<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended JUNE 30, 1997
[ ] 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 8, 1997, there were 45,934,708 shares of Common Stock, $1 par
value issued and outstanding.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
INDEX
PAGE NO.
--------
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Earnings
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996 4
Condensed Consolidated Statements of Earnings
Three Months Ended June 30, 1997 and
Three Months Ended June 30, 1996 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity
Six Months Ended June 30, 1997 and
Year Ended December 31, 1996 6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis 15
Part II. OTHER INFORMATION 18
2
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
---------
Condensed Consolidated Balance Sheets
(Unaudited)
---------
<TABLE>
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale:
Fixed income securities, at market
(cost: 1997 $383,719,000; 1996 $371,844,000) $ 390,283,000 $377,555,000
Marketable equity securities, at market
(cost: 1997 $11,394,000; 1996 $12,661,000) 11,141,000 12,477,000
-------------- ------------
Total investments 401,424,000 390,032,000
Cash and short-term investments:
Cash 1,106,000 9,171,000
Short-term investments, at cost, which
approximates market 103,313,000 78,693,000
-------------- ------------
Total cash and short-term investments 104,419,000 87,864,000
Restricted cash and cash investments 49,458,000 44,363,000
Reinsurance recoverables 148,433,000 132,328,000
Premium, claims and other receivables 222,050,000 167,168,000
Ceded unearned premium 77,969,000 71,758,000
Deferred policy acquisition costs 25,131,000 24,809,000
Property and equipment, net 17,010,000 16,665,000
Deferred income tax 10,739,000 12,636,000
Other assets, net 37,640,000 16,476,000
-------------- ------------
TOTAL ASSETS $1,094,273,000 $964,099,000
-------------- ------------
-------------- ------------
LIABILITIES
Loss and loss adjustment expense payable $ 245,497,000 $229,049,000
Reinsurance balances payable 59,190,000 45,449,000
Unearned premium 168,646,000 156,268,000
Deferred ceding commissions 18,022,000 16,901,000
Premium and claims payable 171,601,000 123,118,000
Notes payable 79,226,000 72,917,000
Accounts payable and accrued liabilities 20,973,000 23,984,000
-------------- ------------
Total liabilities 763,155,000 667,686,000
SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value; 100,000,000 shares authorized,
(issued and outstanding: 1997 45,582,329 shares;
1996 47,416,643 shares) 45,582,000 47,417,000
Additional paid-in capital 150,291,000 139,971,000
Retained earnings 131,238,000 162,163,000
Unrealized investment gain, net 4,133,000 3,623,000
Foreign currency translation adjustment (126,000) (91,000)
Treasury stock (1996 3,301,741 shares) - (56,670,000)
-------------- ------------
Total shareholders' equity 331,118,000 296,413,000
-------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,094,273,000 $964,099,000
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Earnings
(Unaudited)
--------
<TABLE>
For the six months ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
REVENUE
Net earned premium $ 92,809,000 $ 84,242,000
Fee and commission income 32,199,000 26,131,000
Net investment income 12,729,000 11,434,000
Computer products and services 3,601,000 4,098,000
Net realized investment gain (loss) (294,000) 5,207,000
------------ ------------
Total revenue 141,044,000 131,112,000
EXPENSE
Loss and loss adjustment expense 56,070,000 53,657,000
Operating expense:
Policy acquisition costs 26,088,000 23,130,000
Compensation expense 20,153,000 19,251,000
Other operating expense 15,575,000 12,554,000
Merger expense 7,277,000 26,160,000
Ceding commissions (20,361,000) (16,346,000)
------------ ------------
Net operating expense 48,732,000 64,749,000
Interest expense 2,810,000 2,664,000
------------ ------------
Total expense 107,612,000 121,070,000
------------ ------------
Earnings before income tax provision 33,432,000 10,042,000
Income tax provision (benefit) 11,419,000 (1,015,000)
------------ ------------
NET EARNINGS (LOSS) $ 22,013,000 $ 11,057,000
------------ ------------
------------ ------------
EARNINGS PER SHARE DATA:
Primary:
Earnings per share $ 0.48 $ 0.25
------------ ------------
------------ ------------
Weighted average shares outstanding 46,053,000 44,330,000
------------ ------------
------------ ------------
Fully diluted:
Earnings per share $ 0.48 $ 0.25
------------ ------------
------------ ------------
Weighted average shares outstanding 46,146,000 44,410,000
------------ ------------
------------ ------------
Cash dividends declared, per share $ 0.06 $ 0.02
------------ ------------
