UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly report under section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended March 31, 1996.
or
|_| Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____________ to
------------- .
Commission File Number 1-10760
MUTUAL RISK MANAGEMENT LTD.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
44 CHURCH STREET,
HAMILTON HM 12, BERMUDA
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(441) 295-5688
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
The number of outstanding shares of the registrant's Common Stock, $0.01 par
value, as of March 31, 1996 was 13,545,296.
<PAGE>
MUTUAL RISK MANAGEMENT LTD.
I N D E X
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Unaudited Consolidated Statements of Income for the three month
periods ended March 31, 1996 and 1995 3
Consolidated Balance Sheets at March 31, 1996 (unaudited)
and December 31, 1995 4
Unaudited Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1996 and 1995 5
Consolidated Statements of Shareholders' Equity at
March 31, 1996 (unaudited) and December 31, 1995 6
Notes to Unaudited Consolidated Financial Statements at 7
March 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8-11
CONDITION AND RESULTS OF OPERATIONS
PART II.OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Exhibit 11 - Computation of Net Earnings per Common
Share and Common Share Equivalents 13
SIGNATURES 14
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. INTERIM ACCOUNTING POLICY
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company and the results of operations and cash flows for the three months
ended March 31, 1996 and 1995. Although the Company believes that the disclosure
in these financial statements is adequate to make the information presented not
misleading certain information and footnote information normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. Results of operations for the three
months ended March 31, 1996 are not necessarily indicative of what operating
results may be for the full year.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The results of operations for the three months ended March 31, 1996,
reflect a continuation of growth in Risk management fees and Net income due to
the addition of new programs, a relatively high renewal rate, increased
investment income and the inclusion of Professional Underwriters Corp. ("PUC")
for the first time in 1996. Net income available to common shareholders amounted
to $8.9 million or $0.63 per Common Share for the three months ended March 31,
1996 representing an increase of 23% over the corresponding 1995 period.
(In thousands, except per share data)
<TABLE>
<CAPTION>
COMPONENTS OF NET INCOME
QUARTER ENDED MARCH 31,
1996 1995
---- ----
PER PER
COMMON COMMON
SHARE SHARE
----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating income $8,888 $0.63 $7,222 $0.54
Realized capital gains (losses) (a) 1 0.00 (520) (0.04)
------ ---- ----- -----
Net income available to
Common Shareholders $8,889 $0.63 $6,702 $0.50
====== ===== ====== =====
Average shares outstanding (000's) 14,019 13,460
------ ------
</TABLE>
(a) Net of tax.
Total revenues amounted to $35.2 million for the three months ended March
31, 1996 representing an increase of 22% over the corresponding 1995 period. The
following table shows the major components of Revenues for these periods.
(In thousands)
TOTAL REVENUES
QUARTER ENDED MARCH 31,
1996 1995 INCREASE
---- ---- --------
Risk management fees $18,158 $14,018 30%
Premiums earned 11,754 11,518 2%
Net investment income 5,183 3,839 35%
Realized capital gains (losses) 5 (599) N/M
Other income (losses) 76 (6) N/M
------- -------
$35,176 $28,770 22%
======= =======
8
<PAGE>
Risk management fees increased 30% to $18.2 million for the first quarter
of 1996 as compared to $14.0 million in 1995. The inclusion of PUC, which
primarily acts as an underwriting manager for Program Business added $1.5
million or 11% to Risk management fees in the quarter. The Company's acquisition
of PUC was completed on January 1, 1996.
(In thousands)
RISK MANAGEMENT FEES
QUARTER ENDED MARCH 31,
1996 1995 INCREASE
---- ---- --------
Legion policy-issuing fees $7,123 $6,613 8%
IPC Program fees 4,028 3,335 21%
CRS fees 2,696 2,179 24%
Underwriting management fees 1,527 --- 100%
Captive management fees 1,090 875 25%
Other fees 1,694 1,016 67%
------- -------
Total $18,158 $14,018 30%
======= =======
Legion Insurance Company, the Company's policy-issuing subsidiary, added 31
new programs during the first quarter of 1996 as compared to 17 in 1995.
Legion's renewal rate was 77% in the first quarter of 1996 as compared to 82% in
the first quarter of 1995. No new programs were sold in California in the first
quarter of 1996 as compared to four in 1995. The renewal rate for the 13
California programs was 62% in the first quarter as opposed to 80% in 1995
reflecting a continuation of the underpricing taking place in that state. The
growth in Legion programs is also responsible for the growth in the IPC program
fees and CRS fees, however, the increase in these fees is greater than Legion's
due to increased fees on renewal business. Both the Company's Captive management
operations and its Brokerage companies continued to perform well in the 1996
first quarter producing Risk management fees of $2.5 million on a combined
basis, a 42% increase over 1995 and pre-tax operating income of $1.1 million, a
77% increase over 1995. These operations included fees of $.5 million from
Shoreline Mutual Management (Bermuda) Ltd. an increase of 56% over the first
quarter of 1995.
