<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. ________________*
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
(Exact name of registrant as specified in its Charter)
---------
State or other jurisdiction of incorporation or organization: Minnesota
Primary Standard Industrial Classification Code Number: 6749
IRS Employer Identification Number: 41-1625287
---------
6600 France Avenue South, Suite 245
Minneapolis, MN 55435, (612) 922-5445
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------
David P. Bounk, President
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435, (612) 922-5445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
COPIES TO:
Ross C. Formell, Esq.
Best & Flanagan LLP
4000 U.S. Bank Place
601 Second Avenue South
Minneapolis, MN 55402
---------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as possible after the effective date of this
registration statement. If the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
---------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit Price Fee
- ---------- ---------- -------- ----- ---
Class A Common Stock 20,000 shares $1,080 $21,600,000(1)(2) $6,372.00
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Estimated based upon book value of securities of the registrant to be
issued as of December 31, 1998.
---------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
* THIS FILING ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NUMBER 1 TO THE
REGISTRANT'S FORM S-1 FILING, REGISTRATION NUMBER 333-29047, PURSUANT TO RULE
429.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 501(b) of Regulation S-K
Form S-1 Item Number and Caption Location in the Prospectus
- -------------------------------- --------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges PROSPECTUS SUMMARY
4. Use of Proceeds Not Applicable
5. Determination of Offering Price THE OFFERING
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution THE OFFERING
9. Description of Securities to be Registered DESCRIPTION OF
CAPITALSTOCK
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant SELECTED FINANCIAL
INFORMATION; MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS;
BUSINESS; MANAGEMENT;
DESCRIPTION OF CAPITAL
STOCK; FINANCIAL STATEMENTS
12. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities Not Applicable
<PAGE>
PROSPECTUS
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
35,000 Shares of Class A Common Stock
Shares of Class A Common Stock, $.01 par value (the "Share"), are being
offered by Midwest Medical Insurance Holding Company ("MMIHC") only to insureds
of MMIHC's wholly-owned subsidiary, Midwest Medical Insurance Company ("MMIC").
The Shares are offered only as part of the insuring transaction and insureds are
not required to pay any consideration for the Shares separate from or in
addition to their insurance premiums. MMIC is a physician-controlled medical
malpractice insurance company which provides professional liability insurance to
physicians in Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North Dakota and
South Dakota. Shares accrue daily and are allocated to insureds pursuant to a
formula which considers the insured's underwriting risk classification and
period of coverage with MMIC. Issuance of Shares to new insureds is subject to a
five-year vesting requirement and all rights will be forfeited if insurance
coverage is not continuous for five years. See "THE OFFERING."
The Shares are uncertificated and each shareholder is entitled to only one
vote, regardless of the number of Shares he or she owns. While MMIHC's Class B
Common Share remains outstanding, its holder, the Minnesota Medical Association,
has the exclusive right to elect directors from persons nominated by MMIHC's
Board of Directors, although the holders of the Class A Common Shares can cause
MMIHC to redeem the Class B Common Share at any time for $1,000, and thereby
terminate this right.
The Shares are not transferable or assignable and must be redeemed by
MMIHC at net book value, exclusive of any value attributable to MMIC (MMIHC's
principal asset), upon a shareholder's discontinuance of coverage with MMIC for
any reason. See "DESCRIPTION OF CAPITAL STOCK."
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is May 1, 1999.
<PAGE>
No persons have been authorized to give any information or to make any
representation other than those contained in this Prospectus in connection with
this offering and, if given or made, such information or representation must not
be relied upon as having been authorized by MMIHC. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities in any jurisdiction to or from any person to whom it is unlawful to
make any such offer or solicitation in such jurisdiction. Neither the delivery
of this Prospectus nor any distribution of securities made hereunder shall,
under any circumstances, create an implication that there has been no change in
the affairs of MMIHC since the date hereof or that the information herein is
correct as of any time subsequent to its date. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates.
AVAILABLE INFORMATION
MMIHC is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission. Reports and other
information filed by MMIHC can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D. C. and at the
following Regional Offices: 26 Federal Plaza, New York, New York 10278; and 219
South Dearborn Street, Chicago, Illinois 60604. Copies of such material also can
be obtained from the Public Reference Section of the Commission in Washington,
D.C. 20549 at prescribed rates, or on the Internet at www.sec.gov.
MMIHC provides its shareholders with an annual report containing
consolidated MMIHC and subsidiaries year-end financial statements presented in
accordance with generally accepted accounting principles ("GAAP"). MMIC's
separate net income and shareholders' equity are presented on both a GAAP and
statutory accounting basis in the Notes to the Consolidated Financial
Statements. MMIC is subject to the insurance company filing requirements of the
Minnesota Department of Commerce and files the NAIC Annual Statement each year
with the Department of Commerce which includes financial statements presented in
accordance with statutory requirements, together with an independent auditor's
report on those financial statements. MMIHC is subject to insurance holding
company regulations and files Form B with the Minnesota Department of Commerce
annually. Form B contains current information about management, the Board of
Directors, and significant operating agreements, as well as a financial report.
Copies of any of these reports, or any of the documents referred to herein, can
be obtained by requesting them from David P. Bounk, President and Chief
Executive Officer, Midwest Medical Insurance Holding Company, 6600 France Avenue
South, Suite 245, Minneapolis, Minnesota 55435; (612) 922-5445.
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information.................................................... ii
Prospectus Summary........................................................ 1
The Offering.............................................................. 3
Selected Financial Information............................................ 5
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 8
Business.................................................................. 15
Management................................................................ 22
Description of Capital Stock.............................................. 29
Legal Matters............................................................. 31
Experts................................................................... 31
Index to Financial Statements............................................. 32
APPENDIX - Allocation Schedule............................................ A-1
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
The Companies
MMIC originally was organized in 1980 under the auspices of the Minnesota
Medical Association (the "MMA"), to provide professional liability (malpractice)
insurance to Minnesota physicians who are members of the MMA. At that time,
claims and awards in medical malpractice cases had been increasing dramatically,
and physicians were faced with substantial premium increases and a declining
number of insurers offering medical malpractice coverage. The business was
reorganized on November 30, 1988 into a stock insurance company (MMIC), wholly
owned by a holding company (MMIHC), which could pursue other business
opportunities. The reorganization also was effected to give physicians a limited
equity interest in their malpractice insurer while preserving MMIC's capital and
surplus. As of July 1, 1993, the Iowa physician-owned malpractice insurer, Iowa
Physicians Mutual Insurance Trust ("IPMIT"), was merged with and into MMIC, and
as of June 5, 1996, the Nebraska physician-owned malpractice insurer, Medical
Liability Mutual Insurance Company of Nebraska ("MLM"), was merged with and into
MMIC. MMIC now provides malpractice insurance to physicians and physician groups
in Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North Dakota and South Dakota
on a claims-made basis. Professional liability, general liability, and umbrella
excess liability insurance is also available to hospitalsand healthcare systems
through MMIC. MMIC has had the sponsorship of the MMA since inception, and also
has the sponsorship of the Iowa and North Dakota medical associations. See
"BUSINESS." The address and telephone number of the principal executive offices
of MMIHC and MMIC are as follows: 6600 France Avenue South, Suite 245,
Minneapolis, Minnesota 55435; (612) 922-5445.
During 1997, MMIHC formed Midwest Medical Solutions, Inc. (Solutions) as a
business development company to strengthen and promote the independence and
interdependencies of physicians, clinics and hospitals that MMIC serves.
Business development opportunities being considered include practice
enhancement, strategic consulting, and electronic processing and integration
services and support. Solutions purchased the assets of MedPower Information
Services, Inc. effective January 1, 1998. Solutions then contributed those
assets to its newly formed, wholly-owned subsidiary, MedPower Information
Resources, Inc. (MedPower). MedPower processes and electronically submits
medical claims for over 100 healthcare providers in the Upper Midwest. MedPower
also provides various information consulting and network support services.
Together, Solutions and MedPower had assets of less than $3,000,000 at December
31, 1998 and revenues of less than $400,000 for the year ended December 31,
1998.
2
<PAGE>
Hereafter, MMIHC, MMIC, Solutions and MedPower shall be collectively
referred to as the Company unless the reference pertains to a specific entity.
Further, due to the nature of the relationship between MMIHC and MMIC, the
insurance operations of MMIC will be discussed as though they are the operations
of the registrant.
The Offering
Class A Common Shares (the "Shares") are being offered only to insureds of
MMIC as part of the insuring transaction, and insureds are not required to pay
any consideration for the Shares separate from, or in addition to, their
insurance premiums. Shares are allocated pursuant to an Allocation Schedule
which considers the insured's underwriting risk classification with MMIC (the
"Allocation Schedule", which is set forth in the Appendix). The same schedule is
used in all states in which MMIC does business, except that Iowa and Nebraska
have their own schedules because different rate relativities among practice
areas exist in those states. Further, the number of shares allocated to Nebraska
insureds is reduced by a factor designed to take account of the fact that policy
limits, and therefore premiums, are lower in Nebraska. The number of shares
accrued during a year is prorated if a physician's insurance coverage is for
less than a full year. Shares allocated to new insureds are not issued until the
end of five years of continuous coverage. Cessation of coverage before the
completion of five years of coverage will result in a forfeiture of accrued but
unissued shares. Persons who were insureds at the time of the 1988
reorganization and persons who were IPMIT or MLM insureds at the time of the
mergers between MMIC, IPMIT and MLM are not subject to the five-year vesting
requirement. See "THE OFFERING."
The Shares
The Shares are uncertificated shares which may be owned by individual
physicians or by individual physicians jointly with the legal entities in which
they practice. In the latter case, the shares can be voted only by the
physicians. See "DESCRIPTION OF CAPITAL STOCK."
Each holder of the Shares is entitled to only one vote, regardless of the
number of Shares held. The Minnesota Medical Association (the "MMA"), so long as
it holds the single Class B Common Share of MMIHC presently outstanding, has the
exclusive right to vote for the election of directors, but only with respect to
persons nominated for election by a committee of the Board of Directors. The
holders of the Class A Common Shares, at any time, may cause MMIHC to redeem the
Class B Common Share at par value ($1,000), and thereby gain the right to elect
directors. Such an action requires the vote of a majority of the Class A
shareholders and two-thirds of the Class A shareholders who vote on the
question.
The Shares are not transferable or assignable, and must be redeemed by
MMIHC at net book value, exclusive of any value attributable to MMIC (MMIHC's
primary asset), upon a shareholder's discontinuance of coverage with MMIC for
any reason. By excluding the value attributable to MMIC from the calculation of
the redemption amount, MMIC's capital and surplus will be preserved and not
reduced by the redemption. The redemption amount thus
3
<PAGE>
reflects primarily MMIHC's net income from operations, which consists
principally of management fees paid by MMIC, plus earnings on investments, plus
any dividends paid by MMIC to MMIHC. In the event of any merger, liquidation,
sale of all or substantially all of the assets, or other extraordinary event,
any consideration payable to holders of the Shares will reflect their full
value, and will not be limited to the redemption amount. See "DESCRIPTION OF
CAPITAL STOCK." As of December 31, 1998 the net book value of MMIHC (redemption
value) was $64.81 per share.
THE OFFERING
Class A Common Shares (the "Shares") are being offered only to insureds of
MMIC who will accrue Shares for each day of insurance coverage they purchase
from MMIC. Insureds are not required to pay any consideration for the Shares
separate from or in addition to their insurance premiums. The Shares will be
allocated semi-annually, pursuant to the Allocation Schedule, which is set forth
in the Appendix. Shares allocated to new insureds are not issued until the end
of five years of continuous coverage. Cessation of coverage before the
completion of five years of coverage will result in a forfeiture of accrued but
unissued shares. Persons who were insureds at the time of the 1988
reorganization and persons who were IPMIT or MLM insureds at the time of the
merger between MMIC, IPMIT and MLM were not subject to the five-year vesting
requirement. Those persons were issued Shares upon completion of those
transactions and Shares they accrue currently are deemed issued when they are
allocated.
The Allocation Schedule is set forth in the Appendix to the Prospectus. It
consists of a table which indicates the number of Shares to be accrued by and
allocated to each physician for each year of insurance coverage based upon his
or her insurance risk class. The insurance risk class each physician is assigned
is based on his or her medical specialty and is the same risk class to which the
physician has been assigned by MMIC for purposes of writing the professional
liability insurance for the physician. Annual insurance premiums are based on
these risk classes, which are derived from actuarial relativity statistics. The
number of shares shown in the table therefore reflect, in part, the relative
premiums paid to MMIC by each policyholder. These relativities have changed
since MMIC began its business. MMIHC reserves the right to change the Allocation
Schedule in the future.
The shares allocable to Nebraska physicians are reduced by a factor to
take account of the fact that policy limits, and therefore premiums, are lower
in Nebraska. This factor is the inverse of the Increased Limits Factor
determined by MMIC's regular external actuaries to be applicable in order to
adjust for the difference between the policy limit of policies issued in
Nebraska as compared to the base policy limit issued by MMIC in all other states
in which it does business. MMIC's actuaries have determined that the designated
Increased Limits Factor is currently 1.72. Therefore, a Nebraska policyholder of
MMIC would be allocated the right to receive 58.1% of the shares of MMIHC Class
A Common Stock otherwise indicated by application of the Allocation Schedule.
This is based upon current information and policy limits, and the actual factor
used may be recalculated from time-to-time.
4
<PAGE>
The Shares are uncertificated. Although the Shares have been registered
under the Securities Act of 1933 and state securities laws, they are
nontransferable, and there is no market in which they may be sold. Upon
discontinuation of a physician's insurance policy with MMIC for any reason, the
Shares must be redeemed by MMIHC. See "DESCRIPTION OF CAPITAL STOCK."
No independent brokers, dealers, or underwriters have been engaged to
represent MMIHC in connection with this offering and no commissions will be paid
to any person in connection with offers or sales of the Shares. The Shares will
be offered and sold solely by officers of MMIHC.
5
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial data of MMIHC for the five years ended
December 31, 1998 are derived from the audited financial statements of MMIHC.
This data should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year ended December 31
Operations Data 1998(1) 1997(1) 1996(1) 1995(2) 1994(2)
- ------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net premiums earned $ 35,014 $ 32,916 $ 31,177 $ 29,798 $ 26,246
Net investment and other
income 21,404 19,276 15,558 14,258 11,509
----------------------------------------------------------------
Total revenue 56,418 52,192 46,735 44,056 37,755
Loss and loss adjustment
expenses 37,494 31,834 32,257 37,560 11,334
Underwriting and other
operating expenses 10,287 6,595 5,539 6,482 5,509
----------------------------------------------------------------
47,781 38,429 37,796 44,042 16,843
----------------------------------------------------------------
Income before income taxes 8,637 13,763 8,939 14 20,912
Income taxes (benefit) 2,689 4,463 1,458 (1,711) 6,417
----------------------------------------------------------------
Net income $ 5,948 $ 9,300 $ 7,481 $ 1,725 $ 14,495
================================================================
Net income per common share -
assuming dilution $ 43.65 $ 70.23 $ 58.33 $ 13.74 $ 114.84
Number of shares used in per
share calculation 136,251 132,427 128,259 125,536(3) 126,222(3)
Net income/total revenue 10.5% 17.8% 16.0% 3.9% 38.4%
Return on average equity 4.2% 7.4% 6.5% 1.7% 15.8%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 31
Financial Condition 1998(1) 1997(1) 1996(2) 1995(2) 1994(2)
- ----------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Assets
Fixed maturities at fair value $164,652 $171,975 $183,561 $182,817 $174,203
Equity securities at fair
value 86,553 49,759 38,001 28,311 19,782
Short-term investments 3,556 13,909 7,898 15,015 9,755
Other 10,000 10,000 -- -- --
-------------------------------------------------------
Total investments 264,761 245,643 229,460 226,143 203,740
Reinsurance recoverable 16,499 19,117 22,174 25,112 23,637
Other assets 14,223 10,755 10,359 13,329 19,100
-------------------------------------------------------
Total assets $295,483 $275,515 $261,993 $264,584 $246,477
=======================================================
Liabilities
Unpaid losses and loss
adjustment expenses $110,964 $107,806 $110,037 $120,264 $110,967
Other liabilities 33,926 33,942 33,074 34,053 38,358
-------------------------------------------------------
144,890 141,748 143,111 154,317 149,325
Redeemable stock
Class A and Class B Common
Stock at redemption value 8,147 7,477 7,604 6,975 7,712
Other shareholders' equity 142,446 126,290 111,278 103,292 89,440
-------------------------------------------------------
Total liabilities, redeemable
stock and shareholders' equity $295,483 $275,515 $261,993 $264,584 $246,477
=======================================================
Midwest Medical Insurance
Holding Company:
Class A Common Shares
issued and outstanding 125,682 121,322 118,209 116,251(3) 116,855(3)
Redemption value per
share $ 64.81 $ 61.63 $ 64.33 $ 60.00 $ 66.00
Class A Common Shares
redeemed 9,005 10,306 10,272 12,424 12,640
Amount paid to
terminating
policyholders upon
redemption $ 523 $ 648 $ 608 $ 829 $ 840
</TABLE>
- ---------------------------------------
(1) Amounts derived from audited consolidated financial statements of MMIHC
included in this Prospectus.
(2) Amounts derived from audited consolidated financial statements of MMIHC.
(3) Includes pro forma shares computed to give retroactive effect to the
merger of MMIHC/MMIC with MLM. See Note 1 to the consolidated financial
statements included in this Prospectus.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Manner of Presentation. The financial statements of MMIHC and Subsidiaries
are presented on a consolidated basis. In future references in this analysis,
which should be read together with the 1998 Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus, MMIHC and Subsidiaries
are referred to collectively as the "Company."
Liquidity and Capital Resources
The majority of the Company's assets are invested in investment-grade
bonds, stocks, a real estate investment trust and short-term instruments. These
investments totaled $264,761,000 and $246,746,000 at December 31, 1998 and 1997,
respectively, which represented 89.6% and 89.5% of total assets. The primary
objectives of the Company's investment policy established by the Board's
Investment Committee are the preservation of assets, maximizing pre-tax total
portfolio return, and assuring adequate liquidity to meet operational
requirements primarily the payment of insurance claims. Fixed maturity
investments and equity securities are classified as available for sale and
carried at fair value. The real estate investment trust and short-term
instruments are recorded at cost which approximates fair value.
During 1997, the Company adopted a revised Investment Policy resulting in
a portfolio restructuring designed to increase the pre-tax total return from
investments. The benchmark total return goal set for the fixed portfolio manager
was increased. This resulted in a turnover of most of the fixed income portfolio
which included selling all municipal bonds. To further diversify the portfolio
and maximize total return, the Company invested $10 million in a private
placement real estate investment trust in September of 1997 and invested $15
million in international equities in January of 1998. These changes reflect the
Company's strong financial position relative to the risk inherent in the amount
of premium written.
