<PAGE>
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 September 30, 1997.
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.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 September 30, 1997 was 38,469,410. On September 26, 1997 the
Company effected a two-for-one stock split.
<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 quarter and
nine month periods ended September 30, 1997 and 1996 3
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996 4
Unaudited Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1997 and 1996 5
Consolidated Statements of Shareholders' Equity at
September 30, 1997 (unaudited) and December 31, 1996 6
Notes to Unaudited Consolidated Financial Statements at
September 30, 1997 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8-12
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION:
ITEM 2. CHANGES IN SECURITIES 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
EXHIBITS
Exhibit 11 - Computation of Net Earnings per Common
Share and Common Share Equivalents
Exhibit 27 - Financial Data Schedule
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES
Fee income $27,931,042 $20,395,469 $76,864,473 $59,862,326
Premiums earned 27,346,953 7,288,523 62,530,195 35,007,072
Net investment income 6,551,411 5,662,929 19,525,178 16,255,582
Realized capital gains (losses) 388,665 (559,873) (1,082,598) (1,171,806)
Other (losses) income (10,007) (7,526) 38,275 127,863
------------- ------------ -------------- -------------
Total Revenues 62,208,064 32,779,522 157,875,523 110,081,037
------------- ------------ -------------- -------------
EXPENSES
Losses and loss expenses incurred 17,908,590 2,570,997 37,124,845 18,680,020
Acquisition costs 9,723,610 4,685,780 26,412,037 16,384,832
Operating expenses 16,465,276 12,449,908 45,710,744 35,571,969
Interest expense 1,631,846 1,560,224 4,841,876 4,631,871
Other expenses 301,897 177,234 799,503 462,422
------------- ------------ -------------- -------------
Total Expenses 46,031,219 21,444,143 114,889,005 75,731,114
------------- ------------ -------------- -------------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 16,176,845 11,335,379 42,986,518 34,349,923
Income taxes 3,071,259 1,852,945 7,987,085 6,412,841
------------- ------------ -------------- -------------
INCOME FROM CONTINUING
OPERATIONS 13,105,586 9,482,434 34,999,433 27,937,082
Minority interest 0 (7,034) 0 (248,088)
------------- ------------ -------------- -------------
NET INCOME 13,105,586 9,475,400 34,999,433 27,688,994
Preferred share dividends 21,908 42,432 104,929 123,608
------------- ------------ -------------- -------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $13,083,678 $9,432,968 $34,894,504 $27,565,386
============= ============ ============== =============
EARNINGS PER COMMON SHARE (1)
Primary EPS $ 0.33 $ 0.24 $ 0.88 $ 0.72
=========== =========== =========== ===========
Fully diluted EPS $ 0.31 $ 0.24 $ 0.85 $ 0.71
=========== =========== =========== ===========
Dividends per share $ 0.05 $ 0.04 $ 0.14 $ 0.12
=========== =========== =========== ===========
Weighted average number of Common
Shares outstanding 40,071,970 38,240,086 39,601,310 38,205,306
============= ============ ============== =============
</TABLE>
(1) All per share amounts have been adjusted to reflect the two-for-one stock
split which was effected on September 26, 1997.