------------ ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Earnings
(Unaudited)
--------
<TABLE>
For the three months ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
REVENUE
Net earned premium $48,134,000 $41,953,000
Fee and commission income 16,142,000 13,750,000
Net investment income 6,526,000 5,742,000
Computer products and services 1,955,000 2,180,000
Net realized investment gain (loss) (238,000) 3,881,000
----------- -----------
Total revenue 72,519,000 67,506,000
EXPENSE
Loss and loss adjustment expense 29,452,000 26,421,000
Operating expense:
Policy acquisition costs 11,845,000 11,137,000
Compensation expense 10,276,000 10,007,000
Other operating expense 8,733,000 7,148,000
Merger expense 5,404,000 24,984,000
Ceding commissions (9,366,000) (8,772,000)
----------- -----------
Net operating expense 26,892,000 44,504,000
Interest expense 1,435,000 1,408,000
----------- -----------
Total expense 57,779,000 72,333,000
----------- -----------
Earnings (loss) before income tax provision 14,740,000 (4,827,000)
Income tax provision (benefit) 5,758,000 (4,354,000)
----------- -----------
NET EARNINGS $ 8,982,000 $ (473,000)
----------- -----------
----------- -----------
EARNINGS PER SHARE DATA:
Primary:
Earnings per share $ 0.19 $ (0.01)
----------- -----------
----------- -----------
Weighted average shares outstanding 46,383,000 44,263,000
----------- -----------
----------- -----------
Fully diluted:
Earnings per share $ 0.19 $ (0.01)
----------- -----------
----------- -----------
Weighted average shares outstanding 46,482,000 44,279,000
----------- -----------
----------- -----------
Cash dividends declared, per share $ 0.03 $ 0.02
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1997 and
for the year ended December 31, 1996
(Unaudited)
----------
<TABLE>
Foreign
Additional Unrealized currency Total
Common paid-in Retained investment translation Treasury shareholders'
Stock capital earnings gain (loss) adjustment stock equity
----------- ------------ ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 $18,460,000 $138,084,000 $140,341,000 $ 9,296,000 $(186,000) $(50,570,000) $255,425,000
27,688,869 shares of Common Stock
issued for 150% stock dividend 27,689,000 (27,689,000) - - - - -
132,108 shares of Common Stock
issued for exercise exercise of
options, including tax benefit
of $366,000 132,000 837,000 - - - - 969,000
Net earnings - - 38,530,000 - - - 38,530,000
Cash dividends declared,
$0.06 per share - - (2,104,000) - - - (2,104,000)
Compensatory grant of pooled
company stock prior to merger - 23,682,000 - - - - 23,682,000
Dividends to shareholders of
pooled companies prior to merger - - (7,705,000) - - - (7,705,000)
Capitalize undistributed
earnings of pooled company upon
conversion from S Corporation - 3,840,000 (3,840,000) - - - -
1,136,400 shares of Common Stock
issued for NASRA combination 1,136,000 - (1,452,000) - - - (316,000)
Repurchase of 520,000 shares of
Common Stock by pooled company
prior to merger - - - - - (7,909,000) (7,909,000)
Unrealized investment loss on
fixed income securities, net of
deferred tax benefit of $857,000 - - - (1,594,000) - - (1,594,000)
Unrealized investment loss on
marketable equity securities,
net of deferred tax benefit
of $2,144,000 - - - (4,079,000) - - (4,079,000)
Other - 1,217,000 (1,607,000) - 95,000 1,809,000 1,514,000
----------- ------------ ------------ ----------- --------- ------------ ------------
BALANCE AS OF
DECEMBER 31, 1996 $47,417,000 $139,971,000 $162,163,000 $ 3,623,000 $ (91,000) $(56,670,000) $296,413,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1997 and
for the year ended December 31, 1996
(Unaudited)
(continued)
----------
<TABLE>
Foreign
Additional Unrealized currency Total
Common paid-in Retained investment translation Treasury shareholders'
Stock capital earnings gain (loss) adjustment stock equity
----------- ------------ ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $47,417,000 $139,971,000 $162,163,000 $ 3,623,000 $ (91,000) $(56,670,000) $296,413,000
392,652 shares of Common Stock
issued for exercise of options,
including tax benefit of
$881,000 392,000 4,448,000 - - - - 4,840,000
266,667 shares of Common Stock
issued for TRM acquisition 267,000 6,700,000 - - - - 6,967,000
725,000 shares of Common Stock
issued for Interworld
combination 725,000 - (238,000) - - - 487,000
98,003 shares of Common Stock
issued for MGU acquisition 98,000 2,602,000 - - - - 2,700,000
Net earnings - - 22,013,000 - - - 22,013,000
Cash dividends declared,
$0.06 per share - - (2,453,000) - - - (2,453,000)
Repurchase of 14,895 shares of
Common Stock by pooled company
prior to merger - - - - - (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 -
Unrealized investment gain on