The Company's cash flow from operations decreased in 1998 versus 1997 and
1996. The 1998 cash flow from operations of $(9,605,000) was unfavorably
impacted by premium adjustments paid to reinsurers on reinsurance contracts for
prior years, less premium received in advance at the end of the year due to
later billing of policies with January effective dates, and an increase in
underwriting and other operating expenses. 1998 underwriting expenses increased
primarily from additional staff needed to manage Company growth and added costs
from the conversion to a new insurance company operating system. 1998 other
operating expenses increased primarily from launching the operations of
Solutions including the acquisition of MedPower. The positive cash flow from
1997 operations of $4,002,000 was primarily the result of a decrease in claim
payments, whereas the negative cash flow from 1996 operations of $(2,072,000)
was primarily driven by an increase in claim payments.
Premium rates in general have remained stable with slight rate increases
in regions where the Company has experienced unfavorable claim trends.
Consequently, cash receipts from
8
<PAGE>
policyholder premiums have been relatively level. MMIC, however, has returned
substantial amounts of premiums to policyholders in recent years in the form of
retrospective premium credits. The retrospective premium credits have been paid
to policyholders in the first quarter of each year. Loss and operating expense
payments have generally been met from policyholder premium receipts with any
excess cash allocated to the investment portfolio. The Company regularly
analyzes loss liabilities to project the cash flow required in future years.
Since the overall portfolio is highly liquid, exact matching of bond maturities
and liabilities is not a goal. Bond maturities are primarily selected to
maximize total return. The Company believes that its cash and investments
combined with its internally generated funds will be sufficient to meet its
present and reasonably foreseeable operating and capital requirements and will
not need to borrow funds from external sources. The Company had no material
capital expenditure commitments as of December 31, 1998.
The Company's bylaws require that MMIHC Class A Common Stock issued to
MMIC policyholders be redeemed when a physician ceases to be insured by MMIC for
any reason. The redemption value per share is calculated by dividing the net
book value of the Company, excluding the net book value of MMIC (other
shareholders' equity) from the calculation, by the number of MMIHC Class A
Common Shares outstanding. More details about the redeemable stock and the
actual redemptions during the years 1998, 1997 and 1996 are found in Note 2 to
the consolidated financial statements. This limited redemption value preserves
the capital of MMIC which is separately disclosed as other shareholders' equity
in the consolidated financial statements. The consolidated statements of changes
in other shareholders' equity found in the accompanying consolidated financial
statements provide the details of additions to and reductions in other
shareholders' equity.
From time to time the Board of Directors of MMIC declares dividends
payable to MMIHC to maintain the redemption value of the Company's Class A
Common Stock and to provide capital for new ventures entered into by Solutions.
A $2,000,000 dividend was declared in September of 1998 and paid in November of
1998 for those reasons mentioned above. No dividends were declared or paid by
MMIC to MMIHC in 1997. In July 1996, a dividend of $327,000 was paid to MMIHC as
required by a provision of the MMIC/MLM merger agreement. Per the merger
agreement, the amount was sufficient to maintain the per share redemption value
of MMIHC's Class A Common Stock at the same per share value immediately after
the merger as immediately before the merger. A $260,000 dividend was declared in
November of 1995 and paid in February of 1996 primarily to maintain the
redemption value of the Company's Class A Common Stock.
Results of Operations
Net premiums earned increased $2,098,000 in 1998 from 1997. Although
policyholder rates remained relatively level, new business generated
approximately $1,263,000 of additional earned premium. The remaining increase
was the result of the following significant factors:
1. The estimated reinsurance premium applicable to the treaty years
1992-1994 and 1995-1997, which is based in part on reinsured claims experience,
was reduced $2,550,000 on a net basis in 1998. This compares to a net reduction
for those treaty years of $2,950,000 in 1997
9
<PAGE>
resulting in a net decrease in premium between years of $400,000.
2. The Company negotiated lower rates on its 1998 reinsurance contract
that reduced ceded premiums by $1,031,000 compared to 1997. This increased 1998
net premiums earned.
3. In 1998, $789,000 was received from the commutation of a reinsurance
treaty covering the 1991 year. Since no reinsurance commutation occurred in
1997, premiums increased from 1997 to 1998 by $789,000.
4. Retrospective premium credits of $5,200,000 for Minnesota policyholders
and $280,000 for North Dakota policyholders were recorded in 1998. The premium
credits for 1997 were $5,000,000 for Minnesota policyholders only. The
difference between years resulted in a $480,000 decrease in 1998 net premiums
earned.
Net premiums earned increased $1,749,000 in 1997 from 1996. Although
policyholder rates remained relatively level for 1996 and 1997, an increase in
the number of policyholders in 1997 resulted in additional earned premium of
$500,000. The remaining increase was the result of the following significant
factors:
1. The estimated reinsurance premium applicable to the treaty years
1992-1994 and 1995-1997, which is based in part on reinsured claims experience,
was reduced $2,950,000 in 1997 versus an increase of $925,000 in 1996. This
resulted in a net increase in premium between years of $3,875,000.
2. The Company recorded an increase of $1,171,000 in the Iowa Development
Experience Liability account in 1997. A similar increase of $2,901,000 was
recorded in 1996. While these increased liabilities both reduce premium, the
difference in the amounts between years caused an increase in net premiums
earned from 1996 to 1997 of $1,730,000.
3. In 1996, $2,194,000 was received from the commutation of a reinsurance
treaty covering the years 1989 and 1990. This increased 1996 premiums. Since
there was no counterpart in 1997, premiums decreased $2,194,000 from 1996 to
1997.
4. A number of other prior year reinsurance premium adjustments recorded
in 1996 increased 1996 premiums by $2,143,000. With no counterpart in 1997, the
difference between years decreased 1997 premiums by $2,143,000.
Net investment income decreased $590,000 from 1997 to 1998 and $552,000
from 1996 to 1997. Although total invested assets has increased over the same
time period, the fixed maturity component of invested assets has decreased due
to the Company's efforts to maximize total return and diversify the portfolio as
referred to earlier under the Liquidity and Capital Resources section. Since it
is the largest contributor to the Company's investment income, the decrease in
fixed maturity investments decreased investment income. Yields on fixed maturity
investments also declined over the same time period further contributing to the
decrease in investment income.
10
<PAGE>
Realized capital gains increased $2,465,000 to $8,949,000 in 1998 and
increased $4,713,000 to $6,484,000 in 1997. During 1998, approximately
$1,175,000 of net capital gains were realized through the allocation of
$15,000,000 to international equities in January of 1998. The remaining
$7,774,000 of 1998 net realized capital gains resulted from the management of
the portfolio on a pre-tax total return basis within the parameters set by the
Board's Investment Committee. During 1997, the fixed income portfolio was
restructured to pursue the newly adopted pre-tax total return objective
resulting in net realized capital gains of $4,916,000. An additional $1,568,000
of net capital gains were realized in 1997 in the normal course of managing the
investment portfolio. The Company employs three outside professional advisors to
manage the portfolio: one to manage investment-grade fixed income securities,
one to manage large-cap domestic equities, and one to manage international
equities. The managers operate within the Company's adopted investment policy as
approved by the Board's Investment Committee. This policy was revised in 1997 as
previously discussed under the Liquidity and Capital Resources section. The
Investment Committee meets with outside investment managers approximately four
times per year.
Losses and loss adjustment expenses are the costs associated with the
settlement of insurance claims and are the Company's principal expense. Incurred
loss and loss adjustment expenses were $37,494,000 for 1998 compared to
$31,834,000 in 1997 and $32,257,000 in 1996. This results in an increase of 17.8
% between 1998 and 1997 versus a slight decrease of 1.3% between 1997 and 1996.
As shown in Note 5 of the consolidated financial statements, the current year's
provision for loss and loss adjustment expense, which is based upon policyholder
exposure, expected frequency of losses, and severity of losses, was fairly
stable for the years 1998, 1997 and 1996. Loss and loss adjustment expenses also
include adjustments of prior years' estimates. These adjustments to the
liability for loss and loss adjustment expense are evaluated by management and
supported by an outside actuarial review performed at the conclusion of the
year. As shown in Note 5 of the consolidated financial statements, these
evaluations resulted in a reduction in estimated liabilities applicable to prior
years of $4,433,000, $8,352,000 and $8,844,000, respectively in 1998, 1997 and
1996. The less favorable development on prior years is the primary reason for
the greater incurred loss and loss adjustment expenses in 1998.
The following schedule summarizes the development of the liability for
loss and loss adjustment expense from 1988 through 1998. This schedule is
presented net of reinsurance which the Company believes best explains the
development as it affects operating results. The Company has a conservative loss
reserving policy which, when coupled with a moderation of malpractice insurance
losses beginning approximately in 1986 for the Company and across the industry,
has resulted in redundancies in liabilities greater than expected. The table
indicates that the redundancy in loss liabilities, which develop as actual
results become known, has significantly decreased from the high at December 31,
1990. Loss and loss adjustment expense liabilities have not been discounted in
the Company's financial statements.
11
<PAGE>
Development of Liability for Loss and Loss Adjustment Expense
(Thousands of Dollars)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid
loss and loss
adjustment expense $74,577 $89,630 $97,375 $100,167 $98,617 $105,589 $88,227 $96,424 $90,342 $89,394 $94,467
Cumulative amount of
liability paid
through:
1 year later 12,067 10,585 13,973 19,112 21,422 25,251 26,879 33,454 30,097 28,755
2 years later 19,043 21,890 28,643 32,798 37,498 42,685 46,925 53,132 44,562
3 years later 24,143 30,869 35,305 39,906 45,227 51,087 55,534 59,568
4 years later 26,241 35,015 37,624 42,752 46,226 53,594 57,129
5 years later 27,561 35,115 38,298 43,994 46,823 53,288
6 years later 27,695 35,187 39,505 44,370 46,810
7 years later 27,695 35,295 39,861 44,420
8 years later 27,695 35,295 39,862
9 years later 27,695 35,295
10 years later 27,695
Liability
re-estimated as of:
1 year later 65,928 73,244 83,359 83,991 94,633 80,960 85,595 87,580 81,990 84,961
2 years later 51,379 62,056 64,876 74,883 69,490 75,364 76,365 79,665 76,542
3 years later 43,516 52,010 56,351 53,538 65,568 64,586 67,891 77,294
4 years later 35,753 44,582 42,075 52,833 56,426 57,851 65,794
5 years later 31,052 37,872 41,771 45,892 52,388 56,785
6 years later 29,052 37,617 39,519 43,760 53,014
7 years later 29,002 35,882 38,929 43,563
8 years later 28,724 35,882 38,929
9 years later 28,724 35,882
10 years later 28,724
Cumulative redundancy 45,853 53,748 58,446 56,604 45,603 48,804 22,433 19,130 13,800 4,433
</TABLE>
12
<PAGE>
Underwriting, acquisition and insurance expenses increased $1,189,000 from
$5,509,000 in 1997 to $6,698,000 in 1998. Approximately $469,000 of the increase
came from increases in variable expenses such as commissions and premium taxes
that resulted from the greater premium volume. The remaining increase was
largely due to additional staff needed to manage Company growth and added costs
from the conversion to a new insurance company operating system.
Underwriting, acquisition and insurance expenses increased $828,000 from
1996 to 1997. Approximately $425,000 of the increase was due to payments to
state medical societies, for the first time in 1997, under license and
endorsement agreements. The remaining increase reflected the increase in overall
cost of operating the Company in 1997 with employee salaries and benefits being
the largest component.
Other operating expenses increased $2,503,000 from $1,086,000 in 1997 to
$3,589,000 in 1998. Approximately $2,344,000 of the increase was from operating
two new, non-insurance companies, Solutions and MedPower. Both Solutions and
MedPower began active operations as of the beginning of 1998 as described in
Item 1 of this Form 10-K. The remaining increase resulted primarily from added
costs of operating the holding company.
Other operating expenses increased $228,000 from $858,000 in 1996 to
$1,086,000 in 1997. Approximately $131,000 of the increase was from researching
and forming the new business development company that became Solutions. The
remaining increase resulted primarily from additional stock issuance expenses.
Income before income taxes decreased to $8,637,000 in 1998 compared to
$13,763,000 in 1997. The decrease resulted primarily from less favorable
development on loss liabilities estimated in prior years and added expenses from
operating two non-insurance companies newly formed at the beginning of 1998.
Income before income taxes increased to $13,763,000 in 1997 from
$8,939,000 in 1996 primarily from the reversal of loss liabilities established
in prior years and additional net realized capital gains from the repositioning
of the investment portfolio.
Income taxes decreased to $2,689,000 for 1998 compared to $4,463,000 for
1997. The effective tax rates for 1998 and 1997 were 31.1% and 32.4%,
respectively. The principal factor in the decline in the effective tax rate was
a recovery of prior taxes recorded in 1998.
Income taxes increased to $4,463,000 for 1997 compared to $1,458,000 for
1996. The effective tax rates for 1997 and 1996 were 32.4% and 16.3%,
respectively. The increase in the effective tax rate for 1997 was primarily due
to a reduction in tax-exempt investment income due to the 1997 repositioning of
the investment portfolio that eliminated tax-exempt municipal bonds. A 1997
payment of prior year taxes and tax-exempt life insurance proceeds received in
1996 also contributed to the increase in the effective tax rate in 1997.
13
<PAGE>
Net income realized by the Company was $5,948,000 for 1998 compared to
$9,300,000 for 1997 because of the factors discussed above. Basic net income per
share decreased to $48.36 for 1998 from $77.79 per share for 1997. Diluted net
income per share decreased to $43.65 for 1998 from $70.23 per share for 1997.
Also due to the factors discussed above, the Company realized net income
of $9,300,000 for 1997 compared to net income of $7,481,000 for 1996. Basic net
income per share increased to $77.79 for 1997 from $64.45 per share for 1996.
Diluted net income per share increased to $70.23 for 1997 from $58.33 per share
for 1996.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send billings, or
engage in similar normal business activities.
A Year 2000 Task Force was formed in early 1998 consisting of members of
senior and departmental management to evaluate and monitor the Year 2000 issue,
identify the causes and consequences to the Company, and develop courses of
action including contingency plans as deemed necessary. The Year 2000 Task Force
assessment includes the following key areas: internal computer hardware and
software, significant business partners and vendors and insurance policy
exposure.
An evaluation of the Year 2000 readiness of all significant internal
computer hardware and software applications and devices was completed in the
latter part of 1998. The evaluation identified three pieces of network hardware
and one subsidiary operating system that were not Year 2000 compliant. The three
pieces of network hardware did not impact time sensitive operations and
therefore did not pose any significant Year 2000 risk to the Company. The
operating system used by the MedPower subsidiary is in the process of being
converted to a new, Year 2000 compliant platform. The new operating system is
expected to be fully operational by June 1999 with a total conversion cost
estimated at $250,000. The conversion was approximately 60% completed and had
expenditures of approximately $150,000 as of the date of this Prospectus. As a
result of the above evaluation, management believes that the Year 2000 issue has
been adequately addressed with respect to internal use hardware and software.
A Year 2000 compliance inquiry was prepared and mailed in early October of
1998 to all of the Company's key business partners and service vendors.
Responses are being evaluated and follow-up will be performed during 1999 as
appropriate. No assurances, however, can be given that the systems of other
companies on which the Company's operations rely will become Year 2000 compliant
in a timely manner, or that the failure by a third party to become Year 2000
compliant would not have a material adverse effect on the company.
14
<PAGE>
A multi-departmental team consisting of claims, risk management and
underwriting management studied and carefully assessed the exposure that might
exist in the policies issued by MMIC. The majority of the exposure is related to
medical equipment that contains computer chips and may be affected by the Year
2000 bug. This is primarily an exposure for the products liability carrier. All
hospital insureds have been surveyed to monitor their compliance to MMIC
guidelines on medical equipment. All current hospital insureds are in
compliance. At this point, no coverage change or exclusion has been enacted for
the medical malpractice professional liability policy. A Year 2000 exclusion
became effective January 1, 1999 on all premises and general liability policies
issued by MMIC. This exclusion will continue through the 2000 policy year. MMIC
has communicated its Year 2000 exposure preparedness to its reinsurers and they
fully support the plan as developed. While MMIC feels confident in the
completeness of its due diligence on Year 2000 exposure, it is not yet possible
to determine whether Year 2000 claims will be made against these policies or if
such claims will be held to have merit and what potential financial impact may
result.
Although the Company expects to complete its Year 2000 remediation in
1999, there are risks if its efforts are delayed or fail. A delay or failure in
remedying a Year 2000 issue, caused by internal computer hardware or software
errors or failures, or by key business partners and service vendors who fail to
become Year 2000 compliant could, in a worst case, interrupt the Company's
business. Depending upon the extent and duration of the business interruption
resulting from non-compliance issues, such interruption could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Although the Company believes the likelihood is remote based on the
due diligence performed as described previously, the potential does exist in a
worst case scenario for claims to be made by MMIC policyholders for Year 2000
failures they experience. Depending on whether such claims are deemed to have
merit and to the extent and amount these claims are awarded compensation, such
claims could have a material adverse effect on the Company's business, financial
condition, and results of operations.
The Year 2000 Task Force has developed contingency plans for the Company
with the exception of the MedPower subsidiary which is in the process of
developing a separate contingency plan. MedPower's contingency plan is expected
to be completed by June 1999. If the Company encounters Year 2000 problems with
respect to internal computer hardware and software, core functions can be
processed manually until the problems are remedied. If unanticipated Year 2000
problems occur with key service vendors, essential services can be handled
manually or through other vendors until the problems are resolved. The Year 2000
Task Force will be evaluating the need to test backup manual systems and
identify alternative key service vendors. In the event Year 2000 claims are made
on policies written by MMIC, the Company believes these claims will be without
merit and will vigorously defend its position. Although the Company believes its
contingency plans will be adequate, no assurances can be given that such plans
will address all risks that may actually arise.
The anticipated completion dates for Year 2000 compliance and the
Company's contingency plans and the cost estimates for the completion of Year
2000 modifications are based
15
<PAGE>
on management's best estimates utilizing current data regarding available
resources, coordination with third parties and other relevant factors and
information about systems conversion. No assurances, however, can be given that
these estimates will be achieved and actual results may differ from those
anticipated.
Readers are reminded that forward-looking statements contained in this
description of the Company's treatment of the Year 2000 issue should be read in
conjunction with the Company's following disclosures under the heading
"Cautionary Note Regarding Forward-Looking Statements."
Cautionary Note Regarding Forward-Looking Statements
Statements other than historical information contained in this Prospectus
are considered to be "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Act of 1934, as amended.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, in addition to the factors discussed in this
Prospectus, there are or will be other important factors that could cause actual
results to differ materially from those indicated in such statements. These
factors include but are not limited to:
i. the impact of changing market conditions on the Company's business
strategy;
ii. the effects of increased competition on pricing, coverage terms,
retention of customers and ability to attract new customers;
iii. greater severity or frequency of the types of losses that the
Company insure;
iv. faster or more adverse loss development experience than that on
which the Company based its underwriting, reserving, and investment
practices;
v. developments in global financial markets which could adversely
affect the performance of the Company's investment portfolio;
vi. litigation, regulatory or tax developments which could adversely
affect the Company's business;
vii. risks associated with the introduction of new products and services;
viii. dependence on key personnel;
ix. the impact of mergers and acquisitions; and
x. failure of the Company or significant third parties to achieve Year
2000 compliance or material expense incurred in connection with such
compliance.
