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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, 1998.
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, 1998:
Class A Common Stock $.01 Par Value 121,603 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, 1998 and December 31,
1997
Condensed consolidated statements of income-Three months ended
March 31, 1998 and 1997.
Condensed consolidated statements of cash flows-Three months ended
March 31, 1998 and 1997
Notes to condensed consolidated financial statements - March 31, 1998
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 SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
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ASSETS (Unaudited) (Note)
<S> <C> <C>
Fixed maturity investments at fair value
(Amortized cost: 1998 $156,819;
1997 $170,590) $157,508 $171,975
Equity securities at fair value (cost:
1998 $36,263; 1997 $20,595) 71,662 49,759
Short-term investments 9,156 13,909
Other investments 10,000 10,000
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248,326 245,643
Cash (971) 2,378
Uncollected premiums - Note C 26,164 534
Ceded unearned premium 4,146 -
Accrued investment income 1,653 2,341
Reinsurance recoverable 18,790 19,117
Other assets 6,625 5,502
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$304,733 $275,515
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LIABILITIES, REDEEMABLE STOCK AND OTHER
SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjust. expenses $108,295 $107,806
Unearned premiums - Note C 37,546 6,072
Amounts due reinsurers 6,102 2,984
Retrospective premiums 1,832 9,905
Deferred income tax 5,531 3,592
Other liabilities 5,286 11,389
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164,592 141,748
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REDEEMABLE STOCK
Class A Common Stock 7,094 7,476
Class B Common Stock 1 1
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7,095 7,477
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OTHER SHAREHOLDERS' EQUITY 133,046 126,290
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$304,733 $275,515
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-------- --------
</TABLE>
Note: The balance sheet at December 31, 1997 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 SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
1998 1997
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<S> <C> <C>
Revenues:
Net premiums earned $10,569 $ 8,364
Net investment income 3,168 2,992
Realized capital gains(losses) 3,064 (196)
Other 113 -
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16,914 11,160
Losses and expenses
Losses and loss adj. exp. 9,382 8,393
Other underwriting expenses 3,067 1,576
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12,449 9,969
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Income before income taxes 4,465 1,191
Income taxes - Note B 1,563 452
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Net income $ 2,902 $ 739
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------- --------
Income per common share $ 24.01 $ 6.24
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Income per common share -
assuming dilution $ 21.68 $ 5.64
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------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1998 1997
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ (9,297) $ (2,935)
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INVESTING ACTIVITIES
Purchases of fixed maturity investments and equity
Securities (176,645) (28,053)
Sales of fixed maturity investments and equity
Securities 177,972 27,510
Maturities of fixed maturity investments - 300
Sales of short-term investments, net 4,753 2,276
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6,080 2,033
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FINANCING ACTIVITIES
Redemption of Class A Common Stock (132) (17)
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INCREASE (DECREASE) IN CASH (3,349) (919)
Cash at beginning of year 2,378 (895)
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CASH AT MARCH 31 $ (971) $ (1,814)
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</TABLE>
See notes to condensed consolidated financial statements.
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MIDWEST MEDICAL INSURANCE HOLDING COMPANY and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1998
NOTE A--BASIS OF PRESENTATION
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, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. 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, 1997.
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, 1998 and 1997 is approximately 35% and 38% 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, 1998 represents nine months of unearned premium for every active
policy renewed or newly written from January 1, 1998 through March 31, 1998.
Since most active policies expired on December 31, 1997, there was no
unearned premium at that date for those expired policies.
Of the total unearned premium balance $6,072,000 at December 31, 1997, the
majority $5,909,000, 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, 1998.
The increase in uncollected premium from December 31, 1997 to March 31, 1998,
$25,630,000, 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 a small uncollected balance
remaining at year end.
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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, 80%, 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.
The investment portfolio was re-allocated in early January with $15,000,000
of long-term bonds transferred into international equities. This is in
conjunction with investment guideline goals to maximize total return. No
additional changes to the portfolio are anticipated during 1998.
The retrospective premium liabilities of $1,832,000 at March 31, 1998
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
$9,905,000 retrospective premium liability at December 31, 1997 included
$4,905,000 for those former IPMIT policyholders and $5,000,000 liability to
Minnesota policyholders under a retrospective premium rating plan. In March
of 1998 both the $5,000,000 Minnesota retrospective premium liability and
$3,100,000 of the Iowa merger agreement liability was paid to policyholders.
Cash flow from operations was negative during the first quarter of both 1998
and 1997, $9,297,000 and $2,935,000 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 $8,100,000 in 1998 and $7,103,000 in 1997. The primary
difference between 1998 and 1997 was losses paid, net of reinsurance. The
timing of loss payments is purely arbitrary and management does not foresee
any significant increases in paid losses over the near term future.
Net income for the first quarter of 1998 and 1997 was $2,902,000 and $939,000
respectively. These amounts were added to the Company's retained earnings.
Total equity consisting of redeemable stock and other shareholder's equity,
increased by $6,374,000 during the first quarter of 1998. Net income of
$2,902,000 added to equity was supplemented by an increase in the fair value
of investments, net of deferred taxes, totaling $3,293,000, and Class A stock
redemptions of $179,000.
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RESULTS OF OPERATIONS
Net earned premiums increased $2,205,000 over the same period of 1997
primarily as a result of new business generated from sales of large account
self-insured retention (SIR) policies totaling $1,163,000. Base rate levels,
with the exception of a 10% increase in Iowa, remained flat. As a result of a
soft reinsurance market and excellent historical loss experience, a new
reinsurance contract was negotiated effective January 1, 1998 which reduced
reinsurance ceded from $1,800,000 to $1,350,000 for each respective quarter.
These savings will continue to be recognized throughout the term of the
contract, which expires December 31, 2000.
Capital gains of $3,064,000 were realized during the quarter. As the
portfolio is being managed on a total return basis, more capital gains will
be realized as opportunities arise. These gains are the major component in
the increase in net income over 1997. Management has no estimate for future
levels of capital gains realized.
Losses and loss adjusting expense increased over 1997 as a direct result of
the increase in net earned premiums. Until an actuarial analysis is completed
at year-end 1998, management does not attempt to analyze the effects of
calendar year frequency and severity statistics. In lieu of the actuarial
analysis, an estimate for losses is backed based on a ratio of net earned
premiums that was developed in the rate making process. On a case basis,
there are no trends.
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 13, 1998 /s/ David P. Bounk
------------------------------------------
David P. Bounk
President and Chief
Executive Officer
Date May 13, 1998 /s/ Niles A. Cole
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Niles A. Cole
Vice President and
Principal Financial Officer
and Principal Accounting Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<DEBT-HELD-FOR-SALE> 157,508 171,975
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 81,662 59,759
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 239,170 231,734
<CASH> 8,185 16,287
<RECOVER-REINSURE> 18,790 706
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 304,733 275,515
<POLICY-LOSSES> 108,295 107,806
<UNEARNED-PREMIUMS> 37,546 6,072
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 7,095 7,477
<OTHER-SE> 133,046 126,290
<TOTAL-LIABILITY-AND-EQUITY> 304,733 275,515
10,569 33,795
<INVESTMENT-INCOME> 3,168 11,509
<INVESTMENT-GAINS> 3,064 6,484
<OTHER-INCOME> 113 404
<BENEFITS> 9,382 31,834
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 3,067 6,595
<INCOME-PRETAX> 4,465 13,763
<INCOME-TAX> 1,563 4,463
<INCOME-CONTINUING> 2,902 9,300
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,902 9,300
<EPS-PRIMARY> 24.01 77.79
<EPS-DILUTED> 21.68 70.23
<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>
