<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, 1997
[_] 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
-------
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.)
R.R. No. 3, Airport Road, Berlin, Vermont 05602
Mailing address: P.O. Box 1330, Montpelier, Vermont 05601
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (802) 229-5042
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 6, 1997
----- ----------------------
$0.01 par value common 333,822
<PAGE>
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1997 1996
------------ --------------
(unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed-maturity securities, at market.................. $31,726,607 $35,688,432
Short-term investments at market...................... 1,687,461
Equity securities, at market.......................... 4,050,147 2,260,878
----------- -----------
TOTAL INVESTMENTS................................. 35,776,754 39,636,771
OTHER ASSETS
Cash.................................................. 5,558,848 347,404
Assumed reinsurance premiums receivable............... 647,289 929,798
Reinsurance recoveries receivable..................... 1,732,824 2,019,975
Accrued investment income............................. 454,357 515,870
Deferred policy acquisition costs..................... 620,135 611,048
Deferred federal income taxes......................... 1,316,726 1,306,399
Prepaid expenses and other assets..................... 92,033 90,008
Income tax recoverable................................ 110,018
----------- -----------
TOTAL OTHER ASSETS................................ 10,532,230 5,820,502
----------- -----------
TOTAL ASSETS...................................... $46,308,984 $45,457,273
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Losses and loss adjustment expenses................... $21,548,891 $20,299,937
Unearned premiums..................................... 2,175,913 2,144,027
Reinsurance balances payable.......................... 2,404,949 2,152,056
Income taxes payable.................................. 316,199
Accrued expenses and other liabilities................ 454,576 453,529
----------- -----------
TOTAL LIABILITIES................................. 26,584,329 25,365,748
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 2,000,000 shares
authorized: 1997: 333,822 issued and outstanding
1996: 334,180 issued and outstanding.. 3,338 3,342
Additional paid-in capital............................ 7,182,083 7,188,983
Retained earnings..................................... 11,893,520 12,474,579
Unrealized investment gains, net of taxes............. 645,714 424,621
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 19,724,655 20,091,525
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $46,308,984 $45,457,273
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 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,
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE
Premiums earned............................... $ 2,407,565 $ 2,457,001 $ 1,252,154 $ 1,279,972
Net investment income......................... 1,195,868 1,252,236 590,267 617,450
Net realized capital gain (loss).............. 69,612 39,265 (13,280) (130,157)
----------- ----------- ----------- -----------
TOTAL REVENUE............................. 3,673,045 3,748,502 1,829,141 1,767,265
LOSSES AND EXPENSES
Losses and loss adjustment expenses........... 2,873,596 2,248,717 1,498,709 1,161,896
Commissions expense........................... 686,268 665,269 356,885 355,531
Other operating and management expenses....... 380,610 457,310 194,288 237,016
----------- ----------- ----------- -----------
TOTAL LOSSES AND EXPENSES................. 3,940,474 3,371,296 2,049,882 1,754,443
----------- ----------- ----------- -----------
Income (loss) before income taxes.............. (267,429) 377,206 (220,741) 12,822
Provision for income tax expense (benefit).... (125,440) 97,149 (84,267) (6,672)
----------- ----------- ----------- -----------
NET INCOME (LOSS).............................. (141,989) $ 280,057 $ (136,474) $ 19,494
=========== =========== =========== ===========
RETAINED EARNINGS, BEGINNING OF PERIOD......... 12,474,579 $11,274,797 $12,248,425 $11,314,987
Net income (loss).............................. (141,989) 280,057 (136,474) 19,494
Dividend paid.................................. (434,015) (435,123) (216,984) (217,516)
Excess of purchase price on stock redemptions.. (5,055) (7,162) (1,447) (4,396)
----------- ----------- ----------- -----------
RETAINED EARNINGS, END OF PERIOD............... $11,893,520 $11,112,569 $11,893,520 $11,112,569
=========== =========== =========== ===========
Per common share data
Net income (loss).............................. $ (.43) $ 0.84 $ (.41) $ 0.06
=========== =========== =========== ===========
Dividend paid.................................. $ 1.30 $ 1.30 $ .65 $ 0.65
=========== =========== =========== ===========
Weighted average number of shares
outstanding for the entire period............ 333,869 334,703 333,836 334,773
=========== =========== =========== ===========
</TABLE>
See the accompanying notes 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,