fixed income securities, net
of deferred tax charge of
$298,000 - - - 555,000 - - 555,000
Unrealized investment loss on
marketable equity securities,
net of deferred tax benefit
of $24,000 - - - (45,000) - - (45,000)
Other - - - - (35,000) - (35,000)
----------- ------------ ------------ ----------- --------- ------------ ------------
BALANCE AS OF JUNE 30, 1997 $45,582,000 $150,291,000 $131,238,000 $ 4,133,000 $(126,000) $ - $331,118,000
----------- ------------ ------------ ----------- --------- ------------ ------------
----------- ------------ ------------ ----------- --------- ------------ ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Cash Flows
(Unaudited)
--------
<TABLE>
For the six months ended June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,013,000 $ 11,057,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in reinsurance recoverables (16,105,000) (20,115,000)
Change in premium, claims and other receivables (54,882,000) (14,138,000)
Change in ceded unearned premium (6,211,000) 39,000
Change in deferred income tax, net of tax effect of
unrealized gain or loss 1,623,000 (9,837,000)
Change in loss and loss adjustment expense payable 16,448,000 16,906,000
Change in reinsurance balances payable 13,741,000 (7,970,000)
Change in unearned premium 12,378,000 16,080,000
Change in premium and claims payable, net of
restricted cash 43,388,000 8,722,000
Net realized investment (gain) loss 294,000 (5,207,000)
Non cash compensation expense - 23,841,000
Depreciation and amortization expense 2,324,000 1,766,000
Other, net (4,038,000) 4,700,000
-------------- --------------
Cash provided by operating activities 30,973,000 25,844,000
Cash flows from investing activities:
Sales of fixed income securities 15,394,000 17,222,000
Maturity or call of fixed income securities 8,390,000 7,333,000
Sales of equity securities 8,329,000 22,693,000
Cash paid for acquisitions (10,150,000) -
Cost of investments acquired (43,446,000) (41,691,000)
Purchases of property and equipment (1,958,000) (1,187,000)
-------------- --------------
Cash provided (used) by investing activities (23,441,000) 4,370,000
Cash flows from financing activities:
Proceeds from notes payable 10,406,000 12,000,000
Sale of Common Stock 4,840,000 741,000
Payments on notes payable (4,097,000) (14,423,000)
Dividends paid (1,802,000) (5,719,000)
Repurchase Common Stock (324,000) (6,597,000)
-------------- --------------
Cash provided (used) by financing activities 9,023,000 (13,998,000)
-------------- --------------
Net change in cash and short-term investments 16,555,000 16,216,000
Cash and short-term investments at beginning
of period 87,864,000 78,437,000
-------------- --------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 104,419,000 $ 94,653,000
-------------- --------------
-------------- --------------
Supplemental cash flow information:
Interest paid $ 3,328,000 $ 3,607,000
-------------- --------------
-------------- --------------
Income tax paid $ 12,635,000 $ 3,945,000
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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 "HCCH") and its subsidiaries
include domestic and foreign property and casualty insurance companies and
managing general underwriters, surplus lines insurance brokers 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 condensed consolidated
financial statements for periods reported should be read in conjunction
with the annual consolidated financial statements and notes related
thereto. The condensed consolidated balance sheet as of December 31, 1996,
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.
On June 17, 1997, the Company issued 8,511,625 shares of its Common Stock
and 604,575 options to purchase its Common Stock to acquire all of the
outstanding common stock and options of AVEMCO Corporation ("AVEMCO").
This business combination 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 AVEMCO for all periods
presented. (See prior period adjustment below.)
INCOME TAX
For the six months ended June 30, 1997 and 1996, 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. In addition, during
1996, prior to its merger with the Company, LDG Management Company
Incorporated ("LDG") was an S Corporation and thus exempt from Federal
income tax until May 21, 1996.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding during the period divided into net
earnings. Weighted average shares outstanding have been adjusted to
include shares and options issued in connection with the combination of
AVEMCO. Outstanding common stock options, when dilutive, are considered to
be common stock equivalents for the purpose of this calculation. The
treasury stock method is used to calculate common stock equivalents due to
options.