Gross premiums written decreased 12% for the three months ended March 31,
1996 to $57.3 million as compared to $64.8 million in the corresponding 1995
period primarily as a result of a change in the anniversary date of one large
program from the first to second quarter. Premiums earned increased 2% compared
to the corresponding 1995 quarter, these are offset by a 1% decrease in Total
insurance costs and reflect the continued use of large deductible policies.
Gross investment income increased by $1.6 million or 35% to $6.4 million in
the first quarter of 1996 over the corresponding 1995 period as a result of an
increase of 43% in gross invested assets to $444.5 million. Net investment
income, after adjusting for investment income which is not included in the
earnings of the Company, increased by 35% in the first quarter as a result of an
increase of 56% in net invested assets to $354.8 million offset by a decrease in
the yield on these assets to 6% from 7% in the first quarter of 1995.
The effective tax rate in the quarter was 22.2% compared to 26.1% in the
corresponding 1995 period.
9
<PAGE>
(In thousands)
TOTAL EXPENSES
QUARTER ENDED MARCH 31,
1996 1995 INCREASE/(DECREASE)
------- ------- -------------------
Operating expenses $10,013 $7,452 34%
Total insurance costs 11,811 11,880 (1%)
Interest expense 1,510 72 N/M
Other expenses 93 36 N/M
------- -------
Total $23,427 $19,440 21%
======= =======
Total expenses increased 21% to $23.4 million for the first quarter as
compared to $19.4 million in 1995 primarily as a result of the interest expense
attributable to the Convertible Debentures issued October 30, 1995. Operating
expenses increased by 34% to $10.0 million for the first quarter from $7.5
million in 1995 as a result of the inclusion of PUC which added $1.1 million or
15% of the increase together with the growth in personnel and other expenses
stemming from the increased number of client programs.
Income from continuing operations before income taxes increased by 26% in
the first quarter of 1996 to $11.7 million as compared to $9.3 million in the
first quarter 1995 as shown in the following table.
(In thousands)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
QUARTER ENDED MARCH 31,
1996 1995
----- -----
Risk management income $9,089 $7,461
Investment income * 3,677 3,168
Underwriting loss (57) (362)
------- ------
Sub-total 12,709 10,267
General corporate expenses (960) (937)
------- ------
Total $11,749 $9,330
======= ======
* Includes Realized capital losses and Interest expense.
The pre-tax profit margin on Risk management fee income, including General
corporate expenses was 45% for the first quarter as compared to 47% in the
corresponding 1995 period.
10
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Total assets increased to $1,430 million at March 31, 1996 as compared to
$1,374 million at December 31, 1995. Assets held in separate accounts which are
principally managed assets attributable to participants in the Company's IPC
Programs accounted for approximately 39% and 38% of Total assets at March 31,
1996 and December 31, 1995 respectively. Total Shareholders' equity increased to
$172 million at March 31, 1996 from $163 million at December 31, 1995 primarily
as a result of Net income in the first three months offset by a decrease in the
unrealized gain on investments net of tax from $1.2 million at December 31, 1995
to a loss of $.9 million at March 31, 1996. Return on equity was stable at 20.5%
for the first quarter as compared to 20.8% for the first quarter of 1995.
11
<PAGE>
MUTUAL RISK MANAGEMENT LTD.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBIT 11 - Computation of Net Earnings Per Common Share and
Common Share Equivalents.
B. REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
three month period ended March 31, 1996.
12
<PAGE>
EXHIBIT 11
MUTUAL RISK MANAGEMENT LTD.
COMPUTATION OF EARNINGS PER SHARE
QUARTER ENDED MARCH 31,
1996 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Net income available to
common shareholders $8,889 $6,702
=========== ============
Weighted Average Common Shares
Common Shares outstanding 13,184,890 12,987,191
----------- ------------
Common share equivalents
associated with options
and Redeemable Common
Shares :
Options 1,357,623 1,199,983
Redeemable Common Shares 351,438 351,438
----------- ------------
1,709,061 1,551,421
Common Shares purchased with
proceeds from options and
Redeemable Common Shares exercised (875,206) (1,078,518)
----------- ------------
833,855 472,903
----------- ------------
Total Weighted Average Common Shares 14,018,745 13,460,094
=========== ============
Earnings Per Common Share
Net income available to
common shareholders : $0.63 $0.50
=========== ============
13
<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.
MUTUAL RISK MANAGEMENT LTD.
-------------------------------------------
JAMES C. KELLY
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
AUTHORIZED SIGNATORY
DATE: MAY 10, 1996
/s/ James C. Kelly
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