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities........... $ 2,175,159 $ 1,083,018
----------- -----------
INVESTING ACTIVITIES
Proceeds from sales of investments................. 7,044,963 11,597,311
Purchases of fixed-maturity securities............. (4,484,420) (13,656,195)
Net sales of short-term investments................ 921,712 984,770
----------- -----------
Net Cash Provided by (used in) Investing Activities. 3,482,255 (1,074,114)
FINANCING ACTIVITIES
Redemption of shares............................... (11,955) (12,962)
Shareholder dividend............................... (434,015) (435,123)
----------- -----------
Net Cash Used by Financing Activities............... (445,970) (448,085)
----------- -----------
INCREASE (DECREASE) IN CASH......................... $ 5,211,444 $ (439,181)
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
AMERINST INSURANCE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1997
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, 1996 and notes thereto, included in the Registrant's annual report
as of that date.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS
Three months ended June 30, 1997 compared to three months ended June 30, 1996:
Net income decreased by $155,968 from $19,494 in the second quarter of 1996 to
$(136,474) in the second quarter of 1997. The change in earnings is primarily
attributable to an increase in the loss reserving ratio for the 1996-97 treaty
year along with slightly lower return on investments. Net investment income for
the second quarter of 1997 was $590,267, compared to $617,450 for the same
quarter of 1996. Sales of securities during the three months ended June 30, 1997
resulted in realized capital losses of $(13,280) as compared to losses of
$(130,157) in the same period in 1996. Investment yield for the three month
period remained consistent with recent experience at approximately 6.2%.
Earned premiums for the three month period ended June 30, 1997 amounted to
$1,252,154 representing a $27,818 decline, or approximately 2%, from the same
period of the prior year and is due to the continued competitive accountants
professional liability insurance market. The loss ratio for the three month
period ended June 30, 1997 was 120% as compared to 91% for the same period of
1996. The loss ratio of 120% represents management's current estimated effective
loss ratio selected in consultation with the Company's independent consulting
actuary to apply to current premiums assumed and earned. The Company's overall
loss ratio for the year ended December 31, 1996 was 50%. However, as reported as
of December 1996, excluding the effects of favorable development, the 1996-97
treaty year estimated loss ratio was established at 120%. The net underwriting
loss for the most recent quarter of $(797,728) exceeded the second quarter 1996
underwriting loss of $(474,471) primarily due to the increase in loss reserving
ratio for the 1996-97 treaty year.
5
<PAGE>
Six months ended June 30, 1997 compared to six months ended June 30, 1996:
Net income decreased by $422,046 from $280,057 for the six months ended June 30,
1996 to $(141,989) for the six months ended June 30, 1997. Again, this
difference is due primarily to the change in loss reserving ratio for the 1996-
97 treaty year as well as slightly lower return on investments. Investment yield
for the six month period was approximately 5.9% as compared to 6.5% for the
first six months of 1996. The lower yield is primarily attributable to an
increase in holdings of tax free municipal securities and an increase in equity
securities which generate less realized investment income. Sales of securities
during the first six months of 1997 resulted in realized capital gains of
$69,612 as compared to gains of $39,265 in the same period in 1996.
Earned premiums for the first six months of 1997 of $2,407,565 represents a
decline of $49,436, or approximately 2%, from the same period of the prior year
and is due to the continued competitive accountants professional liability
insurance market. The loss ratio through the first six months of 1997 was 119%
as compared to 92% for the same period of 1996. The loss ratio of 119%
represents management's current estimated effective loss ratio selected in
consultation with the Company's independent consulting actuary to apply to
current premiums assumed and earned. Losses incurred through June 30, 1997 do
not reflect any development of prior year reserves. Management expects to make a
determination in the fourth quarter whether an adjustment to reserves for prior
years is appropriate. The Company's overall loss ratio for the year ended
December 31, 1996 was 50%. However, as reported as of December 1996, excluding
the effects of favorable development, the 1996-97 treaty year estimated loss
ratio was established at 120%. The reported loss ratio through the first six
months of 1997 is slightly less than 120% due to the effect of a lower selected
loss ratio for treaty year 1995, for which a small amount of premium is still
being earned. These fluctuations combined to result in a net underwriting loss
of $(1,532,909) for the period as compared to $(914,295) for the same period in
1996.
