<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarter Ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
from _______ to __________
Commission file number 0-20766
---------------------
HCC Insurance Holdings, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0336636
- ----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13403 Northwest Freeway, Houston, Texas 77040-6094
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 690-7300
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
On August 7, 1998, there were 47,865,122 shares of Common Stock, $1 par value
issued and outstanding.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
INDEX
<TABLE>
PAGE NO.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997. . . . . . . . . . . .3
Condensed Consolidated Statements of Earnings
Six Months Ended June 30, 1998 and
Six Months Ended June 30, 1997 . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Earnings
Three Months Ended June 30, 1998 and
Three Months Ended June 30, 1997 . . . . . . . . . . . . .5
Condensed Consolidated Statements of Changes in
Shareholders' Equity Six Months Ended
June 30, 1998 and Year Ended December 31, 1997 . . . . . .6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and
Six Months Ended June 30, 1997 . . . . . . . . . . . . . .8
Notes to Condensed Consolidated Financial Statements. . . .9
Item 2. Management's Discussion and Analysis . . . . . . . . . . 15
Part II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
_________
Condensed Consolidated Balance Sheets
(Unaudited)
________
<TABLE>
June 30, 1998 December 31, 1997
--------------- -----------------
ASSETS
<S> <C> <C>
Investments available for sale:
Fixed income securities, at market
(cost: 1998 $402,088,000; 1997 $395,121,000) $ 415,411,000 $ 409,701,000
Marketable equity securities, at market
(cost: 1998 $8,353,000; 1997 $10,221,000) 5,163,000 8,339,000
Short-term investments, at cost, which approximates market 131,156,000 105,255,000
Other investments, at cost, which approximates fair value 448,000 --
-------------- --------------
Total investments 552,178,000 523,295,000
Cash 9,080,000 7,728,000
Restricted cash and cash investments 72,909,000 60,063,000
Reinsurance recoverables 226,066,000 176,965,000
Premium, claims and other receivables 315,254,000 252,618,000
Ceded unearned premium 140,969,000 84,610,000
Deferred policy acquisition costs 26,054,000 21,604,000
Property and equipment, net 23,678,000 19,926,000
Deferred income tax 4,556,000 6,817,000
Other assets, net 64,397,000 44,506,000
-------------- --------------
TOTAL ASSETS $1,435,141,000 $1,198,132,000
-------------- --------------
-------------- --------------
LIABILITIES
Loss and loss adjustment expense payable $ 318,561,000 $ 275,008,000
Reinsurance balances payable 90,904,000 43,914,000
Unearned premium 205,712,000 152,094,000
Deferred ceding commissions 27,355,000 19,553,000
Premium and claims payable 288,671,000 237,770,000
Notes payable 88,000,000 80,750,000
Accounts payable and accrued liabilities 19,634,000 23,442,000
-------------- --------------
Total liabilities 1,038,837,000 832,531,000
SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value; 250,000,000 shares authorized;
(issued and outstanding: 1998 47,861,259 shares; 1997
47,758,929 shares) 47,861,000 47,759,000
Additional paid-in capital 156,137,000 154,633,000
Retained earnings 186,102,000 155,209,000
Accumulated other comprehensive income 6,204,000 8,000,000
-------------- --------------
Total shareholders' equity 396,304,000 365,601,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,435,141,000 $1,198,132,000
-------------- --------------
-------------- --------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Condensed Consolidated Statements of Earnings
(Unaudited)
________
<TABLE>
For the six months ended June 30,
1998 1997
-------------- --------------
<S> <C> <C>
REVENUE
Net earned premium $ 69,367,000 $ 92,809,000
Management fee and commission income 59,735,000 35,953,000
Net investment income 14,560,000 12,733,000
Computer products and services 3,154,000 3,601,000
Net realized investment gain (loss) 125,000 (294,000)
------------ ------------
Total revenue 146,941,000 144,802,000
EXPENSE
Loss and loss adjustment expense 43,803,000 56,070,000
Operating expense:
Policy acquisition costs 31,417,000 26,088,000
Compensation expense 26,523,000 23,565,000
Other operating expense 16,893,000 15,913,000
Merger expense 106,000 7,277,000
Ceding commissions (26,847,000) (20,361,000)
------------ ------------
Net operating expense 48,092,000 52,482,000
Interest expense 3,279,000 2,810,000
------------ ------------
Total expense 95,174,000 111,362,000
------------ ------------
Earnings before income tax provision 51,767,000 33,440,000
Income tax provision 17,046,000 11,423,000
------------ ------------
NET EARNINGS $ 34,721,000 $ 22,017,000
------------ ------------
------------ ------------
BASIC EARNINGS PER SHARE DATA:
Earnings per share $ 0.73 $ 0.47
------------ ------------
------------ ------------
Weighted average shares outstanding 47,824,000 46,372,000
------------ ------------
------------ ------------
DILUTED EARNINGS PER SHARE DATA:
Earnings per share $ 0.71 $ 0.46
------------ ------------
------------ ------------
