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FORM 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM: TO
1-11714
(COMMISSION FILE NUMBER)
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CITIZENS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3178765
(STATE OR OTHER JURISDICTION, (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(508) 855-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS OF STOCK) (NAME OF EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Based on the closing sales price of February 28, 1997 the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$153,618,050.
The number of shares outstanding of the registrant's common stock, $0.01 par
value, was 35,269,100 shares outstanding as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Citizens Corporation's Proxy Statement for Annual Meeting of
Shareholders to be held May 20, 1997 (the Proxy Statement) are incorporated by
reference in Part III.
Total number of pages, including cover page--1 of 6
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This Amendment to the Registrant's 1996 Annual Report on Form 10-K (the "10-
K") is made solely to supplement the 10-K by including Exhibit 99.1, which was
listed as an Exhibit to the 10-K but not previously filed.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Citizens Corporation
Registrant
/s/ Edward J. Parry, III
Dated March 27, 1997 By: __________________________________________
Edward J. Parry, III
Vice President, Chief Financial Officer,
Treasurer and Principal Accounting Officer
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EXHIBIT 99.1
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected the Company's results and in the
future could cause actual results and needs of the Company to vary materially
from forward-looking statements made from time to time by the Company on the
basis of management's then-current expectations. The businesses in which the
Company is engaged are in rapidly changing and competitive markets and involve
a high degree of risk, and accuracy with respect to forward-looking
projections is difficult.
GEOGRAPHIC CONCENTRATION IN THE PROPERTY AND CASUALTY INSURANCE BUSINESS
Substantially all of the Company's net premiums written and earnings are
generated in Michigan. The revenues and profitability of the Company are
therefore subject to prevailing economic, regulatory, demographic and other
conditions, including adverse weather, in Michigan.
CYCLICALITY IN THE PROPERTY AND CASUALTY INSURANCE INDUSTRY
Historically, the property and casualty insurance industry has been highly
cyclical. The property and casualty industry's profitability can be affected
significantly by price competition, volatile and unpredictable developments
such as extreme weather conditions and natural disasters, legal developments
affecting insurer liability and the size of jury awards, fluctuations in
interest rates and other factors that affect investment returns and other
general economic conditions and trends that may affect the adequacy of
reserves.
Over the past several years, the property and casualty insurance industry as
a whole has been in a soft market. Competition for premiums in the property
and casualty insurance markets may continue to have an diverse impact on the
Company's rates and profitability.
CATASTROPHES AND SEVERE WEATHER LOSSES IN THE PROPERTY AND CASUALTY INSURANCE
INDUSTRY
Property and casualty insurers are subject to claims arising out of
catastrophes, and other severe weather related losses, which may have a
significant impact on their results of operations and financial condition. The
Company may experience catastrophes and other severe weather losses in the
future which could have a material adverse impact on the Company. Catastrophes
and severe weather losses can be caused by various events including
hurricanes, earthquakes, tornadoes, wind, hail, fires, severe winter weather
and explosions, and the frequency and severity of catastrophes are inherently
unpredictable. The extent of losses from catastrophes and severe weather is a
function of two factors: the total amount of insured exposure in the area
affected by the event and the severity of the event. Although catastrophes and
severe weather can cause losses in a variety of property and casualty lines,
homeowners and commercial property insurance have in the past generated the
vast majority of the Company's catastrophe-related claims. The Company
purchases catastrophe reinsurance as protection against catastrophe losses.
The Company believes, based upon its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, that the financial
condition of its reinsurers is sound. However, there can be no assurance that
reinsurance will be adequate to protect the Company against such losses or
that such reinsurance will continue to be available to the Company in the
future at commercially reasonable rates.
UNCERTAINTY REGARDING ADEQUACY OF PROPERTY AND CASUALTY LOSS RESERVES
The Company maintains reserves to cover its estimated ultimate liability for
losses and loss adjustment expenses ("LAE") with respect to reported and
unreported claims incurred as of the end of each accounting period. These
reserves are estimates, involving actuarial projections at a given time, of
what the Company expects the ultimate settlement and administration of claims
will cost based on facts and circumstances then known, predictions of future
events, estimates of future trends in claims severity and judicial theories of
liability,
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legislative activity and other factors. The inherent uncertainties of
estimating reserves are greater for certain types of property and casualty
insurance lines, particularly workers' compensation, where a longer period of
time may elapse before a definitive determination of ultimate liability may be
made, and environmental liability, where the technological, judicial and
political climates involving these types of claims are changing.