FINANCIAL CONDITION AND LIQUIDITY
As of June 30, 1997, total invested assets amounted to $35,776,754 a decrease of
$3,860,017 or 9.7% from $39,636,771 at December 31, 1996. Cash balances
increased from $347,404 at December 31, 1996 to $5,558,848 at June 30, 1997, an
increase of 1,500% due to the sale of approximately $4,500,000 in bonds that
Virginia Surety Company released from the trust account to the Company near the
end of the second quarter. These funds were partially invested in fixed-maturity
securities with $1,000,000 invested in common stock early in the third quarter
of 1997. Short-term investments decreased from $1,687,461 at December 31, 1996
to $0 at June 30, 1997, due to the Company's decision to replace short-term bond
investments with investments in common stock. The ratio of cash and invested
assets to total liabilities and stockholders' equity at June 30, 1997 was .91 to
1, compared to a ratio of .87 to 1 at June 30, 1996.
The Registrant paid its eighth consecutive quarterly dividend of $0.65 per share
during the second quarter of 1997.
6
<PAGE>
Assumed reinsurance premiums receivable represents current assumed premiums
receivable less commissions payable to the fronting carriers. This balance
decreased from $929,798 at December 31, 1996 to $647,289 at June 30, 1997 as a
result of a decrease in premiums written in the second quarter of 1997 as a
majority of premiums are written in the third quarter.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Company's Annual Meeting of Stockholders was held on May 12,
1997.
(c) At said Annual Meeting, stockholders voted on the election of two
directors. The stockholders elected the members of the management
slate in an uncontested election.
Director Votes For Votes Against or Withheld
-------- --------- -------------------------
Bruce W. Breitweiser 134,981 10,573
Ronald S. Katch 134,599 10,955
No other matters were voted on at the Annual Meeting.
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,
1997.
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 11, 1997 Bruce W. Breitweiser
----------------------------------
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)
4.1 Article Fourth of Certificate of Incorporation -- included in
Exhibit 3(i) above
4.2 Statement of Stock Ownership Policy, as amended (7)
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) 1995 placement slip (5) and 1996
placement slip (6)
10.5 Management Agreement between Vermont Insurance Management, Inc.
and AIIC dated May 1, 1997 (filed herewith)
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 end
September 30, 1995 and incorporated herein by reference.
(6) Filed with the Company's Quarterly Report on Form 10-Q for the quarter end
September 30, 1996 and incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
9
<PAGE>
Exhibit 10.5
MANAGEMENT AGREEMENT
BETWEEN
VERMONT INSURANCE MANAGEMENT, INC.
AND
AMERINST INSURANCE COMPANY
THIS AGREEMENT is entered into and shall be effective this _1st___ day
of __May__, 1997_, between Vermont Insurance Management, Inc., a USA Risk Group
company (hereinafter referred to as "MANAGER"), and AMERINST INSURANCE COMPANY,
an Illinois corporation with its principal office in Chicago, Illinois
(hereinafter referred to as "COMPANY").
W I T N E S S E T H
WHEREAS, MANAGER is a company engaged in managing and administering
insurance companies; and
WHEREAS, COMPANY desires to employ MANAGER to perform management and
administration services in connection with the operation of COMPANY and MANAGER
is willing to perform such services subject to the terms and conditions
hereinafter set forth;
WHEREAS, MANAGER represents and COMPANY believes that MANAGER has the
facilities in Illinois to render the necessary management services to COMPANY;
and
WHEREAS, a management agreement entered into July 1, 1994 between
COMPANY and USA Risk Services, Inc., is being restated and replaced by this
agreement.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the sufficiency of which is hereby acknowledged, and in consideration
of the performance by each of the parties hereto of the terms hereof, it is
agreed that:
ARTICLE I
---------
Appointment and Authority
-------------------------
1.1 The COMPANY hereby appoints MANAGER for the purposes described in
this AGREEMENT and hereby authorizes and directs MANAGER to provide COMPANY
management services, and MANAGER accepts such appointment and undertakes and
agrees to provide COMPANY with the services and assistance herein described upon
the terms and conditions and for the compensation herein specified.
