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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended June 30, 1996
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or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to
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Commission file number 0-21230
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1625287
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6600 France Ave., So., Suite 245
Minneapolis, Minnesota 55435-1891
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(Address of principal executive offices) (Zip Code)
612-922-5445
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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
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The number of shares outstanding of the issuer's classes of common stock, as
of June 30, 1996:
Class A Common Stock $.01 Par Value 115,664 shares
Class B Common Stock $1,000 Par Value-1 share
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INDEX
Midwest Medical Insurance Holding Company
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-June 30, 1996 and December 31, 1995
Condensed consolidated statements of income-Three months ended March 31,
1996 and 1995; Six months ended June 30, 1996 and 1995
Condensed consolidated statements of cash flows-Six months ended June
30, 1996 and 1995
Notes to condensed consolidated financial statements-June 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
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Part I. Financial Information
Item 1. - Financial Statements
MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARY
Condensed Consolidated Balance Sheet
(Dollars in thousands)
June 30 December 31
1996 1995
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ASSETS (Unaudited) (Note)
Fixed maturity investments at fair value
(Amortized cost: 1996 $177,801;
1995 $174,540) $ 179,339 $ 182,817
Equity securities at fair value (cost:
1996 $19,259; 1995 $17,670) 33,049 28,311
Short-term investments 13,034 15,015
Cash (137) 704
Uncollected premiums - Note C 16,775 1,027
Ceded unearned premium 2,770 6
Accrued investment income 2,824 2,875
Reinsurance recoverable 21,991 25,112
Deferred income tax 3,554 2,304
Other assets 4,068 6,413
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$ 277,267 $ 264,584
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LIABILITIES, REDEEMABLE STOCK AND OTHER
SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjust. expenses $ 117,906 $ 120,264
Unearned premiums - Note C 26,405 7,033
Amounts due reinsurers 10,310 7,818
Retrospective premiums 4,248 10,864
Other liabilities 6,340 8,338
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$ 165,209 $ 154,317
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REDEEMABLE STOCK
Class A Common Stock 6,688 6,974
Class B Common Stock 1 1
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6,689 6,975
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OTHER SHAREHOLDERS' EQUITY 105,369 103,292
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$ 277,267 $ 264,584
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Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARY
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share dollars)
(Unaudited)
Six Months Ended Three Months Ended
June 30 March 31
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1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Net premiums earned $ 20,685 $ 16,823 $ 8,788 $ 8,711
Net investment income 6,108 6,121 3,131 3,096
Realized capital gains 953 751 1,001 26
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$ 27,746 $ 23,657 $ 12,920 $ 11,833
Losses and expenses
Losses and loss adj. exp. $ 17,148 $ 16,901 $ 8,168 $ 8,351
Other underwriting expenses 3,429 2,785 1,804 1,513
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$ 20,577 $ 19,686 $ 9,972 $ 9,864
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Income before income taxes $ 7,169 $ 3,971 $ 2,948 $ 1,969
Income taxes - Note B $ 2,720 $ 1,499 $ 1,077 $ 709
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Net income before
extraordinary item $ 4,449 $ 2,472 $ 1,871 $ 1,260
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Extraordinary charge for
demutualization, net of tax $ 0 $ 113 $ 0 $ 57
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Net income $ 4,449 $ 2,359 $ 1,871 $ 1,203
======== ======== ======== ========
Income per common share and
common share equivalent $ 34.97 $ 18.79 $ 14.70 $ 9.58
======== ======== ======== ========
Number of shares used in per
share calculation 127,240 125,548 127,265 125,588
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30
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1996 1995
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,860 $ (611)
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INVESTING ACTIVITIES
Purchases of fixed maturity investments and equity
securities (39,537) (40,209)
Sales of fixed maturity investments and equity
securities 21,257 44,425
Maturities of fixed maturity investments 13,099 1,070
Purchases of short-term investments, net 1,981 (5,681)
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(3,200) (395)
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FINANCING ACTIVITIES
Redemption of Class A Common Stock (501) (287)
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INCREASE (DECREASE) IN CASH (841) (1,293)
Cash at beginning of year 704 1,527
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CASH AT JUNE 30 $ (137) $ 234
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See notes to condensed consolidated financial statements.