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 93,246,463 $ 52,242,353
Investments :
Held in available for sale account at fair value (Amortized cost $374,805,624 ; 377,030,589 400,191,211
1996 - $399,871,107)
--------------- ---------------
TOTAL MARKETABLE INVESTMENTS 470,277,052 452,433,564
Other investments 9,394,978 2,967,829
Investment income due and accrued 3,430,916 4,976,145
Accounts receivable 135,103,467 123,956,477
Reinsurance receivables 453,555,958 350,317,706
Deferred expenses 22,907,621 20,612,715
Prepaid reinsurance premiums 127,311,930 73,587,920
Fixed assets 12,299,594 9,382,000
Deferred tax benefit 5,673,521 3,361,571
Goodwill 29,015,879 14,956,786
Other assets 4,883,579 5,406,177
Assets held in separate accounts 645,045,089 576,711,687
--------------- ---------------
TOTAL ASSETS $1,918,899,584 $1,638,670,577
=============== ===============
LIABILITIES, REDEEMABLE PREFERRED & COMMON SHARES & SHAREHOLDERS' EQUITY
LIABILITIES
Reserve for losses and loss expenses $ 537,813,278 $ 418,975,493
Reserve for unearned premiums 166,763,226 93,741,088
Claims deposit liabilities 37,924,879 45,688,793
Accounts payable 115,530,038 133,265,076
Accrued expenses 6,764,892 5,708,286
Taxes payable 11,896,462 9,261,685
Prepaid fees 16,761,911 13,231,468
Debentures 127,050,876 122,210,991
Other liabilities 8,149,162 7,422,743
Liabilities related to separate accounts 645,045,089 576,711,687
--------------- ---------------
TOTAL LIABILITIES 1,673,699,813 1,426,217,310
=============== ===============
REDEEMABLE PREFERRED & COMMON SHARES
Preferred Shares - Series B non-voting Redeemable - authorized and issued
2,951,835 (par value and redemption value $1.00) 0 2,951,835
Common Shares subject to redemption - 937,168 Common Shares
(par value $0.01, redemption value $1.75 less subscription
loans receivable - $383,761, plus interest received) 1,924,135 1,510,544
--------------- ---------------
TOTAL REDEEMABLE PREFERRED & COMMON SHARES 1,924,135 4,462,379
--------------- ---------------
SHAREHOLDERS' EQUITY
Common Shares - Authorized 60,000,000 (par value $0.01)
Issued 37,532,242 (1996 - 37,126,538) 375,322 371,265
Additional paid-in capital 83,810,256 79,812,287
Unrealized gain on investments - net of tax 1,805,421 47,682
Retained earnings 157,284,637 127,759,654
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 243,275,636 207,990,888
TOTAL LIABILITIES,REDEEMABLE PREFERRED & COMMON SHARES --------------- ---------------
& SHAREHOLDERS' EQUITY $1,918,899,584 $1,638,670,577
=============== ===============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 34,999,433 $ 27,688,994
Items not affecting cash
Depreciation 2,877,733 2,051,202
Amortization of investments
and net gain on sales (3,009,761) (92,194)
Amortization of Convertible Debentures 4,839,885 4,595,456
Deferred tax benefit (2,459,071) 832,822
Other items 687,720 302,447
Net changes in non-cash balances relating to operations :
Accounts receivable (11,146,990) (4,522,069)
Reinsurance receivables (103,238,252) (22,317,230)
Investment income due and accrued 1,545,229 (630,476)
Deferred expenses (2,294,906) (1,087,430)
Prepaid reinsurance premiums (53,724,010) (16,527,386)
Other assets 522,598 (1,122,004)
Reserve for losses and loss expenses 118,837,785 16,166,391
Prepaid fees 3,530,443 293,690
Reserve for unearned premium 73,022,138 15,189,931
Accounts payable (17,735,038) 15,982,049
Taxes payable 2,634,777 4,119,420
Accrued expenses 1,056,606 377,296
Other liabilities 515,617 (239,128)
-------------- --------------
NET CASH FLOW FROM OPERATING ACTIVITIES 51,461,936 41,061,781
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments - Available for sale 194,432,130 87,431,657
Proceeds from maturity of investments - Available for sale 46,666,903 29,154,549
Fixed assets purchased (5,806,410) (4,656,497)
Investments purchased - Available for sale (213,023,789) (152,204,802)
Other investments (6,387,331) (676,049)
Goodwill purchased (14,798,596) (4,853,555)
Swap expense 0 (1,951,701)
Other items 23,047 68,686
-------------- --------------
NET CASH FROM (APPLIED TO) INVESTING ACTIVITIES 1,105,954 (47,687,712)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repaid 0 (93,736)
Loan repayment & interest received 413,591 426,050
Proceeds from shares issued 4,002,026 4,402,787
Redemption of preferred shares (2,951,835) 0
Claims deposit liabilities (7,763,914) (812,560)
Dividends paid (5,263,648) (4,768,337)
-------------- --------------
