FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
--------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
------- --------
Commission file number: 1-11714
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CITIZENS CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3178765
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
440 Lincoln Street, Worcester, Massachusetts 01653
---------------------------------------------------
(Address of principal executive offices)(Zip Code)
(508) 855-1000
--------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 34,986,400
Shares of Common Stock Outstanding, as of September 30, 1998.
20
Total Number of Pages
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Comprehensive Income 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
10-17
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CITIZENS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Quarter Ended Nine Months
Ended
(In millions, except per September 30, September 30,
share data)
1998 1997 1998 1997
------ ------ ------ ------
Revenues
Net premiums written $ 238.0 $ 242.2 $683.3 $662.1
Change in unearned premiums,
net of prepaid reinsurance
premiums 17.2 27.6 24.1 27.5
------ ------ ------ ------
Net premiums earned 220.8 214.6 659.2 634.6
Net investment income 25.1 25.2 75.8 74.9
Net realized gains on 24.1 8.3 29.9 27.4
investments
1.7 1.6 4.6 4.6
Other income
------ ------ ------ ------
Total revenues 271.7 249.7 769.5 741.5
------ ------ ------ ------
Expenses
Losses and loss adjustment
expenses 180.9 171.2 517.9 488.4
Policy acquisition and other
operating expenses 52.3 57.0 168.7 171.5
Policyholders' dividends 0.9 1.3 3.7 4.7
------ ------ ------ ------
Total expenses 234.1 229.5 690.3 664.6
------ ------ ------ ------
Income before federal income
taxes 37.6 20.2 79.2 76.9
Federal income tax expense 7.6 2.9 14.2 14.6
------ ------ ------ ------
Net Income $ 30.0 $ 17.3 $65.0 $62.3
====== ====== ====== ======
Per share data (basic and diluted)
Net income $ 0.85 $ 0.50 $ 1.85 $ 1.77
Dividends declared to
shareholders $ 0.05 $ 0.05 $ 0.15 $ 0.15
Weighted average shares
outstanding 35.2 35.3 35.2 35.3
The accompanying notes are an integral part of these financial statements
</TABLE>
3
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CITIZENS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
(Unaudited)
(In millions, except per share data) September 30 December 31,
1998 1997
------------ ------------
Assets
Investments:
Debt securities available-for-sale, at
fair value
(Amortized cost of $1,516.5 and $1,453.1) $ 1,584.0 $ 1,522.4
Equity securities available-for-sale, at
fair value (Cost of $86.3 and $110.2) 134.6 182.7
Other investments, at fair value (Cost of
$2.5 and $17.7) 2.5 16.5
------------ ------------
Total investments 1,721.1 1,721.6
Cash and cash equivalents 55.3 46.5
Accrued investment income 25.8 26.5
Premiums and notes receivable 161.5 139.4
Reinsurance recoverable on paid and unpaid
balances 476.3 474.3
Prepaid reinsurance premiums 72.1 70.4
Deferred policy acquisition expenses 55.0 54.8
Deferred federal income taxes 6.5 3.7
Other assets 59.7 68.1
------------ ------------
Total assets $ 2,633.3 $ 2,605.3
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Reserve for losses and loss adjustment
expenses $ 1,212.0 $ 1,206.1
Unearned premiums 404.3 378.5
Other liabilities 103.4 147.8
------------ ------------
Total liabilities 1,719.7 1,732.4
------------ ------------
Shareholder's Equity
Series A preferred stock, $0.01 par value
per share; authorized 10.0 million
shares; none issued or outstanding in
1998 and 1997 - -
Common stock, par value $0.01 per share;
authorized 100.0 million shares; issued
36.1 million shares 0.4 0.4
Additional paid-in capital 161.2 156.1
Retained earnings 699.3 639.6
Accumulated other comprehensive income 75.4 91.6
Treasury stock, at cost (1.1 million
shares) (22.7) (14.8)
------------ ------------
Total shareholder's equity 913.6 872.9
------------ ------------
Total liabilities and shareholder's
equity $ 2,633.3 $ 2,605.3
============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
4
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CITIZENS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
(Unaudited)
Nine Months
(In millions) Ended
September 30,
1998 1997