The Company regularly reviews reserving techniques, reinsurance and overall
reserve adequacy. Based upon (i) review of historical data, legislative
enactments, judicial decisions, legal developments in imposition of damages,
changes in political attitudes and trends in general economic conditions;
(ii) review of per claim information; (iii) historical loss experience of the
Company and the industry; and (iv) the relatively short-term nature of most of
its property and casualty insurance policies, management believes that adequate
provision has been made for reserves. However, establishment of appropriate
reserves is an inherently uncertain process involving estimates of future
losses and there can be no certainty that currently established reserves will
prove adequate in light of subsequent actual experience. The Company's reserves
are annually certified as required by insurance regulatory authorities.
REGULATORY, SURPLUS, CAPITAL, RATING AGENCY AND RELATED MATTERS
Insurance companies are subject to supervision and regulation by the state
insurance authority in each state in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition, including limitations on the authorization of
lines of business, underwriting limitations, the setting of premium rates, the
establishment of standards of solvency, the licensing of insurers and agents,
concentration of investments, levels of reserves, the payment of dividends,
transactions with affiliates, changes of control and the approval of policy
forms. Such regulation is concerned primarily with the protection of
policyholders.
State regulatory oversight and various proposals at the federal level
(including the proposed adoption of a federal regulatory framework for
insurance companies) may in the future adversely affect the Company's ability
to sustain adequate returns in certain lines of business. In recent years, the
state insurance regulatory framework has come under increased federal scrutiny,
and certain state legislatures have considered or enacted laws that alter and,
in many cases, increase state authority to regulate insurance companies and
insurance holding company systems. Further, the National Association of
Insurance Commissioners ("NAIC") and state insurance regulators are reexamining
existing laws and regulations, and as a condition to accreditation have
required the adoption of certain model laws which specifically focus on
insurance company investments, issues relating to the solvency of insurance
companies, risk-based capital ("RBC") guidelines, interpretations of existing
laws, the development of new laws, and the definition of extraordinary
dividends.
The capacity for an insurance company's growth in premiums is in part a
function of its statutory surplus. Maintaining appropriate levels of statutory
surplus, as measured by state insurance regulators, is considered important by
state insurance regulatory authorities and the private agencies that rate
insurers' claims-paying abilities and financial strength. Failure to maintain
certain levels of statutory surplus could result in increased regulatory
scrutiny, action by state regulatory authorities or a downgrade by the private
agencies referred to below.
The NAIC has created a new system for assessing the adequacy of statutory
capital for property and casualty insurers. The new system, known as risk-based
capital, is in addition to the states' fixed dollar minimum capital and other
requirements. The new system is based on risk-based formulas (separately
defined for life and health insurers and property and casualty insurers) that
apply prescribed factors to the various risk elements in an insurer's business
to report a minimum capital requirement proportional to the amount of risk
assumed by the insurer.
STATE GUARANTY FUNDS, SHARED MARKETS MECHANISMS AND POOLING ARRANGEMENTS
All fifty states of the United States have insurance guaranty fund laws
requiring all life and health and property and casualty insurance companies
doing business within the state to participate in guaranty associations,
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which are organized to pay contractual obligations under insurance policies
issued by impaired or insolvent insurance companies. These associations levy
assessments (up to prescribed limits) on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member
insurers in the lines of business in which the impaired or insolvent insurer is
engaged. Mandatory assessments by state guaranty funds are used to cover losses
to policyholders of insolvent or rehabilitated companies and can be partially
recovered through a reduction in future premium taxes in many states. These
assessments may increase in the future depending upon the rate of insolvencies
of insurance companies.
In addition, as a condition to the ability to conduct business in various
states, the Company is required to participate in mandatory property and
casualty shared market mechanisms or pooling arrangements, which provide
various insurance coverages to individuals or other entities that otherwise are
unable to purchase such coverage voluntarily provided by private insurers. The
Company cannot predict whether its participation in these shared market
mechanisms or pooling arrangements will provide underwriting profits or losses
to the Company.
COMPETITION
The Property and Casualty Insurance industry in general is highly
competitive. Many of the Company's competitors are larger and have greater
financial, technical and operating resources than those of the Company.
RETENTION OF KEY EXECUTIVES
The future success of the Company will be affected by its continued ability
to attract and retain qualified executives. The Company's success is dependent
in large part on John F. O'Brien, the loss of whom could adversely affect the
Company's business. The Company does not have an employment agreement with Mr.
O'Brien.