16
<PAGE>
The facts set forth above should be considered in connection with any
forward-looking statement contained in this Prospectus. The important factors
that could affect such forward-looking statements are subject to change, and the
Company does not intend to update any forward-looking statement or the forgoing
list of important factors. By this cautionary note, the Company intends to avail
itself of the safe harbor from liability with respect to forward-looking
statements provided by Section 27A and Section 21E referred to above.
Market risk is the risk of loss that may occur when fluctuations in
interest and currency exchange rates and equity and commodity prices change the
value of a financial instrument. Both derivative and nonderivative financial
instruments have market risk. The Company is primarily exposed to interest rate
risk on its investment in fixed maturities and equity price risk on its
investment in equity securities.
As disclosed previously, the Company's fixed maturity and equity
investments are classified as available for sale and are managed to preserve
assets, maximize pre-tax total return, and assure adequate liquidity to meet the
funding needs of the Company. Under the current investment policy, management
does not use derivative instruments to manage exposure to either interest rate
risk or equity price risk. Professional outside investment managers adjust
portfolio characteristics, such as sector and average life, based on their
outlook of market conditions within the parameters set by the Company's
investment policy as approved by the Investment Committee of the Board of
Directors.
Based on the effective duration of the fixed maturity investment portfolio
as of December 31, 1998, an abrupt 100 basis point increase in interest rates
along the entire interest rate yield curve would adversely affect the fair value
of fixed maturity investments by approximately $8,500,000. Based primarily on
past annual performance relative to the Standard & Poors 500 Market Index (S&P
500), an abrupt ten percent decrease in the S&P 500 would adversely affect the
fair value of equity securities by approximately $10,000,000 at December 31,
1998. The Company believes that there would be no material effect on its net
income and cash flows in either scenario. This effect on net income and cash
flows does not consider the possible effects a change in economic activity could
have in such an environment. Investors, customers, regulators and legislators
could respond to these fluctuations in ways the Company cannot foresee. Because
the Company cannot be certain what specific actions would be taken and their
effects, the above sensitivity analyses assume no significant changes in the
Company's financial structure.
BUSINESS
Background. MMIC originally was organized in 1980 under the auspices of
the MMA to provide professional liability insurance to Minnesota physicians who
are members of the MMA. At that time, claims and awards in medical malpractice
cases had been increasing dramatically, and physicians were faced with
substantial premium increases and a declining number of insurers offering
medical malpractice coverage. The business was reorganized in 1988 into a stock
insurance company (MMIC), wholly owned by a holding company (MMIHC) which could
pursue
17
<PAGE>
other business opportunities. The reorganization also was effected to give
physicians a limited equity interest in their malpractice insurer, which would
give them input into the operations of the insurer and an opportunity to share
in any profits, while preserving the capital and surplus of MMIC. As of July 1,
1993, the Iowa physician-owned malpractice insurer, IPMIT, was merged with and
into MMIC, and as of June 5, 1996, the Nebraska physician-owned malpractice
insurer, MLM, was merged with and into MMIC.
MMIC now provides professional liability insurance to physicians in
Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North Dakota and South Dakota.
Professional liability, general liability and umbrella excess liability
insurance is also available to hospitals, and healthcare systems through MMIC.
MMIC has had the sponsorship of the MMA since inception and also has the
sponsorship of the Iowa and North Dakota medical associations.
Management Agreement. Pursuant to a written agreement renewable annually,
MMIC pays MMIHC for comprehensive management, administration, and underwriting
services, and for use of MMIHC's facilities, equipment and personnel. MMIHC
receives a management fee generally equal to the allocated cost of providing
such services, plus 10 percent. As a result of this agreement, MMIHC employs all
of the employees, and owns all of the non-financial assets, used in the
operation of the businesses of the Company. The agreement is subject to annual
review and approval by the Minnesota Department of Commerce. See Note 1 to
MMIHC's Consolidated Financial Statements.
Insurance Policies. MMIC primarily writes policies of medical professional
liability insurance to: (1) individual physicians, and (2) partnerships or
professional corporations comprised of physicians ("clinics"), and (3)
hospitalsand healthcare systems. In addition, MMIC writes business liability
insurance providing coverage for claims against a medical business entity
resulting from acts by its employees, and office premises liability insurance
providing coverage for claims arising out of the ownership, maintenance or use
of office premises of the insured.
In addition to meeting MMIC's underwriting standards, insureds must be
licensed to practice in Minnesota, Iowa, Nebraska, Wisconsin, Illinois, North
Dakota or South Dakota, and conduct a majority of their practice in such states.
All insured clinics must have their principal place of business in one of MMIC's
states and all full-time physicians practicing with insured clinics must be
insured by MMIC.
MMIC offers a "claims-made" medical malpractice liability insurance
policy. Under a claims-made policy, coverage is provided for claims asserted and
reported to MMIC while the policy is in effect relating to occurrences which
took place during the period in which the insured had coverage with MMIC. The
policy also covers prior acts (i.e., claims first made during the policy period
with respect to occurrences which took place prior to the date the insured
initially secured coverage from MMIC) for physicians previously insured under a
claims-made policy with another professional liability insurer. Prior acts
coverage is not available from MMIC for physicians who have not been
continuously insured prior to obtaining coverage from MMIC.
18
<PAGE>
MMIC also offers reporting endorsements ("tails") which provide coverage
of subsequent claims (i.e., claims first made subsequent to the date the insured
terminates basic insurance coverage with MMIC, but with respect to occurrences
which took place while the insurance coverage was in effect prior to such
termination date) made against its former insureds who have voluntarily
terminated insurance coverage with MMIC. In the event of death, permanent
disability, or retirement at age 55 or older after five years of coverage with
MMIC, the reporting endorsement is provided at no additional premium.
MMIC offers basic limits of coverage from $1,000,000 for each claim,
subject to $3,000,000 annual aggregate, up to $12,000,000 for each claim,
subject to $14,000,000 annual aggregate. Excess coverage above the basic limits
is available from MMIC's reinsurers on a facultative basis.
Reinsurance. MMIC purchases reinsurance in order to reduce its liability
on individual risks and to protect against catastrophic losses. A reinsurance
transaction takes place when an insurance company transfers, or "cedes", to
another insurer a portion of its exposure on insurance it writes. The reinsurer
assumes the exposure in return for a portion of the premium. The reinsurer's
liability is limited to losses it assumes that are in excess of the portion
retained by MMIC. However, in the event the reinsurer is unable or otherwise
fails to pay, MMIC remains primarily liable for the loss.
Historically, entering into reinsurance agreements permitted MMIC to issue
policies having greater liability limits than otherwise would have been allowed
under Minnesota insurance law, which prohibits an insurer from retaining a risk
on any one claim that is greater than 10 percent of its surplus. As MMIC's
surplus has grown, MMIC now utilizes reinsurance primarily to limit its risk on
any single claim. Such limits of risk assumed by MMIC for physician coverage
have increased from $150,000 in the first year of operations to $750,000
currently. The single claim limit of risk assumed is $750,000 for hospital
coverage. The reinsurer will pay losses in excess of the amount of risk retained
by MMIC, not to exceed the limits of liability of the policies issued by MMIC.
MMIC currently operates under an excess-of-loss reinsurance treaty with
General Reinsurance Corporation of Stamford, Connecticut (80%), Hanover
Reinsurance Company of Hanover, Germany (7%), Transatlantic Reinsurance Corp.
(6.5%), and CNA Re, UK (6.5%), whereby the reinsurers insure against losses in
excess of the loss limit retained by MMIC. General Reinsurance Corporation is
the largest reinsurer of medical professional liability in the United States and
one of the largest in the world and has received the highest rating of A++ by
A.M. Best & Company, Inc. Hanover Reinsurance Company is rated A+; Transatlantic
Re is rated A++; and CNA Re, UK is rated A by A.M. Best & Company, Inc. Coverage
under the treaty was initially issued on January 1, 1998, and is continuous
until canceled by either party. MMIC commuted the reinsurance treaties covering
the period from October 1, 1986 through December 31, 1991. As a result, there is
no longer any reinsurance coverage for those report years. As of December 31,
1998, there is one open case with $10,000 in loss reserves pertaining to those
report years. Previous reinsurance treaties, which remain in effect for
incidents prior to
19
<PAGE>
October 1, 1986, were with various domestic and foreign reinsurers, all of whom
have maintained their obligations to MMIC and appear to be financially sound.
MMIC currently cedes about $4,700,000 of premium per year under the reinsurance
treaty.
Marketing and Distribution. Marketing of MMIC policies in Minnesota, South
Dakota, Nebraska, Illinois and Wisconsin primarily is handled directly by MMIC
through salaried marketing representatives. MMIC has also made marketing
arrangements with a select group of large national brokers to assist MMIC in the
production of large accounts and in the production of new coverages as they are
developed. These brokers will sell MMIC's products in all states in which MMIC
is licensed to do business. IMS Services Company, a wholly-owned subsidiary of
the Iowa Medical Society, is the exclusive agent for marketing MMIC policies to
physicians and clinics in Iowa. MMIC does not believe that the loss of any
exclusive agent would have a material adverse effect on its business because
other agents are available and MMIC has the in-house capacity to market directly
in any of these areas. MMIC hospital insurance policies are marketed directly by
MMIC and through independent agents and brokers. MMIC approves all policies (and
their terms) sold by agents prior to their becoming effective, and no
commissions are earned by agents until such approval has been granted.
Investments. MMIC's investment portfolio is under the direction of the
Board of Directors acting through the Investment Committee. The Investment
Committee establishes MMIC's investment policy which, in summary, is to assist
in maintaining MMIC's financial stability through the preservation of assets and
the maximizing of pre-tax investment income. In 1997, the Committee changed the
investment guidelines to maximize pre-tax income and to extend the duration of
the fixed income investments. Adequate liquidity is maintained to assure that
MMIC has the ability to meet its insurance operational requirements, in
particular the payment of claims. MMIC employs outside investment managers who
manage the portfolio on a discretionary basis consistent with the policies set
by MMIC. In addition, the Investment Committee utilizes the services of a
separate outside consultant who calculates performance measures and provides an
independent opinion on the overall results being obtained by the investment
managers.
MMIC's investment portfolio consists primarily of investment grade fixed
income instruments, including United States Government, governmental agency, and
corporate bonds. Fixed income investments comprised approximately 62% of total
invested assets at December 31, 1998 compared to 70% at December 31, 1997.
MMIC's investment policy also permits the inclusion of equity securities. Equity
securities comprised approximately 33% of total invested assets at December 31,
1998 compared to 20% at December 31, 1997. The increase in the proportion of
equity securities was due to an increase in equity market values and a
reallocation of $15,000,000 from fixed income investments to international
equities in January 1998. The objectives of this reallocation were to further
diversify the portfolio and maximize pre-tax total return. The remainder of
MMIC's investment portfolio, 5% and 10% at December 31, 1998 and 1997,
respectively, was invested in a real estate investment trust and short-term
instruments.
The following table sets forth the composition of the combined investment
portfolio of the Company at the dates indicated:
20
<PAGE>
Book Value at December 31,
--------------------------
(in thousands)
Investments
- -----------
1996 1997 1998
Fixed maturities at fair value
(cost: 1996 - $179,979,
1997 - $170,590, 1998 - $161,430) $183,561 $171,975 $164,652
Equity securities at fair value
(cost: 1996 - $20,237,
1997 - $20,595, 1998 - $41,906,) $ 38,001 49,759 86,554
Short-term 7,898 13,909 3,556
Other 10,000 10,000
-------- --------
Total Investments $229,460 $245,643 $264,761
======== ====================
The following schedule compares the average yield on investments during
the last three years.
Year Ending December 31,
------------------------
1996 1997 1998
Average yield 5.4% 4.9% 4.3%
The fair value of fixed maturities at December 31, 19976, by contractual
maturity, is shown below as a percentage of the total fixed maturities
portfolio:
Percentage of Fixed
Maturity Maturity Portfolio at Fair Value
-------- --------------------------------
0 - 1 year 4%
1 - 5 years 25
5 - 10 years 17
Over 10 years 54
--
100%
===
Rating. A. M. Best & Company, Inc. ("Best's"), publisher of Best's
Insurance Reports, Property-Casualty, has assigned MMIC an A, or excellent,
rating in 1998. Best's ratings range from A++ to F, and are based on an analysis
of the financial condition and operation of an insurance company as compared
with the industry in general. MMIHC believes that a favorable rating has a
positive effect since customers and their advisors often review Best's ratings
when selecting an insurer and are more apt to purchase insurance from a company
with a positive rating because of the greater security and stability associated
with a positive rating. A positive rating relates to the ability of an insurer
to meet its insurance obligations and does not directly relate to
21
<PAGE>
the value of the insurer's securities. A.M. Best calculates several ratios and
publishes them each year as part of its annual report.
Government Regulation. MMIC is subject to governmental regulation in the
states in which it conducts its business - Minnesota, Iowa, Nebraska, Illinois,
Wisconsin, North Dakota and South Dakota. Such regulation is conducted by state
agencies having broad administrative power dealing with all aspects of MMIC's
business, including policy terms, rates, dividends and retroactive premium
adjustments to insureds, and dividends to the parent corporation, MMIHC.
Without prior approval from the Minnesota Commissioner of Commerce, annual
dividends to MMIHC cannot exceed 10 percent of unassigned surplus of MMIC or the
prior year's net income from operations of MMIC, whichever is greater. MMIC is
also subject to statutes that require it to file periodic information with state
regulatory authorities, and is subject to a financial and business conduct
examination every three years. MMIHC is also subject to statutes governing
insurance holding company systems in Minnesota, which relate primarily to the
acquisition of control of insurance companies directly or through a holding
company.
Competition. MMIC's major competitor is the St. Paul Companies. The St.
Paul Companies is a major national property-casualty insurance company, is the
largest writer of medical professional liability insurance in the United States,
and is many times larger than MMIC. In addition to the St. Paul Companies,
several other national companies have become active in the last several years,
including Medical Protective Insurance Company, CNA Insurance Company, Zurich
Insurance Company, Fireman's Fund Insurance Company and American Continental
Insurance Company (commonly referred to as "MMI"). At this time these additional
competitors have achieved limited market penetration, but represent an
increasing competitive pressure for the future. In addition, several other
physician-owned specialty carriers have entered the market, but have yet to be a
significant factor in MMIC's area. Finally, in the mid-1990's, several large
self-insured hospitals in Minneapolis and Des Moines have purchased MMIC insured
clinics, and other physician practices were purchased by large, self-insured
clinics such as the Mayo Clinic. In response to the consolidation occurring
among health care providers, MMIC expanded its underwriting capacity by
partnering with its reinsurers to provide the types of coverages needed by
larger health organizations. MMIC is the only carrier in Minnesota, Iowa and
North Dakota markets endorsed by local medical societies and owned by its
physician-insureds, which management believes gives MMIC a competitive advantage
in marketing to physicians.
The market for medical professional liability insurance is changing,
especially with the dramatic changes proposed and occurring in the broader
health care industry. Various changes in the market for medical professional
liability insurance are possible as a result of developments such as practice
consolidation and integration, physician-hospital organizations, various forms
of managed health care, various forms of alliances between providers, proposals
for enterprise liability, and many others. Management is developing new programs
and products which it believes will allow it to remain competitive as such
change occurs, although no assurance can be given to that effect.
22
<PAGE>
Employees. As of December 31, 1998, MMIHC employed 82 persons, of whom six
were executives, 52 were supervisory employees or specialists, and 24 were
clerical employees. None of the employees is covered by a collective bargaining
agreement and management believes that relations with employees are good.
Properties. MMIHC owns the following fixed assets, all of which are used
in the conduct of its business:
Net Book Value
December 31, 1997
-----------------
Office furniture and equipment $250,291
Leasehold improvements at leased premises,
6600 France Ave. S., Minneapolis, MN 37,819
Computer hardware 728,593
Computer system software 1,911,712
----------
Total $2,928,415
==========
The Company owns no real estate. MMIHC leases approximately 15,765 square feet
of office space in Edina, Minnesota under a 10-year lease that expires in 2001,
subject to the option of MMIHC to renew the lease for an additional five years
after the original term. Solutions and MedPower operated out of a separate,
leased, 3,149 square foot facility also located in Edina, Minnesota. This lease
is set to expire in 2001. An additional 4,060 square feet of office space is
leased in West Des Moines, Iowa under a 10-year lease that expires in 2000, with
an option for MMIHC to extend the term for an additional five years after the
original term. Finally, 1,249 square feet of office space is leased in Omaha,
Nebraska under a three year lease that expires November 30, 2000. Aggregate
annual rent expense was $501,032 for 1998 and $427,646 for 1997.
Litigation. MMIC believes that its loss and loss adjustment expense
reserves are adequate to cover possible liability from claims and lawsuits
against its insureds which arise in the normal course of its insurance business.
Apart from such matters, MMIC is not a party to any pending or threatened legal
proceeding which could have a material adverse effect on its operations.
MANAGEMENT
Directors
The names and ages of the directors of MMIHC and MMIC, the year each first
became
23
<PAGE>
a director, and the number of Class A Common Shares owned by each as of December
31, 1998, are as follows:
Class A
Common
Director Principal Shares
Name Age Since Occupation Owned
- --------------------------------------------------------------------------------
Michael Abrams 37 1996 Exec V.P. Iowa Medical
Society --
John R. Balfanz, M.D. 53 1995 Physician 15
Gail P. Bender 51 1996 Physician 23
James R. Bishop, M.D. 57 1994 Physician --
David P. Bounk 52 1995 President and CEO --
Roger L. Frerichs, M.D. 59 1988 Surgeon 88
Richard Geier, Jr., M.D. 58 1995 Physician 24
Anthony C. Jaspers, M.D. 51 1996 Physician 52
Russel J. Kuzel, M.D. 46 1997 Physician 27
Wayne F. Leebaw, M.D. 55 1994 Physician 25
Steven A. McCue, M.D. 57 1995 Physician 126
William J. McMillan, Jr. M.D. 51 1997 Physician 70
Harold W. Miller, M.D. 51 1996 Physician 27
Anton S. Nesse, M.D. 60 1989 Radiologist 54
Mark D. Odlund, M.D. 46 1996 Physician 88
G. William Orr, M.D. 63 1996 Physician 56
Norman Rinderknecht, M.D. 64 1993 Physician 97
Paul S. Sanders, M.D. 54 1984 CEO-MN Medical Assoc. --
Richard D. Schmidt, M.D.
Secretary 55 1990 Physician 152
Judith F. Shank, M.D. 56 1999 Physician 15
Andrew J. K. Smith, M.D.
Chairman of Board 56 1990 Neurological Surgeon 199
G. David Spoelhof, M.D. 45 1989 Physician 48
Tom D. Throckmorton, M.D. 53 1997 Physician 72
R. Bruce Trimble, M.D
Vice Chair of Board 58 1993 Physician 23
As of December 31, 1998 the directors of MMIHC, as a group, owned 1,283
Class A Common Shares, or one percent of the total Class A Common Shares
outstanding as of such date. No executive officer owned any Class A Common
Shares as of such date.
