The total number of sequentially numbered pages in this manually signed original
is 17. Exhibit Index is sequential page no. 4.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 28, 1997
--------------------------------
INTEGON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 001-10997 13-3559471
- -------------------- -------------------- --------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
500 West Fifth Street, Winston-Salem, North Carolina 27152
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (910) 770-2000
-----------------------------
Not Applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Page 1 of 12
Exhibit Index is on Page 4
<PAGE>
Item 5. Other Events
On April 28, 1997, Integon Corporation (the "Company") issued a press
release announcing that it will retain Goldman, Sachs & Co. to review strategic
alternatives and reported first quarter 1997 results. A copy of the press
release is attached hereto as Exhibit 99.1.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
None
(b) Pro Forma Financial Information.
None
(c) Exhibits.
Exhibit Number Description
-------------- -----------
99.1 Press Release dated
April 28, 1997 issued
by the Company.
Page 2 of 12
<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 hereunto duly authorized.
INTEGON CORPORATION
April 28, 1997 By: /s/ John C Head III
- ------------------------- ---------------------
Date John C Head III
Chairman of the Board and
Chief Executive Officer
Page 3 of 12
<PAGE>
Exhibit Index
Exhibit Number Description Page No.
- -------------- ------------ ---------
99.1 Press Release dated April 28, 1997 5
issued by the Company
Page 4 of 12
<PAGE>
Exhibit 99.1
PRESS RELEASE DATED APRIL 28, 1997
ISSUED BY THE COMPANY
Integon Corporation
Winston-Salem, NC 27152
Analysts Contact:
Gay Huntsman (910) 770-8434
Media Contact:
Turner Coley (910) 760-3000
Integon Corporation Announces Retention of Goldman, Sachs & Co. to Review
Strategic Alternatives
Reports First Quarter Results
Winston-Salem, NC, April 28, 1997 -- Integon Corporation (NYSE:IN) announced
today that it has retained Goldman, Sachs & Co. to review all strategic
alternatives available, including the sale of the Company, after recording a
loss of $2.21 per share for the quarter ended March 31, 1997.
During the first quarter of 1997, the Company experienced greater
than anticipated physical damage loss activity related to the 1996 accident
year. Furthermore, after an in-depth review of loss reserves using further loss
experience and segmented data on a state-by-state and product type basis, the
Company determined that reserves primarily related to automobile liability
coverages needed to be strengthened.
John C Head III, Chairman and Chief Executive Officer, stated, I
am angry and personally embarrassed regarding the inadequacy of the loss
reserves, and I am serious about maximizing shareholder value. The Company's
business plan has not been executed satisfactorily and past performance has not
been acceptable. Recognizing the
Page 5 of 12
<PAGE>
Integon Corporation
Page 2
Company's franchise in the growing nonstandard automobile insurance market, the
Board of Directors and I agreed that all strategic alternatives should be
reviewed to maximize the long-term value of the Company to its shareholders.
While alternatives are being reviewed, Integon will not veer from its business
plan to slow growth, raise prices, increase profitability and manage costs."
Financial Summary Table
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Net Premiums Written $202,554 $194,262
Total Revenues 209,219 178,820
Operating Earnings (Loss) (33,075) 2,035
Net Realized Investment Gains (Losses)
(net of taxes) (313) 1,350
Net Income (Loss) (33,388) 3,385
Net Income (Loss) Available to Common
Stockholders (34,781) 1,992
Earnings Per Share (fully diluted)
Operating Earnings (Loss) (2.19) .04
Net Realized Investment Gains (Losses) (.02) .09
Net Income (Loss) (2.21) .13
Weighted Average Shares Outstanding 15,736 15,903
</TABLE>
Financial results for the first quarter 1997 include an increase
to loss reserves of $42.0 million, or $27.3 million ($1.73 per share) on an
after-tax basis, and the related
Page 6 of 12
<PAGE>
Integon Corporation
Page 3
write off of deferred policy acquisition costs of $3.7 million, or $2.4 million
($.15 per share) on an after-tax basis. This action followed the completion of a
comprehensive review and analysis by the Company's actuarial staff and
independent auditors.