<PAGE>
1.2 COMPANY retains all authority to perform on its own behalf such
actions as it deems necessary to carry out the business of insurance.
ARTICLE II
----------
Services of Manager
-------------------
2.1 COMPANY, upon consultation with MANAGER, shall establish broad
principles to be applied by MANAGER in the performance of its duties under this
AGREEMENT.
2.2 MANAGER, in the performance of its duties, agrees to do and
perform all acts reasonably a part of such management as customarily understood
in the insurance and reinsurance industry.
2.3 Without limiting the generality of the foregoing, MANAGER
specifically agrees to perform the following services:
(a) Maintain a home office and principal place of business in
Illinois for COMPANY during the term of this AGREEMENT and, if
desired, recommend a person to serve as a director and/or
officer.
(b) Establish and maintain an accounting system appropriate to
COMPANY's operations and provide all accounting services required
for purposes of management and compliance with all requirements
of Illinois regulatory authorities (exclusive of audit and
reserve certification services).
(c) Prepare financial statements at specified intervals and in the
form requested by COMPANY as detailed in the attached
Recordkeeping Addendum.
(d) Submit on a timely basis to regulatory authorities such reports
and other information as may be required by law, including
statutory quarterly and annual statements and all returns for
premium and other taxes required by the state tax authorities.
(e) Render periodic advice, at such intervals and with such frequency
as COMPANY may reasonably specify, as to the amount of reserves
and other funds available for investment from time to time by
COMPANY.
(f) Perform certain insurance functions on behalf of COMPANY as
outlined in the attached Insurance Addendum.
(g) Maintain records of any funds due COMPANY and pay accounts
payable owed by COMPANY of which MANAGER could reasonably be
expected to have knowledge and which are required by the
management duties
<PAGE>
assumed under this AGREEMENT including fees and charges of
accountants, actuaries, lawyers and consultants. MANAGER shall
use diligence in the collection of accounts but shall be
responsible to COMPANY only for finds which have been collected.
MANAGER shall not bear responsibility to pursue the collection of
accounts through the use of court or other legal processes.
Specifically, MANAGER shall collect, receive and deposit all
funds, including money and checks for premiums on insurance,
endorse "for deposit only" all checks payable to COMPANY, deposit
such funds within fifteen (15) days of receipt only in checking
and bank accounts in banks that are members of the Federal
Reserve System designated by the Board of COMPANY and abide in
the respective accounts by the minimum and maximum amounts
established by the Board; Manager shall hold all funds received
by it in connection with this AGREEMENT as a fiduciary of COMPANY
and segregated from its other funds and assets in compliance with
all applicable laws and shall under no circumstances make any
personal use of such funds. Interest or revenue produced from
such deposits shall inure to the benefit of COMPANY.
(h) Assist COMPANY'S auditors in the audit of COMPANY'S books and
records.
2.4 COMPANY agrees to comply promptly with any request for
instructions or information which MANAGER may make in order to efficiently
perform the management duties under the AGREEMENT. MANAGER shall bear no
liability for its failure to act or for its reasonable independent actions in
connection with COMPANY'S business in the absence of a timely response to any
such request.
ARTICLE III
-----------
Manager Compensation
--------------------
3.1 COMPANY hereby agrees to pay MANAGER as full compensation for all
services performed under this AGREEMENT the amount set forth in the Management
Fee Addendum at the intervals so specified. This amount is based on the
activities contemplated and responsibilities designated at the time of the
signing of this AGREEMENT. Changes in the operation or requirements of COMPANY
which change the services required of the MANAGER will be subject to review as
warranted with appropriate adjustment of the management fee, as mutually agreed.
3.2 Promptly upon demand, COMPANY agrees to reimburse MANAGER for
expenses incurred directly in behalf of COMPANY, which are outside the ordinary
course of providing the management services detailed in Article II. These
include, but are not limited to, travel costs, COMPANY stationery, filing fees,
premium taxes, long distance telephone expenses, express delivery expense and
like matters.
