<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
------- THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994
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 1-7080
RELIANCE FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0113548
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 909-1100
The Registrant meets the requirements and conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with
reduced disclosure as permitted thereunder.
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
-------- --------
As of August 1, 1994, 1,000 shares of common stock of Reliance Financial
Services Corporation were outstanding.
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RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
I N D E X
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<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statement of Income for the Quarters and Six-Month
Periods Ended June 30, 1994 and 1993 (Unaudited)................ 2
Consolidated Balance Sheet at June 30, 1994 (Unaudited) and
December 31, 1993............................................... 3
Consolidated Statement of Changes in Shareholder's Equity for the
Six-Month Period Ended June 30, 1994 (Unaudited)................ 4
Consolidated Condensed Statement of Cash Flows for the Six-Month
Periods Ended June 30, 1994 and 1993 (Unaudited)................ 5
Notes to Consolidated Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statement of Income........................................ 8
PART II. OTHER INFORMATION, AS APPLICABLE................................ 13
SIGNATURES................................................................ 14
</TABLE>
<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Premiums earned..................................... $734,588 $634,405 $1,420,473 $1,184,433
Net investment income............................... 64,603 63,922 127,253 129,256
Gain on sales of investments........................ 1,672 35,049 5,309 70,631
Interest income from parent company................. 3,046 5,029 5,964 10,073
Other............................................... 37,109 29,699 68,584 56,819
-------- -------- ---------- ----------
841,018 768,104 1,627,583 1,451,212
-------- -------- ---------- ----------
Claims and expenses:
Policy claims and settlement expenses............... 360,735 338,648 729,309 636,504
Policy acquisition costs............................ 98,043 85,288 201,216 166,692
Interest............................................ 5,024 5,402 9,930 10,854
Other insurance expenses............................ 286,419 231,870 542,050 445,988
Other............................................... 36,402 28,436 67,797 55,870
-------- -------- ---------- ----------
786,623 689,644 1,550,302 1,315,908
-------- -------- ---------- ----------
Income before income taxes, minority interests
and equity in investee company.................. 54,395 78,460 77,281 135,304
Provision for income taxes.......................... (14,923) (31,401) (21,690) (51,865)
Minority interests.................................. (622) (880) (1,364) (1,698)
Equity in investee company.......................... 2,505 4,972 4,790 6,472
-------- -------- ---------- ----------
Income before cumulative effect of change in
accounting for income taxes.................. 41,355 51,151 59,017 88,213
Cumulative effect of change in accounting for
income taxes.................................... - - - 24,335
-------- -------- ---------- ----------
Net income.......................................... $ 41,355 $ 51,151 $ 59,017 $ 112,548
======== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1994 1993
- - ------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share amount)
<S> <C> <C>
Marketable securities:
Fixed maturities held for investment - at amortized cost
(quoted market $1,019,492 and $973,113)................ $1,102,654 $ 936,643
Fixed maturities available for sale - at quoted market
(cost $1,910,498 and $1,856,969)....................... 1,847,203 1,944,099
Equity securities - at quoted market (cost $465,202
and $458,217).......................................... 518,741 547,173
Short-term investments.................................... 185,350 372,507
Cash........................................................... 55,954 91,608
Premiums receivable............................................ 1,125,592 963,570
Other accounts and notes receivable............................ 140,175 124,911
Reinsurance recoverables....................................... 2,798,512 2,573,688
Federal and foreign income taxes, principally deferred taxes... 150,561 108,571
Notes receivable from parent company........................... 191,641 194,513
Investments in real estate - at cost, less accumulated
depreciation.............................................. 287,259 282,836
Investment in investee company................................. 154,267 157,016
Deferred policy acquisition costs.............................. 184,294 178,129
Other assets................................................... 303,919 312,129
---------- ----------
$9,046,122 $8,787,393
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