Weighted average shares outstanding 48,917,000 47,653,000
------------ ------------
------------ ------------
Cash dividends declared, per share $ 0.08 $ 0.06
------------ ------------
------------ ------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Condensed Consolidated Statements of Earnings
(Unaudited)
________
<TABLE>
For the three months ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
REVENUE
Net earned premium $35,440,000 $48,134,000
Management fee and commission income 34,437,000 18,019,000
Net investment income 7,734,000 6,528,000
Computer products and services 1,516,000 1,955,000
Net realized investment gain (loss) 8,000 (238,000)
----------- -----------
Total revenue 79,135,000 74,398,000
EXPENSE
Loss and loss adjustment expense 26,613,000 29,452,000
Operating expense:
Policy acquisition costs 15,642,000 11,845,000
Compensation expense 12,957,000 11,982,000
Other operating expense 9,193,000 8,902,000
Merger expense 79,000 5,404,000
Ceding commissions (13,307,000) (9,366,000)
----------- -----------
Net operating expense 24,564,000 28,767,000
Interest expense 1,658,000 1,435,000
----------- -----------
Total expense 52,835,000 59,654,000
----------- -----------
Earnings before income tax provision 26,300,000 14,744,000
Income tax provision 8,666,000 5,760,000
----------- -----------
NET EARNINGS $17,634,000 $ 8,984,000
----------- -----------
----------- -----------
BASIC EARNINGS PER SHARE DATA:
Earnings per share $ 0.37 $ 0.19
----------- -----------
----------- -----------
Weighted average shares outstanding 47,853,000 46,720,000
----------- -----------
----------- -----------
DILUTED EARNINGS PER SHARE DATA:
Earnings per share $ 0.36 $ 0.19
----------- -----------
----------- -----------
Weighted average shares outstanding 49,015,000 47,983,000
----------- -----------
----------- -----------
Cash dividends declared, per share $ 0.04 $ 0.03
----------- -----------
----------- -----------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1998 and
for the year ended December 31, 1997
(Unaudited)
________
<TABLE>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury shareholders'
Stock capital earnings income stock equity
----------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $49,017,000 $138,515,000 $162,131,000 $3,532,000 $(56,670,000) $296,525,000
726,898 shares of Common Stock issued for
exercise of options, including tax
benefit of $1,725,000 727,000 9,743,000 - - - 10,470,000
382,024 shares of Common Stock issued for
purchased companies 382,000 9,805,000 - - - 10,187,000
950,000 shares of Common Stock issued for
combinations with pooled companies 950,000 - (1,507,000) - - (557,000)
Net earnings - - 49,760,000 - - 49,760,000
Cash dividends declared, $0.12 per share - - (5,219,000) - - (5,219,000)
Repurchase of 14,895 shares of common
stock by pooled company prior to combination - - - - (324,000) (324,000)
Retirement of 3,316,636 shares of treasury
stock (3,317,000) (3,430,000) (50,247,000) - 56,994,000 -
Other comprehensive income - - - 4,468,000 - 4,468,000
Other - - 291,000 - - 291,000
----------- ------------ ------------ ------------- ------------ ------------
BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $8,000,000 $ - $365,601,000
----------- ------------ ------------ ------------- ------------ ------------
----------- ------------ ------------ ------------- ------------ ------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1998 and
for the year ended December 31, 1997
(Unaudited)
(continued)
________
<TABLE>
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholders'
Stock capital earnings income equity
----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1997 $47,759,000 $154,633,000 $155,209,000 $ 8,000,000 $365,601,000
73,301 shares of Common Stock issued for
exercise of options, including tax benefit of
$104,000 73,000 933,000 1,006,000
29,029 shares of Common Stock issued for
purchased company 29,000 571,000 600,000
Net earnings 34,721,000 34,721,000
Cash dividends declared, $0.08 per share (3,828,000) (3,828,000)
Other comprehensive income (loss) (1,796,000) (1,796,000)
----------- ------------ ------------ ----------- ------------
BALANCE AS OF JUNE 30, 1998 $47,861,000 $156,137,000 $186,102,000 $ 6,204,000 $396,304,000
----------- ------------ ------------ ----------- ------------
----------- ------------ ------------ ----------- ------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
7
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Condensed Consolidated Statements of Cash Flows
(Unaudited)
________
<TABLE>
For the six months ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 34,721,000 $ 22,017,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in reinsurance recoverables (49,101,000) (16,105,000)
Change in premium, claims and other receivables (62,636,000) (54,882,000)
Change in ceded unearned premium (56,359,000) (6,211,000)
Change in deferred income tax, net of tax effect of
unrealized gain or loss 3,156,000 1,623,000
Change in loss and loss adjustment expense payable 43,553,000 16,448,000
Change in reinsurance balances payable 46,990,000 13,741,000
Change in unearned premium 53,618,000 12,378,000
Change in premium and claims payable, net of restricted cash 38,055,000 43,388,000