This reserve strengthening follows an increase to loss reserves
of $12.5 million in fourth quarter 1996. Mr. Head commented, "Actions have been
taken, are being taken and will continue to be taken to improve results going
forward. These actions include price increases, tightening of underwriting
restrictions in certain states, and raising down payments on some of the
Company's premium payment plans.These actions are appropriate and should benefit
financial results as we move forward."
"Price increases already taken have had the expected effect of
slowing premium growth. Net premiums written increased 4.3 percent in first
quarter 1997 compared to first quarter 1996. This decrease from the growth rate
of 28.6 percent for the full year 1996 over 1995 is appropriate. We expect a
further slowing of premium growth through the remainder of 1997. Profitability,
not growth, is the focus," Mr. Head said.
The reported GAAP combined ratio for first quarter 1997 was 127.7
percent. After adjusting for the $42.0 million loss reserve strengthening and
the related write off of deferred policy acquisition costs, the combined ratio
for the first quarter 1997 was 104.4 percent. The combined ratio should improve
as premiums written at increased price levels are earned. Additional price
increases will continue to be taken. "We are confident in our accident year loss
statistics, and we know which states and which products need corrective actions
and which are performing at acceptable levels," stated Mr. Head.
The GAAP expense ratio for first quarter 1997 was 26.1 percent
compared to 21.2 percent in the same period of 1996 and 25.6 percent in the
fourth quarter of 1996. The expense ratios for first quarter 1997 and fourth
quarter 1996 reflect write offs of deferred
Page 7 of 12
<PAGE>
Integon Corporation
Page 4
policy acquisition costs. Without these write offs, the expense ratio for first
quarter 1997 and fourth quarter 1996 would have been 24.2 percent and 23.8
percent, respectively. The Company continues to make long-term investments in
technology that should lead to longer-term savings through increased
efficiencies in dealing with its agents, insureds and claimants. Our expenses
are within our business plan--our loss results are not, stated Mr. Head.
Integon has replaced its chief actuary and expanded its actuarial staff.
Joining the Company are Curtis M. Parker, Vice President and Chief Actuary,
Daniel C. Pickens, Assistant Vice President and Assistant Actuary and Daniel D.
Blau, Assistant Vice President and Assistant Actuary. Their job is to ensure
that loss reserves and product pricing are adequate and remain adequate, stated
Mr. Head.
The Company's search for a new CEO will continue, but may be delayed.
Integon Corporation, through its wholly owned property and
casualty insurance subsidiaries, specializes in the underwriting and marketing
of nonstandard and other specialty automobile insurance products to individuals.
The Company, headquartered in Winston-Salem, North Carolina, markets its
products through more than 13,000 independent agencies in 30 states.
Please note that statements in this press release concerning
future combined ratios, premiums growth and profit levels look forward in time
and involve risks and uncertainties that may affect the Companys actual results
of operations. The following important factors, among others, could cause actual
results to differ materially from those set forth in the forward looking
statements: claims frequency, claims severity, severe adverse weather
conditions, the cost of automobile repair, economic activity, competitive
pricing and the regulatory environment in which the Company operates.