NET CASH FLOW APPLIED TO FINANCING ACTIVITIES (11,563,780) (845,796)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 41,004,110 (7,471,727)
Cash and cash equivalents at beginning of period 52,242,353 79,669,981
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,246,463 $ 72,198,254
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,991 $ 36,415
============== ==============
Income taxes paid, net $ 9,217,001 $ 2,160,284
============== ==============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B
Preferred Common
Change in Share Share
Opening Shares Unrealized Net Dividends Dividends Closing
Balance Issued Gain (Loss) Income Declared (1) Declared (2) Balance
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Shares $ 371,265 $ 4,057 $ - $ - $ - $ - $ 375,322
Additional paid-in capital 79,812,287 3,997,969 - - - - 83,810,256
Unrealized gain on investments 47,682 - 1,757,739 - - - 1,805,421
Retained earnings 127,759,654 - - 34,999,433 (104,929) (5,369,521) 157,284,637
----------- --------- --------- ---------- --------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY
AT SEPTEMBER 30, 1997 $207,990,888 $ 4,002,026 $ 1,757,739 $34,999,433 $(104,929) $(5,369,521) $243,275,636
=========== ========= ========= ========== ========= =========== ===========
YEAR ENDED DECEMBER 31, 1996
- --------------------------------
Common Shares $ 356,103 $ 15,162 $ - $ - $ - $ - $ 371,265
Additional paid-in capital 65,218,600 14,593,687 - - - - 79,812,287
Unrealized gain on investments 1,154,823 - (1,107,141) - - - 47,682
Retained earnings 98,773,622 - - 37,198,137 (166,041) (8,046,064) 127,759,654
---------- ---------- ---------- ---------- --------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY
AT DECEMBER 31, 1996 $165,503,148 $14,608,849 $(1,107,141) $37,198,137 $(166,041) $(8,046,064) $207,990,888
=========== ========== =========== ========== ========= =========== ===========
</TABLE>
(1) Dividend per share amounts were $.04 for the nine months ended September 30,
1997 and $.06 for the year ended December 31,1996
(2) Dividend per share amounts were $.14 for the nine months ended September 30,
1997 and $.16 for the year ended December 31,1996.
(3) Effective September 26, 1997 the Company effected a two-for-one stock split
recorded in the form of a stock dividend. 18,741,121 Common Shares were
issued in respect of this split. Prior periods have been restated.
See Accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 nine months
ended September 30, 1997 and 1996. 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 nine months ended September 30, 1997 are not necessarily indicative of
what operating results may be for the full year.
2. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for interim and
annual periods ending after December 15, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements, primary earnings
per share will be replaced by basic earnings per share, which will exclude the
dilutive effect of stock options. If implemented in the accompanying interim
financial statements, basic earnings per share would exceed primary earnings per
share for the quarters and nine months ended September 30, 1997 and September
30, 1996 by $.02, $.06, $.02 and $.04 respectively. Statement No. 128 has no
impact on the calculation of fully diluted earnings per share for these periods.
3. TWO-FOR-ONE STOCK SPLIT
In September 1997 the Company announced a two-for-one stock split of its
Common Shares. The record date for the stock split was September 26, 1997 and a
dividend of additional Common Shares was distributed to shareholders on October
10, 1997. The consolidated financial statements have been adjusted to reflect
the effects of the Common Stock split on earnings per share for all periods
presented.
4. REDEMPTION OF PREFERRED SHARES
During the quarter the Company repaid the principal amount of $2.9 million
owing on the Series B non-voting Redeemable Preferred Shares.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
The results of operations for the quarter and nine months ended September
30, 1997, reflect a continuation of growth in Fee income and Net income due to
the addition of new accounts, increased investment income and the inclusion of
Small Business Underwriters ("SBU") for the first time in 1997. Net income
available to common shareholders amounted to $34.9 million or $0.85 per Common
Share for the nine months ended September 30, 1997 on a fully diluted basis
representing an increase of 20% over the corresponding period as shown in the
tables below.