Net realized investment (gain) loss (125,000) 294,000
Depreciation and amortization expense 3,349,000 2,324,000
Other, net (2,261,000) (4,042,000)
------------- -------------
Cash provided by operating activities 52,960,000 30,973,000
Cash flows from investing activities:
Sales of fixed income securities 788,000 15,394,000
Maturity or call of fixed income securities 4,751,000 8,390,000
Sales of equity securities 3,406,000 8,329,000
Change in short-term investments (25,901,000) (24,620,000)
Cash paid for companies acquired, net of cash received (19,172,000) (10,150,000)
Cost of securities acquired (14,461,000) (43,446,000)
Purchases of property and equipment (5,975,000) (1,958,000)
------------- -------------
Cash used by investing activities (56,564,000) (48,061,000)
Cash flows from financing activities:
Proceeds from notes payable 21,200,000 10,406,000
Sale of Common Stock 1,006,000 4,840,000
Payments on notes payable (13,950,000) (4,097,000)
Dividends paid (3,300,000) (1,802,000)
Repurchase common stock -- (324,000)
------------- -------------
Cash provided by financing activities 4,956,000 9,023,000
------------- -------------
Net change in cash 1,352,000 (8,065,000)
Cash at beginning of period 7,728,000 9,575,000
------------- -------------
CASH AT END OF PERIOD $ 9,080,000 $ 1,510,000
------------- -------------
------------- -------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
8
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) GENERAL INFORMATION
HCC Insurance Holdings, Inc. (the "Company" or "HCC") and its subsidiaries
include domestic and foreign property and casualty insurance companies,
managing general underwriters, surplus lines insurance brokers and retail
and wholesale insurance and reinsurance brokers. The Company, through its
subsidiaries, provides specialized property, casualty, accident and health
insurance, underwritten on both a direct and reinsurance basis, and
insurance agency services.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
include all adjustments which are, in the opinion of management, necessary
for fair presentation of the results of the interim periods. All
adjustments made to the interim periods are of a normal recurring nature.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The results of operations
for interim periods are not necessarily indicative of the operating
results for the full year. The condensed consolidated financial
statements for periods reported should be read in conjunction with the
annual consolidated financial statements and related notes thereto. The
condensed consolidated balance sheet as of December 31, 1997, and the
statement of shareholders' equity for the year then ended were derived
from audited financial statements, but do not include all disclosures
required by generally accepted accounting principles. The combination
with The Kachler Corporation ("Kachler") was accounted for as a
pooling-of-interests. The Company's condensed consolidated financial
statements have been restated to include the accounts and operations of
Kachler for all periods presented (see note 3).
INCOME TAX
For the six months ended June 30, 1998 and 1997, the income tax provision
has been calculated based on an estimated effective tax rate for each of
the fiscal years. The difference between the Company's effective tax rate
and the Federal statutory rate is primarily the result of nontaxable
municipal bond interest included in pretax income and, in the 1997 periods,
the effect of certain non deductible merger expenses.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In January, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income". SFAS No. 130
requires that all components of comprehensive income be reported in a full
set of financial statements and that the amount of total comprehensive
income be reported. For interim reporting purposes comprehensive income
will be reported with other supplemental information (see note 5).
9
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information".
This statement is effective for fiscal years beginning after December 15,
1997, but the information is first required in year end financial
statements. SFAS No. 131 relates to the presentation of segment information
in a complete set of financial statements. It will have no effect on the
Company's net earnings, shareholders' equity or cash flows. The Company
does not expect to change its definition of segment when SFAS No. 131 is
adopted.
RECLASSIFICATIONS
Certain amounts in the 1997 condensed consolidated financial statements
have been reclassified to conform to the 1998 presentation. Such
reclassifications had no effect on the Company's net earnings,
shareholders' equity, or cash flows.
(2) REINSURANCE
In the normal course of business, the Company's insurance company
subsidiaries cede a substantial portion of their premium to non-affiliated
domestic and foreign reinsurers through quota share, surplus, excess of
loss and facultative reinsurance agreements. Although the ceding of
reinsurance does not discharge the primary insurer from liability to its
policyholder, the subsidiaries participate in such agreements for the
purpose of limiting their loss exposure and diversifying their business.