All of the directors have been principally engaged in the practice of
medicine for more than five years, except for Dr. Sanders who has been the
Executive Vice President of the MMA since 1990, Michael Abrams, who has been the
Executive Director of the Iowa Medical Society (the "IMS") since 1996 and David
P. Bounk who has been President and CEO of MMIHC since 1991. Prior to 1996, Mr.
Abrams was Director, Governmental Relations of the Indiana Medical Association
for nine years.
24
<PAGE>
The Bylaws of MMIHC provide that MMIHC's Board of Directors shall include
the following: (1) up to 20 physicians divided into three classes and elected
for staggered three-year terms; (2) for as long as the Class B Common Share is
outstanding, the Chief Executive Officer of the MMA and the Executive Vice
President of the IMS, both of whom shall be ex-officio directors; (3) the
President of MMIHC as an ex-officio director; and (4) such additional ex-officio
and advisory members as the Board of Directors may determine. At least
two-thirds of the voting members of the Board of Directors must be members of a
state medical association and insured by MMIC. The MMA, which has the exclusive
right to elect directors, has agreed to elect the directors nominated by a
committee of the Board of Directors. Directors serve until their successors are
elected and qualified or until their prior resignation, removal, death or
disqualification.
The Bylaws of MMIHC provide for the election of directors who are members
of the IMS in a number, when compared to the total number of directors, which is
proportionate to the number of Iowa insureds compared to the total number of
MMIC insureds, subject to a minimum of two Iowa directors, one of whom shall be
the Executive Vice President of the IMS, for as long as the Class B Common Share
is outstanding. The MMA has placed the Class B Voting Share in a voting trust
which requires the trustee to vote the share for the election of the Iowa
directors nominated by the IMS.
The Board of Directors of MMIHC has the following standing committees: (1)
Executive; (2) Audit and Budget; (3) Nomination; and (4) Compensation. The
activities and current membership of each of these committees are described
below:
[The Executive Committee, pursuant to Minnesota law and the Bylaws of
MMIHC, has the full power and authority to act for the Board between its
meetings. The members of the Executive Committee include the Chairman, Vice
Chairman and Secretary of the Board of MMIHC, the President, and such other
individuals as appointed by the Board of Directors. The persons currently on the
Executive Committee are as follows: Andrew J.K. Smith, Chairman, David P. Bounk,
Roger L. Frerichs, M.D., Richard Geier, M.D., Paul S. Sanders, M.D., Richard D.
Schmidt, M.D., Bruce Trimble, M.D. and Michael Abrams.
The Audit and Budget Committee reviews and approves the annual audit of
the books and records and annual budget of MMIHC. The members of the Audit and
Budget Committee are R. Bruce Trimble., Andrew J.K. Smith, M.D., Richard Geier,
M.D., John Balfanz, M.D. and Norman Rinderknecht, M.D.
The Nominating Committee submits to the Board of Directors the names of
all nominees for election to the Board. The Chairman of the Board is a member of
the Nominating Committee together with the Vice-Chairman of the Board, the
Chairman of the Board of the MMA or his or her designate, the Chief Executive
Officer of the MMA, and such two members as appointed by the Board. The members
of the Nominating Committee are Andrew J.K. Smith, M.D., Paul S. Sanders, M.D.,
Michael Abrams, R. Bruce Trimble, M.D., Anthony Jaspers, M.D., Stephan A. McCue,
M.D. and Paul Matson, M.D.
25
<PAGE>
The Compensation Committee reviews and establishes the compensation and
benefits of all executives of MMIHC. The Committee consists of the Chairman of
the Board, the Vice Chairman of the Board, and three additional members
appointed by the Board. The current members of the Compensation Committee are
Andrew J.K. Smith, M.D., R. Bruce Trimble, M.D., and James Bishop, M.D. Harold
W.. Miller, M.D. and John R. Balfanz, M.D..
The Bylaws of MMIC provide that the directors of MMIHC shall also serve as
the directors of MMIC, with the exception of any outside directors of MMIHC.
Outside directors are persons who are not policyholders of MMIC or members of
the MMA. There are currently no outside directors of MMIHC so the Boards of
MMIHC and MMIC are identical at this time.
The Board of Directors of MMIC has the following standing committees: (1)
Claims (Minnesota and Iowa); (2) Investment; and (3) Underwriting/Risk
Management. The activities and current membership of each of these committees
are described below.
The Minnesota and Iowa Claims Committees review trial alerts and
individual claims when the settlement authority request is in excess of
$350,000. The Claims Committees also review periodically all claims and lawsuits
that have been closed and monitors overall claim statistics. The members of the
Minnesota Claims Committee are Anton S. Nesse, M.D., Wayne R. Leebaw, M.D., Mark
D. Odland, M.D., Gail Bender, M.D., James R. Bishop, M.D., William L. Youmans,
M.D., Susan J. Cushman, M.D. The members of the Iowa Claims Committee are Norman
K. Rinderknecht, M.D. Sean D. Cunningham, M.D., Scott A. Honsey, M.D.; Cassim M.
Igram, M.D., Clarence H. Denser, Jr., M.D. and Tom D. Throckmorton, M.D.
The Investment Committee establishes investment policy which is approved
by the Board and implemented by professional investment managers, who are
employed by MMIC for that purpose. The Investment Committee meets frequently
with MMIC's investment manager and reviews the past performance, the current
portfolio and the future direction of MMIC's investments. See
"Business-Investments." The members of the Investment Committee are Richard
Geier, Jr., M.D., Chairman, Charles A. Geer, Michael Abrams, M.D., Andrew J.K.
Smith, M.D., Paul Sanders, M.D., Gail Bender, M.D., Harold Miller, M.D., G.
William Orr, M.D., and Norman Rinderknecht, M.D.
The Underwriting/Risk Management Committee establishes criteria for
acceptability of new applicants for insurance. The committee reviews closed
claims to determine renewal acceptability for current policyholders and
recommend changes in underwriting policy to the Board of Directors. The members
of the Committee are Richard Schmidt, M.D., Chairman, Charles F. Eisenbeis,
M.D., Stephen A. McCue, M.D., George J. Nemanich, M.D., Thomas F. Varecka, M.D.,
Norman Rinderknecht, M.D., William J. McMillan, Jr., M.D., M.D., John R.
Balfanz, M.D., Russel J. Kuzel, M.D., William J. McMillan, Jr., M.D., Anthony C.
Jaspers, M.D., and Paul Sanders, M.D.
26
<PAGE>
The Chairman of the MMIHC Board of Directors (currently Dr. Smith) is paid
an annual fee of $38,520. All members of the Board of Directors currently are
paid $750 for each meeting of the Board of Directors they attend. In addition,
members of the Executive Committee currently are paid $750 for each meeting of
the Executive Committee they attend, and committee chairmen are paid $600 for
each meeting of the standing committee they chair. Other members of standing
committees currently are paid between $300 and $500, depending upon distance
traveled, for each committee meeting they attend.
Executive Officers
The names, ages and positions of the executive officers of MMIHC and MMIC
are as follows:
<TABLE>
<CAPTION>
Period of
Position Service as Principal
Name Age with Company an Officer Occupation
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David P. Bounk 52 President and Chief 8/1/90 to President and Chief
Executive Officer date Executive Officer
Niles A. Cole 37 Vice President-Finance 1998 to date Vice President-Finance
and Treasurer and Treasurer
Jack L. Kleven 52 Senior Vice President 1986 to date Senior Vice President
and Chief Operating and Chief Operating
Officer Officer
Elizabeth S. Lincoln 45 Vice President-Law 1990 to date Vice President-Law
and Health Policy and Health Policy
Gerald M. O'Connell 44 Vice President - 1998 to date Vice President -
Marketing Marketing
Michael G. Rutz 45 Vice President- 5/15/95 to Vice President -
Underwriting date Underwriting
</TABLE>
Mr. Bounk has over 30 years experience in the insurance industry and
joined MMIHC and MMIC as President and Chief Executive Officer in August 1990.
From July 1982 through July 1990, he was Executive Vice President and Chief
Operating Officer of Missouri Medical Insurance Company, a corporation providing
malpractice insurance to physicians in Missouri. Mr. Bounk has an MBA degree in
finance.
Mr. Bounk has an employment agreement which renews annually for successive
calendar-year terms unless it is terminated by either party at least 60 days
prior to any renewal date. The
27
<PAGE>
agreement provides that Mr. Bounk's base salary will be adjusted annually by the
Executive Committee. If the agreement is terminated by MMIHC for cause or by Mr.
Bounk voluntarily, he is entitled to receive his base salary for 30 days
thereafter. If the agreement is terminated by MMIHC without cause, Mr. Bounk is
entitled to receive his base salary for six months thereafter, plus one
additional month for each year of service, subject to a maximum of 12 additional
months, and then only until he commences new employment or self-employment. The
agreement also prohibits Mr. Bounk from competing with MMIHC for one year
following his termination of employment.
Effective January 1, 1997, the Company entered into termination agreements
with the executive officers. These agreements provide a severance package to
these executives in the event of termination of employment without cause.
Mr. Cole has over 15 years experience in the insurance industry, including
6 years with Washington State Physician's Insurance Association. He has been in
his current position since March 1998. He has BS degrees in accounting and
finance.
Mr. Kleven has over 25 years experience in medical malpractice claims
adjusting and management. He joined the Exchange in 1983, and was Vice
President, Claims since March 1986. He was promoted to Chief Operating Officer
on January 1, 1998. Prior to joining the Exchange, he was a liability manager at
The St. Paul Companies for six years. He has a BS degree in business.
Ms. Lincoln has over 15 years experience in medical professional liability
risk management. She joined the Exchange in 1982, and was Vice President, Risk
Management since January 1990. She transferred to Vice President, Law and Health
Policy, effective January 1, 1998. She has a law degree.
Mr. Rutz has over 20 years experience in the insurance industry, including
10 years in medical malpractice. From June 1986 through April 1994, he was
Senior Regional Underwriting Manager with St. Paul Fire and Marine Insurance
Company. From May 1994 through April 1995, he was Vice President with Alexander
and Alexander, insurance brokers. He joined the Company in May 1995 as Vice
President-Underwriting. He has a BS degree in resource management.
Mr. O'Connell has over 22 years in the medical malpractice segment of the
insurance industry. From 1977 to 1995, he was with St. Paul Fire and Marine
Insurance Company holding various marketing and underwriting management
positions. He joined the Company in October 1996. He has a BS in Agriculture
Business Management with an emphasis in Insurance.
Officers serve until their successors are appointed by the Board of
Directors, or until their prior resignation, removal or death.
Summary Compensation Table
28
<PAGE>
The following table summarizes compensation paid by MMIHC to its five most
highly compensated executive officers for services rendered in all capacities
during the last three years.
<TABLE>
<CAPTION>
Cash Compensation
Name of Individual Capacities in ----------------- All Other
or Number in Group Which Served Salary Bonus Compensation(a)
- ------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
David P. Bounk President and Chief 1998 $200,187 $85,830 $32,272
Executive Officer 1997 187,088 56,126 20,963
1996 170,080 51,024 17,687
Jack L. Kleven Senior Vice President and 1998 167,716 61,636 30,847
Chief Operating Officer 1997 145,840 43,752 17,193
1996 132,420 39,796 17,384
Elizabeth S. Lincoln Vice President-Law 1998 108,015 33,080 29,242
and Health Policy 1997 102,871 30,861 13,286
1996 97,020 29,106 14,319
Gerald M. O'Connell Vice
President-Marketing 1998 109,000 34,749 21,739
1997 95,077 11,530 17,850
1996 24,900 2,423 4,608
Michael G. Rutz Vice President- 1998 119,816 36,694 31,406
Underwriting 1997 114,110 34,233 14,113
1996 108,680 32,604 14,980
</TABLE>
(a) Includes employer contributions to qualified retirement plans and the term
and cash surrender value of supplemental life insurance premiums.
MMIHC also maintains a Supplemental Executive Retirement Plan ("SERP")
which provides an annual retirement benefit for an executive officer who retires
at age 62 with 10 years of service of 70% of the officer's final average salary.
Benefits are reduced for years of service less than 10 and retirement prior to
age 62. The annual benefit payable under the SERP is reduced by 50% of the
officer's primary Social Security benefit and by the annual benefit (expressed
in the form of an annuity) of the officer's accrued benefits under MMIHC's
current money purchase pension plan and a predecessor plan. The estimated annual
benefits payable upon retirement at normal retirement age for the executive
officers in the Summary Compensation table are as follows: Mr. Bounk--$201,500;
Mr. Kleven--$125,900; Ms. Lincoln--$82,000; Mr. Rutz--$147,100 and Mr.
O'Connell--$96,400. The estimated annual retirement benefits were calculated
assuming salary increases of five percent per year, discounted four percent per
year for future inflation to express the estimated benefits in today's dollars.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Description of Class A Common Shares. Class A Common Shares, $.01 par
value, are uncertificated shares which may be owned by individual physicians or
by individual physicians jointly with the legal entities in which they practice.
In the latter case the Shares can be voted only by the physicians, subject to
their right to grant proxies. Each individual holder of Class A Common Shares
has only one vote, regardless of the number of shares that he or she owns.
Holders of Class A Common Shares have the right to vote on all corporate matters
except for the election of members of the Board of Directors of MMIHC. Such
right has been granted to the MMA, the holder of the sole Class B Voting Share
which is authorized and outstanding. However, the MMA has agreed to elect the
directors nominated by a committee of the Board of Directors. See "Description
of Class B Voting Share."
As long as the Class B Voting Share remains outstanding, the holders of
Class A Common Shares may, at any time, cause MMIHC to redeem the Class B Common
Share at par value ($1,000), and thereby gain the right to elect directors. Such
an action requires the vote of a majority of the Class A shareholders and
two-thirds of the Class A shareholders who vote on the question.
The Class A Common Shares are restricted shares that cannot be sold to any
person other than MMIHC and are subject to mandatory redemption at the time that
the physician-insured terminates his or her insurance coverage for any reason.
The redemption price will be based on the net book value of MMIHC, excluding the
net book value attributable to MMIC (MMIHC's primary asset). By excluding the
value attributable to MMIC from the calculation of the redemption price, MMIC's
capital and surplus will be preserved and not reduced by the redemption. Other
terms and conditions of the redemption will be established by the Board of
Directors of MMIHC. The redemption amount thus reflects primarily MMIHC's net
income from operations, which consists principally of management fees paid by
MMIC, plus earnings on investments, plus any dividends paid by MMIC to MMIHC.
Holders of Class A Common Shares will share in any remaining assets upon
liquidation of MMIHC, proportionately on the basis of the number of shares held
by each shareholder. In the event of any liquidation, all of the assets of MMIHC
will be included, including MMIC if MMIC remains a subsidiary of MMIHC at the
time of liquidation. In the event of any merger, sale of all or substantially
all of the assets, or other extraordinary event, any consideration payable to
holders of Class A Common Shares will reflect the full value of the Shares and
will not be limited to the redemption amount.
The Class A Common Shares do not entitle their holders to preemptive
rights or cumulative voting, and no assignment or other transfer of the Class A
Common Shares is permitted. Holders of Class A Common Shares are permitted to
enter into voting agreements and appoint proxies to vote such shares, and are
permitted to assign their rights, if any, to the proceeds from any redemption of
Class A Common Shares.
30
<PAGE>
There is no market for the Class A Common Shares, nor is it anticipated
that there ever will be a public or private market in which the Class A Common
Shares are traded. Accordingly, all holders of Class A Common Shares must expect
to retain their shares until they cease to be policyholders of MMIC. MMIHC has
never paid a dividend nor does it intend to within the foreseeable future,
although the Class A Common Shares will have the right to receive dividends
when, as, and if the Board of Directors of MMIHC authorizes the payment of a
dividend.
All physicians who were MMIC insureds at the time of the reorganization in
1988, IPMIT insureds at the time of its merger with MMIC in 1993, or MLM
insureds at the time of its merger with MMIC in 1996, received shares of MMIHC
upon completion of those transactions in accordance with the Allocation Schedule
set forth in the Appendix, based upon their periods of coverage by MMIC and its
predecessors and their underwriting classifications. These insureds also accrue
and are issued additional Shares pursuant to the Allocation Schedule (reduced by
the inverse of the Increased Limits Factor for Nebraska insureds, see "The
Offering") for each day they remain insured with MMIC after the completion of
those transactions. Issuance of shares to new insureds of MMIC is subject to a
five-year vesting requirement and all rights will be forfeited if insurance
coverage is not continuous for five years. The Allocation Schedule has been
modified since 1988 and MMIHC reserves the right to modify it in the future.
As of December 31, 1998, there were 125,682 Class A Common Shares
outstanding held by 3,496 physicians; 2,557 additional physicians have accrued
the right to receive 13,770 additional Class A Common Shares subject to
completion of the five-year vesting period.
Description of Class B Voting Share. The holder of the one Class B Voting
Share authorized by MMIHC's Articles of Incorporation is the MMA. The Class B
Voting Share has no rights or preferences other than the right to elect the
members of the Board of Directors of MMIHC. This right gives the MMA the
effective right to elect the Board of Directors of MMIC, since the Bylaws of
both corporations provide that each member of the Board of Directors of MMIC
will be a member of the Board of Directors of MMIHC, and the MMA and MMIHC have
entered into an agreement to exercise their respective voting rights to elect
the same persons to the Board of Directors of MMIHC and MMIC. A nominating
committee of MMIHC nominates persons to be elected as members of the Board of
Directors, and the MMA has agreed to elect these persons to the Board of
Directors.
The Class B Voting Share is currently held in a voting trust which
requires the trustee to vote the share for the election of at least two Iowa
directors nominated by the IMS. See, "MANAGEMENT - Directors."
As long as the Class B Voting Share remains outstanding, the holders of
Class A Common Shares may, at any time, cause MMIHC to redeem the Class B Common
Share at par value ($1,000) by the vote of a majority of the outstanding Class A
shareholders and two-thirds of the Class A shareholders who vote on the
question.