9
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
PRIOR PERIOD ADJUSTMENTS OF AVEMCO
The 1996 and prior financial statements of AVEMCO, which was acquired
in 1997 in a transaction accounted for as a pooling-of-interests (see
note 3), have been restated prior to their inclusion in the Company's
historical consolidated financial statements to reflect certain prior
period adjustments discovered in 1997. The adjustments relate to a
restatement of the method of accounting for certain short-duration
insurance contracts and to the correction of accounting errors. The
adjustments had the following effects with respect to amounts previously
reported in AVEMCO's 1996 and prior consolidated financial statements.
<TABLE>
For the three For the six
months ended months ended
June 30, 1996 June 30, 1996
------------- -------------
<S> <C> <C>
Earnings before income tax provision as previously reported $ 6,420,000 $ 9,829,000
Effects of adjustments (1,585,000) (2,412,000)
------------ ------------
EARNINGS BEFORE INCOME TAX PROVISION, AS RESTATED $ 4,835,000 $ 7,417,000
------------ ------------
------------ ------------
Net earnings as previously reported $ 4,702,000 $ 7,389,000
Effects of adjustments (1,115,000) (1,736,000)
------------ ------------
NET EARNINGS, AS RESTATED $ 3,587,000 $ 5,653,000
------------ ------------
------------ ------------
</TABLE>
AVEMCO's retained earnings as of December 31, 1995 was decreased by
$1,793,000, net of tax effect of $489,000, as a result of the
adjustments.
10
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
PRIOR PERIOD ADJUSTMENTS OF AVEMCO, CONTINUED
The prior period adjustments to AVEMCO's financial statements affected the
unaudited previously reported amounts for the Company as shown below:
<TABLE>
For the three For the six
months ended months ended
June 30, 1996 June 30, 1996
------------- -------------
<S> <C> <C>
Earnings (loss) before income tax
provision as previously reported $(3,242,000) $12,454,000
Effect of adjustments (1,585,000) (2,412,000)
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAX PROVISIONS,
AS RESTATED $(4,827,000) $10,042,000
----------- -----------
----------- -----------
Net earnings as previously reported $ 642,000 $12,793,000
Effects of adjustments (1,115,000) (1,736,000)
----------- -----------
NET EARNINGS (LOSS), AS RESTATED $ (473,000) $11,057,000
----------- -----------
----------- -----------
Primary earnings per share as previously reported $ 0.01 $ 0.29
Effects of adjustments (0.02) (0.04)
----------- -----------
PRIMARY EARNINGS (LOSS) PER SHARE, AS RESTATED $ (0.01) $ 0.25
----------- -----------
----------- -----------
Fully diluted earnings per share as previously reported $ 0.01 $ 0.29
Effects of adjustments (0.02) (0.04)
----------- -----------
FULLY DILUTED EARNINGS (LOSS) PER SHARE, AS RESTATED $ (0.01) $ 0.25
----------- -----------
----------- -----------
</TABLE>
EFFECTS ON RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share". SFAS No. 128 is effective for fiscal periods ending after
December 15, 1997. Early application is not permitted. SFAS No. 128
modifies the denominator to be used in the earnings per share
calculations, and requires additional disclosures of the calculations.
The statement will have no effect on the Company's net earnings,
shareholders' equity or cash flows and an insignificant effect on
earnings per share.
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". Both statements are
effective for fiscal years beginning after December 15, 1997. These
SFAS's require that additional information be included in a complete set
of financial statements, but will have no effect on the Company's net
earnings, shareholders' equity or cash flows.
11
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
RECLASSIFICATIONS
Certain amounts in the 1996 condensed consolidated financial statements
have been reclassified to conform to the 1997 presentation. Such
reclassifications had no effect on the Company's shareholders' equity, net
earnings 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 unrelated
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 subsidiaries but
issued by other unrelated companies in order to satisfy local licensing
or other requirements, predominantly on foreign business or as reinsurance
of captives. The following table represents the approximate 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, 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 six months ended June 30, 1996:
Direct business $ 97,197,000 $ 93,218,000 $ 58,993,000
Reinsurance assumed 80,370,000 68,395,000 54,719,000
Reinsurance ceded (77,337,000) (77,371,000) (60,055,000)
------------ ------------ ------------
NET AMOUNTS $100,230,000 $ 84,242,000 $ 53,657,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
12
<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, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Reinsurance recoverable on paid losses $ 28,364,000 $ 22,977,000
Reinsurance recoverable on outstanding losses 111,206,000 102,350,000
Reinsurance recoverable on IBNR 11,338,000 9,416,000
Reserve for uncollectible reinsurance (2,475,000) (2,415,000)
------------ ------------
TOTAL REINSURANCE RECOVERABLES $148,433,000 $132,328,000
------------ ------------
------------ ------------
</TABLE>
The insurance company subsidiaries require reinsurers not authorized by
their respective states of domicile to collateralize their reinsurance
obligations to the Company with letters of credit or cash deposits. At
June 30, 1997, the Company held letters of credit and cash deposits in the
amounts of $90.1 million and $8.5 million, respectively, to collateralize
certain reinsurance balances. The Company has established a reserve of
$2.5 million as of June 30, 1997, 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
their reinsurance with a diverse group of financially sound companies.