Substantially all of the reinsurance assumed by the Company's insurance
company subsidiaries was underwritten directly by the Company but issued by
other non-affiliated companies in order to satisfy licensing or other
requirements. The following tables represent the effect of such
reinsurance transactions on net premium and loss and loss adjustment
expense:
<TABLE>
Loss and Loss
Written Earned Adjustment
Premium Premium Expense
------------- ------------- -------------
<S> <C> <C> <C>
For the six months ended June 30, 1998:
Direct business $ 118,499,000 $ 88,134,000 $ 72,431,000
Reinsurance assumed 143,347,000 118,731,000 112,309,000
Reinsurance ceded (195,271,000) (137,498,000) (140,937,000)
------------- ------------- -------------
NET AMOUNTS $ 66,575,000 $ 69,367,000 $ 43,803,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
10
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(2) REINSURANCE, CONTINUED
<TABLE>
Loss and Loss
Written Earned Adjustment
Premium Premium Expense
------------- ------------- -------------
<S> <C> <C> <C>
For the six months ended June 30, 1997:
Direct business $ 92,620,000 $ 86,559,000 $ 49,562,000
Reinsurance assumed 92,579,000 88,125,000 90,724,000
Reinsurance ceded (88,450,000) (81,875,000) (84,216,000)
------------- ------------- -------------
NET AMOUNTS $ 96,749,000 $ 92,809,000 $ 56,070,000
------------- ------------- -------------
------------- ------------- -------------
For the three months ended June 30, 1998:
Direct business $ 80,108,000 $ 46,192,000 $ 40,766,000
Reinsurance assumed 68,307,000 61,800,000 63,871,000
Reinsurance ceded (107,657,000) (72,552,000) (78,024,000)
------------- ------------- -------------
NET AMOUNTS $ 40,758,000 $ 35,440,000 $ 26,613,000
------------- ------------- -------------
------------- ------------- -------------
For the three months ended June 30, 1997:
Direct business $ 55,696,000 $ 43,402,000 $ 22,479,000
Reinsurance assumed 34,362,000 42,998,000 28,035,000
Reinsurance ceded (35,958,000) (38,266,000) (21,062,000)
------------- ------------- -------------
NET AMOUNTS $ 54,100,000 $ 48,134,000 $ 29,452,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
11
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(2) REINSURANCE, CONTINUED
The table below represents the approximate composition of reinsurance
recoverables in the accompanying condensed consolidated balance
sheets:
<TABLE>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Reinsurance recoverable on paid losses $ 28,205,000 $ 24,126,000
Reinsurance recoverable on outstanding losses 170,889,000 140,516,000
Reinsurance recoverable on IBNR 29,597,000 14,858,000
Reserve for uncollectible reinsurance (2,625,000) (2,535,000)
------------- -------------
TOTAL REINSURANCE RECOVERABLES $ 226,066,000 $ 176,965,000
------------- -------------
------------- -------------
</TABLE>
The insurance company subsidiaries require reinsurers not authorized by the
subsidiaries' respective states of domicile to collateralize their
reinsurance obligations to the Company with letters of credit or cash
deposits. At June 30, 1998, the Company held letters of credit and cash
deposits in the amounts of $114.3 million and $7.5 million, respectively,
to collateralize certain reinsurance balances and had other payable
balances due to its reinsurers of $196.4 million as potential offsets
against reinsurance recoverables. The Company has established a reserve of
$2.6 million as of June 30, 1998, to reduce the effects of any recoverable
problems. In order to minimize its exposure to reinsurance credit risk, the
Company evaluates the financial condition of its reinsurers and places its
reinsurance with a diverse group of financially sound companies.
(3) ACQUISITIONS
KACHLER
On February 27, 1998, the Company acquired all of the outstanding shares of
Kachler in exchange for 1,600,000 shares of the Company's Common Stock.
This business combination has been accounted for as a pooling-of-interests
and, accordingly, the Company's condensed consolidated financial statements
have been restated to include the accounts and operations of Kachler for
all periods presented. For the three months ended March 31, 1998, total
revenue included $1.9 million and net earnings included $735,000 related to
Kachler prior to the combination. For the six months and three months
ended June 30, 1997, total revenue included $3.8 million and $1.9 million,
respectively, and net earnings included $4,000 and $2,000, respectively,
related to Kachler prior to the combination.
12
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(3) ACQUISITIONS, CONTINUED
GIR
Effective February 28, 1998, the Company acquired all of the outstanding
shares of Insurance Alternatives, Inc. and all of the assets and
liabilities of Guarantee Insurance Resources (collectively, "GIR") in
exchange for 29,029 shares of the Company's Common Stock and a cash payment
of $21.4 million. This acquisition has been accounted for as a purchase
and the results of operations have been included in the condensed
consolidated statements of earnings beginning in March, 1998. Cost in
excess of net assets acquired (goodwill) of approximately $21.8 million was
recorded from this acquisition. Goodwill is being amortized over twenty
years. The results of operations of GIR for the periods prior to the
acquisition are immaterial to the Company's consolidated results of
operations.
(4) EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common
shares outstanding during the year divided into net earnings. Diluted
earnings per share is based on the weighted average number of common shares
outstanding plus the potential common shares outstanding during the year
divided into net earnings. The shares issued in connection with the
combination with Kachler are included in outstanding shares for all periods
presented. Outstanding common stock options, when dilutive, are considered
to be potential common stock for the purpose of the diluted calculation.
The treasury stock method is used to calculate potential common stock due
to options.
The following table provides a reconciliation of the denominators used in
the earnings per share calculations:
<TABLE>
For the six months ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Net earnings $ 34,721,000 $ 22,017,000
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Shares of Common Stock outstanding at period end 47,861,000 47,182,000
Changes in Common Stock due to issuance (37,000) (810,000)
------------- -------------
Weighted average Common Stock outstanding 47,824,000 46,372,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,093,000 1,281,000
------------- -------------
Weighted average Common Stock and potential
common stock outstanding 48,917,000 47,653,000
------------- -------------
------------- -------------
</TABLE>
13
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
________
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(4) EARNINGS PER SHARE, CONTINUED
<TABLE>
For the three months ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Net earnings $ 17,634,000 $ 8,984,000
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Shares of Common Stock outstanding at period end 47,861,000 47,182,000
Changes in Common Stock due to issuance (8,000) (462,000)
------------- -------------
Weighted average Common Stock outstanding 47,853,000 46,720,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,162,000 1,263,000
------------- -------------
Weighted average Common Stock and potential
common stock outstanding 49,015,000 47,983,000
------------- -------------
------------- -------------
</TABLE>
As of June 30, 1998, there were approximately 1.6 million options that were
not included in the computation of diluted earnings per share because to do
so would have been antidilutive.
