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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 March 31,
1997
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ________________to____________
Commission file number 0-21230
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 March 31, 1997:
Class A Common Stock $.01 Par Value 119,438 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-March 31, 1997 and December 31,
1996
Condensed consolidated statements of income-Three months ended
March 31, 1997 and 1996
Condensed consolidated statements of cash flows-Three months ended
March 31, 1997 and 1996
Notes to condensed consolidated financial statements-March 31, 1997
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)
March 31 December 31
1997 1996
----------- -----------
ASSETS (Unaudited) (Note)
Fixed maturity investments at fair value
(Amortized cost: 1997 $180,495;
1996 $179,979) $181,291 $183,561
Equity securities at fair value(cost:
1997 $20,056; 1996 $20,237) 38,394 38,001
Short-term investments 5,622 7,898
Cash (1,814) 0
Uncollected premiums - Note C 25,947 584
Ceded unearned premium 3,970 0
Accrued investment income 2,596 2,778
Reinsurance recoverable 20,105 22,174
Deferred income tax 1,903 1,130
Other assets 5,427 5,867
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$283,441 $261,993
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-------- --------
LIABILITIES, REDEEMABLE STOCK AND OTHER
SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjust. expenses $110,635 $110,037
Unearned premiums - Note C 37,695 6,860
Amounts due reinsurers 10,083 7,274
Retrospective premiums 3,834 10,838
Other liabilities 3,096 8,102
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$165,343 $143,111
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REDEEMABLE STOCK
Class A Common Stock 7,522 7,603
Class B Common Stock 1 1
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7,523 7,604
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OTHER SHAREHOLDERS' EQUITY 110,575 111,278
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$283,441 $261,993
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-------- --------
Note: The balance sheet at December 31, 1996 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)
Three Months Ended
March 31
----------------------
1997 1996
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Revenues:
Net premiums earned $ 8,364 $ 8,789
Net investment income 2,992 3,131
Realized capital gains (196) 1,000
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$ 11,160 $ 12,920
Losses and expenses
Losses and loss adj. exp. $ 8,393 $ 8,168
Other underwriting expenses 1,576 1,805
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$ 9,969 $ 9,973
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Income before income taxes $ 1,191 $ 2,947
Income taxes - Note B $ 452 $ 1,077
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Net income $ 739 $ 1,870
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Income per common share and
common share equivalent $ 5.64 $ 14.69
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-------- --------
Number of shares used in per
share calculation 130,965 127,265
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-------- --------
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)
Three Months Ended
March 31
---------------------
1997 1996
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ (2,935) $ (2,238)
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INVESTING ACTIVITIES
Purchases of fixed maturity investments and
equity securities (28,053) (30,015)
Sales of fixed maturity investments and
equity securities 27,510 15,696
Maturities of fixed maturity investments 300 9,950
Purchases of short-term investments, net 2,276 6,217
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2,033 1,848
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FINANCING ACTIVITIES
Redemption of Class A Common Stock (17) (129)
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INCREASE (DECREASE) IN CASH (919) (519)
Cash at beginning of year (895) (710)
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CASH AT MARCH 31 $ (1,814) $ (1,229)
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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)
March 31, 1997
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 three month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. 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, 1996.
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 three months
ended March 31, 1997 and 1996 is approximately 38% and 37% respectively, and
are 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 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 March 31, 1997 represents nine months of unearned premium for every active
policy renewed or newly written from January 1, 1997 through March 31, 1997.
Since most active policies expired on December 31, 1996, there was no
unearned premium at that date for those expired policies.
Of the total unearned premium balance $6,860,000 at December 31, 1996, the
majority $6,174,000, 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 March 31, 1997.
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The increase in uncollected premium from December 31, 1996 to March 31, 1997,
$25,363,000, 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, 79%, 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.
Ninety-five 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
$25,947,000 at March 31, 1997 represents that amount of the calendar year
1997 premium for each policy renewed for one year on January 1, or newly
written during January, February or March, which is not yet collected. Full
1997 premium for all policies written as of March 31, 1997 totaled
$42,044,000.