(3) ACQUISITIONS
TRM
On January 24, 1997, the Company acquired all of the occupational
accident business of the TRM International, Inc. group of companies in
exchange for 266,667 shares of the Company's Common Stock and $6.55
million in cash. This acquisition has been accounted for as a purchase
and results of operations of the business acquired has been included in
the consolidated statements of earnings beginning in January 1997. Cost
in excess of net assets acquired (goodwill) of approximately $13.5
million was recorded from this acquisition. Goodwill is being amortized
over twenty years.
INTERWORLD
On April 30, 1997, the Company acquired all of the outstanding shares of
Interworld Corporation in exchange for 725,000 shares of the Company's
Common Stock. This combination has been accounted for as a
pooling-of-interests. However, the Company's consolidated financial
statements have not been restated due to immateriality.
AVEMCO
On June 17, 1997, the Company issued 8,511,625 shares of its Common
Stock and 604,575 options to purchase its Common Stock to acquire all of
the outstanding common stock and options of AVEMCO. 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 AVEMCO for
all periods presented. (See note 1.)
13
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(3) ACQUISITIONS, CONTINUED
AVEMCO, CONTINUED
Separate total revenue and net earnings amounts of the merged entities are
presented for the periods prior to the merger in the following table:
<TABLE>
For the six For the six
months ended months ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Total revenue:
HCCH $ 81,598,000 $ 75,260,000
AVEMCO 59,446,000 55,852,000
------------ ------------
TOTAL REVENUE $141,044,000 $131,112,000
------------ ------------
------------ ------------
Net earnings:
HCCH $ 21,295,000 $ 5,404,000
AVEMCO 718,000 5,653,000
------------ ------------
NET EARNINGS $ 22,013,000 $ 11,057,000
------------ ------------
------------ ------------
</TABLE>
MGU
On June 26, 1997, the Company acquired all of the outstanding shares of
Managed Group Underwriting, Inc. in exchange for 98,003 shares of the
Company's Common Stock and a cash payment of $3.6 million. This
acquisition has been accounted for as a purchase and the results of
operations will be included in the consolidated statements of earnings
beginning in July, 1997. Cost in excess of net assets acquired
(goodwill) of approximately $6.2 million was recorded from this
acquisition. Goodwill will be amortized over twenty years.
CONTINENTAL
On July 31, 1997, the Company acquired all of the outstanding shares of
Continental Aviation Underwriters, Inc. in exchange for 17,354 shares of
the Company's Common Stock and a cash payment of $2.8 million. This
acquisition will be accounted for as a purchase and the results of
operations will be included in the consolidated statements of earnings
beginning in August, 1997.
SOUTHERN
On August 8, 1997, the Company acquired all of the outstanding shares of
Southern Aviation Insurance Underwriters, Inc. and Aviation Claims
Administrators, Inc. in exchange for 225,000 shares of the Company's
Common Stock. These combinations will be accounted for as
poolings-of-interests. However, the Company's consolidated financial
statements will not be restated due to immateriality.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company completed the acquisition of Interworld Corporation on April 30,
1997 (pooling-of-interests), of AVEMCO Corporation on June 17, 1997
(pooling-of-interests), of Managed Group Underwriting, Inc. on June 30, 1997
(purchase), of Continental Aviation Underwriters, Inc. on July 31, 1997
(purchase) and Southern Aviation Insurance Underwriters, Inc. on August 8,
1997 (pooling-of-interests).
Amounts in Management's Discussion and Analysis for 1996 have been restated
for prior period adjustments to AVEMCO's financial statements as discussed in
note 1 to the notes to condensed consolidated financial statements.
THREE MONTHS ENDED JUNE 30, 1997 VERSUS THREE MONTHS ENDED JUNE 30, 1996.
Gross written premium decreased to $90.1 million for the second quarter of
1997 from $100.2 million for the same period in 1996 due primarily to
reductions in property business as competition increases however, aviation
and accident and health premium increased during the quarter. Net written
premium for the second quarter of 1997 increased 10% to $54.1 million from
$49.1 million for the same period in 1996 due to increases in aviation and
accident and health where the Company's retentions are greater due to the
lack of catastrophe exposures. Net earned premium increased 15% to $48.1
million for the second quarter of 1997 compared to $42.0 million for the same
period in 1996.