<TABLE>
<CAPTION>
THIRD QUARTER TO SEPTEMBER 30,
1997 1996
----------------------------------------------------------
($ thousands except per share data)
PER PER
COMMON SHARE (b) COMMON SHARE (b)
------------ ------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
<S> <C> <C> <C> <C> <C> <C>
Operating income $12,773 $ 0.32 $ 0.31 $ 9,813 $ 0.25 $ 0.25
Realized capital gains (losses) (a) 311 0.01 0.00 (380) (0.01) (0.01)
------- ------ ------ ------- ------- -------
Net income available to
Common Shareholders $13,084 $ 0.33 $ 0.31 $ 9,433 $ 0.24 $ 0.24
======= ====== ====== ======= ======= =======
Average number of
shares outstanding (000's) 40,072 47,051 38,240 45,219
------- ------- ------- -------
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
-----------------------------------------------
($ thousands except per share data)
PER PER
COMMON SHARE (b) COMMON SHARE (b)
------------ ------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
<S> <C> <C> <C> <C> <C> <C>
Operating income $35,710 $ 0.90 $ 0.87 $28,442 $ 0.74 $ 0.73
Realized capital losses (a) (815) (0.02) (0.02) (877) (0.02) (0.02)
------- ------ ------ ------- ------- -------
Net income available to
Common Shareholders $34,895 $ 0.88 $ 0.85 $27,565 $ 0.72 $ 0.71
======= ====== ====== ======= ======= =======
Average number of
shares outstanding (000's) 39,601 46,580 38,205 45,184
------- ------- ------- -------
</TABLE>
(a) Net of tax.
(b) All per share amounts have been adjusted to reflect the two-for-one stock
split which was effected on September 26, 1997.
8
<PAGE>
Total revenues amounted to $62.2 million and $157.9 million for the quarter
and nine months ended September 30, 1997 representing an increase of 90% and 43%
over the corresponding 1996 periods. The following table shows the major
components of Revenues for these periods.
<TABLE>
<CAPTION>
(In thousands)
TOTAL REVENUES
PERIODS TO SEPTEMBER 30,
THIRD QUARTER NINE MONTHS
1997 1996 INCREASE 1997 1996 INCREASE
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fee income $27,931 $20,395 37% $ 76,864 $ 59,862 28%
Premiums earned 27,347 7,288 275% 62,530 35,007 79%
Net investment income 6,551 5,663 16% 19,526 16,256 20%
Realized capital gains (losses) 389 (560) N/M (1,082) (1,172) N/M
Other (losses) income (10) (7) N/M 38 128 N/M
------- ------- -------- --------
Total $62,208 $32,779 90% $157,876 $110,081 43%
======= ======= ======== ========
</TABLE>
Total Fee income increased 28% to $76.9 million for the first nine months
of 1997 as compared to $59.9 million in 1996. Pre-tax profit margins were 41%
for the third quarter of 1997 as compared to 39% in the third quarter of 1996
and 41% for the first nine months of both 1997 and 1996. Excluding the
underwriting management portion of the Program Business segment and the
Financial Services segment, which generally have lower margins, pre-tax profit
margins were 44% for the quarter as compared to 43% in 1996 and 44% for the nine
months of both 1997 and 1996. The components of Fee income are illustrated by
business segment in the following table:
<TABLE>
<CAPTION>
(In thousands)
FEE INCOME BY BUSINESS SEGMENT
PERIODS TO SEPTEMBER 30,
THIRD QUARTER NINE MONTHS
1997 1996 INCREASE 1997 1996 INCREASE
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Program business fees $14,200 $ 4,991 185% $33,953 $13,377 154%
Corporate risk
management fees 9,720 12,346 (21%) 31,947 37,575 (15%)
Specialty brokerage fees 1,955 1,504 30% 5,086 4,433 15%
Financial services fees 2,056 1,554 32% 5,878 4,477 31%
------- ------- ------- -------
Total $27,931 $20,395 37% $76,864 $59,862 28%
======= ======= ======= =======
</TABLE>
Program Business, the fastest growing segment, involves the Company
replacing traditional insurers and acting as a conduit between producers of
specialty books of business and reinsurers wishing to write that business.
