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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, 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_____
The number of shares outstanding of the issuer's classes of common stock, as of
June 30, 1997:
Class A Common Stock $.01 Par Value 120,323 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, 1997 and December 31, 1996
Condensed consolidated statements of income-Three months ended March 31,
1997 and 1996; Six months ended June 30, 1997 and 1996
Condensed consolidated statements of cash flows-Six months ended June
30, 1997 and 1996
Notes to condensed consolidated financial statements-June 30, 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)
June 30 December 31
1997 1996
----------- -----------
ASSETS (Unaudited) (Note)
Fixed maturity investments at fair value
(Amortized cost: 1997 $176,525;
1996 $179,979) $179,354 $183,561
Equity securities at fair value(cost:
1997 $20,020; 1996 $20,237) 45,384 38,001
Short-term investments 13,132 7,898
Cash (2,059) 0
Uncollected premiums - Note C 15,719 584
Ceded unearned premium 3,045 0
Accrued investment income 2,816 2,778
Reinsurance recoverable 17,623 22,174
Deferred income tax (1,267) 1,130
Other assets 3,992 5,867
-------- --------
$277,739 $261,993
-------- --------
-------- --------
LIABILITIES, REDEEMABLE STOCK AND OTHER
SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjust. expenses $108,482 $110,037
Unearned premiums - Note C 27,096 6,860
Amounts due reinsurers 8,818 7,274
Retrospective premiums 3,928 10,838
Other liabilities 3,917 8,102
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$152,241 $143,111
-------- --------
REDEEMABLE STOCK
Class A Common Stock 7,474 7,603
Class B Common Stock 1 1
-------- --------
7,475 7,604
-------- --------
OTHER SHAREHOLDERS' EQUITY 118,023 111,278
-------- --------
$277,739 $261,993
-------- --------
-------- --------
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)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 March 31
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned $ 17,789 $ 20,685 $ 8,364 $ 8,789
Net investment income 6,031 6,108 2,992 3,131
Realized capital gains(loss) (24) 953 (196) 1,000
-------- -------- -------- ---------
$ 23,796 $ 27,746 $ 11,160 $ 12,920
Losses and expenses
Losses and loss adj. exp. $ 17,173 $ 17,148 $ 8,393 $ 8,168
Other underwriting expenses 2,943 3,429 1,576 1,805
-------- -------- -------- ---------
$ 20,116 $ 20,577 $ 9,969 $ 9,973
-------- -------- -------- ---------
Income before income taxes $ 3,680 $ 7,169 $ 1,191 $ 2,947
Income taxes - Note B $ 1,337 $ 2,720 $ 452 $ 1,077
-------- -------- -------- ---------
Net income $ 2,343 $ 4,449 $ 739 $ 1,870
-------- -------- -------- ---------
-------- -------- -------- ---------
Income per common share and
common share equivalent $ 17.79 $ 34.97 $ 5.64 $ 14.69
-------- -------- -------- ---------
-------- -------- -------- ---------
Number of shares used in per
share calculation 131,740 127,240 130,965 127,265
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
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)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------
1997 1996
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,286 $ 2,860
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INVESTING ACTIVITIES
Purchases of fixed maturity investments and equity
securities (43,082) (39,537)
Sales of fixed maturity investments and equity
securities 42,917 21,257
Maturities of fixed maturity investments 2,200 13,099
Purchases of short-term investments, net (5,234) 1,981
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(3,199) (3,200)
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FINANCING ACTIVITIES
Redemption of Class A Common Stock (251) (501)
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INCREASE (DECREASE) IN CASH (1,164) (841)
Cash at beginning of year (895) (704)
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CASH AT JUNE 30 $ (2,059) $ (137)
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--------- --------
</TABLE>
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, 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 six month period ended June 30, 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 six months ended June
30, 1997 and 1996 is approximately 36% and 38% respectively, 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, 95%, 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, 1997 represents six months of unearned premium for every active policy
renewed or newly written from January 1, 1997 through June 30, 1997. Since most
active policies expired on December 31, 1996, there was no unearned premium at
that date for those expired policies.