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1996
NOTE A--BASIS OF PRESENTATION
On June 5, 1996 the Company completed a merger with Medical Liability Mutual
Insurance Company of Nebraska (MLM). MLM was merged with and into Midwest
Medical Insurance Company (MMIC) which is owned 100% by the Company. The
merger was accounted for on a pooling of interests basis. All prior period
financial statements have been restated to reflect the pooling. MLM
represented less than five percent of the assets, revenue and equity of the
Company.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 1995.
NOTE B--INCOME TAXES
The Company calculates its income tax provision for interim periods by
estimating its annual effective tax rate and applying this rate to the income
of the interim period. The annual effective tax rate for the six months
ended June 30, 1996 and 1995 is approximately 38% for both years and is due
primarily to the effects of tax-exempt income and state income taxes, net of
federal tax benefit.
NOTE C--UNEARNED PREMIUM and UNCOLLECTED PREMIUM
The majority, 92%, of the Company's insurance policies expire at December 31
and renew on January 1 of each year. The majority of the unearned premium
amount at June 30, 1996 represents six months of unearned premium for every
active policy renewed or newly written from January 1, 1996 through June 30,
1996. Since most active policies expired on December 31, 1995, there was no
unearned premium at that date for those expired policies.
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Of the total unearned premium balance $7,033,000 at December 31, 1995, the
majority, $5,845,000, is a reserve for the issuance of free reporting
endorsements for policyholders at death, disability or retirement. That same
amount is also included in the unearned premium balance at June 30, 1996.
The increase in uncollected premium from December 31, 1995 to March 31, 1996,
$15,748,000, is due to the renewal of most active policies on January 1. The
full years premium is recorded as written and collectible at January 1.
Premiums may be paid annually or quarterly. The majority of each years'
premium is collected during the year with very little uncollected at each
December 31.
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Item 2. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CAPITAL RESOURCES AND LIQUIDITY
The majority of the Company's assets, 81%, continue to be invested in bonds,
stocks and short-term instruments. The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." The Company's investments in
debt and equity securities are classified as available for sale and therefore
carried at fair value with unrealized gains and losses, net of applicable
taxes, reflected as a separate component of equity. Prior to January 1, 1994
fixed maturity investments were carried at the lower of aggregate amortized
cost or market and equities were carried at market.
Ninety-two percent of the Company's insurance policies renew on January 1 of
each year and expire on December 31. Premiums can be paid in full on January
1 or one-fourth at the beginning of each calendar quarter. At December 31
the uncollected premiums are relatively low. The uncollected premium of
$16,775,000 at June 30, 1996 represents that amount of the calendar year 1996
premium for each policy renewed for one year on January 1, or newly written
during January, - June, 1996 which is not yet collected. Full 1996 premium
for all policies written as of June 30, 1996 totaled $40,440,000.
The increase in unearned premium of $19,372,000 represents six months of
premium on all of the January 1 renewed insurance policies written from
January 1 through June 30, 1996. Since most policies expire at December 31
each year, there was only $1,153,000 of unearned premium at December 31 for
policies written during 1995. An estimated unearned premium reserve for
free reporting endorsements provided to certain insureds at death, disability
and retirement amounting to $5,845,000 is the majority of the unearned
premium balance at December 31, 1995. The same $5,845,000 is included in the
June 30, 1996 unearned premium total.
The retrospective premium liability of $4,248,000 at June 30, 1996 represents
amounts due to Iowa policyholders under terms of the Midwest Medical
Insurance Company/Iowa Physicians Mutual Insurance Trust (MMIC/IPMIT) July 1,
1993 merger agreement. That agreement provides if financial results for
years prior to 1993 are more favorable than expected, the favorable
development must be returned to former IPMIT policyholders who were insured
by IPMIT on December 31, 1992 and who renew their coverage with MMIC. The
$10,864,000 of retrospective premium liability at December 31, 1995 included
$5,664,000 for those former IPMIT policyholders and $5,200,000 of liability
to Minnesota policyholders under a retrospective premium rating plan. In
March of 1996 both the $5,200,000 Minnesota retrospective premium liability
and $2,300,000 of the Iowa merger agreement liability was paid to
policyholders.