- - -----------------------------------------------------------------------------------------
Unearned premiums.............................................. $1,299,990 $1,276,331
Unpaid claims and related expenses............................. 5,562,709 5,253,137
Accounts payable and accrued expenses.......................... 596,220 616,499
Reinsurance ceded premiums payable............................. 304,020 206,373
Debentures and notes........................................... 99,873 99,863
Term loans and short-term debt................................. 99,685 125,373
Minority interests - redeemable preferred stock of a
subsidiary................................................ 23,517 26,877
---------- ----------
7,986,014 7,604,453
---------- ----------
Contingencies and commitments
Shareholder's equity:
Common stock, par value $.10 per share, 1,000 shares
authorized, issued and outstanding..................... - -
Additional paid-in capital................................ 678,413 677,510
Retained earnings......................................... 410,155 406,138
Net unrealized gain (loss) on investments................. (11,132) 115,023
Net unrealized loss on foreign currency translation....... (17,328) (15,731)
---------- ----------
1,060,108 1,182,940
---------- ----------
$9,046,122 $8,787,393
========== ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Net Loss on
Additional Unrealized Foreign
Common Paid-In Retained Gain (Loss) on Currency Shareholder's
Stock Capital Earnings Investments Translation Equity
- - -------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993...... $ - $677,510 $406,138 $ 115,023 $(15,731) $1,182,940
Capital contribution............ 1,589 1,589
Transactions of investee
company ................... (686) (2,863) (3,549)
Net income...................... 59,017 59,017
Dividends....................... (55,000) (55,000)
Depreciation after deferred
income taxes............... (123,292) (123,292)
Foreign currency translation.... (1,597) (1,597)
-------- -------- -------- --------- -------- ----------
Balance, June 30, 1994.......... $ - $678,413 $410,155 $ (11,132) $(17,328) $1,060,108
======== ======== ======== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30 1994 1993
- - ------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES..................... $ 84,100 $ 21,745
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of fixed maturities available for sale............. 211,368 216,223
Sales of fixed maturities held for investment............ 15,111 -
Redemptions of fixed maturities available for sale....... 34,929 64,544
Redemptions of fixed maturities held for investment...... 12,870 88,476
Sales of equity securities............................... 138,735 394,659
Sales of short-term investments - net.................... 192,585 301,532
Purchases of fixed maturities available for sale......... (312,912) (378,975)
Purchases of fixed maturities held for investment........ (201,984) (283,316)
Purchases of equity securities........................... (107,576) (333,502)
Other - net.............................................. (21,704) (26,652)
--------- ---------
(38,578) 42,989
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes receivable from parent company......... (17,128) (5,172)
Increase in term loans................................... 5,133 -
Increase in short-term debt - net........................ 143 1,476
Repayments of term loans................................. (30,964) (1,564)
Dividends................................................ (35,000) (80,000)
Redemption of redeemable preferred stock of a subsidiary. (3,360) (3,360)
--------- ---------
(81,176) (88,620)
--------- ---------
Decrease in cash......................................... (35,654) (23,886)
Cash, beginning of period................................ 91,608 58,947
--------- ---------
Cash, end of period...................................... $ 55,954 $ 35,061
========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................ $ 7,800 $ 9,600
========= =========
</TABLE>
Supplemental disclosure of non-cash financing activity:
In 1994, non-cash dividends of $20,000,000 were recorded as a reduction
in notes receivable from parent company.
See notes to consolidated financial statements
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
==============================================================================
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
accruals only) considered necessary to present fairly the financial position
at June 30, 1994, and the results of operations, changes in shareholder's
equity and cash flows for all periods presented. The results of operations
for the interim periods are not necessarily indicative of the results that may
be expected for any other interim period or for the entire year.
For a summary of significant accounting policies (which have not changed from
December 31, 1993) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
2. EQUITY IN INVESTEE COMPANY
Equity income in Zenith National Insurance Corp. was $2.5 million and $4.8
million for the second quarter and first six months of 1994 compared to equity
income of $5.0 million and $6.5 million in the corresponding 1993 periods.