Page 8 of 12
<PAGE>
Page 5
Integon Corporation
April 28, 1997
INTEGON CORPORATION AND SUBSDIARIES
STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
3/31/97 3/31/96 Change
-------- -------- --------
<S> <C> <C> <C>
Direct premiums written ............................... $ 246,479 $ 229,664 7.3%
-------- --------
Net premiums written .................................. $ 202,554 $ 194,262 4.3%
Change in unearned premium ......................... (6,437) (29,447) 78.1%
Premiums earned ....................................... 196,117 164,815 19.0%
Net investment income (1) ............................. 9,043 7,753 16.6%
Net realized investment gains (losses) ................ (481) 2,077 -123.2%
Other income .......................................... 4,540 4,175 8.7%
------- -------
TOTAL REVENUES ..................................... 209,219 178,820 17.0%
------- -------
Loss and loss adjustment expenses ..................... 199,238 130,558 52.6%
Policy acquisition and other underwriting expenses .... 51,143 34,971 46.2%
Other expenses ........................................ 4,747 4,049 17.2%
Amortization of goodwill .............................. 764 769 -0.7%
Interest expense ...................................... 3,767 3,631 3.7%
------- -------
TOTAL EXPENSES ..................................... 259,659 173,978 49.2%
------- -------
INCOME (LOSS) FROM OPERATIONS BEFORE
FEDERAL INCOME TAX (BENEFIT) AND DISTRIBUTIONS
ON CAPITAL SECURITIES OF SUBSIDIARY TRUST .......... (50,440) 4,842 -1141.7%
Federal income tax (benefit) .......................... (18,042) 1,457 -1338.3%
------- -------
Income (loss) before distributions on capital
securities of subsidiary trust ..................... (32,398) 3,385 -1057.1%
Distributions on capital securities of subsidiary
trust, net of federal income tax benefit of $533 ... (990) --
------- -------
NET INCOME (LOSS) ..................................... (33,388) 3,385 -1086.4%
======== =======
Preferred stock dividends ............................. 1,393 1,393 0.0%
------- -------
Net income (loss) available to common stockholders .... ($ 34,781) $ 1,992 -1846.0%
======== =======
Operating earnings (loss) ............................. ($ 33,075) $ 2,035 -1725.3%
Net realized investment gains (losses) (net of taxes) . (313) 1,350 -123.2%
------- -------
Net income (loss) ..................................... ($ 33,388) $ 3,385 -1086.4%
======== =======
PER SHARE:
Primary
Operating earnings (loss) ........................... ($ 2.19) $ 0.04 -5575.0%
Net realized investment gains (losses) (net of taxes) (0.02) 0.09 -122.2%
------- -------
Net income (loss) ................................... ($ 2.21) $ 0.13 -1800.0%
======== =======
Fully diluted
Operating earnings (loss) ........................... ($ 2.19) $ 0.04 -5575.0%
Net realized investment gains (losses) (net of taxes) (0.02) 0.09 -122.2%
------- -------
Net income (loss) ................................... ($ 2.21) $ 0.13 -1800.0%
======== =======
Weighted average shares outstanding
Primary ............................................. 15,736 15,903
======= =======
Fully diluted ....................................... 15,736 15,903
======= =======
(1) Pre-tax yield 5.9% 6.1%
After tax yield ........................ 4.2% 4.3%
Average duration of portfolio .......... 4.0 yrs. 4.6 yrs.
</TABLE>
Page 9 of 12
<PAGE>
Page 6
Integon Corporation
April 28, 1997
INTEGON CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
3/31/97 12/31/96
------- --------
<S> <C> <C>
ASSETS
Fixed maturities available for sale
(amortized cost: $636,131 and $522,452) ............ $ 625,104 $ 521,311
Other long-term investments ............................ 2,815 2,743
Cash and short-term investments ........................ 33,536 43,838
Reinsurance receivable ................................. 176,839 185,077
Premiums due and uncollected ........................... 250,661 248,537
Prepaid reinsurance premiums ........................... 52,584 48,909
Accounts and notes receivable .......................... 39,602 32,957
Accrued investment income .............................. 9,290 8,933
Deferred policy acquisition costs ...................... 52,215 55,106
Property and equipment ................................. 70,303 68,271
Goodwill ............................................... 106,193 106,957
Deferred income taxes .................................. 29,328 22,044
Other .................................................. 31,807 12,116
---------- ----------
Total assets ........................................ $ 1,480,277 $ 1,356,799
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Unearned premiums ...................................... $ 374,194 $ 364,081