Going forward, quarterly gross written premium is anticipated to remain at or
near the second quarter of 1997 level. However, net written premium and net
earned premium should decrease approximately 30% due to the implementation of
a significant reinsurance program covering AVEMCO's business since the
acquisition, which should have a positive effect on net earnings.
Fee and commission income increased 17% to $16.1 million for the second
quarter of 1997 compared to $13.8 million for the same period in 1996 due to
the increased agency activity in light of recent acquisitions. The Company
expects fee and commission income to continue to increase during the
remainder of 1997 due to the effects of recent acquisitions and internal
growth. Net investment income increased 14% to $6.5 million for the second
quarter of 1997 compared to $5.7 million for the same period in 1996
reflecting a higher level of investments. Total revenue increased 7% to
$72.5 million.
Net realized investment losses from sales of equity securities were $8,000
during the second quarter of 1997, compared to gains of $4.1 million for the
same period in 1996. During 1996, the Company systematically liquidated the
majority of its equity portfolio. Net realized investment losses from
disposition of fixed income securities were $230,000 during the second
quarter of 1997, compared to losses of $196,000 for the same period in 1996.
Loss and LAE increased $3.0 million during the second quarter of 1997, to
$29.5 million, reflecting the increase in business, as the Company's GAAP
loss ratio remained constant at 61%.
Other operating expense increased 22% to $8.7 million for the second quarter
of 1997. These expenses reflect increased expenditures required to meet the
overall growth in business. Goodwill amortization expense was $402,000 for
the second quarter of 1997, compared to $171,000 for the second quarter of
1996 and is included in other operating expense. Currency conversion losses
amounted to $323,000 for the second quarter of 1997, compared to losses of
$44,000 during the same period in 1996.
Merger expense represents non-recurring items incurred to consummate the
acquisitions and mergers which are or will be accounted for as
poolings-of-interests. The amounts incurred during the second quarter of
1996 were due to the combination with LDG and included a compensatory stock
grant of $24.0 million to certain key LDG employees immediately prior to the
merger. The amounts incurred during the second quarter of 1997 were due to
the combinations with AVEMCO Corporation and Interworld Corporation.
15
<PAGE>
Income tax expense was $5.8 million for the second quarter of 1997, compared
to an income tax benefit of $4.4 million for the second quarter of 1996. The
1996 amount included a deferred tax benefit of $9.6 million which was
recorded in connection with the compensatory stock grant to certain key LDG
employees. Also, as an S Corporation, LDG was exempt from Federal income
taxes through May 21, 1996. Had LDG been subject to Federal income taxes
during that period, additional income tax expense of $1.0 million would have
been recorded for the second quarter of 1996.
Net earnings increased to $9.0 million for the second quarter of 1997 from a
loss of $473,000 for the same period in 1996. This increase was principally
a result of higher underwriting profits, increased fee and commission income
and the non-recurring compensation charge incurred during 1996.
Earnings per share increased to $0.19 for the second quarter of 1997 from a
loss of $0.01 for the second quarter of 1996. This reflects the increase in
net earnings, offset by a 5% increase in weighted average shares outstanding.
The Company's insurance company subsidiaries' statutory combined ratio was
78.7% for the second quarter of 1997, as compared to 78.4% for the same
period in 1996. The Company's combined ratio remains significantly better
than the industry average.
The Company's book value per share was $7.26 as of June 30, 1997, up from
$7.03 as of March 31, 1997. Earnings added $0.20 per share to book value
during the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996.
Gross written premium increased 4% to $185.2 million for the first six months
of 1997 from $177.6 million for the same period in 1996, due primarily to
increased aviation and accident and health premiums partially offset by
decreased marine premium. Net written premium for the first six months of
1997 decreased to $96.7 million from $100.2 million for the same period in
1996, due primarily to decreased marine and offshore energy premium partially
offset by increases in aviation and accident and health premium. Net earned
premium increased 10% to $92.8 million for the first six months of 1997
compared to $84.2 million for the same period in 1996.
Fee and commission income increased 23% to $32.2 million for the first six
months of 1997 compared to $26.1 million for the same period in 1996 due to
the increased agency activity. The Company expects fee and commission income
to continue to increase during the remainder of 1997 due to the effects of
recent acquisitions and internal growth. Net investment income increased 11%
to $12.7 million for the first six months of 1997 compared to $11.4 million
for the same period in 1996 reflecting a higher level of investments. Total
revenue increased 8% to $141.0 million.