Summarized financial information for Zenith National Insurance Corp. is as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30 1994 1993
--------------------------------------------------------------
(In thousands, except per-share amounts)
<S> <C> <C>
Revenues.................................. $289,577 $292,790
Income before income taxes................ 28,751 35,462
Net income................................ 19,100 27,700
Net income per share...................... 1.00 1.44
</TABLE>
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<PAGE>
3. REINSURANCE
The reconciliation of property and casualty insurance direct premiums to net
premiums is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------------
1994 1993
-------------------------------------------------
Premiums Premiums Premiums Premiums
Written Earned Written Earned
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Direct.............. $1,360,423 $1,337,567 $1,286,035 $1,275,997
Assumed............. 178,592 180,076 157,926 154,570
Ceded............... (568,787) (579,413) (557,345) (654,667)
---------- ---------- ---------- ----------
Net Premiums........ $ 970,228 $ 938,230 $ 886,616 $ 775,900
========== ========== ========== ==========
</TABLE>
The reconciliation of property and casualty insurance gross policy claims and
settlement expenses to net policy claims and settlement expenses is as follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Gross............................. $1,104,732 $1,243,308
Reinsurance recoveries............ (418,363) (642,991)
---------- ----------
Net policy claims and settlement
expenses......................... $ 686,369 $ 600,317
========== ==========
</TABLE>
4. ADOPTION OF NEW ACCOUNTING STANDARD
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits". The
adoption of this Statement had no material effect on the Company's consolidated
financial statements.
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
STATEMENT OF INCOME
================================================================================
OVERVIEW
Net income in the second quarter and first six months of 1994 was $41.4 million
and $59.0 million compared to $51.2 million and $112.5 million in the
corresponding 1993 periods. Net income for the first six months of 1993
included income of $24.3 million resulting from the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". The
decline in net income in 1994 also reflects substantially lower realized gains
from sales of investments, which were $1.7 million and $5.3 million in the
second quarter and first six months of 1994 compared to $35.0 million and $70.6
million in the corresponding 1993 periods. The lower levels of realized gains
were partially offset by improved underwriting results in property and casualty
insurance.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
Net premiums written, net premiums earned and underwriting results were as
follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Net Net Net Net
Premiums Premiums Underwriting Premiums Premiums Underwriting
Written Earned Gain(Loss) Written Earned Gain(Loss)
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Standard Commercial $328,615 $321,374 $(18,450) $301,655 $290,815 $(40,202)
Specialty Commercial 145,255 156,202 1,800 124,419 121,578 5,687
------------------------------------ ----------------------------------
$473,870 $477,576 $(16,650) $426,074 $412,393 $(34,515)
==================================== ==================================
<CAPTION>
SIX MONTHS ENDED JUNE 30
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Net Net Net Net
Premiums Premiums Underwriting Premiums Premiums Underwriting
Written Garned Gain(Loss) Written Earned Gain(Loss)
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Standard Commercial $682,334 $642,892 $(61,458) $630,215 $528,793 $(91,119)
Specialty Commercial 287,894 295,338 445 256,401 247,107 12,459
------------------------------------ ----------------------------------
$970,228 $938,230 $(61,013) $886,616 $775,900 $(78,660)
==================================== ==================================
</TABLE>
Net premiums written in the second quarter and first six months of 1993 were
reduced by
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<PAGE>
$17.7 million and $57.5 million, and net premiums earned were reduced by $63.0
million and $148.5 million, for premiums ceded under quota share treaties which
were not renewed in 1993. These ceded premiums were primarily classified in
standard commercial lines. The increase in specialty commercial net premiums
written during 1994 resulted from higher general liability premiums, including
financial coverages, and growth in surety premiums.
Underwriting results during 1994 for standard commercial lines have benefitted
from improved loss experience particularly in commercial automobile and
commercial multiple peril lines of business, partially offset by higher
catastrophe losses. The improved underwriting results also reflect continued
lower losses from involuntary pools which declined to $3.3 million and $9.2
million in the second quarter and first six months of 1994 compared to $7.4
million and $18.2 million in the corresponding 1993 periods. The underwriting
results in specialty commercial lines remain strong. The decline in specialty
commercial underwriting profits during 1994 reflects higher loss experience in
certain general liability lines and higher catastrophe losses in assumed
reinsurance, partially offset by improved results in surety lines. The cost of
catastrophes for both standard commercial and specialty commercial lines in the
second quarter and first six months of 1994 were $6.7 million and $35.4 million,
arising primarily from the January 1994 California earthquake and severe winter
storms. Catastrophe losses in the corresponding 1993 periods were $2.1 million
and $19.6 million. Gross catastrophe losses, before reinsurance, were $95.0
million during the first six months of 1994 compared to $61.0 million in the
corresponding 1993 period. The combined ratio (calculated on a GAAP basis),
after policyholders' dividends, was 103.0% and 106.1% for the second quarter and
first six months of 1994 compared to 108.1% and 110.0% in the corresponding 1993
periods. Excluding the effects of catastrophes, the combined ratios were 101.6%
and 102.3% in the second quarter and first six months of 1994 compared to 107.6%
and 107.5% in the corresponding 1993 periods.