Program Business doubled its share of the Company's fee income accounting for
44% of total Fee income for the first nine months of 1997 compared to 22% in
1996. Program Business fees increased by 185% in the third quarter to $14.2
million compared to $5.0 million in the third quarter of 1996 and by 154% to
$34.0 million in the first nine months as compared to $13.4 million in 1996.
This resulted from the continued expansion of this business segment in the
extremely soft commercial insurance market and was helped by the acquisition of
SBU on February 1, 1997. Profit margins, excluding underwriting management, were
45% for the third quarter of 1997 compared to 44% for the third quarter of 1996
and 46% for the first nine months of both 1997 and 1996. Including underwriting
management, profit margins were 42% for the quarter and 41% for the first nine
months of 1997, compared to 36% and 38% respectively in 1996. The Company
completed its
9
<PAGE>
acquisition of American Policyholders Insurance Company ("API") in July. API is
a Massachusetts insurance company licensed in most states. The Company intends
to change API's name to Villanova Insurance Company ("Villanova"). Villanova
will provide the Company with an additional admitted insurance company to
accommodate the growth in Program Business and to avoid conflicts among
producers of Program Business.
Corporate Risk Management, the Company's original business segment,
involves providing services to businesses and associations seeking to insure a
portion of their risk in a loss sensitive Alternative Market structure. This
segment accounted for 41% of total Fee income for the first nine months of 1997
down from 63% in the corresponding 1996 period. This business segment has been
the most affected by the extremely soft commercial insurance market cycle.
Corporate risk management fees decreased by 21% in the third quarter to $9.7
million compared to $12.3 million in the third quarter of 1996 and by 15% in the
first nine months to $31.9 million compared to $37.6 million in 1996 as a result
of a continuation of the soft market and declines in workers' compensation
rates. Profit margins increased to 45% in the quarter as compared to 43% in
1996 and remained stable at 43% for the first nine months of 1997 as compared to
44% in 1996.
The Company's policy-issuing subsidiaries added 30 new accounts in
the third quarter of 1997 bringing the total new accounts added during the first
nine months of 1997 to 94 as compared to 26 in the 1996 third quarter and 81 for
the first nine months of 1996. The renewal rate on this business was 80% for
the first nine months of 1997 as compared to 72% in the corresponding 1996
period. In California the Company added 19 new accounts in the first nine
months of 1997 compared to 6 in 1996 and the renewal rate increased to 81% as
compared to 74% in the first nine months of 1996. There were 329 active
accounts at September 30, 1997, including 42 in California, as compared to 267
at September 30, 1996, of which 25 were in California.
Gross premiums written increased 112% to $462.6 million for the first nine
months of 1997 as compared to $218.6 million in 1996 primarily as a result of
the growth in Program Business. Program Business generally involves greater
premium volume per unit than Corporate Risk Management business. Premiums
earned increased 79% to $62.5 million in the first nine months of 1997, as
compared to $35.0 million in 1996, this increase was also primarily due to the
expansion in the Program Business segment.
The Company's Specialty Brokerage business segment provides access to
Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe.
Specialty Brokerage produced $2.0 million of total Fee income in the third
quarter and $5.1 million in the first nine months of 1997 representing 7% of
total Fee income. Specialty Brokerage fees grew by 15% in the first nine months
of 1997 from $4.4 million in the corresponding 1996 period despite declines in
premium on new and renewal policies and the fact that the 1996 comparatives
include one significant account that was a one-time opportunity and could not be
renewed. Renewal rates remained high in this segment at 83% for the first nine
months of 1997 as compared to 90% in 1996. Profit margins decreased to 33% in
the third quarter from 35% for the 1996 third quarter and to 35% in the first
nine months down from 39% in 1996 partly as a result of the inclusion of the one
significant account in the 1996 comparatives.