Net realized investment losses from sales of equity securities were $50,000
during the first six months of 1997, compared to gains of $5.3 million for
the same period in 1996. During 1996, the Company systematically liquidated
the majority of its equity portfolio. Net realized investment losses from
disposition of fixed income securities were $244,000 during the first six
months of 1997, compared to losses of $65,000 for the same period in 1996.
Loss and LAE increased $2.4 million during the first six months of 1997, to
$56.1 million, as the Company's GAAP loss ratio decreased to 60% from 64%.
Other operating expense increased 24% to $15.6 million for the first six
months of 1997. These expenses reflect increased expenditures required to
meet the overall growth in business. Goodwill amortization expense was
$711,000 for the first six months of 1997 compared to $340,000 for the first
six months of 1996 and is included in other operating expense. Currency
conversion losses amounted to $541,000 for the first six months of 1997,
compared to losses of $171,000 for the same period in 1996.
Merger expense represents non-recurring items incurred to consummate the
acquisitions and mergers which are or will be accounted for as
poolings-of-interests. The amounts incurred during the first six months of
1996 were due to the combination with LDG and included a compensatory stock
grant of $24.0 million to certain key LDG
16
<PAGE>
employees immediately prior to the merger. The amounts incurred during 1997
were due to the combinations with AVEMCO Corporation and Interworld
Corporation.
Income tax expense was $11.4 million for the first six months of 1997,
compared to an income tax benefit of $1.0 million during the first six
months of 1996. The 1996 amount included a deferred tax benefit of $9.6
million which was recorded in connection with the compensatory stock grant to
certain key LDG employees. Also, as an S Corporation, LDG was exempt from
Federal income taxes through May 21, 1996. Had LDG been subject to Federal
income tax during that period, additional income tax expense of $2.3 million
would have been recorded for the six months ended June 30, 1996.
Net earnings increased 99% to $22.0 million for the first six months of 1997
from $11.1 million for the same period in 1996. This increase was
principally a result of higher underwriting profits, increased fee and
commission income and the non-recurring compensation charge incurred during
1996.
Earnings per share increased 92% to $0.48 for the first six months of 1997
from $0.25 for the first six months of 1996. This reflects a 99% increase in
net earnings, partially offset by a 4% increase in weighted average shares
outstanding.
The Company's insurance company subsidiaries' statutory combined ratio was
78.5% for the first six months of 1997, as compared to 82.3% for the same
period in 1996. The Company's combined ratio remains significantly better
than the industry average.
The Company's book value per share was $7.26 as of June 30, 1997, up from
$6.72 as of December 31, 1996. Earnings added $0.48 per share to book value
during the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash and investment portfolio increased $27.9
million or 6% since December 31, 1996, and totaled $505.8 million as of June
30, 1997, of which $104.4 million was cash and short-term investments. Total
assets increased to $1.1 billion as of June 30, 1997, from $964 million as of
December 31, 1996.
THIS REPORT ON FORM 10-Q/A (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 REINSURERS, THE EXPANSION OR
CONTRACTION IN ITS VARIOUS LINES OF BUSINESS, THE IMPACT OF INFLATION,
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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
The exhibits listed on the accompanying Index to Exhibits on
the following page are filed as part of this report.
(b) Reports on Form 8-K:
On June 19, 1997, the Registrant filed a report on Form 8-K
reporting that the Company had consummated the merger with
AVEMCO Corporation on June 17, 1997.
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)
MARCH 26, 1998 /S/ FRANK J. BRAMANTI
- ---------------- -----------------------------------------------
(Date) Frank J. Bramanti, Executive Vice President
MARCH 26, 1998 /S/ EDWARD H. ELLIS, JR.
- ---------------- -----------------------------------------------
(Date) Edward H. Ellis, Jr., Senior Vice President
and Chief Financial Officer
18
<PAGE>
INDEX TO EXHIBITS
11 - Statements Regarding Computation of Earnings Per Share.
27 - EDGAR Financial Data Schedule - Restated June 30, 1997.
27.1 - EDGAR Financial Data Schedule - Restated June 30, 1996.