Loss and LAE payable ................................... 523,554 478,031
Accrued expenses and other liabilities ................. 149,007 104,536
Short-term debt ........................................ 10,000 44,000
Notes payable .......................................... 150,705 150,760
---------- ----------
Total liabilities ................................... 1,207,460 1,141,408
---------- ----------
Company-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely Integon
Corporation Junior Subordinated Debentures .......... 100,000 --
---------- ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock ............................ 14 14
Common stock ........................................... 173 173
Additional paid-in capital ............................. 147,891 147,891
Net unrealized depreciation of securities .............. (7,080) (700)
Retained earnings ...................................... 69,640 105,834
Treasury stock ......................................... (37,821) (37,821
---------- ----------
Total stockholders' equity ......................... 172,817 215,391
---------- ----------
Total liabilities and stockholders' equity $1,480,277 $ 1,356,799
========== ===========
Book value per share ................................... $ 6.62 $ 9.33
Loss and LAE payable, net of reinsurance receiable ..... 355,196 306,915
Estimated statutory surplus ............................ 262,697 245,919
Common shares outstanding .............................. 15,736 15,736
</TABLE>
Page 10 of 12
<PAGE>
Page 7
Integon Corporation
April 28, 1997
INTEGON CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(In Thousands, Except Ratios)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
----------------------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 (1)
----------------- --------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET PREMIUMS WRITTEN
Nonstandard auto
Top five states
New York ........ $ 41,444 20.5% $ 28,818 14.8% $142,394 17.8% $ 88,546 14.3% $ 17,901 4.9%
Florida ......... 31,146 15.4% 33,932 17.5% 121,301 15.2% 106,418 17.1% 68,779 18.9%
North Carolina... 33,854 16.7% 26,904 13.9% 106,473 13.3% 104,650 16.9% 101,134 27.8%
Virginia ........ 16,653 8.2% 19,702 10.1% 75,388 9.5% 68,044 11.0% 56,401 15.5%
Georgia ......... 10,459 5.2% 10,538 5.4% 39,735 5.0% 37,247 6.0% 46,096 12.7%
----------------- --------------- ------------------ ---------------- ----------------
Subtotal .......... 133,556 65.9% 119,894 61.7% 485,291 60.9% 404,905 65.2% 290,311 79.9%
All other states
Pennsylvania .... 6,632 3.3% 8,088 4.2% 35,257 4.4% 23,575 3.8% 3,588 1.0%
Texas ........... 3,252 1.6% 8,076 4.2% 32,187 4.0% 15,935 2.6% 2,060 0.6%
Ohio ............ 4,308 2.1% 8,872 4.5% 29,463 3.7% 26,566 4.3% 12,412 3.4%
Connecticut ..... 2,818 1.4% 4,241 2.2% 18,923 2.4% 14,556 2.3% 5,273 1.5%
Other states .... 29,660 14.6% 27,635 14.2% 121,820 15.3% 82,573 13.3% 20,960 5.8%
----------------- --------------- ------------------ ---------------- -----------------
Subtotal .......... 46,670 23.0% 56,912 29.3% 237,650 29.8% 163,205 26.3% 44,293 12.2%
----------------- --------------- ------------------ ---------------- -----------------
Total nonstandard ... 180,226 89.0% 176,806 91.0% 722,941 90.6% 568,110 91.5% 334,604 92.1%
Preferred risk ...... 6,658 3.3% 6,468 3.3% 24,842 3.1% 24,576 4.0% 24,025 6.6%
Specialty auto ...... 16,188 8.0% 10,988 5.7% 49,773 6.2% 26,347 4.2% 3,694 1.0%
Other ............... (518) -0.3% -- -- 433 0.1% 1,414 0.2% 1,144 0.3%
----------------- --------------- ------------------ ---------------- ------------------
Total ............... $202,554 100.0% $ 194,262 100.0% $797,989 100.0% $ 620,447 100.0% $363,467 100.0%
================= =============== ================== ================ ==================
GAAP
Loss ratio ....... 101.6% 79.2% 80.0% 73.4% 70.4%
Expense ratio .... 26.1% 21.2% 22.4% 21.6% 22.0%
------- ------- ------- ------- -------
Combined ratio ... 127.7% 100.4% 102.4% 95.0% 92.4%
======= ======= ======= ======= =======
STATUTORY
Loss ratio ....... 101.5% 76.8% 79.4% 73.2% 70.8%
Expense ratio .... 23.7% 22.9% 22.1% 21.5% 21.7%
------- ------- ------- ------- -------
Combined ratio ... 125.2% 99.7% 101.5% 94.7% 92.5%
======= ======= ======= ======= =======
ACCIDENT YEAR/QUARTER
Loss ratio ....... 80.0% n/a 85.0% 77.8% 75.8%
Expense ratio .... 26.1% n/a 22.4% 21.6% 22.0%
------- ------- ------- ------- -------
Combined ratio ... 106.1% n/a 107.4% 99.4% 97.8%
======= ======= ======= ======= =======
</TABLE>
(1)Includes Bankers and Shippers from the acquisition date of October 18, 1994.