<PAGE>
ARTICLE IV
----------
Term and Termination
--------------------
4.1 The term of this AGREEMENT shall be for one year beginning July
1, 1994, and shall automatically be renewed annually thereafter for successive
one-year periods. However, either party may terminate this Agreement without
cause at any time after the first year by giving the other party written notice
of intention to terminate this Agreement, and such notice shall be given not
more than ninety (90) days but not less than sixty (60) days prior to the
effective date of termination.
4.2 In accordance with regulatory requirements, the parties shall
resubmit this Agreement to the Illinois Insurance Director for review at the end
of the fifth year from the original effective date of this Agreement.
4.3 Notwithstanding anything to the contrary herein, either party
hereto may terminate this AGREEMENT if the other party fails to perform or
observe, or commits a breach of, any provision of this AGREEMENT or its in
violation of the laws and regulations of the State of Illinois, and fails to
cure or remedy such failure, breach or violation within thirty (30) days
following the delivery to such party of a written notice specifying the alleged
failure, breach or violation; such termination to be effective upon the
expiration of such thirty (30) day period.
4.4 MANAGER agrees to cooperate with and assist COMPANY in the
termination of this AGREEMENT in all reasonable respects with regard to any
matters arising or occurring during the period this AGREEMENT is in force.
COMPANY agrees to reimburse MANAGER for all costs incurred by MANAGER with
respect to the cooperation and assistance provided by MANAGER pursuant to this
Section 4.3.
4.5 All books of account, insurance policies, reinsurance agreements,
bank statements and checks, loss information, minutes, correspondence and other
records and documentation maintained and held by MANAGER on behalf of and
relating to the affairs of COMPANY shall remain the sole and exclusive property
of COMPANY and shall be delivered promptly to COMPANY or its agent designated in
writing following any termination of this AGREEMENT by either party. MANAGER
shall have the right within six (6) years after any termination of this
AGREEMENT to inspect such books and records and (either before or after the
delivery of such books and records to COMPANY) to make copies thereof or
extracts therefrom.
ARTICLE V
---------
Manager Responsibility; Limitations Thereon
-------------------------------------------
5.1 MANAGER will use its best efforts and judgment to the end that
the services covered by this AGREEMENT shall at all times be performed in
accordance with such methods and in such manner as will comply with all laws and
statutes relating thereto and with
<PAGE>
all provisions of pertinent contracts and agreements to the extent that COMPANY
specifically notifies MANAGER of such provisions. MANAGER does not hereby
represent that it can or will render legal advice to COMPANY or (except as
otherwise expressly provided herein) that it will bear the responsibility for
COMPANY'S compliance with applicable legal requirements. Rather, MANAGER will
make reasonable efforts to conform its services to such legal and contractual
requirements as are made known to it.
5.2 MANAGER shall indemnify and hold harmless COMPANY from and
against any liability, claims, and expenses resulting from conduct of MANAGER.
However, liability of MANAGER for any loss, injury or damages sustained by
COMPANY as a result of any act or omission of MANAGER shall not exceed an amount
equal to the annual fee actually received by MANAGER under and by virtue of this
AGREEMENT, except in cases where such loss, injury or damages result from the
willful misconduct, gross negligence, or fraud of MANAGER.
5.3 COMPANY shall defend and indemnify MANAGER and hold it harmless
from and against any and all liability, costs and expenses (including attorneys'
fees) arising out of or in any way relating to its management of COMPANY, except
liability which is a direct result of MANAGER's gross negligence, willful or
wanton misconduct, or fraud.
5.4 MANAGER does not act as an insurer for any insured of COMPANY.
This AGREEMENT shall not be construed as an insurance policy or any contract or
agreement of indemnity; it being understood that MANAGER is in no event under
the terms of this AGREEMENT financially responsible for the payment or
satisfaction of claims, lawsuits or any cause of action against COMPANY or any
insured of COMPANY. The payment by MANAGER of any funds for the satisfaction of
any claim, lawsuit, or cause of action against COMPANY or any insured of COMPANY
shall not be considered an undertaking by MANAGER to be responsible financially
or liable for any present or future claims.