31
<PAGE>
LEGAL MATTERS
The validity of the shares of MMIHC Class A Common Stock to be issued in
connection with this offering is being passed upon for MMIHC by Best & Flanagan
PLLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements and schedules of Midwest Medical
Insurance Holding Company at December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
Financial Statements
<S> <C>
Consolidated Financial Statements
Report of Independent Auditors ..................................................... F1
Consolidated Balance Sheets - December 31, 1998 and 1997 ........................... F2
Consolidated Statements of Income - For the Years Ended December 31, 1998,
1997 and 1996 .................................................................... F3
Consolidated Statements of Changes in Other Shareholders' Equity - For the Years
Ended December 31, 1998, 1997 and 1996 ........................................... F4
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1998, 1997 and 1996 ................................................. F5
Notes to Consolidated Financial Statements ......................................... F6
Financial Statement Schedules
[Report of Independent Auditors ........................................................ F29]
Schedule II - Condensed Financial Information of Registrant
(Parent Company) ................................................................... F30
Balance Sheets - December 31, 1998 and 1997 ........................................ F30
Statements of Income - For the Years Ended December 31, 1998, 1997
and 1996 ......................................................................... F31
Statements of Cash Flows - For the Years Ended December 31, 1998,
1997 and 1996 .................................................................... F32
Note to Condensed Financial Statements ............................................. F33
Schedule IV - Reinsurance - For the Years Ended December 31, 1998, 1997
and 1996 ........................................................................... F33
Schedule VI - Supplemental Information Concerning Property/Casualty Insurance
Operations - December 31, 1998 and 1997 and for Each of the Three Years
in the Period Ended December 31, 1996 .............................................. F34
</TABLE>
i
<PAGE>
Report of Independent Auditors
Board of Directors
Midwest Medical Insurance Holding Company
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Midwest Medical
Insurance Holding Company and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in other shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Midwest Medical
Insurance Holding Company and Subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 1, 1999
F-1
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except for Share Amounts)
December 31
1998 1997
----------------------
Assets
Investments:
Fixed maturities at fair value (cost: 1998--$161,430;
1997--$170,590) $164,652 $171,975
Equity securities at fair value (cost: 1998--$41,907;
1997--$21,576) 86,553 50,862
Short-term 3,556 13,909
Other 10,000 10,000
----------------------
264,761 246,746
Cash 647 2,378
Accrued investment income 1,739 2,341
Reinsurance recoverable 16,499 19,117
Amounts due from reinsurers 3,191 --
Other assets 8,646 4,933
----------------------
Total assets $295,483 $275,515
======================
Liabilities, redeemable stock and other
shareholders' equity
Liabilities:
Unpaid losses and loss adjustment expenses $110,964 $107,806
Unearned premiums 8,173 6,072
Retrospective premiums 8,543 9,905
Deferred income taxes 10,966 3,592
Amounts due reinsurers -- 2,984
Other liabilities 6,244 11,389
----------------------
Total liabilities 144,890 141,748
Redeemable stock:
Class A Common Stock--authorized 300,000 shares,
issued and outstanding 125,682 shares in 1998 and
121,322 shares in 1997 8,146 7,476
Class B Common Stock--authorized, issued
and outstanding 1 share 1 1
----------------------
8,147 7,477
Other shareholders' equity 142,446 126,290
----------------------
Total liabilities, redeemable stock and other
shareholders' equity $295,483 $275,515
======================
See accompanying notes.
F-2
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except for Per Share Amounts)
Year ended December 31
1998 1997 1996
---------------------------------
Revenues:
Net premiums earned $35,014 $32,916 $31,177
Net investment income 10,919 11,509 12,061
Realized capital gains 8,949 6,484 1,771
Other 1,536 1,283 1,726
---------------------------------
56,418 52,192 46,735
Losses and expenses:
Losses and loss adjustment expenses 37,494 31,834 32,257
Underwriting, acquisition and insurance
expenses 6,698 5,509 4,681
Other operating expenses 3,589 1,086 858
---------------------------------
47,781 38,429 37,796
---------------------------------
Income before income taxes 8,637 13,763 8,939
Income taxes 2,689 4,463 1,458
---------------------------------
Net income $ 5,948 $ 9,300 $ 7,481
=================================
Income per common share $ 48.36 $ 77.79 $ 64.45
=================================
Income per common share--assuming dilution $ 43.65 $ 70.23 $ 58.33
=================================
See accompanying notes.
F-3
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Changes in Other Shareholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Paid-In Retained Comprehensive
Total Capital Earnings Income
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 103,292 $ 12,789 $ 78,204 $ 12,299
Comprehensive income:
Net income 7,481 -- 7,481 --
Other comprehensive income:
Unrealized gains on securities net of $1,468
in taxes 2,726 -- -- 2,726
Reclassification adjustment for gains
included in net income net of $620 in taxes (1,151) -- -- (1,151)
---------
Total comprehensive income 9,056
Net income of non-insurance entities includable
in Class A Common Stock redemption value (1,070) -- (1,070) --
-----------------------------------------------------
Balance at December 31, 1996 111,278 12,789 84,615 13,874
Comprehensive income:
Net income 9,300 -- 9,300 --
Other comprehensive income:
Unrealized gains on securities net of $5,491
in taxes 10,199 -- -- 10,199
Reclassification adjustment for gains
included in net income net of $2,269 in
taxes (4,215) -- -- (4,215)
---------
Total comprehensive income 15,284
Net income of non-insurance entities includable
in Class A Common Stock redemption value (272) -- (272) --
-----------------------------------------------------
Balance at December 31, 1997 126,290 12,789 93,643 19,858
Comprehensive income:
Net income 5,948 -- 5,948 --
Other comprehensive income:
Unrealized gains on securities net of $9,111
in taxes 16,921 -- -- 16,921
Reclassification adjustment for gains
included in net income net of $3,132 in
taxes (5,817) -- -- (5,817)
---------
Total comprehensive income 17,052
Dividend paid by Midwest Medical Insurance
Company to Midwest Medical Insurance Holding
Company (2,000) -- (2,000) --
Net loss of non-insurance entities includable in
Class A Common Stock redemption value 1,104 -- 1,104 --
-----------------------------------------------------
Balance at December 31, 1998 $ 142,446 $ 12,789 $ 98,695 $ 30,962
=====================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 5,948 $ 9,300 $ 7,481
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Decrease in accrued investment income 602 437 97
Decrease in reinsurance recoverable 2,618 3,057 2,938
Increase in amounts due from reinsurers (3,191) -- --
(Increase) decrease in other assets (3,713) 1,518 1,015
Deferred tax provision 1,354 1,494 298
Increase (decrease) in unpaid losses and loss
adjustment expenses 3,158 (2,231) (10,227)
Increase (decrease) in unearned premiums 2,101 (788) (173)
Decrease in retrospective premiums (1,362) (933) (26)
Decrease in amounts due reinsurers (2,984) (4,290) (544)
(Decrease) increase in other liabilities (5,145) 3,287 (236)
Accretion of bond discount, net of premium
amortization (266) (618) (1,080)
Realized capital gains (8,949) (6,484) (1,771)
Compensation expense for vested Class A common shares 224 253 156
-----------------------------------------
(9,605) 4,002 (2,072)
Investing activities
Purchases of fixed maturity investments and equity
securities (401,922) (311,947) (75,684)
Sales of fixed maturity investments and equity
securities 398,717 316,982 54,293
Calls and maturities of fixed maturity investments 1,250 -- 16,250
Net sales (purchases) of short-term investments 6,502 (6,011) 7,117
Capitalization of Midwest Medical Solutions, Inc. 3,850 -- --
-----------------------------------------
8,397 (976) 1,976
Financing activities
Redemption of Class A Common Stock (523) (648) (608)
-----------------------------------------
(Decrease) increase in cash (1,731) 2,378 (704)
Cash at beginning of year 2,378 -- 704
-----------------------------------------
Cash at end of year $ 647 $ 2,378 $ --
=========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. Accounting Policies
Organization and Operations
The Minnesota Medical Insurance Exchange (Exchange) began operations in October
1980 as a reciprocal or inter-insurance exchange organized under Chapter 71A of
the Minnesota Statutes. Minnesota Medical Management, Inc. (MMMI) was the
Exchange's attorney-in-fact and was responsible for management of the Exchange.
On November 30, 1988, the Exchange was reorganized into a stock insurance
company, Midwest Medical Insurance Company (MMIC), under the statutes of the
State of Minnesota. Concurrently, MMMI merged with the Midwest Medical Insurance
Holding Company (MMIHC) which then acquired all outstanding shares of the
reorganized stock company.
Effective July 1, 1993, MMIC merged with Iowa Physicians Mutual Insurance Trust
(IPMIT), a physician-owned professional liability insurance company providing
insurance coverage to Iowa physicians. As provided for in the agreement and plan
of merger, IPMIT was merged into MMIC. The merger was accounted for as a
pooling-of-interests.
During 1995, MMIHC formed MMIHC Insurance Services, Inc. (Services) to provide
agency services for the distribution of complementary insurance products and
services to physicians, clinics and hospitals.
Effective June 5, 1996, MMIC merged with Medical Liability Mutual Insurance
Company of Nebraska (MLM), a physician-owned professional liability insurance
company providing insurance coverage to Nebraska physicians. As provided for in
the agreement and plan of merger, MLM was merged into MMIC. The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements include the combined financial position and results of
operations of MMIHC and MLM for all periods presented.
During 1997, MMIHC formed Midwest Medical Solutions, Inc. (Solutions) as a
business development company to strengthen and promote the independence and
interdependencies of physicians, clinics and hospitals that MMIC serves.
Business development opportunities being pursued include practice enhancement,
strategic consulting, and electronic processing and integration services and
support.
F-6
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Effective January 1, 1998, Solutions purchased the assets and operations of
MedPower Information Resources, Inc. (MedPower). MedPower processes and
electronically submits medical claims for a network of over 100 provider
entities. MedPower also provides various information consulting and network
support services.
MMIHC provides management and administrative services to MMIC for a fee
generally equal to the cost of services provided plus ten percent. The insurance
company provides professional liability insurance to physicians, clinics,
hospitals and healthcare systems in Minnesota, Iowa, Nebraska, Wisconsin,
Illinois, North Dakota and South Dakota.
Insurance policies issued by MMIC are on a "claims made" basis and provide
coverage for the policyholder for claims first made against the policyholder and
reported to MMIC during the policy period for claims which occurred on or after
the retroactive date stated in the policy.
MMIC provides, upon payment of an additional premium, a reporting endorsement
which extends the period in which claims otherwise covered by the "claims made"
policy may be reported to MMIC. In the event of death or permanent disability of
a policyholder, the reporting endorsement is issued without additional premium.
Upon retirement, as defined in the policy, a policyholder with at least five
years of consecutive coverage with MMIC is eligible for a credit toward the
additional premium for the reporting endorsement.
Prior acts coverage may be purchased by policyholders who were previously
insured under a "claims made" policy with another professional liability insurer
for an additional premium at the option of the insured in lieu of purchasing
reporting endorsement coverage from the previous insurer.
Principles of Consolidation
The consolidated financial statements include the accounts of MMIHC and its
wholly-owned subsidiaries, MMIC, Services, and Solutions, which includes
Solution's wholly-owned subsidiary, MedPower. All transactions between MMIHC and
its subsidiaries have been eliminated in consolidation with the exception of the
distribution of capital to MMIHC by MMIC in the form of dividends.
F-7
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Hereafter, MMIHC, MMIC, Services, Solutions and MedPower shall be collectively
referred to as the Company unless the reference pertains to a specific entity.
Basis of Presentation
The consolidated financial statements have been presented in conformity with
generally accepted accounting principles, which differ in certain respects from
statutory accounting practices followed by MMIC in reporting to the Department
of Commerce of the State of Minnesota (see Note 10).
Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement 130.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, as
well as disclosure of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
F-8
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Investments
The Company manages its investment portfolio to achieve its long-term investment
objective of providing for the financial stability of the Company through
preservation of assets and maximization of total portfolio return. Although
management believes the Company has the ability to hold its fixed maturity
investment portfolio to maturity, these investments are classified as "available
for sale" as management may take advantage of opportunities to increase total
return through sales of selected securities in response to changing market
conditions.
Consistent with management's classification of its investment in debt and equity
securities as available for sale, such investments are carried at fair value
with unrealized holding gains and losses reflected as a component of other
comprehensive income, net of applicable deferred taxes.
Fair values are based on quoted market prices, where available. For fixed
maturity investments not actively traded, fair values are estimated using values
obtained from independent pricing services.
Short-term investments are principally money market funds backed by U.S.
government securities and are recorded at cost which approximates fair value.
Other investments are less than twenty percent equity interests in non-traded
real estate investment trusts and are recorded at cost.
Realized gains and losses on sales of investments are reported on a pre-tax
basis as a component of income and are determined on the specific identification
basis.
F-9
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Losses and Loss Adjustment Expenses
The liability for unpaid losses and loss adjustment expenses represents an
estimate of the ultimate cost of all such amounts which are unpaid at the
balance sheet dates. The liability is based on both case-by-case estimates and
statistical analysis and projections using the historical loss experience of
MMIC, and gives effect to estimates of trends in claim severity and frequency.
These estimates are continually reviewed and, as adjustments become necessary,
such adjustments are included in current operations. MMIC believes that the
estimate of the liability for losses and loss adjustment expenses is reasonable.
Premiums
Premiums received are recorded as earned ratably over the lives of the policies
to which they apply. A portion of premiums received is deferred to recognize
MMIC's obligation to provide reporting endorsement coverage without additional
premium upon the death, disability or retirement of policyholders. This amount
is recorded as an unearned premium reserve and represents the actuarially
determined present value of future benefits to be provided less the present
value of future revenues to be received.
MMIC has a retro premium program whereby physicians may receive credits against
future premiums based upon loss experience of MMIC. Amounts to be returned under
the program are accrued when approved by the Board of Directors and reflected as
a reduction in net premiums earned.
Reinsurance
MMIC cedes reinsurance in order to reduce its liability on individual risks and
to enable it to write business at limits it otherwise would be unable to accept.
All reinsurance contracts are excess-of-loss contracts which indemnify MMIC for
losses in excess of a stated retention limit up to the policy limits.
Reinsurance receivables and recoverables and prepaid reinsurance premiums are
reported as assets and reserve liabilities are reported gross of reinsurance
credits.
F-10
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Acquisition Costs
Acquisition costs are expensed when incurred. Due to the nature of its
operations, MMIC does not pay significant amounts in commissions.
Income Taxes
The Company files a consolidated tax return with its subsidiaries. Income tax
expense is allocated to the subsidiaries based upon separate company taxable
income under a tax-sharing agreement. The Company uses the asset and liability
method of accounting for income taxes. Deferred income tax assets or liabilities
are recognized for the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and amounts used for
income tax purposes.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the year. Diluted EPS reflects the potential dilution that could occur if
earned but unissued shares of Class A common stock were issued.
Reclassifications
Certain amounts in the prior years' financial statements have been reclassified
to conform with the current year presentation.
2. Redeemable Stock
Effective November 30, 1988, MMIC policyholders earn Class A Common Shares for
each month of service pursuant to a stock allocation formula based on
underwriting risk classification. Shares earned by new policyholders are not
issued until the end of five years of continuous coverage under an MMIC policy
(the vesting date). The Company does not record any amounts related to unissued
Class A Common Shares. At the vesting date, the issued shares are recorded at
the then current redemption value (see Note 12).
F-11
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Redeemable Stock (continued)
The Company accounts for these shares by increasing Common Stock by the par
value ($.01 per share) of the newly issued shares, increasing paid-in capital by
the excess of the redemption value over par and charging stock compensation
expense for the full redemption value. Once vested, policyholders will continue
to earn shares for each month they remain insured with MMIC according to the
stock allocation formula. The Company accounts for additional shares issued to
vested policyholders by increasing Common Stock for the par value of the shares
and decreasing retained earnings by the same amount.
MMIC policyholders whose initial effective date was on or before the November
30, 1988 reorganization, IPMIT policyholders whose initial effective date was on
or before December 31, 1992 and MLM policyholders whose initial effective date
was on or before December 31, 1995 became fully vested upon initial receipt of
their shares without regard to their length of coverage. These policyholders
will continue to earn and receive additional Class A shares for each month they
remain insured with MMIC. The Company accounts for these shares similar to
additional shares issued to other fully vested shareholders.
In accordance with the Articles of Incorporation and By-laws of MMIHC, only
active policyholders of MMIC may own shares of Class A Common Stock of MMIHC. At
each meeting of the shareholders, every Class A shareholder having the right to
vote shall be entitled to one vote, either in person or by proxy, regardless of
the number of Class A shares held by the individual.
Class A shareholders are required to redeem their shares with MMIHC upon
termination as policyholders of MMIC. The net redemption value (NRV) of the
shares is equal to the net book value of MMIHC, excluding the amount of net book
value that is attributable to MMIC, divided by the number of outstanding Class A
Common Shares of MMIHC at the semi-annual valuation dates of June 30 and
December 31 of each year. The amount paid upon redemption is the redemption
value determined at the most recent semi-annual valuation.
MMIHC has issued one share of Class B voting stock which carries with it the
right to elect the Board of Directors of MMIHC. The voting rights are currently
exercised by the Minnesota Medical Association and the Iowa Medical Society. A
majority of the Class A shareholders may at any time, by a two-thirds vote,
elect to redeem the Class B share at cost.