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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 June 30, 1997.
The increase in uncollected premium from December 31, 1996 to June 30, 1997,
$15,135,000, 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, 86%, 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 $15,719,000
at June 30, 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,
- - June, 1997 which is not yet collected. Full 1997 premium for all policies
written as of June 30, 1997 totaled $42,303,000.
The increase in unearned premium of $20,236,000 represents six months of premium
on all of the January 1 insurance policies written from January 1 through June
30, 1997. Since most policies expire at December 31 each year, there was only
$686,000 of unearned premium at December 31 for 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 June 30, 1997 unearned premium total.
The retrospective premium liabilities of $3,928,000 at June 30, 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.
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CAPITAL RESOURCES AND LIQUIDITY CON'T.
Cash flow from operations for the first six months of both 1997 and 1996 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. These payments
totaled $7,103,000 in 1997 and $7,500,000 in 1996.
Net income for the first half of 1997 and 1996 was $2,343,000 and $4,449,000
respectively. These amounts were added to the Company's retained earnings.
Total equity consisting of redeemable stock and other shareholder's equity,
increased by $6,616,000 during the first six months of 1997.
This increase came primarily from the net income of $2,343,000 and an increase
in the fair value of invetments, net of deferred taxes, which totaled
$4,352,000.
RESULTS OF OPERATIONS
Net premiums earned were $2,896,000 lower during the first six months of 1997
than for the same period in 1996. The primary reason is three adjustments to
prior years reinsurance costs which increased 1996 net premium with no counter
part increase in 1997. The three 1996 items were 1) Receipt of $2,194,000 from
the commutation of a reinsurance treaty for the period January 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 nearly identical during the first six
months of 1997 and 1996. During the first six months of 1997, $1,878,000 of
prior years loss reserves were released compared to a similar smaller release of
$1,000,000 in 1996. Prior years reduced loss reserves decreases the reported
current year loss expense. This difference in reversals causes 1997 losses to
be higher by $878,000 when excluding reversals. As of June 30, 1997
policyholder count was 185 greater than at December 31, 1996. This increased
exposure causes an increase in 1997 losses.
Other underwriting expenses were higher in 1996 than 1997 because of expenses
incurred in connection of the merger of Medical Liability Mutual Insurance
Company of Nebraska into the Company during 1996.
Net income for the first six months of 1997 was $2,106,000 lower than the same
period of 1996. This smaller net income was primarily the result of the lower
reinsurance premium expense in 1996 discussed earlier.
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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.
10
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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
-----------------------------------------
(Registrant)
Date August 12, 1997 /s/ David P. Bounk
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David P. Bounk
President and Chief Executive Officer
Date August 12, 1997 /s/ Merlin R. Bretzman
--------------- -------------------------------------
Merlin R. Bretzman
Vice President and
Principal Financial Officer
And Principal Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<DEBT-HELD-FOR-SALE> 179,354 183,561
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 45,384 38,001
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 224,738 221,562
<CASH> 11,073 7,003
<RECOVER-REINSURE> 17,623 22,174
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 277,739 261,993
<POLICY-LOSSES> 108,482 110,037
<UNEARNED-PREMIUMS> 27,096 6,860
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 7,475 7,604
<OTHER-SE> 118,023 111,278
<TOTAL-LIABILITY-AND-EQUITY> 277,739 261,993
17,789 20,685
<INVESTMENT-INCOME> 6,031 6,108
<INVESTMENT-GAINS> (24) 953
<OTHER-INCOME> 0 0
<BENEFITS> 17,173 17,148
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 2,943 3,429
<INCOME-PRETAX> 3,680 7,169
<INCOME-TAX> 1,337 2,720
<INCOME-CONTINUING> 2,343 4,449
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,343 4,449
<EPS-PRIMARY> 17.79 34.97
<EPS-DILUTED> 17.79 34.97
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