(5) SUPPLEMENTAL INFORMATION
Supplemental information for the six months ended June 30, 1998 and 1997, is
summarized below:
<TABLE>
1998 1997
------------ ------------
<S> <C> <C>
Interest paid $ 2,437,000 $ 3,328,000
Income taxes paid 10,786,000 12,635,000
Comprehensive income 32,925,000 22,492,000
</TABLE>
Comprehensive income for the three months ended June 30, 1998 and 1997 was
$16,193,000 and $13,253,000, respectively.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997
Gross written premium increased 65% to $148.4 million for the second quarter
of 1998 from $90.1 million for the same period in 1997, primarily in the
aviation, offshore energy and accident and health lines. Net written premium
for the second quarter of 1998 decreased to $40.8 million from $54.1 million
for the same period in 1997 due to an increase in the amount of ceded
reinsurance, particularly in the aviation line of business due to the
continuing effect of additional reinsurance purchased at Avemco Insurance
Company after the June, 1997 acquisition. Net earned premium decreased to
$35.4 million for the second quarter of 1998 compared to $48.1 million for
the same period in 1997 due to the aggregate effect of reduced net written
premium during the preceding twelve month period.
Management fee and commission income increased 91% to $34.4 million for the
second quarter of 1998, compared to $18.0 million for the same period in 1997
due to internal growth and agency acquisitions. The Company expects solid
growth to continue albeit at a somewhat lower rate. Net investment income
increased 18% to $7.7 million for the second quarter of 1998 compared to $6.5
million for the same period in 1997 reflecting increased cash flow and,
therefore, a higher level of investments. The Company's investment policy has
remained consistent and conservative.
Loss and loss adjustment expense ("LAE") decreased 10% for the second quarter
of 1998 to $26.6 million compared to $29.5 million for the same period in
1997 reflecting increased ceded reinsurance somewhat offset by deteriorating
results on current business.
As net income from the agency operations grows, the Company's effective tax rate
increases due to state income taxes incurred on the agency segment but not
incurred on the insurance company segment. The Company's 1997 effective tax
rate is unusually high, since substantially all of the merger expense
incurred is not deductible for income tax purposes. Excluding the effects of
merger expense, the Company's effective tax rate for the three months ended
June 30, 1997 was 31%, compared to 33% for the same period in 1998.
Net earnings increased 96% to $17.6 million for the second quarter of 1998
from $9.0 million for the same period in 1997. This increase was due to
increased agency income which counteracted the lower underwriting profits
from the insurance company subsidiaries, and the reduction in merger expense
which was $5.3 million higher in the second quarter of 1997 compared to the
same period in 1998 due to the combination with Avemco Corporation effective
June 17, 1997.
Diluted earnings per share increased 89% to $0.36 for the second quarter of
1998 from $0.19 for the same period of 1997. This reflects the increase in
net earnings, offset by a 2% increase in weighted average shares outstanding
due to shares issued for acquisitions and the exercise of options.
The Company's insurance company subsidiaries' GAAP combined ratio was 94.9%
for the second quarter of 1998, as compared to 81.9% for the same period in
1997. This increase was due primarily to more losses during the quarter as
well as additions to IBNR.
The Company's book value per share was $8.28 as of June 30, 1998, up from
$7.66 as of December 31, 1997.
15
<PAGE>
SIX MONTHS ENDED JUNE 30,1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997
Gross written premium increased 41% to $261.8 million for the first six
months of 1998 from $185.2 million for the same period in 1997, primarily in
the aviation, offshore energy and accident and health lines. Net written
premium for the first six months of 1998 decreased to $66.6 million from
$96.7 million for the same period in 1997 due to an increase in the amount of
ceded reinsurance, particularly in the aviation line of business due to the
continuing effect of additional reinsurance purchased at Avemco Insurance
Company after the June, 1997 acquisition. Net earned premium decreased to
$69.4 million for the first six months of 1998 compared to $92.8 million for
the same period in 1997 due to the aggregate effect of reduced net written
premium during the preceding twelve month period.
Management fee and commission income increased 66% to $59.7 million for the
first six months of 1998, compared to $36.0 million for the same period in
1997 due to internal growth and agency acquisitions. The Company expects
solid growth to continue albeit at a somewhat lower rate. Net investment
income increased 14% to $14.6 million for the first six months of 1998
compared to $12.7 million for the same period in 1997 reflecting increased
cash flow and, therefore, a higher level of investments. The Company's
investment policy has remained consistent and conservative.