19
<PAGE>
EXHIBIT 11
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
- ----------------------------------------------------------------------------------------
For the six months ended June 30,
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings $ 22,013,000 $ 11,057,000
------------- -------------
------------- -------------
Primary:
Weighted average Common Stock and common stock
equivalents outstanding 46,053,000 44,330,000
------------- -------------
------------- -------------
Earnings per share $ 0.48 $ 0.25
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,281,000 1,114,000
Changes in Common Stock for issuance (810,000) 193,000
------------- -------------
Weighted average Common Stock and common stock
equivalents outstanding 46,053,000 44,330,000
------------- -------------
------------- -------------
Fully Diluted:
Weighted average Common Stock and common stock
equivalents outstanding 46,146,000 44,410,000
------------- -------------
------------- -------------
Earnings per share $ 0.48 $ 0.25
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,296,000 1,175,000
Changes in Common Stock for issuance (732,000) 212,000
------------- -------------
Weighted average Common Stock and common stock
equivalents outstanding 46,146,000 44,410,000
------------- -------------
------------- -------------
</TABLE>
Note: Share and option amounts have been restated for all periods presented
to include the shares and options of AVEMCO Corporation prior to its
combination with the Company (see notes 1 and 3 to the condensed
consolidated financial statements).
<PAGE>
EXHIBIT 11
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
- ----------------------------------------------------------------------------------------
For the three months ended June 30,
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $ 8,982,000 $ (473,000)
------------- -------------
------------- -------------
Primary:
Weighted average Common Stock and common stock
equivalents outstanding 46,383,000 44,263,000
------------- -------------
------------- -------------
Earnings per share $ 0.19 $ (0.01)
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,263,000 1,166,000
Changes in Common Stock for issuance (462,000) 74,000
------------- -------------
Weighted average Common Stock and common stock
equivalents outstanding 46,383,000 44,263,000
------------- -------------
------------- -------------
Fully Diluted:
Weighted average Common Stock and common stock
equivalents outstanding 46,482,000 44,279,000
------------- -------------
------------- -------------
Earnings per share $ 0.19 $ (0.01)
------------- -------------
------------- -------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,296,000 1,180,000
Changes in Common Stock for issuance (396,000) 76,000
------------- -------------
Weighted average Common Stock and common stock
equivalents outstanding 46,482,000 44,279,000
------------- -------------
------------- -------------
</TABLE>
Note: Share and option amounts have been restated for all periods presented
to include the shares and options of AVEMCO Corporation prior to its
combination with the Company (see notes 1 and 3 to the condensed
consolidated financial statements).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-Q/A FOR THE QUARTER
ENDED JUNE 30, 1997, AND 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> 11,141,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 504,737,000
<CASH> 1,106,000
<RECOVER-REINSURE> 148,433,000
<DEFERRED-ACQUISITION> 7,109,000
<TOTAL-ASSETS> 1,094,273,000
<POLICY-LOSSES> 245,497,000
<UNEARNED-PREMIUMS> 168,646,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 79,226,000
0
0
<COMMON> 45,582,000
<OTHER-SE> 285,536,000
<TOTAL-LIABILITY-AND-EQUITY> 1,094,273,000
92,809,000
<INVESTMENT-INCOME> 12,729,000
<INVESTMENT-GAINS> (294,000)
<OTHER-INCOME> 35,800,000
<BENEFITS> 56,070,000
<UNDERWRITING-AMORTIZATION> 5,727,000
<UNDERWRITING-OTHER> 43,005,000
<INCOME-PRETAX> 33,432,000
<INCOME-TAX> 11,419,000
<INCOME-CONTINUING> 22,013,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,013,000
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-Q/A FOR THE QUARTER ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THE AMOUNTS SHOWN BELOW HAVE BEEN RESTATED DUE TO THE MERGER WITH
AVEMCO ON JUNE 17, 1997, WHICH WAS ACCOUNTED FOR AS A POOLING OF INTERESTS
(SEE NOTE 1).
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 341,795,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,851,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 452,576,000
<CASH> 9,723,000
<RECOVER-REINSURE> 137,815,000
<DEFERRED-ACQUISITION> 6,972,000
<TOTAL-ASSETS> 956,855,000
<POLICY-LOSSES> 217,662,000
<UNEARNED-PREMIUMS> 168,056,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,205,000
0
0
<COMMON> 46,240,000
<OTHER-SE> 225,766,000
<TOTAL-LIABILITY-AND-EQUITY> 956,855,000
84,242,000
<INVESTMENT-INCOME> 11,434,000
<INVESTMENT-GAINS> 5,207,000
<OTHER-INCOME> 30,229,000
<BENEFITS> 53,657,000
<UNDERWRITING-AMORTIZATION> 6,784,000
<UNDERWRITING-OTHER> 57,965,000
<INCOME-PRETAX> 10,042,000
<INCOME-TAX> (1,015,000)
<INCOME-CONTINUING> 11,057,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,057,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<RESERVE-OPEN> 99,259,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 108,233,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