F-12
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Redeemable Stock (continued)
Following is the detail of changes in redeemable stock for each of the three
years in the period ended December 31, 1998 (in thousands, except for share and
per share amounts):
<TABLE>
<CAPTION>
Accumulated
Class A Common Stock Class B MMIHC MMIHC Other
--------------------- Common Paid-in Retained Comprehensive
Total Shares Amount Stock Capital Earnings Income
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $6,975 116,251 $ 1 $ 1 $4,752 $2,164 $ 57
Comprehensive income:
Net income of non-insurance entities
includable in Class A Common Stock
redemption value 1,070 -- -- -- -- 1,070 --
Other comprehensive income:
Unrealized gains on securities
net of $6 in taxes 11 -- -- -- -- -- 11
------
Total comprehensive income 1,081
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1996 to June 30, 1996;
NRV of $60.00 (377) (6,277) (1) -- (259) (117) --
July 1, 1996 to December 31, 1996;
NRV of $57.84 (231) (3,995) -- -- (159) (72) --
Issuance of shares to vested policyholders -- 9,540 1 -- -- (1) --
Initial issuance of shares to policyholders
upon vesting 156 2,690 -- -- 156 -- --
---------------------------------------------------------------------------------
Balance at December 31, 1996 (carried forward) 7,604 118,209 1 1 4,490 3,044 68
</TABLE>
F-13
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Redeemable Stock (continued)
<TABLE>
<CAPTION>
Accumulated
Class A Common Stock Class B MMIHC MMIHC Other
--------------------- Common Paid-in Retained Comprehensive
Total Shares Amount Stock Capital Earnings Income
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 (brought forward) $7,604 118,209 $ 1 $ 1 $ 4,490 $ 3,044 $ 68
Comprehensive income:
Net income of non-insurance entities
includable in Class A Common Stock
redemption value 272 -- -- -- -- 272 --
Other comprehensive income:
Unrealized gains on securities net
of $6 in taxes 11 -- -- -- -- -- 11
------
Total comprehensive income 283
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1997 to June 30, 1997;
NRV of $64.33 (278) (4,363) -- -- (165) (113) --
July 1, 1997 to December 31, 1997;
NRV of $62.12 (370) (5,943) (1) -- (220) (149) --
Issuance of shares to vested policyholders -- 9,406 1 -- -- (1) --
Initial issuance of shares to policyholders
upon vesting 253 4,013 -- -- 253 -- --
Other (15) -- -- -- -- (15) --
---------------------------------------------------------------------------------
Balance at December 31, 1997 (carried forward) 7,477 121,322 1 1 4,358 3,038 79
</TABLE>
F-14
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Redeemable Stock (continued)
<TABLE>
<CAPTION>
Accumulated
Class A Common Stock Class B MMIHC MMIHC Other
--------------------- Common Paid-in Retained Comprehensive
Total Shares Amount Stock Capital Earnings Income
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 (brought forward) $ 7,477 121,322 $ 1 $ 1 $ 4,358 $ 3,038 $ 79
Comprehensive income:
Net loss of non-insurance entities
includable in Class A Common Stock
redemption value (1,104) -- -- -- -- (1,104) --
Other comprehensive income:
Unrealized gains on securities net
of $39 in taxes 73 -- -- -- -- -- 73
-------
Total comprehensive income (1,031)
Redemption of shares due to policyholder
terminations by effective date:
January 1, 1998 to June 30, 1998;
NRV of $61.63 (251) (4,070) -- -- (147) (104) --
July 1, 1998 to December 31, 1998;
NRV of $54.70 (272) (4,935) (1) -- (160) (111) --
Issuance of shares to vested policyholders -- 9,437 1 -- -- (1) --
Initial issuance of shares to policyholders
upon vesting 224 3,928 -- -- 224 -- --
Dividend from MMIC 2,000 -- -- -- 2,000 -- --
---------------------------------------------------------------------------------
Balance at December 31, 1998 $ 8,147 125,682 $ 1 $ 1 $ 6,275 $ 1,718 $ 152
=================================================================================
</TABLE>
F-15
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Investments
Components of net investment income are summarized as follows (in thousands):
1998 1997 1996
----------------------------------------
Fixed maturities $ 9,340 $ 10,901 $ 11,561
Equity securities 820 523 380
Short-term investments 926 939 904
Other investments 855 -- --
----------------------------------------
11,941 12,363 12,845
Investment expenses (1,022) (854) (784)
----------------------------------------
$ 10,919 $ 11,509 $ 12,061
========================================
The cost (amortized cost for fixed maturities) and fair value of available for
sale investments are as follows (in thousands):
December 31, 1998
-------------------------------------------------
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------
Fixed maturities:
MMIC:
United States Government $110,729 $ 2,729 $ (70) $113,388
Public utilities 1,609 5 -- 1,614
Industrial and other 49,092 651 (93) 49,650
-------------------------------------------------
Total $161,430 $ 3,385 $ (163) $164,652
=================================================
Equity securities:
MMIHC $ 520 $ 234 $ -- $ 754
MMIC 41,387 45,297 (885) 85,799
-------------------------------------------------
Total $ 41,907 $ 45,531 $ (885) $ 86,553
=================================================
F-16
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
December 31, 1997
----------------------------------------------
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------
Fixed maturities:
MMIHC:
United States Government $ 1,255 $ -- $ -- $ 1,255
Industrial and other 53 -- -- 53
MMIC:
United States Government 97,234 801 (36) 97,999
State and other
political subdivisions 32,991 383 -- 33,374
Industrial and other 39,057 257 (20) 39,294
----------------------------------------------
Total $170,590 $ 1,441 $ (56) $171,975
==============================================
Equity securities:
MMIHC $ 981 $ 122 $ -- $ 1,103
MMIC 20,595 29,164 -- 49,759
----------------------------------------------
Total $ 21,576 $ 29,286 $ -- $ 50,862
==============================================
The components of the unrealized appreciation on available for sale securities
as of December 31 are as follows (in thousands):
1998 1997
-------------------- ---------------------
MMIHC MMIC MMIHC MMIC
-------------------- ---------------------
Fixed maturities:
Gross unrealized gains $ -- $ 3,385 $ -- $ 1,441
Gross unrealized losses -- (163) -- (56)
Equity securities:
Gross unrealized gains 234 45,297 122 29,164
Gross unrealized losses -- (885) -- --
-------------------- ---------------------
234 47,634 122 30,549
Deferred income taxes (82) (16,672) (43) (10,691)
-------------------- ---------------------
$ 152 $ 30,962 $ 79 $ 19,858
==================== =====================
F-17
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
The amortized cost and market value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below (in thousands). Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Market
Cost Value
------------------------
Due in one year or less $ 6,192 $ 6,221
Due after one year through five years 40,322 40,982
Due after five years through ten years 27,671 28,309
Due after ten years 87,245 89,140
------------------------
$161,430 $164,652
========================
Proceeds from sales of available for sale investments and the related gross
realized gains and losses are as follows (in thousands):
Gross Gross
Proceeds Realized Realized
From Sales Gains Losses
----------------------------------------------
Year ended December 31, 1998:
Fixed maturities $382,048 $ 3,600 $ (769)
Equity securities 16,669 6,404 (286)
Year ended December 31, 1997:
Fixed maturities 310,235 5,806 (884)
Equity securities 6,747 2,109 (547)
Year ended December 31, 1996:
Fixed maturities 46,735 803 (214)
Equity securities 7,558 1,347 (165)
Net unrealized appreciation of fixed maturities increased (decreased) by
$1,837,000, $(2,197,000) and $(4,691,000) and net unrealized appreciation of
equity securities increased by $15,360,000, $11,417,000 and $7,140,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
F-18
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Retrospective Premiums
The components of retrospective premiums at December 31 are as follows (in
thousands):
1998 1997
--------------------
Retrospective premium credits declared:
Minnesota policyholders $5,200 $5,000
North Dakota policyholders 280 --
Iowa policyholders active at date of merger
and renewing in 1999 and 1998 3,063 3,100
Favorable development on pre-merger IPMIT
liabilities not yet approved for credit -- 1,805
--------------------
$8,543 $9,905
====================
A provision of the agreement and plan of merger between IPMIT and the Company
requires that any favorable development of certain pre-merger liabilities of
IPMIT be paid to the former IPMIT policyholders who remain active MMIC insureds
as of the date of payment through a retrospective premium credit. The agreement
further stipulates that any amounts due under this provision must be finalized
using financial information available as of December 31, 1998. Final amounts due
under this provision will be paid to physician insureds in early 1999. Actual
payments of $3,073,000 and $2,501,000 were made to former IPMIT policyholders in
1998 and 1997, respectively. Actual retrospective premium payments made to
Minnesota policyholders' accounts in 1998 and 1997 were $5,008,000 and
$4,803,000, respectively.
A provision of the agreement and plan of merger between MLM and the Company
requires that any favorable development of certain pre-merger liabilities of MLM
be paid to the former MLM policyholders who remain active MMIC insureds as of
the date of payment through a retrospective premium credit. The agreement
further stipulates that any amounts due under this provision must be settled no
later than June 5, 2001. As of December 31, 1998, there has been no favorable
development and therefore there is no accrual related to this provision.
F-19
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Unpaid Losses and Loss Adjustment Expenses
The reconciliation of the liability for unpaid losses and loss adjustment
expenses is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
recoverables $ 89,394 $ 90,342 $ 96,424
Incurred related to:
Current year 41,927 40,186 41,101
Prior years (4,433) (8,352) (8,844)
-----------------------------------------
Total incurred 37,494 31,834 32,257
Paid related to:
Current year 3,666 2,685 4,885
Prior years 28,755 30,097 33,454
-----------------------------------------
Total paid 32,421 32,782 38,339
-----------------------------------------
Balance as of December 31, net of reinsurance
recoverables 94,467 89,394 90,342
Reinsurance recoverables at December 31 16,497 18,412 19,695
-----------------------------------------
Balance as of December 31, gross $ 110,964 $ 107,806 $ 110,037
=========================================
</TABLE>
The Company continually evaluates emerging trends in the development of loss
liabilities including the trends related to the pre-merger IPMIT and MLM
business. Based on this analysis, management periodically adjusts their
estimates of ultimate losses. See Note 4 regarding retrospective premium credits
paid and accrued.
F-20
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
Components of income taxes are as follows (in thousands):
1998 1997 1996
------------------------------------
Current provision $1,335 $2,969 $1,160
Deferred tax provision 1,354 1,494 298
------------------------------------
$2,689 $4,463 $1,458
====================================
The Company's income taxes differ from the federal statutory rate applied to
income before tax as follows (in thousands):
1998 1997 1996
-----------------------------------
Income before tax at the federal
statutory rate of 35% $ 3,023 $ 4,817 $ 3,129
Tax-exempt income (net of proration
adjustment) -- (775) (1,374)
Dividends received deductions (net
of proration adjustment) (99) (89) (78)
State income taxes, net of federal
tax benefit 37 198 50
Payment of prior year taxes -- 300 --
Recovery of prior year taxes (267) -- --
Proceeds on life insurance -- -- (368)
Other (5) 12 99
-----------------------------------
$ 2,689 $ 4,463 $ 1,458
===================================
F-21
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The deferred income tax provision includes the following differences between
financial and income tax reporting (in thousands):
1998 1997 1996
-----------------------------------
Discounting of post-1986 unpaid losses
and loss adjustment expenses $ 842 $ 323 $ 1,190
Liabilities not currently deductible 596 636 (274)
Unearned premiums (151) 57 6
Utilization of alternative minimum
tax carryforwards -- 496 --
Alternative minimum tax carryforwards -- -- (496)
Other 67 (18) (128)
-----------------------------------
$ 1,354 $ 1,494 $ 298
===================================
The Company made income tax payments of $3,041,000, $1,518,000 and $3,260,000 in
1998, 1997 and 1996, respectively.
The components of the net deferred income tax (liability) asset as of December
31 are as follows (in thousands):
1998 1997
------------------------
Deferred tax assets:
Unpaid losses and loss adjustment expenses $ 4,154 $ 4,996
Liabilities not currently deductible 1,079 1,675
Unearned premiums 628 477
Other 550 552
------------------------
6,411 7,700
Deferred tax liabilities:
Unrealized gains (16,754) (10,734)
Other (623) (558)
------------------------
(17,377) (11,292)
------------------------
$(10,966) $ (3,592)
========================
F-22
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
Management has determined that no valuation allowances were necessary for
unrealizable portions of deferred tax assets. This was supported primarily
through the presence of taxable income in carryback years and reversals of
existing temporary differences which provide taxable income in future years. A
portion of the deferred tax assets was supported through reliance on available
tax planning strategies which could be implemented at no cost.
7. Reinsurance
To reduce overall risk, including exposure to large losses, the Company
participates in various reinsurance programs. MMIC would only become liable for
losses in excess of stipulated amounts in the event that any reinsuring company
were unable to meet its obligations under the existing agreement. Management is
not aware of any such default at December 31, 1998. Reinsurance recoverables on
paid and unpaid losses of $16,277,000 and $16,141,000 are associated with a
single reinsurer, General Reinsurance Corporation, at December 31, 1998 and
1997, respectively.
MMIC is authorized to issue policies with limits not to exceed $12,000,000 for
each claim and $14,000,000 in the aggregate under each policy in any one policy
year. Limits in excess of $12,000,000 for each claim and $14,000,000 annual
aggregate are available to physicians and clinics through reinsurance placed on
a facultative basis by MMIC. The Company generally retains the first $750,000 of
each claim and reinsures the remainder through a treaty under which premiums are
subject to adjustment based on experience.
Total ceded reinsurance premiums, before the effects of treaty commutations, for
the years ended December 31, 1998, 1997 and 1996 were $3,104,000, $3,329,000 and
$6,416,000, respectively. Loss and loss adjustment expenses incurred are net of
applicable reinsurance of $2,240,000, $2,455,000 and $2,459,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
In 1998, the Company commuted reinsurance treaties covering the period January
1, 1991 through December 31, 1991. Net premiums recovered as a result of these
commutations of $789,000 have been included in net premiums earned in 1998.
In 1996, the Company commuted reinsurance treaties covering the period January
1, 1989 through December 31, 1990. Net premiums recovered as a result of these
commutations of $2,194,000 have been included in net premiums earned in 1996.
F-23
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Other Commitments
In the normal course of claim settlement, MMIC negotiates structured settlements
including the purchase of annuities from life insurance companies with an A+
rating from A.M. Best (an industry rating organization) at the date of issue and
a minimum of $100 million in surplus. These annuities guarantee a stream of
payments to the claimant holding the annuity. The majority of these settlements
have been assigned to the life insurance company which releases MMIC from any
future contractual liability to the claimant. MMIC and its reinsurers could only
become liable for ultimate settlement of those claims which have not been
assigned. At December 31, 1998 and 1997, respectively, non-assigned structured
settlements guaranteed $5,820,000 and $12,299,000 of payments under annuity
contracts for which MMIC and its reinsurers paid $2,627,000 and $4,726,000. In
the event that the insurance company issuing the annuity was unable to meet its
obligation under the terms provided, MMIC would be liable for the ultimate
settlement.
9. Benefit Plans
The Company has a non-contributory defined contribution pension plan covering
substantially all employees. Contributions to the plan are based upon each
covered employee's salary. The Company also sponsors a 401(k) plan covering
substantially all employees and provides a fifty percent match on employee
contributions subject to certain limitations. Total contributions charged to
expense for the years ended December 31, 1998, 1997 and 1996 were $521,000,
$393,000 and $371,000, respectively.
The Company provides an unfunded Supplemental Executive Retirement Plan (SERP)
which is a non-qualified, defined benefit retirement plan covering certain
Company officers. Benefits are based upon years of service and compensation.
Although the plan is technically unfunded, the Company invests in specified
assets which are designed to coordinate with the projected obligation under the
SERP. The net periodic pension cost for this plan was $404,000, $363,000 and
$323,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The
liability recognized in the consolidated balance sheets at December 31, 1998 and
1997 related to this plan was $2,439,000 and $2,192,000, respectively.
F-24
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Benefit Plans (continued)
The Company also provides medical benefits to retirees through a defined benefit
post-retirement plan which covers substantially all employees. The net periodic
post-retirement benefit cost for the years ended December 31, 1998, 1997 and
1996 was $41,000, $27,000 and $30,000, respectively. As of December 31, 1998 the
plan was fully funded. As of December 31, 1997, the net post-retirement benefit
plan liability was $4,000.
10. Reconciliation with Statutory Accounting Principles
The following is a reconciliation of net income and shareholders' equity under
generally accepted accounting principles with that reported for MMIC on a
statutory basis (in thousands):
Net Income
Year ended December 31
1998 1997 1996
-----------------------------------
As reported under generally accepted
accounting principles $ 5,948 $ 9,300 $ 7,481
(Income) loss of non-insurance entities 1,104 (272) (1,070)
-----------------------------------
On the basis of generally accepted
accounting principles, MMIC only 7,052 9,028 6,411
Additions (deductions):
Deferred income taxes 1,390 1,525 445
Other -- -- 123
-----------------------------------
On the basis of statutory accounting
principles $ 8,442 $ 10,553 $ 6,979
===================================
F-25
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Reconciliation with Statutory Accounting Principles (continued)
Shareholders' Equity
<TABLE>
<CAPTION>
December 31
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
As reported under generally accepted
accounting principles $ 142,446 $ 126,290 $ 111,278
Additions (deductions):
Deferred income taxes 11,526 4,158 (590)
Unrealized (gain) loss on fixed maturities (3,222) (1,385) (3,580)
Other (34) (3) (41)
------------------------------------------
On the basis of statutory accounting
principles $ 150,716 $ 129,060 $ 107,067
=========================================
</TABLE>
The equity of MMIHC, exclusive of the carrying value of its investment in MMIC,
is subject to redemption and therefore reported outside of shareholders' equity
under the caption redeemable stock. As a result, consolidated other
shareholders' equity as reported on the balance sheets represents equity of MMIC
only under generally accepted accounting principles.
Under Minnesota insurance statutes, MMIC is required to maintain statutory
surplus in excess of ten times its per occurrence reinsurance retention limit.
The minimum level is $7,500,000 for 1998 and 1997.
F-26
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except for share and per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Numerator for basic and dilutive earnings
per share available to common shareholders $ 5,948 $ 9,300 $ 7,481
====================================
Denominator:
Denominator for basic earnings per
share--weighted average shares 123,004 119,554 116,071
Effect of dilutive securities:
Unvested shares 13,247 12,873 12,188
------------------------------------
Denominator for dilutive earnings per
share--adjusted weighted-average shares and
assumed conversions 136,251 132,427 128,259
====================================
Basic earnings per share $ 48.36 $ 77.79 $ 64.45
====================================
Diluted earnings per share $ 43.65 $ 70.23 $ 58.33
====================================
</TABLE>
F-27
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Net Redemption Value
The net redemption value per share of the Class A common shares was as follows:
Class A Net Redemption
MMIHC Common Shares Value Per
Net Equity Outstanding Share
---------------------------------------------
(000s)
December 31, 1994 $ 7,712 116,855* $ 66.00
======= =======
December 31, 1995 $ 6,975 116,251* $ 60.00
======= =======
December 31, 1996 $ 7,604 118,209 $ 64.33
======= =======
December 31, 1997 $ 7,477 121,322 $ 61.63
======= =======
December 31, 1998 $ 8,147 125,682 $ 64.81
======= =======
* Includes pro forma shares related to merger.
F-28
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Report of Independent Auditors
Board of Directors
Midwest Medical Insurance Company
and Subsidiaries
We have audited the consolidated financial statements of Midwest Medical
Insurance Holding Company and Subsidiaries as of December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998, and have
issued our report thereon dated February 1, 1999 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Minneapolis, Minnesota
February 1, 1999
F-29
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant
Balance Sheets
December 31
1998 1997
------------------------
(In Thousands)
Assets
Fixed maturities $ -- $ 1,308
Short-term investments 1,310 2,730
Investment in subsidiaries 145,032 126,290
Accrued investment income -- 40
Other 8,385 6,881
------------------------
Total assets $154,727 $137,249
========================
Liabilities, redeemable stock and
other shareholders' equity
Liabilities
Accounts payable $ 43 $ 111
Accrued expenses and other liabilities 4,091 3,371
------------------------
4,134 3,482
Redeemable stock
Class A Common Stock 8,146 7,476
Class B Common Stock 1 1
------------------------
8,147 7,477
Other shareholders' equity
Additional paid-in capital 12,789 12,789
Retained earnings, comprised of
undistributed earnings of subsidiaries 98,695 93,643
Unrealized appreciation
on investments, net of income taxes 30,962 19,858
------------------------
142,446 126,290
F-30
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Total liabilities, redeemable stock and
other shareholders' equity $154,727 $137,249
========================
See accompanying note.
F-31
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Statements of Income
Year ended December 31
1998 1997 1996
--------------------------------
(In Thousands)
Revenues
Management fee from subsidiaries $14,038 $ 9,901 $ 8,706
Investment income 489 64 726
Other income 7 2 4
--------------------------------
14,534 9,967 9,436
Expenses
Operating and administrative 14,267 9,535 8,357
--------------------------------
Income before income taxes and other items 267 432 1,079
Income tax expense 104 162 9
--------------------------------
Income before equity in undistributed
income of subsidiaries 163 270 1,070
Equity in undistributed income
of subsidiaries 5,785 9,030 6,411
--------------------------------
Net income $ 5,948 $ 9,300 $ 7,481
================================
See accompanying note.
F-32
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Statements of Cash Flows
Year ended December 31
1998 1997 1996
---------------------------------
(In Thousands)
Net cash (used in) provided by operating
activities $ (366) $ (527) $ (877)
Investing activities
Purchase of fixed maturities (21,758) (38,979) (20,469)
Sales of fixed maturities 22,826 38,701 20,289
Calls and maturities of fixed maturities 250 -- --
Sales of short-term investments, net 1,420 1,453 1,338
Capitalization of Solutions (3,850) -- --
Financing activities
Redemption of Class A Common Stock (522) (648) (608)
Dividend from MMIC 2,000 -- 327
---------------------------------
Increase in cash -- -- --
Cash at beginning of year -- -- --
---------------------------------
Cash at end of year $ -- $ -- $ --
=================================
See accompanying note.