Page 11 of 12
<PAGE>
Page 8
Integon Corporation
April 28, 1997
INTEGON CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(In Thousands, Except Ratios)
(Unaudited)
<TABLE>
<CAPTION>
Loss and LAE Payable, Net of Reinsurance Receivable
Strengthening by Accident Year Loss and LAE
--------------------------------------------------------------------- Payable, Net of
Accident Years Accident Year Accident Year Reinsurance Receivable
1994 & prior 1995 1996 Total as of March 31, 1997
------------------ ------------ ------------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Nonstandard auto
Top five states (1) ............. ($ 11,539) $ 10,512 $ 32,527 $ 31,500 $ 195,892
All other states ................ (3,724) 4,896 12,828 14,000 115,281
Total nonstandard auto ............ (15,263) 15,408 45,355 45,500 311,173
Preferred risk auto ............... (62) (207) 969 700 10,725
Specialty auto .................... 553 (454) (1,599) (1,500) 20,433
Salvage & subrogation ............. 892 (891) (2,701) (2,700) (14,453)
All other loss and LAE payable,
primarily ULAE (2) ................ -- -- -- -- 27,318
---------- --------- ---------- ---------- ---------
Total ............................. ($ 13,880) $ 13,856 $ 42,024 $ 42,000 $ 355,196
========== ========= ========== ========== =========
Quarter
ACCIDENT YEAR/QUARTER .............. Years Ended December 31, Ended March 31,
----------------------------------- ---------------
LOSS AND ALAE RATIO (2) ............ 1994 1995 1996 1997
------- ------- ------- -------
Nonstandard auto
Top five states (1) .............. 71.7% 74.1% 78.4% 70.7%
All other states ................. 78.7% 83.8% 88.1% 87.1%
Total nonstandard auto ............. 73.1% 76.6% 81.5% 75.7%
Preferred risk auto ................ 57.6% 65.7% 67.6% 66.2%
Specialty auto ..................... 42.4% 65.8% 71.7% 59.6%
Total auto loss and ALAE ratio,
before salvage & subrogation ....... 72.2% 75.8% 80.5% 74.3%
Salvage & subrogation .............. -3.0% -3.2% -2.9% -2.2%
Total auto loss and ALAE ratio ..... 69.2% 72.6% 77.6% 72.1%
</TABLE>
- --------------
(1) Includes New York, Florida, North Carolina, Virginia and Georgia
(2) ULAE (unallocated loss adjustment expenses) are expenses incurred in the
course of investigating and settling claims which are not directly
attributable to specific claims. ALAE (allocated loss adjustment expenses)
are expenses incurred in the course of investigating and settling claims
which are directly attributable to specific claims.
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> This statement contains summary financial information
extracted from Integon Corporation's March 31, 1997
financial statments and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000878660
<NAME> Integon Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 625,104
<DEBT-CARRYING-VALUE> 625,104
<DEBT-MARKET-VALUE> 625,104
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 627,919
<CASH> 33,536
<RECOVER-REINSURE> 176,839
<DEFERRED-ACQUISITION> 52,215
<TOTAL-ASSETS> 1,480,277
<POLICY-LOSSES> 523,554
<UNEARNED-PREMIUMS> 374,194
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 150,705
0
14
<COMMON> 173
<OTHER-SE> 172,817
<TOTAL-LIABILITY-AND-EQUITY> 1,480,277
246,479
<INVESTMENT-INCOME> 9,043
<INVESTMENT-GAINS> (481)
<OTHER-INCOME> 4,540
<BENEFITS> 199,238
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 199,238
<INCOME-PRETAX> (51,963)
<INCOME-TAX> (18,575)
<INCOME-CONTINUING> (33,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,388)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.21)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