Financial Services, the Company's newest business segment, is being built
on the 1996 acquisition of The Hemisphere Group Limited which provides
administrative services to offshore mutual funds and other companies. Financial
Services fees accounted for 8% of total Fee income for the first nine months of
both 1997 and 1996. Fees from Financial Services increased in the quarter by
32% to $2.1 million over the 1996 corresponding period and by 31% to $5.9
million for the nine months primarily as a result of an increase in the number
of mutual funds under administration from 83 at September 30, 1996 to 124.
Renewal rates remained very high in this business segment at 96% for the first
nine months of 1997 as compared to 93% in 1996. Profit margins improved in 1997
to 24% in the quarter and 26% for the first nine months up from 21% and 18%
respectively in 1996.
Gross investment income increased by $1.6 million or 8.0% to $21.6 million
in the first nine months of
10
<PAGE>
1997 over the corresponding 1996 period as a result of an increase of 2.1% in
gross invested assets to $468.1 million and an increase in the yield on these
assets. Net investment income, after adjusting for investment income which is
not included in the earnings of the Company, increased by 20.1% in the first
nine months as a result of an increase of 9.1% in net invested assets to $407.4
million and an increase in the yield on these assets to 6.6% from 5.9% in the
first nine months of 1996.
<TABLE>
<CAPTION>
(In thousands)
TOTAL EXPENSES
PERIODS TO SEPTEMBER 30,
THIRD QUARTER NINE MONTHS
1997 1996 INCREASE 1997 1996 INCREASE
<S> <C> <C> <C> <C> <C> <C>
Operating expenses $16,465 $12,450 32% $ 45,711 $35,572 29%
Total insurance costs 27,632 7,257 281% 63,537 35,065 81%
Interest expense 1,632 1,560 5% 4,842 4,632 5%
Other expenses 302 177 70% 799 462 73%
------- ------- -------- -------
Total $46,031 $21,444 115% $114,889 $75,731 52%
======= ======= ======== =======
</TABLE>
Total expenses increased 52% to $114.9 million for the first nine months
as compared to $75.7 million in 1996. Operating expenses increased by 29% to
$45.7 million for the first nine months from $35.6 million in the corresponding
1996 period partly as a result of the inclusion of SBU, for the first time in
1997 and the expansion of Professional Underwriters Corporation into New York
State, which combined added $3.6 million or 10% of the total increase in
Operating expenses in the first nine months. The remaining additional expenses
were primarily due to growth in personnel and other expenses stemming from the
increased business in each segment. The increase in Total insurance costs was
the result of a 79% increase in Premiums earned in the first nine months of 1997
over the corresponding 1996 period.
The effective tax rate was 19.0% in the quarter and 18.6% for the nine
months compared to 16.4% and 18.7% in the corresponding 1996 periods. The
increase in the quarterly rate is due mainly to the Company's decreased holding
of tax exempt municipal bonds. The decline in the nine month rate was due
primarily to an increase in earnings outside of the United States offset by the
decrease in the Company's holding of tax exempt municipal bonds.
FINANCIAL CONDITION AND LIQUIDITY
Total assets increased to $1.9 billion at September 30, 1997 from $1.6
billion at December 31, 1996. Assets held in separate accounts which are
principally managed assets attributable to participants in the Company's IPC
Programs accounted for approximately 34% of Total assets at September 30, 1997
and 35% at December 31, 1996. Total Shareholders' equity increased to $243.3
million at September 30, 1997 from $208.0 million at December 31, 1996 primarily
as a result of Net income in the nine months and the issuance of Common Shares
offset by the payment of dividends. Return on equity was 21% for the first nine
months of 1997 compared to 20% in the corresponding 1996 period.
During the quarter the Company repaid the principal amount of $2.9 million
owing on the Series B non-voting Redeemable Preferred Shares.
The Company continues to produce a positive cash flow from operating
activities which is used to fund short term requirements.
The Financial Accounting Standards Board has recently issued the following
Statements of Financial
11
<PAGE>
Accounting Standards ("SFAS"):
(a) SFAS No. 130 - Reporting Comprehensive Income
(b) SFAS No. 131 - Disclosures about Segments of an Enterprise and Related
Information.
