<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, 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.
------------------------------
(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 [x] NO
Number of shares of common stock outstanding:
<TABLE>
<CAPTION>
Number outstanding
Class as of August 4, 1998
----- --------------------
<S> <C>
$0.01 par value common 332,800
</TABLE>
<PAGE>
Part I, Item 1
AMERINST INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) As of
As of December 31,
June 30, 1998 1997
------------- -----------
<S> <C> <C>
INVESTMENTS
Fixed maturity investments, at market value........................................................ $33,646,350 $34,065,619
Equity securities, at market value................................................................. 8,234,414 7,617,960
----------- -----------
TOTAL INVESTMENTS.......................................................................... 41,880,764 41,683,579
Cash and cash equivalents.......................................................................... 2,099,492 1,081,736
Assumed reinsurance premiums receivable............................................................ 669,393 1,146,379
Reinsurance recoveries receivable.................................................................. 1,036,265 1,039,762
Accrued investment income.......................................................................... 474,172 499,970
Income taxes receivable............................................................................ 284,251
Deferred policy acquisition costs.................................................................. 689,911 800,598
Deferred income tax asset.......................................................................... 1,002,735 992,599
Prepaid expenses and other assets.................................................................. 179,693 186,506
----------- -----------
TOTAL ASSETS............................................................................... $48,316,676 $47,431,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses......................................................... 22,916,206 20,802,873
Unearned premiums.................................................................................. 2,420,740 2,809,115
Reinsurance balances payable....................................................................... 1,850,070 1,984,442
Income taxes payable............................................................................... 260,897
Accrued expenses and other liabilities............................................................. 480,747 455,438
----------- -----------
TOTAL LIABILITIES.......................................................................... 27,667,763 26,312,765
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 2,000,000 shares authorized:
1998: 332,800 issued and outstanding
1997: 333,358 issued and outstanding.......................................................... 3,328 3,334
Additional paid-in capital......................................................................... 7,156,539 7,172,508
Retained earnings.................................................................................. 12,240,149 12,925,566
Unrealized gains on investments, net of tax........................................................ 1,248,897 1,016,956
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................................................. 20,648,913 21,118,364
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................. $48,316,676 $47,431,129
=========== ===========
</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 Six Three Three
Months Months Months Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Premiums earned.............................................. $ 3,056,891 $ 2,407,565 $ 1,457,630 $ 1,252,154
Net investment income........................................ 1,084,356 1,195,868 538,890 590,267
Net realized capital gain (loss)............................. 306,195 69,612 240,867 (13,280)
------------- ------------- ------------- -------------
TOTAL REVENUE............................................ 4,447,442 3,673,045 2,237,387 1,829,141
LOSSES AND EXPENSES
Losses and loss adjustment expenses.......................... 3,667,981 2,873,596 1,749,156 1,498,709
Commissions expense.......................................... 867,658 686,268 415,425 356,885
Other operating and management expenses...................... 449,711 380,610 253,386 194,288
------------- ------------- ------------- -------------
TOTAL LOSSES AND EXPENSES................................ 4,985,350 3,940,474 2,417,967 2,049,882
------------- ------------- ------------- -------------
Income (loss) before income taxes............................. (537,908) (267,429) (180,580) (220,741)
Provision for income tax expense (benefit)................... (299,769) (125,440) (118,859) (84,267)
------------- ------------- ------------- -------------
NET INCOME (LOSS)............................................. $ (238,139) $ (141,989) $ (61,721) $ (136,474)
============= ============= ============= =============
RETAINED EARNINGS, BEGINNING OF PERIOD........................ $ 12,925,567 $ 12,474,579 $ 12,530,807 $ 12,248,425
Net income (loss)............................................. (238,139) (141,989) (61,721) (136,474)
Dividend paid................................................. (433,059) (434,015) (216,377) (216,984)
Excess of purchase price on stock redemptions................. (14,220) (5,055) (12,560) (1,447)
------------- ------------- ------------- -------------
RETAINED EARNINGS, END OF PERIOD.............................. $ 12,240,149 $ 11,893,520 $ 12,240,149 $ 11,893,520
============= ============= ============= =============
Per common share data
Net income (loss)............................................. $ (.71) $ (.43) $ (.19) $ (.41)
============= ============= ============= =============
Dividend paid................................................. $ 1.30 $ 1.30 $ .65 $ 0.65
============= ============= ============= =============
Weighted average number of shares
outstanding for the entire period........................... 333,207 333,869 333,063 333,836
============= ============= ============= =============
</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, 1998 June 30, 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities...................... $1,035,229 $2,175,159
---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of investments............................ 4,939,464 7,044,963
Purchases of fixed-maturity securities........................ (4,493,682) (4,484,420)
Net sales of short-term investments........................... 921,712
---------- ----------
Net Cash Provided by Investing Activities...................... 445,782 3,482,255
FINANCING ACTIVITIES
Redemption of shares.......................................... (30,196) (11,955)
Shareholder dividend.......................................... (433,059) (434,015)
---------- ----------
Net Cash Used by Financing Activities.......................... (463,255) (445,970)
---------- ----------
INCREASE IN CASH............................................... $1,017,756 $5,211,444
========== ==========
</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, 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
Three months ended June 30, 1998 compared to three months ended June 30, 1997:
Net loss decreased by $74,753 from $(136,474) in the second quarter of 1997 to
$(61,721) in the second quarter of 1998. The change in earnings is primarily
attributable to an increase in realized capital gains which was partly offset by
slightly higher underwriting and operating expenses, as discussed below.
