
second quarter 1995 underwriting loss of $(404,154) primarily due to the
contractual increase in commissions which became effective July 1, 1995.
5
<PAGE>
AMERINST INSURANCE GROUP, INC.
Six months ended June 30, 1996 compared to six months ended June 30, 1995:
Net income increased to $280,057 from $118,711 due primarily to improved
investment results in the first quarter of 1996. Investment yield for the six
month period remained consistent with recent experience at approximately 6.5%.
Sales of securities during the first six months of 1996 resulted in realized
capital gains of $39,265 as compared to losses of $(255,957) in the same period
in 1995. The 1996 net gain is the combination of a first quarter gain of
$169,422, primarily realized as a result of the liquidation of the mutual fund
portfolio, with a second quarter loss of $(130,157) as discussed above. In the
first half of 1996, the Company retained an equity manager and invested
$2,000,000 in equities which previously had been invested in fixed-maturity
securities and mutual funds. In the first half of the prior year, the Company
made a tax payment of $3,500,000, necessitating the sale of several fixed-
maturity investments. Investments selected were those generating a capital loss
in order to obtain the benefit of tax loss carrybacks.
Earned premiums for the first six months of 1996 declined by 2% from the same
period of the prior year due to the continued competitive Accountants
Professional Liability Insurance market. Policy acquisition costs increased by
23.9% due to the contractual increase in commission expenses from 21.5% to 28.5%
effective July 1, 1995. These changes were offset by a reduction in the
provisional loss ratio from 97% for 1995 business to 92% for 1996 business. The
Company uses the provisional loss ratio applied to premiums assumed and earned
to adjust its liability for losses and loss adjustment expenses during interim
periods. The provisional loss ratio is determined by management in consultation
with an independent consulting actuary and after consideration of the Company's
historical loss experience and certain industry data. The Company does not
record development of prior year reserves at interim reporting dates. These
fluctuations combined to result in a net underwriting loss of $(914,295) for the
period as compared to $(940,773) for the same period in 1995, a difference of
$26,478 or 3%.
FINANCIAL CONDITION AND LIQUIDITY
As of June 30, 1996, 90% of investments were in fixed-maturity securities other
than short-term investments. As discussed above, management has appointed a new
equity manager, and allocated approximately $2,000,000 or 5% of total
investments to a new equity portfolio during the second quarter of 1996.
The balance due from reinsurers represents current assumed premiums receivable
less commissions, losses and loss adjustment expenses payable to the fronting
carriers. This balance decreased from $1,126,426 at December 31, 1995 to $2,716
at June 30, 1996 as a result of an increase in losses currently payable in
comparison with premiums assumed.
The registrant paid its fourth consecutive quarterly dividend of $0.65 per share
during the second quarter of 1996.
6
<PAGE>
AMERINST INSURANCE GROUP, INC.
Item 4. Submission of Matters to a Vote of Security-Holders.
- - -------------------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held on May 20, 1996.
(b) At said Annual Meeting, stockholders voted on the election of one
director. The stockholders elected the member of the management slate
in an uncontested election.
Director Votes For Votes Against or Withheld
-------- --------- -------------------------
Norman C. Batchelder 162,259 30,707
At said Annual Meeting, stockholders voted on three stockholder
proposals:
1) The proposal to request the Board to present at the 1997 Annual
Meeting a report on methods by which the corporation might increase the
liquidity of its shares. There were 187,106 votes in favor of the
proposal and 5,860 shares against or withheld.
2) The proposal to request the Board to take the necessary steps to
amend the certificate of incorporation and bylaws to increase the
number of directors from five to eleven. There were 81,119 votes in
favor of the proposal and 111,847 shares against or withheld.
3) The proposal to request the Board to take the necessary steps to
sell the Company. There were 69,841 votes in favor of the proposal and
123,125 shares against or withheld.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
See Index to Exhibits immediately following the signature page.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
AMERINST INSURANCE GROUP, INC.
------------------------------
(Registrant)
August 12, 1996 Bruce W. Breitweiser
----------------------------------
(Vice President and Chief Financial Officer,
duly authorized to sign this Report in such
capacity and on behalf of the Registrant.)
8
<PAGE>
AMERINST INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------ -----------
3(i) Certificate of Incorporation of the Company (1)
3(ii) Bylaws of the Company (1)
4 Article Fourth of Certificate of Incorporation -- included in Exhibit
3(i) above
10.1 Reinsurance Treaty between AIIC and Virginia Surety Company, Inc. (2)
10.2 Agreement between Country Club Bank and AIIC (2)
10.3 Agreement between Country Club Bank and AIIG (2)
10.4 Reinsurance Treaty between AIIC and CNA Insurance Companies (3), 1994
placement slip (4) and 1995 placement slip (5)
10.5 Revised Management Agreement between USA Risk Group (USARG) and AIIC
dated July 1, 1994 (5)
10.6 Escrow Agreement among AIIC, United States Fire Insurance Company and
Harris Trust and Savings Bank dated March 7, 1995 (5)
10.7 Security Trust Agreement among AIIC, Harris Trust and Savings Bank and
Virginia Surety Company, Inc. dated March 9, 1995 (5)
27 Financial Data Schedule (filed herewith)
- - -----------------------
(1) Filed with the Company's Registration Statement on Form S-1, Registration
No. 33-17421 and incorporated herein by reference.
(2) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference.
(3) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
(5) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference.
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 35,545,154
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,043,237
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 39,338,253
<CASH> 631,458
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 602,101
<TOTAL-ASSETS> 46,198,315
<POLICY-LOSSES> 22,245,239
<UNEARNED-PREMIUMS> 2,112,635
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,346
0
0
<OTHER-SE> 18,341,203
<TOTAL-LIABILITY-AND-EQUITY> 46,198,315
2,457,001
<INVESTMENT-INCOME> 1,252,236
<INVESTMENT-GAINS> 39,265
<OTHER-INCOME> 0
<BENEFITS> 2,248,717
<UNDERWRITING-AMORTIZATION> 665,269
<UNDERWRITING-OTHER> 457,310
<INCOME-PRETAX> 377,206
<INCOME-TAX> 97,149
<INCOME-CONTINUING> 280,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280,057
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<RESERVE-OPEN> 18,629,475
<PROVISION-CURRENT> 2,248,717
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 36,899
<PAYMENTS-PRIOR> 1,572,729
<RESERVE-CLOSE> 19,268,564
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