F-33
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
(Parent Company)
Schedule II--Condensed Financial Information of Registrant (continued)
Note to Condensed Financial Statements
December 31, 1998
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Midwest Medical
Insurance Holding Company and Subsidiaries.
See Note 2 to the consolidated financial statements of Midwest Medical Insurance
Holding Company and Subsidiaries for a description of the redeemable stock.
F-34
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Schedule IV--Reinsurance
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------
Percentage
Ceded to Assumed from of Amount
Gross Other Other Net Assumed to
Amount Companies Companies Amount Net
- ------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Insurance premiums:
Property/casualty insurance $37,518 $ 2,601 $ 97 $35,014 0.3%
Year ended December 31, 1997:
Insurance premiums:
Property/casualty insurance 36,511 3,595 -- 32,916 N/A
Year ended December 31, 1996:
Insurance premiums:
Property/casualty insurance 34,006 2,829 -- 31,177 N/A
</TABLE>
Note to Schedule IV:
Ceded premiums for the years ended December 31, 1998, 1997 and 1996 are net of
reductions (additions) in ceded premiums related to swing rated reinsurance
treaties of $2,550,000, $(3,688,000), and $748,000 respectively. Ceded premiums
in 1996 are also net of proceeds from commutations of reinsurance covering the
period January 1, 1989 through December 31, 1990 of $2,194,000. Ceded premiums
in 1998 are also net of proceeds from commutations of reinsurance covering the
period January 1, 1991 through December 31, 1991 of $789,000.
F-35
<PAGE>
Midwest Medical Insurance Holding Company and Subsidiaries
Schedule VI--Supplemental Information Concerning Property/Casualty Insurance
Operations
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
- ------------------------------------------------------------------------------------------------------------------------------------
Reserves for
Unpaid
Deferred Losses Discount,
Affiliation Policy and Loss if any, Net
with Acquisition Adjustment Deducted in Unearned Earned Investment
Registrant Costs Expenses Column C Premiums Premiums Income
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated
property/
casualty entities
1998 N/A $110,964 N/A $ 8,173 $ 35,014 $ 10,919
1997 N/A 107,806 N/A 6,072 32,916 11,509
1996 N/A 110,037 N/A 6,860 31,177 12,061
<CAPTION>
Year ended December 31
- ------------------------------------------------------------------------------------------------------------
COL. H COL. I COL. J COL. K
- ------------------------------------------------------------------------------------------------------------
Losses and Loss
Adjustment Expenses
Incurred Related to Amortization Paid
------------------------------ of Deferred Losses
(1) (2) Policy and Loss
Current Prior Acquisition Adjustment Premiums
Year Year Costs Expenses Written
- ------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Consolidated
property/
casualty entities
1998 $ 41,927 $ (4,433) N/A $ 32,421 $ 39,431
1997 40,186 (8,352) N/A 32,782 35,722
1996 41,101 (8,844) N/A 38,339 31,167
</TABLE>
F-37
<PAGE>
Allocation Schedule - All States except Iowa and Nebraska
Practice Shares per Year
DESCRIPTION Rate (Rate
- ----------- Relativity)
-----------
Administrative Medicine-No Surg-NOC 7 0.70
Forensic/Legal Medicine 7 0.70
Ltd Gen Practice-No Surg-NOC 7 0.70
Occupational Medicine 7 0.70
Pathology-No Surg 7 0.70
Physiatry-Phys Med/Rehab 7 0.70
Psychiatry-Incl Child-No ECT-No Surg 7 0.70
Psychoanalysis 7 0.70
Psychosomatic Medicine 7 0.70
Aerospace Medicine 10 1.00
Allergy 10 1.00
Colon & Rectal-No Surg-NOC 10 1.00
Dermatology-No Surg 10 1.00
Family Practice or General Practice-No Surg 10 1.00
General Preventive Medicine-No Surg 10 1.00
Geriatrics-No Surg 10 1.00
Gynecology-No Surg 10 1.00
Hand-No Surg-NOC 10 1.00
Head & Neck-No Surg-NOC 10 1.00
Hypnosis 10 1.00
Laryngology-No Surg 10 1.00
Neoplastic Disease-No Surg 10 1.00
Nuclear Medicine 10 1.00
Nutrition 10 1.00
OB/GYN-No Surg-NOC 10 1.00
Obstetrics-No Surg-NOC 10 1.00
Opthalmology-No Surg 10 1.00
Orthopedics-No Surg-NOC 10 1.00
Otology-No Surg 10 1.00
Otorhinolaryngology-No Surg 10 1.00
Pediatrics-No Surg 10 1.00
Pharmacology-Clinical 10 1.00
Physician-No Surg-NOC 10 1.00
Plastic-No Surg-NOC 10 1.00
A-1
<PAGE>
Public Health 10 1.00
Radiology-Diagnostic-No Surg 10 1.00
Rhinology-No Surg 10 1.00
Thoracic-No Surg-NOC 10 1.00
Urology-No Surg-NOC 10 1.00
Vascular-No Surg-NOC 10 1.00
Cardiovascular Diseases-No Surg 15 1.2
Diabetes-No Surg 15 1.2
Endocrinology-No Surg 15 1.2
Gastroenterolgy-No Surg 15 1.2
Hematology-No Surg 15 1.2
Infectious Disease-No Surg 15 1.2
Internal Medicine-No Surg 15 1.2
Nephrology-No Surg 15 1.2
Oncology-No Surg-NOC 15 1.2
Opthalmology-Min Surg 15 1.2
Pulmonary Disease-No Surg 15 1.2
Rhuematology-No Surg 15 1.2
Allergy-Minor Surg-Asst Own Pts 20 1.5
Anesthesiology 20 1.5
Cardiovascular Diseases-Min Surg 20 1.5
Colon & Rectal-Minor Surgery-Asst Own 20 1.5
Dermatology-Min Surg 20 1.5
Diabetes-Min Surg 20 1.5
Endocrinology-Min Surg 20 1.5
Family Practice or General Practice-Min Surg 20 1.5
Gastroenterolgy-Min Surg 20 1.5
Geriatrics-Min Surg 20 1.5
Gynecology-Min Surg 20 1.5
Hand-Minor Surgery-Asst Own Pts 20 1.5
Head & Neck-Minor Surgery-Asst Own 20 1.5
Hematology-Min Surg 20 1.5
Infectious Disease-Min Surg 20 1.5
Intensive Care Medicine 20 1.5
Internal Medicine-Min Surg 20 1.5
Laryngology-Min Surg 20 1.5
Neoplastic Disease-Min Surg 20 1.5
Nephrology-Min Surg 20 1.5
Neurology-Incl Child-Min Surg 20 1.5
Neurology-Incl Child-No Surg 20 1.5
A-2
<PAGE>
Nuclear Medicine-Minor Surgery-No Rad 20 1.5
Occupational Medicine-Minor Surgery-Asst 20 1.5
Orthopedics-Minor Surgery-Asst Own 20 1.5
Otology-Min Surg 20 1.5
Otorhinolaryngology-Min Surg 20 1.5
Pathology-Min Surg 20 1.5
Pediatrics-Min Surg 20 1.5
Physician-Min Surg-NOC 20 1.5
Plastic-Minor Surgery-Asst Own Pts 20 1.5
Psychiatry-Incl ECT-No Maj 20 1.5
Pulmonary Disease-Minor Surgery 20 1.5
Radiology-Diagnostic-Min Surg 20 1.5
Rhinology-Min Surg 20 1.5
Rhuematology-Minor Surgery-Asst Own 20 1.5
S-Ophthalmology 20 1.5
Sports Medicine-Min Surg 20 1.5
Broncho-Esophagology 30 2.10
Cardivasc Dis-Incl Cath-No Maj 30 2.10
Dermatology-Incl Rad Therapy 30 2.10
Emergency Medicine-No Maj Surg 30 2.10
Lasers-Used in Therapy 30 2.10
Neonatology 30 2.10
Neurology-Incl ECT-No Maj Surg 30 2.10
Neurology-Maj Risk Proc-No Maj Surg 30 2.10
Nuclear Med-Incl Rad Ther-No Maj 30 2.10
Pediatrics-Maj Risk Proc-No Surg 30 2.10
Physician-No Maj-Acupunture 30 2.10
Physician-No Maj-Angiography 30 2.10
Physician-No Maj-Arteriography 30 2.10
Physician-No Maj-Catheterization 30 2.10
Physician-No Maj-Colonoscopy 30 2.10
Physician-No Maj-Discograms 30 2.10
Physician-No Maj-ERCP 30 2.10
Physician-No Maj-Laparoscopy 30 2.10
Physician-No Maj-Lasers-Used in therapy 30 2.10
Physician-No Maj-Lymphangiography 30 2.10
Physician-No Maj-Myleography 30 2.10
Physician-No Maj-Needle Biopsy 30 2.10
Physician-No Maj-Phlebography 30 2.10
Physician-No Maj-Pneumatic/Mech Esoph Dilation 30 2.10
A-3
<PAGE>
Physician-No Maj-Pneumoencephalography 30 2.10
Physician-No Maj-Radiation Therapy 30 2.10
Physician-No Maj-Radiopaque Dye 30 2.10
Physicians-Maj Risk Proc-No Surg 30 2.10
S-Colon & Rectal 30 2.10
S-Endocrinology 30 2.10
S-Family Practice-Ob-No C-Sections 30 2.10
S-Gastroenterology 30 2.10
S-Geriatrics 30 2.10
S-Neoplastic 30 2.10
S-Nephrology 30 2.10
S-Urological 30 2.10
Emergency Medicine-Incl Maj Surg 40 2.60
S-Abdominal 40 2.60
S-Family Practice-OB-C-Sections 40 2.60
S-Otorhinolaryngology 40 2.60
S-Plastic-Otorhinolaryngology 40 2.60
S-Rhinology 40 2.60
S-General 43 3.20
Foot and Ankle Surgery 50 4.0
Oral Maxillofacial Surgery 50 4.0
S-Dermatologic 50 4.0
S-Gynecology 50 4.0
S-Laryngology 50 4.0
S-Neonatology 50 4.0
S-Otology 50 4.0
S-Plastic-NOC 50 4.0
Fetal & Maternal Medicines 60 5.50
S-Cardiac 60 5.50
S-Cardiovascular Disease 60 5.50
S-Hand 60 5.50
S-Head & Neck 60 5.50
S-OB/GYN 60 5.50
S-Obstetrics 60 5.50
S-Orthopedic-Excl Spine 60 5.50
S-Orthopedic-Incl Spine 60 5.50
S-Thoracic 60 5.50
S-Vascular 60 5.50
S-Traumatic 70 6.50
S-Neurology-Incl Child 80 9.00
A-4
<PAGE>
Allocation Schedule - Iowa
Practice Shares per Year
DESCRIPTION Rate (Rate
- ----------- Relativity)
Administrative Medicine-No Surg-NOC 7 0.83
Ltd Gen Practice-No Surg-NOC 7 0.83
Psychiatry-Incl Child-No ECT-No Surg 7 0.83
Psychoanalysis 7 0.83
Psychosomatic Medicine 7 0.83
Aerospace Medicine 10 1.00
Allergy 10 1.00
Cardiovascular Diseases-No Surg 10 1.00
Colon & Rectal-No Surg-NOC 10 1.00
Dermatology-No Surg 10 1.00
Diabetes-No Surg 10 1.00
Endocrinology-No Surg 10 1.00
Family Practice or General Practice-No Surg 10 1.00
Forensic/Legal Medicine 10 1.00
Gastroenterolgy-No Surg 10 1.00
General Preventive Medicine-No Surg 10 1.00
Geriatrics-No Surg 10 1.00
Gynecology-No Surg 10 1.00
Hand-No Surg-NOC 10 1.00
Head & Neck-No Surg-NOC 10 1.00
Hematology-No Surg 10 1.00
Hypnosis 10 1.00
Infectious Disease-No Surg 10 1.00
Internal Medicine-No Surg 10 1.00
Laryngology-No Surg 10 1.00
Neoplastic Disease-No Surg 10 1.00
Nephrology-No Surg 10 1.00
Neurology-Incl Child-No Surg 10 1.00
Nuclear Medicine 10 1.00
Nutrition 10 1.00
OB/GYN-No Surg-NOC 10 1.00
Obstetrics-No Surg-NOC 10 1.00
Occupational Medicine 10 1.00
Opthalmology-No Surg 10 1.00
Orthopedics-No Surg-NOC 10 1.00
A-5
<PAGE>
Otology-No Surg 10 1.00
Otorhinolaryngology-No Surg 10 1.00
Pathology-No Surg 10 1.00
Pediatrics-No Surg 10 1.00
Pharmacology-Clinical 10 1.00
Physiatry-Phys Med/Rehab 10 1.00
Physician-No Surg-NOC 10 1.00
Plastic-No Surg-NOC 10 1.00
Public Health 10 1.00
Radiology-Diagnostic-No Surg 10 1.00
Rhuematology-No Surg 10 1.00
Rhinology-No Surg 10 1.00
Thoracic-No Surg-NOC 10 1.00
Urology-No Surg-NOC 10 1.00
Vascular-No Surg-NOC 10 1.00
Oncology-No Surg-NOC 15 1.20
Pulmonary Disease-No Surg 15 1.20
Allergy-Minor Surg-Asst Own Pts 20 1.52
Anesthesiology 20 1.52
Cardiovascular Diseases-Min Surg 20 1.52
Colon & Rectal-Minor Surgery-Asst Own 20 1.52
Dermatology-Min Surg 20 1.52
Diabetes-Min Surg 20 1.52
Endocrinology-Min Surg 20 1.52
Family Practice or General Practice-Min Surg 20 1.52
Gastroenterolgy-Min Surg 20 1.52
Geriatrics-Min Surg 20 1.52
Gynecology-Min Surg 20 1.52
Hand-Minor Surgery-Asst Own Pts 20 1.52
Head & Neck-Minor Surgery-Asst Own 20 1.52
Hematology-Min Surg 20 1.52
Infectious Disease-Min Surg 20 1.52
Intensive Care Medicine 20 1.52
Internal Medicine-Min Surg 20 1.52
Laryngology-Min Surg 20 1.52
Neoplastic Disease-Min Surg 20 1.52
Nephrology-Min Surg 20 1.52
Neurology-Incl Child-Min Surg 20 1.52
Nuclear Medicine-Minor Surgery-No Rad 20 1.52
Occupational Medicine-Minor Surgery-Asst 20 1.52
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<PAGE>
Opthalmology-Min Surg 20 1.52
Orthopedics-Minor Surgery-Asst Own 20 1.52
Otology-Min Surg 20 1.52
Otorhinolaryngology-Min Surg 20 1.52
Pathology-Min Surg 20 1.52
Pediatrics-Min Surg 20 1.52
Physician-Min Surg-NOC 20 1.52
Plastic-Minor Surgery-Asst Own Pts 20 1.52
Psychiatry-Incl ECT-No Maj 20 1.52
Pulmonary Disease-Minor Surgery 20 1.52
Radiology-Diagnostic-Min Surg 20 1.52
Rhinology-Min Surg 20 1.52
Rhuematology-Minor Surgery-Asst Own 20 1.52
S-Ophthalmology 20 1.52
Sports Medicine-Min Surg 20 1.52
S-Family Practice-Ob-No C-Sections 25 2.00
S-Urological 25 2.00
Broncho-Esophagology 30 2.31
Cardivasc Dis-Incl Cath-No Maj 30 2.31
Dermatology-Incl Rad Therapy 30 2.31
Emergency Medicine-No Maj Surg 30 2.31
Lasers-Used in Therapy 30 2.31
Neonatology 30 2.31
Neurology-Incl ECT-No Maj Surg 30 2.31
Neurology-Maj Risk Proc-No Maj Surg 30 2.31
Nuclear Med-Incl Rad Ther-No Maj 30 2.31
Pediatrics-Maj Risk Proc-No Surg 30 2.31
Physician-No Maj-Acupunture 30 2.31
Physician-No Maj-Angiography 30 2.31
Physician-No Maj-Arteriography 30 2.31
Physician-No Maj-Catheterization 30 2.31
Physician-No Maj-Colonoscopy 30 2.31
Physician-No Maj-Discograms 30 2.31
Physician-No Maj-ERCP 30 2.31
Physician-No Maj-Laparoscopy 30 2.31
Physician-No Maj-Lasers-Used in therapy 30 2.31
Physician-No Maj-Lymphangiography 30 2.31
Physician-No Maj-Myleography 30 2.31
Physician-No Maj-Needle Biopsy 30 2.31
Physician-No Maj-Phlebography 30 2.31
A-7
<PAGE>
Physician-No Maj-Pneumatic/Mech Esoph Dilation 30 2.31
Physician-No Maj-Pneumoencephalography 30 2.31
Physician-No Maj-Radiation Therapy 30 2.31
Physician-No Maj-Radiopaque Dye 30 2.31
Physicians-Maj Risk Proc-No Surg 30 2.31
S-Endocrinology 30 2.31
S-Gastroenterology 30 2.31
S-Geriatrics 30 2.31
S-Neoplastic 30 2.31
S-Nephrology 30 2.31
Emergency Medicine-Incl Maj Surg 40 2.96
S-Family Practice-OB-C-Sections 40 2.96
S-Otorhinolaryngology 40 2.96
S-Rhinology 40 2.96
S-Dermatologic 43 3.00
S-General 46 3.62
Foot and Ankle Surgery 50 4.41
Oral Maxillofacial Surgery 50 4.41
S-Abdominal 50 4.41
S-Colon & Rectal 50 4.41
S-Laryngology 50 4.41
S-Neonatology 50 4.41
S-Otology 50 4.41
S-Plastic-Otorhinolaryngology 50 4.41
S-Cardiac 60 4.93
S-Gynecology 60 4.93
S-Hand 60 4.93
S-Head & Neck 60 4.93
S-Obstetrics 60 4.93
S-Orthopedic-Excl Spine 60 4.93
S-Plastic-NOC 60 4.93
S-Orthopedic-Incl Spine 70 5.98
S-Thoracic 70 5.98
S-Vascular 70 5.98
Fetal & Maternal Medicines 80 7.37
S-Cardiovascular Disease 80 7.37
S-OB/GYN 80 7.37
S-Traumatic 80 7.37
S-Neurology-Incl Child 100 9.21
A-8
<PAGE>
Allocation Schedule - Nebraska
Practice Shares per Year
DESCRIPTION Rate (Rate
- ----------- Relativity)
Administrative Medicine-No Surg-NOC 7 0.70
Ltd Gen Practice-No Surg-NOC 7 0.70
Psychiatry-Incl Child-No ECT-No Surg 10 1.00
Psychoanalysis 10 1.00
Psychosomatic Medicine 10 1.00
Aerospace Medicine 10 1.00
Allergy 10 1.00
Cardiovascular Diseases-No Surg 10 1.00
Colon & Rectal-No Surg-NOC 10 1.00
Dermatology-No Surg 10 1.00
Diabetes-No Surg 10 1.00
Endocrinology-No Surg 10 1.00
Family Practice or General Practice-No Surg 10 1.00
Forensic/Legal Medicine 10 1.00
Gastroenterolgy-No Surg 10 1.00
General Preventive Medicine-No Surg 10 1.00
Geriatrics-No Surg 10 1.00
Gynecology-No Surg 10 1.00
Hand-No Surg-NOC 10 1.00
Head & Neck-No Surg-NOC 10 1.00
Hematology-No Surg 10 1.00
Hypnosis 10 1.00
Infectious Disease-No Surg 10 1.00
Internal Medicine-No Surg 10 1.00
Laryngology-No Surg 10 1.00
Neoplastic Disease-No Surg 10 1.00
Nephrology-No Surg 10 1.00
Neurology-Incl Child-No Surg 10 1.00
Nuclear Medicine 10 1.00
Nutrition 10 1.00
OB/GYN-No Surg-NOC 10 1.00
Obstetrics-No Surg-NOC 10 1.00
Occupational Medicine 10 1.00
Opthalmology-No Surg 10 1.00
Orthopedics-No Surg-NOC 10 1.00
A-9
<PAGE>
Otology-No Surg 10 1.00
Otorhinolaryngology-No Surg 10 1.00
Pathology-No Surg 10 1.00
Pediatrics-No Surg 10 1.00
Pharmacology-Clinical 10 1.00
Physiatry-Phys Med/Rehab 10 1.00
Physician-No Surg-NOC 10 1.00
Plastic-No Surg-NOC 10 1.00
Public Health 10 1.00
Radiology-Diagnostic-No Surg 10 1.00
Rhuematology-No Surg 10 1.00
Rhinology-No Surg 10 1.00
Thoracic-No Surg-NOC 10 1.00
Urology-No Surg-NOC 10 1.00
Vascular-No Surg-NOC 10 1.00
Pulmonary Disease-No Surg 10 1.00
Oncology-No Surg-NOC 15 1.20
Allergy-Minor Surg-Asst Own Pts 20 1.67
Cardiovascular Diseases-Min Surg 20 1.67
Colon & Rectal-Minor Surgery-Asst Own 20 1.67
Dermatology-Min Surg 20 1.67
Diabetes-Min Surg 20 1.67
Endocrinology-Min Surg 20 1.67
Family Practice or General Practice-Min Surg 20 1.67
Gastroenterolgy-Min Surg 20 1.67
Geriatrics-Min Surg 20 1.67
Gynecology-Min Surg 20 1.67
Hand-Minor Surgery-Asst Own Pts 20 1.67
Head & Neck-Minor Surgery-Asst Own 20 1.67
Hematology-Min Surg 20 1.67
Infectious Disease-Min Surg 20 1.67
Intensive Care Medicine 20 1.67
Internal Medicine-Min Surg 20 1.67
Laryngology-Min Surg 20 1.67
Neoplastic Disease-Min Surg 20 1.67
Nephrology-Min Surg 20 1.67
Neurology-Incl Child-Min Surg 20 1.67
Nuclear Medicine-Minor Surgery-No Rad 20 1.67
Occupational Medicine-Minor Surgery-Asst 20 1.67
Opthalmology-Min Surg 20 1.67
A-10
<PAGE>
Orthopedics-Minor Surgery-Asst Own 20 1.67
Otology-Min Surg 20 1.67
Otorhinolaryngology-Min Surg 20 1.67
Pathology-Min Surg 20 1.67
Pediatrics-Min Surg 20 1.67
Physician-Min Surg-NOC 20 1.67
Plastic-Minor Surgery-Asst Own Pts 20 1.67
Psychiatry-Incl ECT-No Maj 20 1.67
Pulmonary Disease-Minor Surgery 20 1.67
Radiology-Diagnostic-Min Surg 20 1.67
Rhinology-Min Surg 20 1.67
Rhuematology-Minor Surgery-Asst Own 20 1.67
Sports Medicine-Min Surg 20 1.67
Anesthesiology 30 2.18
S-Ophthalmology 30 2.18
S-Family Practice-Ob-No C-Sections 30 2.18
S-Urological 30 2.18
Broncho-Esophagology 30 2.18
Cardivasc Dis-Incl Cath-No Maj 30 2.18
Dermatology-Incl Rad Therapy 30 2.18
Lasers-Used in Therapy 30 2.18
Neonatology 30 2.18
Neurology-Incl ECT-No Maj Surg 30 2.18
Neurology-Maj Risk Proc-No Maj Surg 30 2.18
Nuclear Med-Incl Rad Ther-No Maj 30 2.18
Pediatrics-Maj Risk Proc-No Surg 30 2.18
Physician-No Maj-Acupunture 30 2.18
Physician-No Maj-Angiography 30 2.18
Physician-No Maj-Arteriography 30 2.18