------ ------
Preferred stock
Balance at beginning and end of period - -
------ ------
Common stock
Balance at beginning and end of period $ 0.4 $ 0.4
------ ------
Additional paid-in capital
Balance at beginning of period 156.1 156.1
Capital contributions 5.1 -
------ ------
Balance at end of period 161.2 156.1
Retained earnings
Balance at beginning of period 639.6 552.5
Net income 65.0 62.3
Dividends declared to shareholders (5.3) (5.3)
------ ------
Balance at end of period 699.3 609.5
Accumulated Other Comprehensive Income
Balance at beginning of period 91.5 60.5
(Depreciation) Appreciation during the
period (24.8) 35.3
Provision for deferred federal income taxes 8.7 (12.3)
------ ------
Balance at end of period 75.4 83.5
------ ------
Treasury stock
Balance at beginning of period (14.8) (15.0)
Shares purchased at cost (8.0) -
Shares reissued 0.1 0.1
------ ------
Balance at end of period (22.7) (14.9)
------ ------
Total shareholders' equity $913.6 $834.6
====== ======
The accompanying notes are an integral part of these financial statements
</TABLE>
5
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CITIZENS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Quarter Ended Nine Months Ended
(In millions) September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
Net income $ 30.0 $ 17.3 $ 65.0 $ 62.3
Other comprehensive income:
Unrealized (depreciation)
appreciation on investments during
period (48.1) 27.3 (24.8) 35.3
Benefit (provision) for deferred
federal income taxes related to
items of other comprehensive income 16.9 (9.5) 8.7 (12.3)
------ ------ ------ ------
Other comprehensive income (31.2) 17.8 (16.1) 23.0
------ ------ ------ ------
Comprehensive income $ (1.2) $ 35.1 $ 48.9 $ 85.3
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements
</TABLE>
6
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CITIZENS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
(Unaudited)
Nine Months
(In millions) Ended
September 30,
1998 1997
------ ------
Cash flows from operating activities
Net income $ 65.0 $ 62.3
Adjustments to reconcile net income to
net cash provided by operating activities:
Net realized gains on investments (29.9) (27.4)
Deferred federal income tax benefit (4.1) (3.4)
Change in assets and liabilities:
Deferred policy acquisition expenses (0.2) (3.6)
Premiums and notes receivable, net of
reinsurance premiums (38.7) (16.9)
Unearned premiums, net of prepaid
reinsurance premiums 24.1 27.5
Reserve for losses and loss adjustment
expenses, net of reinsurance recoverable 5.9 (9.8)
Payment related to pension liability
transfer (13.6) -
Other, net (8.8) 6.5
------ ------
Net cash (used for) provided by operating
activities (0.3) 35.2
------ ------
Cash flows from investing activities
Proceeds from sale of available-for-sale debt
securities 131.6 284.2
Proceeds from available-for-sale debt
securities maturing or called 91.5 71.1
Proceeds from sale of available-for-sale
equity securities and other investments 94.2 115.1
Purchases of available-for-sale debt
securities (286.5) (431.3)
Purchases of sale of available-for-sale
equity securities and other investments (27.7) (63.8)
Change in net receivable from securities
transactions not settled 14.8 3.7
Other investing activities 4.4 (1.8)
------ ------
Net cash provided by (used for) by
investing activities 22.3 (22.8)
------ ------
Cash flows from financing activities
Dividends paid to shareholders (5.3) (5.3)
Treasury stock reissued, at cost (8.0) -
Shares reissued 0.1 0.1
------ ------
Net cash used for financing activities (13.2) (5.2)
------ ------
Change in cash and cash equivalents 8.8 7.2
Cash and cash equivalents at beginning of
period 46.5 36.1
------ ------
Cash and cash equivalents at end of period 55.3 43.3
====== ======
The accompanying notes are an integral part of these financial statements
</TABLE>
7
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CITIZENS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
Citizens Corporation ("the Company") have been prepared in accordance
with generally accepted accounting principles applicable to stock
property and casualty insurance companies for interim financial
information and with the requirements of Form 10-Q. Certain prior year
amounts have been reclassified to conform with the current year's
presentation.