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Cash flow from operations for the first six months of both 1996 and 1995 has
been depressed by the payment, in March of both years, of the retrospective
premium credit to Minnesota policyholders and the premium credit to Iowa
policyholders under terms of the MMIC/IPMIT merger agreement. Those payments
totaled $7,500,000 in 1996 and $9,000,000 in 1995.
Net income for the first half of 1996 and 1995 was $4,449,000 and $2,359,000
respectively. These amounts were added to the Company's retained earnings.
Total equity consisting of redeemable stock and other shareholder's equity,
increased by $1,791,000 during the first six months of 1996. Net income of
$4,449,000 added to equity was offset by a decrease in the fair value of
investments, net of deferred taxes, totalling $2,334,000, and Class A stock
redemptions of $409,000.
RESULTS OF OPERATIONS
Net premiums earned were $3,662,000 higher during the first six months of
1996 than for the same period in 1995. The primary reason is three
adjustments to prior years reinsurance costs which increased 1996 net
premium. The three items were 1) Receipt of $2,194,000 from the commutation
of a reinsurance treaty for the period Janurary 1-December 31, 1990. 2) A
$194,000 reduction in reinsurance costs for the period January 1, 1993-July
1, 1993 under a former Iowa Physician Mutual Insurance Trust Treaty. 3)
Correction to 1995 excess reinsurance premium under a current treaty which
reduced reinsurance costs by $771,000.
Losses and loss adjustment expenses were $247,000 higher during the first six
months of 1996 than for the same period in 1995. During the first six months
of 1995, $1,770,000 of prior years loss reserves were released compared to a
similar smaller release of $1,000,000 in 1996. Reduced loss reserves
decreased current year loss expense. This difference causes 1996 losses to
be higher by $770,000. Offsetting this increase is a slightly lower overall
policyholder count in 1996 which reduces losses. Variances between quarters
in the range experienced is not unusual.
Other underwriting expenses were higher in 1996 than 1995 because of expenses
incurred in connection of the merger of Medical Liability Mutual Insurance
Company of Nebraska into the Company.
Net income for the first six months of 1996 was $1,977,000 greater than the
same period of 1995. This larger net income was primarily the result of the
lower reinsurance premium discussed earlier offset by higher underwriting
expenses.
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Part II. Other Information
Item 6 Exhibits
None
Reports on Form 8-K
No reports on Form 8-K have been filed.
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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.
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
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(REGISTRANT)
Date 8-8-96 /s/ David P. Bounk
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David P. Bounk
President and Chief
Executive Officer
Date 8-8-96 /s/ Merlin R. Bretzman
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Merlin R. Bretzman
Vice President and
Principal Financial Officer
and Principal Accounting
Officer
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<TABLE> <S> <C>
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<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MIDWEST MEDICAL INSURANCE HOLDING COMPANY'S 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1996
<DEBT-HELD-FOR-SALE> 179,339 182,817
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 33,049 28,311
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 212,388 211,128
<CASH> 12,897 15,719
<RECOVER-REINSURE> 21,991 25,112
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 277,267 264,584
<POLICY-LOSSES> 117,906 120,264
<UNEARNED-PREMIUMS> 26,405 7,033
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<POLICY-HOLDER-FUNDS> 0 0
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0 0
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<COMMON> 6,689 6,975
<OTHER-SE> 105,369 103,292
<TOTAL-LIABILITY-AND-EQUITY> 277,267 264,584
20,685 16,823
<INVESTMENT-INCOME> 6,108 6,121
<INVESTMENT-GAINS> 953 713
<OTHER-INCOME> 0 0
<BENEFITS> 17,148 16,901
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<UNDERWRITING-OTHER> 3,429 2,785
<INCOME-PRETAX> 20,577 19,686
<INCOME-TAX> 2,720 1,499
<INCOME-CONTINUING> 4,449 2,472
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 113
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<NET-INCOME> 4,449 2,359
<EPS-PRIMARY> 34.97 18.79
<EPS-DILUTED> 34.97 18.79
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