In 1989, the California Department of Insurance notified United Pacific
Insurance Company, one of the Company's California subsidiaries, which writes
business in California, that under Proposition 103, profits generated by current
rates exceeded the Department's rates for a fair and reasonable return by
approximately $10.0 million. Since then, there have been several administrative
hearings on rate rollback and several different regulations issued. In
February 1993, a Los Angeles Superior Court declared several sections of the
regulations invalid and enjoined the enforcement of the regulations. In June
1993, the California Supreme Court agreed to hear the appeal from this decision.
The regulations, if ultimately adopted and upheld, could result in the Company
having to make a refund to policyholders possibly in excess of the amount
specified in the Department's 1989 notice. The Company believes that even after
considering investment income, total returns in California have been less than
what would be considered "fair." The Company will contest vigorously any
unreasonable premium rollback determination by the California Insurance
Department. Accordingly, the Company believes that it is probable that its
premium revenues will not be subject to a refund which would have a material
effect on the consolidated financial statements of the Company.
From time to time, other states have considered adopting legislation or
regulations which could adversely affect the manner in which the Company sets
rates for policies of insurance, particularly as they relate to personal lines.
No assurance can be given as to
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<PAGE>
what effect the adoption of any such legislation or regulation would have on the
ability of the Company to raise its rates. However, since the Company is
transferring or running off its personal lines business and, as a result, has
substantially withdrawn from personal lines, the Company believes that these
initiatives will not have a material effect on its on-going business.
PROPERTY AND CASUALTY INSURANCE INVESTMENT RESULTS
Net investment income of the property and casualty insurance operations was
$58.1 million and $114.1 million in the second quarter and first half of 1994
compared to $58.0 million and $117.5 million in the corresponding 1993 periods.
Net investment income in 1994 benefitted from growth in the size of the average
fixed maturity investment portfolio reflecting the reinvestment of proceeds from
sales of equity securities. These benefits, however, have been offset by lower
yields in the fixed maturity investment portfolio.
Gains on sales of investments were $1.5 million and $4.7 million in the second
quarter and first six months of 1994 compared to $32.9 million and $67.2 million
in the corresponding 1993 periods. Gains on sales of investments during the
1993 periods primarily resulted from sales of convertible preferred and common
stocks.
TITLE INSURANCE OPERATIONS
Premiums and fees increased in the second quarter and first six months of 1994
to $257.0 million and $482.2 million from $222.0 million and $408.5 million in
the corresponding 1993 periods. The growth in premiums and fees resulted from
an increase in lower margin agency premiums. The growth in agency premiums
during 1994 was partially offset by a decline in premiums from direct operations
in the second quarter of 1994 reflecting lower levels of residential refinancing
activity. As a result of increased mortgage interest rates, the Company does
not foresee residential refinancing activity increasing in the near future.
Accordingly, the Company expects its premiums from direct operations in 1994 to
be lower than those of the prior year. The increase in premiums from agency
operations during the second quarter of 1994 resulted from the typical reporting
lag of 60-90 days and reflect the strong first quarter market conditions, prior
to the increase in mortgage interest rates.
Agency commissions represent the portion of premiums retained by agents pursuant
to the terms of their agency contracts and are the title insurance operations'
single largest expense. Agency commissions were $142.0 million and $253.8
million in the second quarter and first six months of 1994 compared to $102.7
million and $199.2 million in the corresponding 1993 periods. Agency
commissions increased during 1994 reflecting the higher level of premiums from
agency operations. Other expenses of the title insurance operations include
personnel costs relating to marketing activities, title searches, information
gathering on specific properties and preparation of insurance policies, as well
as costs associated with the maintenance of title plants. Other expenses
increased to $88.1 million and $180.0 million in the second quarter and first
six months of 1994 from $87.2 million and $161.7 million in the corresponding
1993 periods. In order to reduce title insurance operating expenses, the
Company has instituted various cost control measures,
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including staff reductions. The expense ratio of the title insurance operations
(which includes agency commissions) increased to 89.5% and 89.9% in the second
quarter and first six months of 1994 from 85.5% and 88.3% in the corresponding
1993 periods resulting from increased agency commissions and the decline in
premiums from direct operations. The provision for claim losses increased to
$22.7 million and $42.9 million in the second quarter and first six months of
1994 from $19.6 million and $36.2 million in the corresponding 1993 periods,
reflecting premium growth.