In the opinion of management, the financial statements reflect all
adjustments of a normal recurring nature necessary for a fair
presentation of the interim periods. Interim results are not
necessarily indicative of results expected for the entire year. These
financial statements should be read in conjunction with the Company's
1997 Annual Report to Shareholders, as filed on Form 10-K with the
Securities and Exchange Commission.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (Statement No. 130), which establishes standards
for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All
items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial
statement that is displayed with the same prominence as other
financial statements. This statement stipulates that comprehensive
income reflect the change in equity of an enterprise during a period
from transactions and other events and circumstances from non-owner
sources. This statement is effective for fiscal years beginning after
December 15, 1997. The Company adopted Statement No. 130 for the
first quarter of 1998, resulting primarily in reporting unrealized
gains and losses on investments in debt and equity securities in
comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information (Statement No. 131). Statement No. 131
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements
and requires that selected information about those operating segments
be reported in interim financial statements. This statement
supersedes Statement of Financial Accounting Standards No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement
No. 131 requires that all public enterprises report financial and
descriptive information about their reportable operating segments.
Operating segments are defined as components of an enterprise about
which separate financial information is available that it is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This statement is
effective for fiscal years beginning after December 15, 1997. The
Company adopted Statement No. 131 for the first quarter of 1998,
resulting in no change in the Company's reportable segments.
In December 1997, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 97-3, Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments (SoP
No. 97-3). SoP 97-3 provides guidance on when a liability should be
recognized for guaranty fund and other assessments and on how to
measure the liability. This statement allows for the discounting of
the liability if the amount and timing of the cash payments are fixed
and determinable. In addition, it provides criteria for when an asset
may be recognized for a portion or all of the assessment liability or
paid assessment that can be recovered through premium tax offsets or
policy surcharges. This statement is effective for fiscal years
beginning after December 15, 1998. The Company believes that the
adoption of this statement will not have a material effect on the
results of operations or financial position.
In March 1998, the AICPA issued Statement of Position 98-1, Accounting
for the Cost of Computer Software Developed or Obtained for Internal
Use (SoP No. 98-1). SoP No. 98-1 requires that certain costs incurred
in developing internal-use computer software be capitalized and
provides guidance for determining whether computer software is to be
considered for internal use. This statement is effective for fiscal
years beginning after December 15, 1998. In the quarter ended June
30, 1998, the Company adopted SoP No. 98-1 effective January 1, 1998.
The adoption of SoP No. 98-1 had no material effect on the results of
operation or financial position for the nine months ended September
30, 1998.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement No. 133),
which establishes accounting and reporting standards for derivative
instruments. Statement No. 133 requires that an entity recognize all
8
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derivatives as either assets or liabilities at fair value in the
statement of financial position, and establishes special accounting
for the following three different types of hedges: fair value hedges,
cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for
fiscal years beginning after June 15, 1999. The Company believes that
the adoption of this statement will not have a material effect on the
results of operations or financial position.
2. Earnings per Share
Earnings per share are based on the weighted average number of common
shares and common share equivalents. The Board of Directors authorized
the repurchase of 1.8 million shares or slightly less than five
percent of its issued common stock and has purchased a total of 1.0
million shares since the implementation of the repurchase program in
1995. As of September 30, 1998, the Company is holding these shares
as treasury stock for the purpose of funding current and future stock
option awards and for other purposes. In 1997, the FASB issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share (Statement No. 128) which supersedes Accounting Principles
Board Opinion No. 15, Earnings Per Share. This standard replaces the
primary and fully diluted earnings per share with a basic and diluted
earnings per share computation, and requires a dual presentation of
basic and diluted earnings per share for those companies with complex
capital structures. All earnings per share amounts for all periods
have been presented to conform to the Statement No. 128 requirements.