The increase in unearned premium of $30,835,000 represents nine months of
premium on all of the January 1 insurance policies written from January 1
through March 31, 1997. Since most policies expire at December 31 each year,
there was no unearned premium at December 31 for most policies written during
1996. An estimated unearned premium reserve for free reporting endorsements
provided to certain insureds at death, disability and retirement amounting to
$6,174,000 is the majority of the unearned premium balance at December 31,
1996. The same $6,174,000 is included in the March 31, 1997 unearned premium
total.
The retrospective premium liabilities of $3,834,000 at March 31, 1997
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
$10,838,000 retrospective premium liability at December 31, 1996 included
$6,235,000 for those former IPMIT policyholders and $4,603,000 liability to
Minnesota policyholders under a retrospective premium rating plan. In March
of 1997 both the $4,603,000 Minnesota retrospective premium liability and
$2,500,000 of the Iowa merger agreement liability was paid to policyholders.
Cash flow from operations was negative during the first quarter of both 1997
and 1996,$2,935,000 and $2,238,000 respectively. The primary reason for the
negative cash flows was 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.
These payments totaled $7,103,000 in 1997 and $7,500,000 in 1996.
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CAPITAL RESOURCES AND LIQUIDITY CON'T.
Net income for the first quarter of 1997 and 1996 was $739,000 and $1,870,000
respectively. These amounts were added to the Company's retained earnings.
Total equity consisting of redeemable stock and other shareholder's equity,
decreased by $784,000 during the first quarter of 1997. Net income of
$739,000 added to equity was more than offset by a decrease in the fair value
of investments, net of deferred taxes, totalling $1,435,000, and Class A
stock redemptions of $165,000.
RESULTS OF OPERATIONS
Net premiums earned were $425,000 lower during the first three months of 1997
than for the same period in 1996. Base premium rates remained the same in
all states except North Dakota where 425 policyholders received an average
increase of 10%. The decrease in net premium in the first quarter was
primarily due to an aberation in the recording of reinsurance costs and it is
expected that net premium will be approximately the same for the year 1997 as
1996. Total policyholders at March 31, 1197 was 5,854.
Losses and loss adjustment expenses were $225,000 higher during the first
quarter of 1997 than for the same period in 1996. There were no specific
identifiable occurrences which would cause a difference. This amount of
variance between quarters is not unusual.
Net income for the first quarter of 1997 was $1,131,000 less than the same
period of 1996. The smaller net income is due primarily to a realized
capital loss of $196,000 in 1997 versus realized capital gains of $1,000,000
during the first quarter of 1996. Two outside investment managers are
employed by the Company with the goal of maximizing total return. There were
more opportunities for gains from sales in 1996.
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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 May 12, 1997 /s/ David P. Bounk
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David P. Bounk
President and Chief
Executive Officer
Date May 12, 1997 /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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<PAGE>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<DEBT-HELD-FOR-SALE> 181,291 183,561
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 38,394 38,001
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 219,685 221,562
<CASH> 3,808 7,003
<RECOVER-REINSURE> 20,105 22,174
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 283,441 261,993
<POLICY-LOSSES> 110,635 110,037
<UNEARNED-PREMIUMS> 37,695 6,860
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 7,523 7,604
<OTHER-SE> 110,575 111,278
<TOTAL-LIABILITY-AND-EQUITY> 283,441 261,993
8,364 8,789
<INVESTMENT-INCOME> 2,992 3,131
<INVESTMENT-GAINS> (196) 1,000
<OTHER-INCOME> 0 0
<BENEFITS> 8,393 8,168
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 1,576 1,805
<INCOME-PRETAX> 1,191 2,947
<INCOME-TAX> 452 1,077
<INCOME-CONTINUING> 739 1,870
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 739 1,870
<EPS-PRIMARY> 5.64 14.69
<EPS-DILUTED> 5.64 14.69
<RESERVE-OPEN> 0 0
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