<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 March 31, 1998.
[_] 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.
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(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Number outstanding
Class as of May 11, 1998
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<S> <C>
$0.01 par value common 333,198
</TABLE>
<PAGE>
Part I, Item 1
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
As of As of
March 31, December 31,
ASSETS 1998 1997
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INVESTMENTS
<S> <C> <C>
Fixed maturity investments, at market value................................................... $34,114,217 $34,065,619
Equity securities, at market value............................................................ 8,533,796 7,617,960
----------- -----------
TOTAL INVESTMENTS...................................................................... 42,648,013 41,683,579
Cash and cash equivalents..................................................................... 804,392 1,081,736
Assumed reinsurance premiums receivable....................................................... 1,242,151 1,146,379
Reinsurance recoveries receivable............................................................. 1,036,265 1,039,762
Accrued investment income..................................................................... 500,718 499,970
Income taxes receivable....................................................................... 140,608
Deferred policy acquisition costs............................................................. 838,514 800,598
Deferred income tax asset..................................................................... 842,142 992,599
Prepaid expenses and other assets............................................................. 165,478 186,506
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TOTAL ASSETS........................................................................... $48,218,281 $47,431,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.................................................... 21,953,774 20,802,873
Unearned premiums............................................................................. 2,942,155 2,809,115
Reinsurance balances payable.................................................................. 1,702,600 1,984,442
Income taxes payable.......................................................................... 260,897
Accrued expenses and other liabilities........................................................ 481,088 455,438
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TOTAL LIABILITIES...................................................................... 27,079,617 26,312,765
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STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 2,000,000 shares authorized:
1998: 333,198 issued and outstanding
1997: 333,358 issued and outstanding................................................... 3,333 3,334
Additional paid-in capital.................................................................... 7,170,483 7,172,508
Retained earnings............................................................................. 12,530,807 12,925,566
Unrealized gains on investments, net of tax................................................... 1,434,041 1,016,956
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TOTAL STOCKHOLDERS' EQUITY............................................................. 21,138,664 21,118,364
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................
$48,218,281 $47,431,129
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
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<S> <C> <C>
REVENUE
Premiums earned......................................................................... $ 1,599,261 $ 1,155,411
Net investment income................................................................... 545,466 605,601
Net realized capital gain............................................................... 65,328 82,892
----------- -----------
Total revenue................................................................... 2,210,055 1,843,904
LOSSES AND EXPENSES
Losses and loss adjustment expense...................................................... 1,918,825 1,374,887
Policy acquisition costs................................................................ 452,233 329,383
Operating and management expenses....................................................... 196,325 186,322
----------- -----------
Total losses and expenses....................................................... 2,567,383 1,890,592
Income before income taxes................................................................ (357,328) (46,688)
Provision for income taxes.............................................................. (180,910) (41,173)
----------- -----------
NET INCOME (LOSS)......................................................................... $ (176,418) $ (5,515)
=========== ===========
RETAINED EARNINGS, BEGINNING OF PERIOD.................................................... $12,925,566 $12,474,579
Net income (loss)......................................................................... (176,418) (5,515)
Dividends paid............................................................................ (216,683) (217,031)
Excess of purchase price on stock redemptions............................................. (1,658) (3,608)
----------- -----------
RETAINED EARNINGS, END OF PERIOD.......................................................... $12,530,807 $ 12,248,42
=========== ===========
Per common share data
Net income (loss)......................................................................... $ (0.53) $ (0.02)
=========== ===========
Dividends paid............................................................................ $ 0.65 $ 0.65
=========== ===========
Weighted average number of shares
outstanding for the entire period...................................................... 333,347 333,902
=========== ===========
</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>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities................................................. $ 216,941 $ 468,781
INVESTING ACTIVITIES
Purchases of investments................................................................ (1,547,870) (1,371,404)
Proceeds from sales and maturities of investments....................................... 1,273,953 2,051,878
Net sales (purchases) of short term investments......................................... (655,097)
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Net Cash (Used) Provided by Investing Activities.......................................... (273,917) 25,377
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FINANCING ACTIVITIES
Redemption of shares.................................................................... (3,685) (11,308)
Dividends paid.......................................................................... (216,683) (217,031)
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Net Cash Used by Financing Activities..................................................... (220,368) (228,339)
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(DECREASE) INCREASE IN CASH............................................................... $ (277,344) $ 265,819
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
AMERINST INSURANCE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by AmerInst Insurance Group, Inc. (AIIG) 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, 1997 and notes thereto, included in the
Registrant's annual report as of that date.
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS
A net loss of $(176,418) was recorded for the first quarter of 1998 in
comparison to a net loss of $(5,515) for the same period of 1997. As compared to
the first quarter of 1997, the change in earnings is primarily attributable to
slightly lower returns on investments.
Earned premiums for the first quarter of 1998 amounted to $1,599,261 as compared
to $1,155,411 for the first quarter of 1997. The change of $443,850 represents a
38% increase. The increase in earned premiums resulted from an increase in the
number of insureds along with changes in the rating structure. The effects of
these changes began to impact premium levels in the fourth quarter of 1997 and
have continued into the first quarter of 1998.