The adoption of the aforementioned standard had no effect on the
Company's previously reported earnings per share.
3. MCCA Assessment
The Company is required under Michigan law to participate in a pooling
arrangement with the Michigan Catastrophic Claims Association (MCCA).
The Company is indemnified by the MCCA for personal protection
insurance losses in excess of $0.25 million. Participation is
required for all Michigan-licensed automobile and motorcycle insurers.
The MCCA assesses its member companies an annual premium on each of
such member companies' policies covering automobile and motorcycles
written in Michigan. The assessment is passed on directly to
policyholders as a surcharge to premium. The Company cedes a portion
of its private passenger automobile premiums to the MCCA.
On May 11, 1998, the MCCA voted to issue a refund of $180 per insured
vehicle. The MCCA issued refunds to member companies during June of
1998. The MCCA refunded $127 million to Citizens Insurance Company of
America (CICA) based on CICA's 1997 insured vehicles, in June 1998.
The Company remitted the refund to policyholders. This had no
significant effect on the results of operations.
4. Single Employer Transfer
On January 1, 1998, substantially all of the employees of the Company
were transferred to a single employer, First Allmerica Financial Life
Insurance Company (FAFLIC), which is a subsidiary of the ultimate
parent, Allmerica Financial Corporation (AFC). Substantially all of
the defined benefit, defined contribution 401(k) and postretirement
plans were merged with the existing benefit plans of FAFLIC. The
transfer of benefit plans did not impact the results of operations .
Assets equal to the fair value of the liabilities, net of taxes, were
transferred to FAFLIC. The excess of the carrying value of the
liabilities, net of taxes, was assumed byFAFLIC, resulting in a
capital contribution of $5.1 million.
5. Allmerica Financial Corporation Cash Tender Offer
On October 27, 1998, Citizens Corporation announced that its parent
company, Allmerica Financial Corporation or one of its wholly-owned
subsidiaries, shortly will commence a cash tender offer to acquire the
outstanding shares of Citizens Corporation common stock that Allmerica
Financial Corporation or its subsidiaries do not already own at a
price of $29.00 per share. On November 2, 1998, Allmerica Financial
Corporation commenced the tender offer which, unless extended, will
expire on December 2, 1998. Based on the number of shares of Citizens
Corporation common stock held by unaffiliated stockholders, the
transaction is valued at approximately $171 million. Citizens
Corporation has established a special committee of the Board of
Directors, consisting of directors unaffilliated with Allmerica
Financial Corporation, to study the offer and make a recommendation to
Citizens Corporation stockholders.
9
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PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for Citizens Corporation and subsidiaries
(the Company) include the accounts of Citizens Corporation (Citizens),
a non-insurance holding company, and its wholly-owned subsidiaries,
Citizens Insurance Company of America, Citizens Insurance Company of
Ohio, and Citizens Insurance Company of the Midwest (collectively
Citizens Operations), and Citizens Management Inc., which is wholly-
owned by Citizens Insurance Company of America.
Results of Operations
Net income
Net income for the quarter ended September 30, 1998, was $30.0
million, or $0.85 per share, compared to $17.3 million, or $0.50 per
share, for the quarter ended September 30, 1997. Excluding net
realized gains, net of taxes, net income increased $0.8 million, to
$13.0 million for the quarter ended September 30, 1998, versus $12.2
million during the comparable period of 1997. The increase in net
income is primarily attributable to a $15.8 million increase in net
realized gains on investments, partially offset by an increase in the
underwriting loss of $0.9 million. The deterioration in underwriting
results is primarily due to catastrophe losses of $18.6 million,
compared to $9.1 million during the same period in 1997, partially
offset by a $5.8 million increase in favorable development on prior
year reserves, and lower underwriting expenses.