INVESTMENT PORTFOLIO
At June 30, 1994, the Company's investment portfolio aggregated $3.66 billion
(at cost), of which 13% was invested in equity securities. The Company seeks to
maintain a diversified and balanced fixed maturity portfolio representing a
broad spectrum of industries and types of securities. At June 30, 1994, no one
issuer comprised more than 2.5% of the fixed maturity and short-term investment
portfolio. Furthermore, the Company holds virtually no investments in
commercial real estate mortgages in its investment portfolio. Purchases of
fixed maturity securities are researched individually based on in-depth analysis
and objective predetermined investment criteria and the portfolio is managed to
achieve a proper balance of safety, liquidity and investment yields.
The Company invests primarily in investment grade securities (those rated "BBB"
or better by Standard & Poor's) and, to a lesser extent, non-investment grade
and non-rated securities. The risk of default is generally considered to be
greater for non-investment grade securities, when compared to investment grade
securities, since these issues may be more susceptible to severe economic
downturns. At June 30, 1994, the carrying values of non-investment grade
securities and securities not rated by Standard & Poor's were $388.4 million
(12% of the fixed income portfolio) and $136.0 million (4% of the fixed income
portfolio), respectively. Substantially all of the Company's non-investment
grade securities are classified as "available for sale" and, accordingly, are
carried at quoted market value.
OTHER OPERATIONS
The Company's consulting and technical services operations provide services in
the information technology and energy and environmental fields. Revenues for
these operations were $37.1 million and $68.6 million in the three-month and
six-month periods ended June 30, 1994, compared to $29.7 million and $56.8
million in the corresponding 1993 periods. The increase in revenues during 1994
reflects growth in the information technology business. Operating expenses
incurred by these operations were $35.4 million and $66.1 million in the three-
month and six-month periods ended June 30, 1994, compared to $28.4 million and
$54.6 million in the corresponding 1993 periods. Revenues and expenses of these
operations are included in other revenues and other expenses in the accompanying
statement of income.
At June 30, 1994, the Company's real estate holdings had a carrying value of
$287.3
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<PAGE>
million, which includes 11 shopping centers with an aggregate carrying value of
$135.2 million, office buildings and other commercial properties, with an
aggregate carrying value of $91.5 million, and undeveloped land with a carrying
value of $60.6 million.
OTHER MATTERS
The National Association of Insurance Commissioners has adopted a risk-based
capital requirement for the property and casualty insurance industry which
becomes effective in 1995 (based on 1994 financial results). Risk-based capital
refers to the determination of the amount of statutory capital required for an
insurer based on the risks assumed by the insurer (including, for example,
investment risks, credit risks relating to reinsurance recoverables and
underwriting risks) rather than just the amount of net premiums written by the
insurer. A formula that applies prescribed factors to the various risk elements
in an insurer's business would be used to determine the minimum statutory
capital requirement for the insurer. An insurer having less statutory capital
than the formula calculates would be subject to varying degrees of regulatory
intervention, depending on the level of capital inadequacy. Although the
regulations governing risk-based capital are not effective until 1995 (based on
1994 financial results), the Company has calculated that its capital exceeds the
risk-based capital that would be required if the formula was currently in effect
(based on 1993 financial results). Management cannot predict the ultimate
impact of risk-based capital requirements on the Company's competitive position
and its resulting capital requirements.
Maintaining appropriate levels of statutory surplus is considered important by
the Company's management , state insurance regulatory authorities, and the
agencies that rate insurers' claims-paying abilities and financial strength.
Failure to maintain certain levels of statutory capital and surplus could result
in increased scrutiny or, in some cases, action taken by state regulatory
authorities and/or downgrades in an insurer's ratings.
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<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
- - --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
None
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the quarter ended June
30, 1994.
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<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.
RELIANCE FINANCIAL SERVICES CORPORATION
---------------------------------------
(Registrant)
Date: August 12, 1994 /s/ George E. Bello
--------------- ----------------------------------
George E. Bello
Executive Vice President and Controller
(Chief Accounting Officer)
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