The loss ratio for the first quarter of 1998 was 120% as compared to 119% for
the same period of 1997. The loss ratio of 120% represents management's current
estimated effective loss rate selected in consultation with the Company's
independent consulting actuary to apply to current premiums assumed and earned.
Losses incurred in the first quarter of 1998 do not reflect any development of
prior year reserves. The Company's overall loss ratio for the year ended
December 31, 1997 was 81%. However, excluding the effects of favorable
development, the 1997-98 treaty year estimated loss ratio was established at
120%. The reported loss ratio for the first quarter of 1997 is slightly less
than 120% due to the effect of a lower selected loss ratio for treaty year 1995-
96, for which a small amount of premium is still being earned. These
fluctuations in premiums, losses and expenses combined to result in a net
underwriting loss of $(968,122) for the first quarter of 1998 as compared to
$(735,181) for the same period in 1997.
5
<PAGE>
AMERINST INSURANCE GROUP, INC.
OPERATIONS(Continued)
Investment yield of 5.1% consisting of interest and dividend income, represents
a decrease from the 6.1% return earned in the first quarter of 1997. The lower
yield is attributable to an increase in holdings of tax free municipal
securities and an increase in equity securities which generate less current
investment income. Sales of securities during the quarter resulted in realized
capital gains of $65,328 as compared to gains of $82,892 in the first quarter of
1997. Gains recorded in the first quarter of 1998 primarily relate to sales of
equities. Proceeds from these sales were subsequently reinvested in other equity
securities.
FINANCIAL CONDITION AND LIQUIDITY
As of March 31, 1998, total invested assets amounted to $42,648,013, a increase
of $964,434 or 2% from $41,683,579 at December 31, 1997. Cash balances
decreased from $1,081,736 at December 31, 1997 to $804,392 at March 31, 1998, a
decrease of 26%. The amount of cash on hand fluctuates based on the timing of
bond maturities. As bonds mature, the proceeds are temporarily placed in cash
until they are reinvested. The ratio of cash and invested assets to total
liabilities at March 31, 1998 was 1.60 to 1, compared to a ratio of 1.53 to 1 at
March 31, 1997.
Assumed reinsurance premiums receivable represents current assumed premiums
receivable less commissions payable to the fronting carriers. This balance
increased from $1,146,379 at December 31, 1997 to $1,242,151 at March 31, 1998.
The increase is due to the timing of renewal premium written.
Deferred policy acquisition costs, representing the deferral of ceding
commissions expense related to premiums not yet earned, increased from December
31, 1997 along with the increase in unearned premiums. The current ceding
commission rate, which became effective August 1, 1995, is 28.5%.
The Registrant paid its eleventh consecutive quarterly dividend of $0.65 per
share during the first quarter of 1998.
6
<PAGE>
AMERINST INSURANCE GROUP, INC.
PROPOSED REDOMESTICATION AND RESTRUCTURING
AIIG's Board of Directors has voted to submit a proposed "Exchange Agreement"
and related matters to a vote of shareholders. Pursuant to this proposal, AIIG
would transfer all of its assets and liabilities to a newly formed Bermuda
company in exchange for newly issued shares of the Bermuda company. AIIG would
then be liquidated and AIIG shareholders would receive on a share-for-share
basis the newly issued shares of the Bermuda company.
The transaction contemplates the restructuring of AIIG's business, including the
redomestication of the insurance operations of AIIG's subsidiary to a Bermuda
domiciled company.
The transactions contemplated in the Exchange Agreement, the redomestication and
the restructuring will be consummated only if certain conditions are satisfied,
including the approval of specified matters by the holders of at least a
majority of the outstanding AIIG common stock, certain regulator approvals and
the agreement of certain other third parties.
7
<PAGE>
AMERINST INSURANCE GROUP, INC.
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 March 31,
1998.
8
<PAGE>
SIGNATURES
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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)
May 11, 1998 /s/ 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.)
9
<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) 1996 placement slip(6) and
1997 placement slip(9)
10.5 Management Agreement between Vermont Insurance Management, Inc. and
AIIC dated May 1, 1997(8) and addenda to Management Agreement dated
July 1, 1997(9)
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.
(6)Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
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.
(8)Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 and incorporated herein by reference.
(9)Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 34,114,217
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,533,796
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 42,648,013
<CASH> 804,392
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 838,514
<TOTAL-ASSETS> 48,218,281
<POLICY-LOSSES> 21,953,774
<UNEARNED-PREMIUMS> 2,942,155
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,333
0
0
<OTHER-SE> 21,135,331
<TOTAL-LIABILITY-AND-EQUITY> 48,218,281
1,599,261
<INVESTMENT-INCOME> 545,466
<INVESTMENT-GAINS> 65,328
<OTHER-INCOME> 0
<BENEFITS> 1,918,825
<UNDERWRITING-AMORTIZATION> 452,233
<UNDERWRITING-OTHER> 196,325
<INCOME-PRETAX> (357,328)
<INCOME-TAX> (180,910)
<INCOME-CONTINUING> (176,418)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,418)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 19,763,111
<PROVISION-CURRENT> 1,918,825
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 3,300
<PAYMENTS-PRIOR> 761,127
<RESERVE-CLOSE> 20,917,509
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