SFAS No. 130 and No. 131 are effective for periods beginning after December
15, 1997. The Company is currently evaluating the effects of these statements
on its results and disclosures.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On October 10, 1997, the Company issued 18,741,121 Common Shares pursuant
to a two-for-one stock split to shareholders of record as of September 26, 1997.
This stock split was effected by means of a stock dividend. Registration of the
shares issued was not required under the Securities Act of 1933 as no sale was
involved for the purposes of said Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBIT 11 - Computation of Net Earnings Per Common Share and Common Share
Equivalents.
EXHIBIT 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the three
month period ended September 30, 1997.
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: NOVEMBER 14, 1997
14
<PAGE>
Exhibit 11
<PAGE>
Exhibit 11
MUTUAL RISK MANAGEMENT LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30
1997 1996 1997 1996
(in thousands except share and per share amounts)
<S> <C> <C> <C> <C>
Primary
- -------
Net income available to common shareholders $ 13,084 $ 9,433 $ 34,895 $ 27,565
=========== =========== =========== ===========
Weighted Average Common Shares
Common shares outstanding 37,422,524 36,496,954 37,298,504 36,247,978
----------- ----------- ----------- -----------
Common share equivalents associated with
options and Redeemable Common Shares:
Options 3,824,704 3,295,382 3,824,704 3,295,382
Redeemable Common Shares 937,168 937,168 937,168 937,168
----------- ----------- ----------- -----------
4,761,872 4,232,550 4,761,872 4,232,550
Common Shares purchased with proceeds from
options exercised (2,112,426) (2,489,418) (2,459,066) (2,275,222)
----------- ----------- ----------- -----------
2,649,446 1,743,132 2,302,806 1,957,328
----------- ----------- ----------- -----------
Total Weighted Average Common Shares 40,071,970 38,240,086 39,601,310 38,205,306
=========== =========== =========== ===========
Primary Earnings Per Common Share:
Net income available to common shareholders $0.33 $0.24 $0.88 $0.72
=========== =========== =========== ===========
Fully Diluted
- -------------
Net income available to common shareholders $ 13,084 $ 9,433 $ 34,895 $ 27,565
Debenture interest 1,632 1,549 4,840 4,595
$ 14,716 $ 10,982 $ 39,735 $ 32,160
=========== =========== =========== ===========
Weighted Average Common Shares
Common shares outstanding 37,422,524 36,496,954 37,298,504 36,247,978
----------- ----------- ----------- -----------
Common share equivalents associated with
options, Redeemable Common Shares
and Convertible Debentures:
Options 3,824,704 3,295,382 3,824,704 3,295,382
Redeemable Common Shares 937,168 937,168 937,168 937,168
Convertible Debentures 6,978,800 6,978,800 6,978,800 6,978,800
----------- ----------- ----------- -----------
11,740,672 11,211,350 11,740,672 11,211,350
Common Shares purchased with proceeds from
options exercised (2,112,426) (2,489,418) (2,459,066) (2,275,222)
----------- ----------- ----------- -----------
9,628,246 8,721,932 9,281,606 8,936,128
----------- ----------- ----------- -----------
Total Weighted Average Common Shares 47,050,770 45,218,886 46,580,110 45,184,106
=========== =========== =========== ===========
Fully Diluted Earnings Per Common Share:
Net income available to common shareholders $ 0.31 $ 0.24 $ 0.85 $ 0.71
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND IS
QUALLIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 377031
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
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<TOTAL-INVEST> 377031
<CASH> 93246
<RECOVER-REINSURE> 453556
<DEFERRED-ACQUISITION> 22908
<TOTAL-ASSETS> 1918900
<POLICY-LOSSES> 537813
<UNEARNED-PREMIUMS> 166763
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 37925
<NOTES-PAYABLE> 127051
0
0
<COMMON> 375
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<INVESTMENT-INCOME> 19525
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<INCOME-TAX> 7987
<INCOME-CONTINUING> 35000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34895
<EPS-PRIMARY> 0.88
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<RESERVE-OPEN> 0
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</TABLE>