5.5 MANAGER shall have no authority to hold itself out as an agent of
COMPANY for any other purpose than specifically prescribed in this AGREEMENT; to
waive any forfeiture; or to collect any premium except those for which policies
have been issued or valid receipts which have been sent for collection, or to
bind COMPANY in any way except as herein expressly stated.
5.6 MANAGER agrees that no forms, binders, pamphlets, booklets, or
any other printed matter using COMPANY'S name shall be used, issued or
circulated unless authorized by COMPANY'S Board.
5.7 Other than as provided by this AGREEMENT, the MANAGER is
forbidden to incur any indebtedness on behalf of the COMPANY whatsoever without
first obtaining the written consent of the Board of Directors of the COMPANY.
<PAGE>
ARTICLE VI
----------
Confidentiality
---------------
6.1 MANAGER shall not (except in the exercise of duties hereunder or
as required by law) disclose any information relating to the affairs of COMPANY
to any person not authorized by COMPANY to receive such information and MANAGER
will use its best efforts to prevent any such disclosure by its employees and
agents.
6.2 All books and records of COMPANY shall be open to inspection only
by directors, officers and employees of MANAGER and by COMPANY'S officers,
directors and designated employees, in person or by agent or attorney, upon
written demand, at any reasonable time or times.
ARTICLE VII
-----------
Miscellaneous
-------------
7.1 The failure of either party at any time to require the other
party's performance of any provision hereof shall not be construed as a waiver
of any continuing or succeeding breach of such provision, a waiver or
modification of the provision itself, or a waiver of modification of any other
right under this AGREEMENT.
7.2 This AGREEMENT is governed by the laws of the State of Illinois.
7.3 MANAGER shall at all times act an independent contractor of
COMPANY, and in no event shall employees of MANAGER be considered employees of
COMPANY.
7.4 This AGREEMENT (with all its addenda) constitutes the entire
agreement between the parties hereto concerning the subject matter addressed
herein, and supersedes all previous agreements or undertakings, whether oral or
written. This AGREEMENT may only be amended or modified in writing.
7.5 Neither this AGREEMENT nor any right created hereunder may be
assigned by either party without the express written consent of the other.
7.6 This AGREEMENT is binding upon the parties hereto, their
successors and assigns.
7.7 Headings herein are for convenience of reference only and are not
intended for use in the interpretation of this AGREEMENT.
<PAGE>
7.8 No management personnel or other employees of the Company are to
perform management functions and receive any remuneration therefor, through this
or any other management or service contract, in addition to compensation by way
of salary received directly from the Company for their services.
IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be
executed by their duly authorized representatives the day and year first
mentioned above.
VERMONT INSURANCE
WITNESS: MANAGEMENT, INC.
/s/ Jennifer McNaughton By: /s/ Andrew Sargeant
- ----------------------- ------------------------
President
AMERINST INSURANCE
WITNESS: COMPANY
/s/ Rebecca Aitchison By: /s/ Norman C. Batchelder
- ----------------------- ------------------------
Norman C. Batchelder
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 31,726,607
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,050,147
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 35,776,754
<CASH> 5,558,848
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 620,135
<TOTAL-ASSETS> 46,308,984
<POLICY-LOSSES> 21,548,891
<UNEARNED-PREMIUMS> 2,175,913
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,338
0
0
<OTHER-SE> 19,721,317
<TOTAL-LIABILITY-AND-EQUITY> 46,308,984
2,407,565
<INVESTMENT-INCOME> 1,195,868
<INVESTMENT-GAINS> 69,612
<OTHER-INCOME> 0
<BENEFITS> 2,873,596
<UNDERWRITING-AMORTIZATION> 686,268
<UNDERWRITING-OTHER> 380,610
<INCOME-PRETAX> (267,429)
<INCOME-TAX> (125,440)
<INCOME-CONTINUING> (141,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,989)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
<RESERVE-OPEN> 18,279,962
<PROVISION-CURRENT> 2,873,596
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 14,044
<PAYMENTS-PRIOR> 1,323,447
<RESERVE-CLOSE> 19,816,067
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