Loss and LAE decreased $12.3 million during the first six months of 1998, to
$43.8 million, reflecting increased ceded reinsurance somewhat offset by
deteriorating results on current business.
As net income from the agency operations grows, the Company's effective tax
rate increases due to state income taxes incurred on the agency segment but
not incurred on the insurance company segment. The Company's 1997 effective
tax rate is unusually high, since substantially all of the merger expense
incurred is not deductible for income tax purposes. Excluding the effects of
merger expense, the Company's effective tax rate for the six months ended
June 30, 1997 was 30%, compared to 33% for the same period in 1998.
Net earnings increased 58% to $34.7 million for the first six months of 1998
from $22.0 million for the same period in 1997. This increase was due to
increased agency income which counteracted the lower underwriting profits
from the insurance company subsidiaries, and the reduction in merger expense
which was $7.2 million higher in the first six months of 1997 compared to the
same period in 1998 due to the combination with AVEMCO Corporation effective
June 17, 1997.
Diluted earnings per share increased 54% to $0.71 for the first six months of
1998 from $0.46 for the same period of 1997. This reflects the increase in
net earnings, offset by a 3% increase in weighted average shares outstanding
due to shares issued for acquisitions and the exercise of options.
The Company's insurance company subsidiaries' GAAP combined ratio was 85.1%
for the first six months of 1998, as compared to 81.5% for the same period in
1997.
The Company's book value per share was $8.28 as of June 30, 1998, up from
$7.66 as of December 31, 1997.
ACQUISITIONS
The Company completed the acquisition of Kachler on February 27, 1998
(pooling-of-interests), and of GIR on February 28, 1998 (purchase). The
Company's historical financial statements have been restated to include the
accounts and operations of Kachler for all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash and investment portfolio increased $30.2
million or 6% since December 31, 1997, and totaled $561.3 million as of June
30, 1998, of which $140.2 million was cash and short-term investments. Total
assets increased to $1.4 billion as of June 30, 1998, from $1.2 billion as of
December 31, 1997. The Company believes that its operating cash flows,
short-term investments and the bank lines of credit will provide sufficient
sources of liquidity to meet its anticipated needs for the foreseeable future.
The overall increase in activities at the insurance company subsidiaries
resulted in increases in loss reserves and unearned premiums since December
31, 1997. These increases combined with the purchases of additional
reinsurance caused reinsurance ceded balances to increase even faster. The
increase in agency activity resulted in increased amounts in both premium and
claims receivables and payables.
16
<PAGE>
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for fiscal years beginning after December 15, 1997,
but the information is first required in year end financial statements. SFAS
No. 131 relates to the presentation of segment information in a complete
set of financial statements. It will have no effect on the Company's net
earnings, shareholders' equity or cash flows. The Company does not expect to
change its definition of segment when SFAS No. 131 is adopted.
YEAR 2000
The Year 2000 issue is the result of date coding within computer programs
that were written using just two digits rather than four digits to define the
applicable year. If not corrected, these date codes could cause computers to
fail to calculate dates beyond 1999 and as a result, computer applications
could fail or create erroneous results by or at the year 2000.
The Company, together with outside vendors engaged by the Company, has made
assessments of the Company's potential Year 2000 exposure related to its
computerized information systems. Because of the nature of the Company's
operations, many of its computerized information systems will be required to
process information which includes post-year 2000 date coding well in advance
of January 1, 2000. The Company has substantially completed its overall
assessment of Year 2000 issues associated with its current systems and is
currently engaged in efforts to remediate potential Year 2000 exposure with
respect to these systems, including the identification, selection and
implementation of a major new Year 2000 compliant software system at an
insurance company subsidiary. Following the remediation phase, the Company
engages in testing of the applicable systems in order to verify Year 2000
compliance. The Company utilizes a variety of remediation and testing
methods in connection with its Year 2000 compliance efforts. Management
believes that the Company's compliance plan is progressing such that Year
2000 exposures will be mitigated prior to any critical dates and in late 1998
with respect to the insurance company subsidiary referenced above. To date,
no material information technology projects of the Company have been delayed
as a result of the Company's Year 2000 compliance efforts.
The Company has also made assessments of the potential Year 2000 exposure
associated with its embedded technology systems, such as telephone systems,
environmental control systems and elevators. Based upon such assessments,
the Company does not believe that it has significant Year 2000 exposure with
respect to such embedded technology systems.
The Company is currently involved in discussions with important suppliers,
business partners, customers and other third parties to determine the extent
to which the Company may be vulnerable to the failure of these parties to
identify and correct their own Year 2000 issues. In the ongoing acquisition
of software and hardware installations, the Company generally requires that
its vendors certify the Year 2000 compliance of acquired products. The
Company believes that its own software vendor subsidiary's products are Year
2000 compliant.