Sales of securities during the three months ended June 30, 1998 resulted in
realized capital gains of $240,867 as compared to losses of $(13,280) in the
same period in 1997. Net investment income for the second quarter of 1998 was
$538,890 compared to $590,267 for the same quarter of 1997. Investment yield for
the second quarter of 1998 consisting of interest and dividend income was
approximately 4.9% compared to 6.2% for the second quarter in 1997. Investment
yield of 4.9% is consistent with the March 31, 1998 reported yield of 5.1%. The
decrease in investment yield in the second quarter of 1998 as compared to the
same period of 1997 is attributable to an increase in holdings of tax free
municipal securities and an increase in equity securities which generate less
realized investment income.
Earned premiums for the three month period ended June 30, 1998 amounted to
$1,457,630 as compared to $1,252,154 for the second quarter of 1997. The change
of $205,476 represents a 16% 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 1998.
5
<PAGE>
The loss ratio for the three month periods ended June 30, 1998 and 1997 was
120%. 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. Losses incurred in the
second 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%.
These fluctuations in premiums, losses and expenses combined to result in a net
underwriting loss of $(960,337) for the second quarter of 1998 as compared to
$(797,728) for the same period of 1997. Second quarter 1998 underwriting losses
exceeded 1997 primarily due to the increase in earned premiums and associated
increase in losses incurred (120% loss ratio), as well as slightly higher
commission and operating expenses.
Six months ended June 30, 1998 compared to six months ended June 30, 1997:
Net loss increased by $96,150 from $(141,989) for the six months ended June 30,
1997 to $(238,139) for the six months ended June 30, 1998. This difference is
due primarily to an increase in underwriting losses and slightly lower
investment return. These changes were partly offset by an increase in realized
capital gains. Investment yield for the six month period was approximately 5.0%
as compared to 5.9% for the first six months of 1997. 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 1998
resulted in realized capital gains of $306,195 as compared to gains of $69,612
in the same period of 1997.
Earned premiums for the first six months of 1998 amounted to $3,056,891 as
compared to $2,407,565 for 1997. The change of $649,326 represents a 27%
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 1998. The loss ratio through the first six months 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 ratio selected in
consultation with the Company's independent consulting actuary to apply to
current premiums assumed and earned. Losses incurred through June 30, 1998 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, 1997 was 81%. However, excluding the effects of favorable
development, the 1997-98 treaty year estimated loss ratio was established at
120%. These fluctuations combined to result in a net underwriting loss of
$(1,928,459) for the period as compared to $(1,532,909) for the same period in
1997.
6
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
As of June 30, 1998, total invested assets amounted to $41,880,764 an increase
of $197,185 or .5% from $41,683,579 at December 31, 1997. Cash and cash
equivalent balances increased from $1,081,736 at December 31, 1997 to $2,099,492
at June 30, 1998, an increase of 94%. The balance of cash and cash equivalents
varies depending on the maturities of fixed term investments and on the level of
funds invested in money market mutual funds. The ratio of cash and invested
assets to total liabilities and stockholders' equity at June 30, 1998 was .91 to
1, compared to a ratio of .89 to 1 at June 30, 1997.
The Registrant paid its twelfth consecutive quarterly dividend of $0.65 per
share during the second quarter of 1998.
Assumed reinsurance premiums receivable represents current assumed premiums
receivable less commissions payable to the fronting carriers. This balance
decreased from $1,146,379 at December 31, 1997 to $669,393 at June 30, 1998 as a
result of a decrease in premiums written in the second quarter of 1998 as a
majority of premiums are written in the third quarter.
7
<PAGE>
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 certain regulator approvals, the agreement of certain other third
parties, and the approval of specified matters by the holders of at least a
majority of the outstanding AIIG common stock.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Company's Annual Meeting of Stockholders was held on May 11,
1998.
(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.
<TABLE>
<CAPTION>
Director Votes For Votes Against or Withheld
-------- --------- -------------------------
<S> <C> <C>
Jerome A. Harris 105,029 10,668
David N. Thompson 106,113 9,664
</TABLE>
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,
1998
9
<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, 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.)
10
<PAGE>
AMERINST INSURANCE GROUP, INC.
INDEX TO EXHIBITS
<TABLE>
Exhibit
Number Description
- ------ -----------
<S> <C>
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)
</TABLE>
- -----------------------------
(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.
11
<PAGE>
AMERINST INSURANCE GROUP, INC.
INDEX TO EXHIBITS--Continued
(9) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 33,646,350
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,234,414
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 41,880,764
<CASH> 2,099,492
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 689,911
<TOTAL-ASSETS> 48,316,676
<POLICY-LOSSES> 22,916,206
<UNEARNED-PREMIUMS> 2,420,740
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,328
0
0
<OTHER-SE> 20,645,585
<TOTAL-LIABILITY-AND-EQUITY> 48,316,676
3,056,891
<INVESTMENT-INCOME> 1,084,356
<INVESTMENT-GAINS> 306,195
<OTHER-INCOME> 0
<BENEFITS> 3,667,981
<UNDERWRITING-AMORTIZATION> 867,658
<UNDERWRITING-OTHER> 449,711
<INCOME-PRETAX> (537,908)
<INCOME-TAX> (299,769)
<INCOME-CONTINUING> (238,139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,139)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 19,763,111
<PROVISION-CURRENT> 3,667,981
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 25,156
<PAYMENTS-PRIOR> 1,525,995
<RESERVE-CLOSE> 21,879,941
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