Physician-No Maj-Catheterization 30 2.18
Physician-No Maj-Colonoscopy 30 2.18
Physician-No Maj-Discograms 30 2.18
Physician-No Maj-ERCP 30 2.18
Physician-No Maj-Laparoscopy 30 2.18
Physician-No Maj-Lasers-Used in therapy 30 2.18
Physician-No Maj-Lymphangiography 30 2.18
Physician-No Maj-Myleography 30 2.18
Physician-No Maj-Needle Biopsy 30 2.18
Physician-No Maj-Phlebography 30 2.18
Physician-No Maj-Pneumatic/Mech Esoph Dilation 30 2.18
A-11
<PAGE>
Physician-No Maj-Pneumoencephalography 30 2.18
Physician-No Maj-Radiation Therapy 30 2.18
Physician-No Maj-Radiopaque Dye 30 2.18
Physicians-Maj Risk Proc-No Surg 30 2.18
S-Endocrinology 30 2.18
S-Gastroenterology 30 2.18
S-Geriatrics 30 2.18
S-Neoplastic 30 2.18
S-Nephrology 30 2.18
S-Colon & Rectal 30 2.18
Emergency Medicine-No Maj Surg 40 2.71
S-Family Practice-OB-C-Sections 40 2.71
S-Otorhinolaryngology 40 2.71
S-Rhinology 40 2.71
S-Laryngology 40 2.71
S-Otology 40 2.71
Oral Maxillofacial Surgery 50 4.00
Emergency Medicine-Incl Maj Surg 60 4.26
S-Dermatologic 60 4.26
S-General 60 4.26
S-Abdominal 60 4.26
S-Neonatology 60 4.26
S-Plastic-Otorhinolaryngology 60 4.26
S-Gynecology 60 4.26
S-Hand 60 4.26
S-Head & Neck 60 4.26
S-Plastic-NOC 60 4.26
Foot and Ankle Surgery 70 5.50
S-Cardiac 70 5.50
S-Orthopedic-Excl Spine 70 5.50
S-Orthopedic-Incl Spine 70 5.50
S-Thoracic 70 5.50
S-Vascular 70 5.50
S-Cardiovascular Disease 70 5.50
S-Traumatic 70 5.50
S-Obstetrics 80 6.52
Fetal & Maternal Medicines 80 6.52
S-OB/GYN 80 6.52
S-Neurology-Incl Child 90 7.86
A-12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following are the estimated expenses to be paid by the Company in
connection with the distribution of the securities being registered. All such
expenses are estimated, except for the SEC registration fee:
SEC registration fee ................................................$ 6,372.00
Accounting fees and expenses...........................................10,000.00
Legal fees and expenses................................................10,000.00
Printing and engraving expenses........................................10,000.00
Blue Sky fees and expenses..............................................5,000.00
Miscellaneous expenses....................................................628.00
Total..........................................................$42,000.00
==========
Item 14. Indemnification of Directors and Officers.
Article X of the Bylaws of the registrant provides that each director,
committee member, officer, and employee shall be indemnified for expenses and
liabilities in the manner, under the circumstances, and to the extent permitted
by Minnesota Statutes, Section 302A.521, as amended from time to time.
Indemnification is also extended to certain consultants, agents, directors,
officers and employees of subsidiaries of the registrant.
Minnesota Statutes, Section 302A.521, generally requires a corporation to
indemnity its directors, officers, and employees against judgments, penalties,
fines, and expenses, including attorney's fees, incurred in connection with
their official capacities, provided that such person (i) has not been
indemnified by another with respect to the same matter, (ii) acted in good
faith, (iii) received no improper personal benefit, (iv) had no reasonable cause
to believe that his conduct was unlawful, and (v) reasonably believed that his
conduct was in the best interests of the corporation.
Item 15. Recent Sales of Unregistered Securities.
The registrant has made no sales of unregistered securities in the last
three years.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
II-1
<PAGE>
(3) 3A. Restated Articles of Incorporation of the registrant (Form
S-4, Exhibit 3C).
(3) 3B. Bylaws of the registrant, as amended (Form S-4, Exhibit 3D).
* 5. Opinion and Consent of Charles A. Geer, Esq.
(1) 9. Voting Trust Agreement between the Minnesota Medical
Association and the Iowa Medical Society.
(1) 10A. Governance Agreement between the registrant and the Minnesota
Medical Association, holder of the registrant's Class B Common
Share, dated November 30, 1998.
(1) 10B. Lease for office space between the registrant and Lexington
Property Fund, L.P., dated November 1, 1997.
10C. Management Agreement between the registrant and Midwest
Medical Insurance Company dated November 30, 1998, as amended
January 1, 1990, January 1, 1991 and January 1, 1996.
(Incorporated herein by reference to the Annual Report on Form
10-K, SEC file number 0-21230, filed by registrant for the
year ended December 31, 1996.)
(1) 10D. Agency Agreement with Vaaler Insurance, Inc. pursuant to which
Vaaler acted as agent of MMIC in North Dakota, dated April 21,
1989.
(5) 10E. Agreement of Reinsurance between Midwest Medical Insurance
Company and General Reinsurance Corporation, dated January 1,
1998.
(2) 10F. Letter Employment Agreement between the registrant and David
P. Bounk, President and Chief Executive Officer of the
registrant and Midwest Medical Insurance Company, dated
January 1, 1993.
(5) 10G. 1998 Officers Short-Term Incentive Plan of the registrant.
(4) 10H. Amended and Restated Supplemental Executive Retirement Plan of
the registrant.
10I. Agency Agreement with IMS Services, Inc. pursuant to which IMS
acts as agent of MMIC in Iowa, dated July 1, 1993.
(Incorporated herein by reference to the Report on Form 10-K
filed by the registrant for the fiscal year ended December 31,
1993, file number 0-21230.)
II-2
<PAGE>
(4) 10J. Form of Termination Agreement with Executive Officers.
(5) 21. Subsidiaries of the registrant.
* 23A. Consent of Ernst & Young LLP
* 24. Powers of Attorney.
(5) 27. Financial Data Schedule.
(1) Incorporated herein by reference to the registration statement on Form S-4,
file number 33-55062, filed by registrant on November 25, 1993, as
amended.
(2) Incorporated herein by reference to the registration statement on Form S-1,
SEC file number 33-70182, filed by registrant on October 12, 1993,
as amended.
(3) Incorporated herein by reference to the registration statement on Form S-4,
SEC file number 333-00134, filed by registrant on January 10, 1996,
as amended.
(4) Incorporated herein by reference to the registration statement on Form S-1,
SEC file number 333-29047, filed by registrant on June 11, 1997, as
amended.
(5) Incorporated herein by reference to the Annual report on Form 10-K filed by
registrant for the year ended December 31, 1998.
(*) Filed herewith.
(b) Financial Statement Schedules.
The following financial statement schedules of the Company required
by Regulation S-X and Form S-1 are filed as part of this Registration
Statement:
II. Condensed Financial Information of Registrant (Parent
Company)--Balance Sheets--December 31, 1998 and 1997, Statements of
Income--For the Years Ended December 31, 1998 and 1997 and 1996; and,
Statements of Cash Flows--For the Years Ended December 31, 1998, 1997 and
1996. Included in "FINANCIAL STATEMENTS" Section of Prospectus filed
herewith.
IV. Reinsurance Summary for the Years Ended December 31, 1998, 1997
and 1996. Included in "FINANCIAL STATEMENTS" section of Prospectus filed
herewith.
VI. Supplemental Information Concerning Property/Casualty Insurance
Operations--December 31, 1998 and 1997, and for Each of the Three Years in
the Period Ended December 31, 1998. Included in "FINANCIAL STATEMENTS"
section of
II-3
<PAGE>
Prospectus filed herewith.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registrant statement to include any
financial statements required by 3-19 of Regulation S-X at the start
of any delayed offering or throughout a continuous offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
II-4
<PAGE>
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on April 26, 1999.
MIDWEST MEDICAL INSURANCE HOLDING COMPANY
By: /s/ David P. Bounk
------------------
David P. Bounk, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on April 26, 1999.
SIGNATURE CAPACITY
/s/ David P. Bounk Principal Executive Officer and Director
- -----------------------------
David P. Bounk
/s/ Niles A. Cole Principal Financial Officer and
- ----------------------------- Principal Accounting Officer
Niles A. Cole
* Director, Chairman of the Board
- -----------------------------
Andrew J.K. Smith, M.D.
* Director
- -----------------------------
Michael Abrams
* Director
- -----------------------------
John R. Balfanz, M.D.
* Director
- -----------------------------
Gail P. Bender, M.D.
* Director
- -----------------------------
James R. Bishop, M.D.
* Director
- -----------------------------
Roger L. Frerichs, M.D.
* Director
- -----------------------------
G. Richard Geier, M.D.
* Director
- -----------------------------
Anthony C. Jaspers, M.D.
* Director
- -----------------------------
Russel J. Kuzel, M.D.
* Director
- -----------------------------
Wayne F. Leebaw, M.D.
* Director
- -----------------------------
Stephen A. McCue, M.D.
S-1
<PAGE>
- ----------------------------- Director
William J. McMillan, Jr., M.D.
* Director
- -----------------------------
Harold W. Miller, M.D.
* Director
- -----------------------------
Anton S. Nesse, M.D.
* Director
- -----------------------------
Mark D. Odlund, M.D.
* Director
- -----------------------------
G. William Orr, M.D.
* Director
- -----------------------------
Norman Rinderknecht, M.D.
* Director
- -----------------------------
Paul S. Sanders, M.D.
* Director
- -----------------------------
Richard D. Schmidt, M.D.
* Director
- -----------------------------
Judith F. Shank, M.D.
* Director
- -----------------------------
G. David Spoelhof, M.D.
* Director
- -----------------------------
Tom D. Throckmorton, M.D.
* Director
- -----------------------------
Bruce R. Trimble, M.D.
*By: /s/ David P. Bounk
------------------------------------
David P. Bounk pursuant to
power of attorney
The above persons signing as directors constitute all of the directors of the
registrant.
S-2
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
5. Opinion of Best & Flanagan LLP
23. Consent of Ernst & Young LLP
24. Powers of Attorney.
<PAGE>
April 26, 1999
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, Minnesota 55435-1891
Ladies and Gentlemen:
You have requested our opinion with regard to the legality of the proposed
offering by Midwest Medical Insurance Holding Company (the "Company") of up to
20,000 shares of the Company's Class A common stock to be issued in the two
years following May 1, 1999 to insureds of its wholly owned subsidiary, Midwest
Medical Insurance Company, pursuant to a registration statement on Form S-1
filed under Securities and Exchange Commission Rule 415.
We have examined the Restated Articles of Incorporation of the Company, the
Amended Bylaws of the Company, the minutes of all meetings of the directors of
the Company in which any action was taken pertaining to the issuance of the
shares to be registered, the Registration Statement on Form S-1, all amendments
to the Registration Statement, and other matters deemed relevant by us.
Based upon examination of the foregoing documents and questions of law as we
have deemed applicable, we are of the following opinion:
1. That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota.
2. That the shares to be offered by the Company in connection with the
proposed offering, when issued upon the terms and in the manner set forth in the
Registration Statement and related prospectus, will by duly authorized, legally
issued, fully paid and non-assessable share of the Company's Class A common
stock.
We hereby consent to the inclusion of this letter as part of the Registration
Statement referred to above, and any amendments thereto, and the use of our name
under the caption "Legal Matters" in the Prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ Best & Flanagan LLP
By Ross C. Formell, partner
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 1, 1999, in the Registration Statement
(Form S-1) and related Prospectus of Midwest Medical Insurance Holding Company
and Subsidiaries dated May 1, 1999.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 26, 1999
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Andrew J.K. Smith, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Andrew J.K. Smith, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Michael Abrams, do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Michael Abrams
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ John R. Balfanz, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ John R. Balfanz, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Gail P. Bender, M.D., do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Gail P. Bender, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ James R. Bishop, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ James R. Bishop, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Roger L. Frerichs, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Roger L. Frerichs, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ G. Richard Geier, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ G. Richard Geier, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Anthony C. Jaspers, M.D., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Anthony C. Jaspers, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Russel J. Kuzel, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Russel J. Kuzel, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Wayne F. Leebaw, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Wayne F. Leebaw, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Stephen A. McCue, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Stephen A. McCue, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ William J. McMillan, Jr., M.D., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ William J. McMillan, Jr., M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Harold W. Miller, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Harold W. Miller, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Anton S. Nesse, M.D., do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Anton S. Nesse, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Mark D. Odlund, M.D., do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Mark D. Odlund, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ G. William Orr, M.D., do hereby constitute and appoint David P. Bounk, my
attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ G. William Orr, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Norman Rinderknecht, M.D., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Norman Rinderknecht, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Paul S. Sanders, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Paul S. Sanders, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Richard D. Schmidt, M.D., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Richard D. Schmidt, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Judith F. Shank, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Judith F. Shank, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ G. David Spoelhof, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ G. David Spoelhof, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Tom D. Throckmorton, M.D., do hereby constitute and appoint David P.
Bounk, my attorney in fact for the purposes of signing in my name and on my
behalf as Director of Midwest Medical Insurance Holding Company, a registration
statement on Form S-1 for the registration under the Securities Act of 1933, as
amended, of Class A common stock of the Company, par value of $.01 per share,
and any and all amendments to said registration statement, and to deliver on my
behalf said registration statement and any and all amendments thereto, as each
thereof is so signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Tom D. Throckmorton, M.D.
----------------------------------
<PAGE>
Exhibit 24
MMIHC
Midwest Medical Insurance Holding Company
6600 France Avenue South, Suite 245
Minneapolis, MN 55435-1891
PH. (612) 922-5445 or 1-800-328-5532 FAX (612) 922-7323
POWER OF ATTORNEY
I, /s/ Bruce R. Trimble, M.D., do hereby constitute and appoint David P. Bounk,
my attorney in fact for the purposes of signing in my name and on my behalf as
Director of Midwest Medical Insurance Holding Company, a registration statement
on Form S-1 for the registration under the Securities Act of 1933, as amended,
of Class A common stock of the Company, par value of $.01 per share, and any and
all amendments to said registration statement, and to deliver on my behalf said
registration statement and any and all amendments thereto, as each thereof is so
signed, for filing with the Securities and Exchange Commission.
Dated: April 1, 1998 /s/ Bruce R. Trimble, M.D.
----------------------------------