The Company is utilizing and will continue to utilize both internal and
external resources to reprogram or replace its computer systems such that the
reprogrammed or replacement systems can be expected to be Year 2000 compliant
in advance of respective critical dates. During the eighteen months ended
June 30, 1998, the Company expensed $200,000 with respect to Year 2000
compliance and capitalized $3.3 million with respect to new software
purchases and installations which are Year 2000 compliant. The total
estimated remaining cost of modification of existing software and new Year
2000 compliant systems is $1.7 million which includes $1.4 million
attributable to the planned purchase and implementation of new systems,
principally to complete the replacement of the above mentioned insurance
company subsidiary's system. The cost of this new software is being
capitalized. The remaining estimated cost of $300,000 will be expensed as
incurred over the next eighteen months. The level of expense anticipated in
connection with Year 2000 issues is not expected to have a material effect on
the Company's results of operations. The costs of the Company's Year 2000
compliance efforts are expected to be funded out of operating cash flow,
which is sufficient to provide the funding.
17
<PAGE>
In addition to its own systems and third-party relationships, the Company may
also have exposure in the property and casualty operations of its insurance
company subsidiaries to claims asserted under certain insurance policies for
damages caused by an insured's failure to address its own Year 2000 computer
problems. The Company is presently evaluating the potential insurance
exposures arising from Year 2000 problems and is assessing what modifications
may be appropriate in the insurance coverages currently offered by such
subsidiaries in light of coverage issues associated with the Year 2000
problem.
The dates of expected completion and the costs of the Company's Year 2000
remediation efforts are based on management's estimates, which were derived
utilizing assumptions of future events, including the availability of certain
resources, third party remediation plans and other factors. There can be no
guarantee that these estimates will be achieved, and if the actual timing and
costs for the Company's Year 2000 remediation program differ materially from
those anticipated, the Company's financial results and financial condition
could be significantly affected. Additionally, despite testing by the
Company, the Company's systems may contain undetected errors or defects
associated with Year 2000 date functions. The inability of the Company to
correctly identify significant Year 2000 issues for remediation or to
complete its Year 2000 remediation and testing efforts prior to respective
critical dates, as well as the failure of third parties with whom the Company
has an important relationship to identify, remediate and test their own Year
2000 issues and the resulting disruption which could occur in the Company's
systems and the inability of the Company to adequately address coverage
issues related to its insurance company subsidiaries, could have material
adverse effects on the Company's business, results of operations and
financial condition.
THIS REPORT ON FORM 10-Q (THE "REPORT") CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED
THEREBY. INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS
NECESSARILY INVOLVE RISKS AND UNCERTAINTY, INCLUDING, WITHOUT LIMITATION, THE
RISK OF A SIGNIFICANT NATURAL DISASTER, THE INABILITY OF THE COMPANY TO
REINSURE CERTAIN RISKS, THE ADEQUACY OF ITS LOSS RESERVES, THE FINANCIAL
VIABILITY OF ITS REINSURERS, THE EXPANSION OR CONTRACTION IN ITS VARIOUS
LINES OF BUSINESS, THE IMPACT OF INFLATION, THE IMPACT OF YEAR 2000 ISSUES,
CHANGING LICENSING REQUIREMENTS AND REGULATIONS IN THE UNITED STATES AND IN
FOREIGN COUNTRIES, THE ABILITY OF THE COMPANY TO INTEGRATE ITS RECENTLY
ACQUIRED BUSINESSES, THE EFFECT OF PENDING OR FUTURE ACQUISITIONS AS WELL AS
ACQUISITIONS WHICH HAVE RECENTLY BEEN CONSUMMATED, GENERAL MARKET CONDITIONS,
COMPETITION, LICENSING AND PRICING. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS, INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT THAT
ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS OR
ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING, WITHOUT LIMITATION,
SUCH THINGS AS FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE
THEREOF), BUSINESS STRATEGY AND MEASURES TO IMPLEMENT SUCH STRATEGY,
COMPETITIVE STRENGTHS, GOALS, EXPANSION AND GROWTH OF THE COMPANY'S
BUSINESSES AND OPERATIONS, PLANS, REFERENCES TO FUTURE SUCCESS, AS WELL AS
OTHER STATEMENTS WHICH INCLUDES WORDS SUCH AS "ANTICIPATE," "BELIEVE,"
"PLAN," "ESTIMATE," "EXPECT," AND "INTEND" AND OTHER SIMILAR EXPRESSIONS,
CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT
THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN
ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD OVER TIME PROVE TO BE INACCURATE
AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS REPORT WILL THEMSELVES PROVE TO BE ACCURATE. IN LIGHT OF
THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS
INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS
A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND
PLANS OF THE COMPANY WILL BE ACHIEVED.
18
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1998, the Company held its 1998 Annual Meeting of Shareholders.
At such time the following items were submitted to a vote of shareholders
through the solicitation of proxies:
(a) Election of Directors.
The following persons were elected to serve on the Board of Directors
until the 1999 Annual Meeting of Shareholders or until their
successors have been duly elected and qualified. The Directors
received the votes set forth opposite their respective names:
<TABLE>
WITHHELD
NAME FOR AGAINST AUTHORITY
---------- --- ------- ---------
<S> <C> <C> <C>
Stephen L. Way 37,665,623 0 587,275
James M. Berry 37,665,623 0 587,275
Frank J. Bramanti 37,664,874 0 588,024
Patrick B. Collins 37,665,623 0 587,275
J. Robert Dickerson 37,665,623 0 587,275
Edwin H. Frank, III 37,665,038 0 587,860
Allan W. Fulkerson 37,665,122 0 587,776
Walter J. Lack 37,665,623 0 587,275
Stephen J. Lockwood 37,665,623 0 587,275
John N. Molbeck, Jr. 37,665,038 0 587,860
Peter B. Smith, Jr. 37,665,200 0 587,698
Hugh T. Wilson 37,665,623 0 587,275
</TABLE>
(b) Shareholders of the Company were requested to approve the amendment of the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 100,000,000 to 250,000,000 shares. Such
amendment was approved by the shareholders, who voted 31,281,741 shares in
favor, 6,895,004 shares against, and 76,153 shares who abstained or
withheld authority.
(c) Shareholders of the Company were requested to approve the amendment of the
Company's 1997 Flexible Incentive Plan to increase the number of shares of
Common Stock for which options may be granted thereunder from 2,000,000 to
4,000,000 and to modify the terms of the definition of "Change of Control"
under the Plan. Such amendment was approved by the shareholders, who voted
20,420,295 shares in favor, 11,686,684 shares against, and 6,145,919
shares who abstained or withheld authority to vote.
(d) Shareholders of the Company were requested to approve the amendment of the
Company's 1996 Nonemployee Director Stock Option Plan to increase the
number of shares of Common Stock for which options may be granted
thereunder from 250,000 to 450,000, to increase the annual grant of options
to nonemployee Directors from 5,000 to 10,000, to establish the exercise
price for options under the Plan as the average daily closing price of the
Company's Common Stock on the New York Stock Exchange for the last ten
trading days of each calendar year, to extend the term of the 1996 Plan,
and to provide for options to be granted to new Directors. Such amendment
was approved by the shareholders, who voted 28,527,819 shares in favor,
3,631,587 shares against, and 6,093,492 shares who abstained or withheld
authority.
19
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
27 - EDGAR Financial Data Schedule - June 30, 1998.
27.1 - EDGAR Financial Data Schedule - Restated June 30, 1997.
(b) Reports on Form 8-K:
None.
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.
HCC Insurance Holdings, Inc.
-----------------------------------------
(Registrant)
August 13, 1998 /s/ John N. Molbeck, Jr.
--------------- -----------------------------------------
(Date) John N. Molbeck, Jr., President
August 13, 1998 /s/ Edward H. Ellis, Jr.
--------------- -----------------------------------------
(Date) Edward H. Ellis, Jr., Senior Vice President
and Chief Financial Officer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 415,411,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 5,163,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 552,178,000
<CASH> 9,080,000
<RECOVER-REINSURE> 226,066,000
<DEFERRED-ACQUISITION> (1,301,000)
<TOTAL-ASSETS> 1,435,141,000
<POLICY-LOSSES> 318,561,000
<UNEARNED-PREMIUMS> 205,712,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 88,000,000
0
0
<COMMON> 47,861,000
<OTHER-SE> 348,443,000
<TOTAL-LIABILITY-AND-EQUITY> 1,435,141,000
69,367,000
<INVESTMENT-INCOME> 14,560,000
<INVESTMENT-GAINS> 125,000
<OTHER-INCOME> 62,889,000
<BENEFITS> 43,803,000
<UNDERWRITING-AMORTIZATION> 4,570,000
<UNDERWRITING-OTHER> 43,522,000
<INCOME-PRETAX> 51,767,000
<INCOME-TAX> 17,046,000
<INCOME-CONTINUING> 34,721,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,721,000
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.71
<RESERVE-OPEN> 119,634,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 118,075,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE HAS BEEN RESTATED DUE TO THE COMPANY'S MERGER WITH KACHLER,
WHICH WAS ACCOUNTED FOR AS A POOLING-OF-INTERESTS. SEE NOTES 1 AND 3 TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM
10-Q FOR THE QUARTER ENDED JUNE 30, 1998. THIS SCHEDULE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 390,283,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,914,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 505,510,000
<CASH> 1,510,000
<RECOVER-REINSURE> 148,789,000
<DEFERRED-ACQUISITION> 6,697,000
<TOTAL-ASSETS> 1,096,098,000
<POLICY-LOSSES> 245,497,000
<UNEARNED-PREMIUMS> 164,337,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 79,476,000
0
0
<COMMON> 47,182,000
<OTHER-SE> 288,901,000
<TOTAL-LIABILITY-AND-EQUITY> 1,096,098,000
92,809,000
<INVESTMENT-INCOME> 12,733,000
<INVESTMENT-GAINS> (294,000)
<OTHER-INCOME> 39,554,000
<BENEFITS> 56,070,000
<UNDERWRITING-AMORTIZATION> 5,727,000
<UNDERWRITING-OTHER> 46,755,000
<INCOME-PRETAX> 33,440,000
<INCOME-TAX> 11,423,000
<INCOME-CONTINUING> 22,017,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,017,000
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.46
<RESERVE-OPEN> 117,283,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 122,953,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