Net income for the nine months ended September 30, 1998, was $65.0
million, or $1.85 per share, compared to $62.3 million, or $1.77 per
share, for the nine months ended September 30, 1997. Excluding
realized gains and restructuring charges, both net of taxes, net
income decreased $2.1 million, to $43.6 million for the nine months
ended September 30, 1998, versus $45.7 million for the comparable
period of 1997. The decrease in net income is primarily attributable
to a $4.1 million increase in the underwriting loss, partially offset
by an increase in realized gains of $2.5 million. The decrease in
underwriting results is primarily due to catastrophe losses of $47.3
million, compared to $17.7 million during the same period in 1997,
significantly offset by improved non-catastrophe current year claims
activity, higher premiums earned, and lower policy acquisition
expenses.
Revenues
Net premiums earned increased $6.2 million, or 2.9%, to $220.8 million
for the quarter ended September 30, 1998, resulting from a $4.5
million increase in the Company's personal lines and a $1.7 million
increase in the Company's commercial lines. Net premiums earned
increased $24.6 million, or 3.9%, to $659.2 million for the nine
months ended September 30, 1998, resulting from an increase of $15.9
million in the Company's personal lines and a increase of $8.7 million
in the Company's commercial lines. Contributing to this growth were
rate increases in all major lines except the workers' compensation
line, and an increase in net premiums earned of $3.5 million for the
three months ended September 30, 1998 and $11.8 million for the nine
months ended September 30, 1998, in Ohio and Indiana, resulting from
expansion in these states.
10
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Segment Results
Personal segment
Personal segment premiums represented 68.0% and 67.9% of total net
premiums earned for the quarters ended September 30, 1998 and 1997,
respectively, and 68.1% and 68.2% of total net premiums earned for the
nine months ended September 30, 1998 and 1997, respectively.
<TABLE>
<S> <C> <C> <C> <C>
For the Periods Ended Three Months Nine Months
September 30, (in millions) ------ ------ ------ ------
1998 1997 1998 1997
------ ------ ------ ------
Net premiums earned $150.2 $145.7 $448.6 $432.7
Losses and loss adjustment
expenses 124.3 113.9 348.9 335.6
Policy acquisition and other
underwriting expenses 36.4 37.3 114.0 114.5
------ ------ ------ ------
Underwriting loss $(10.5) $ (5.5) $(14.3) $(17.4)
====== ====== ====== ======
</TABLE>
Personal segment net premiums earned increased $4.5 million, or 3.1%,
to $150.2 million for the quarter ended September 30, 1998, from
$145.7 million for the quarter ended September 30, 1997. Personal
segment net premiums earned increased $15.9 million, or 3.7%, to
$448.6 million for the nine months ended September 30, 1998, from
$432.7 million for the nine months ended September 30, 1997. These
increases are primarily attributable to a twelve month average rate
increase of 15.9% in the homeowners line. This is partially offset by
a continued decrease in policies in force in both the personal
automobile and homeowner lines. While management has taken steps to
increase penetration in the affinity groups and has initiated other
marketing programs, the Company believes that heightened competition
may result in reduced premium growth in the personal segment.
The personal segment underwriting loss was $10.5 million and $5.5
million for the quarters ended September 30, 1998 and 1997,
respectively. Loss and LAE increased $10.4 million primarily as a
result of a $7.4 million increase in catastrophe losses to $14.3
million for the quarter ended September 30, 1998, from $6.9 million
for the same period ended 1997, primarily in the homeowner's line.
Policy acquisition and other underwriting expenses decreased $0.9
million, or 2.4%, to $36.4 million for the three months ended
September 30, 1998, reflecting reductions in employee related
expenses.
The personal segment underwriting loss improved to $14.3 million from
$17.4 million for the nine months ended September 30, 1998 and 1997,
respectively. The decrease in the underwriting loss is attributable
to the improved current year claims activity in both the personal
automobile and homeowner lines and an increase in favorable
development on prior year reserves in the homeowner's line. This is
partially offset by an increase in catastrophe losses of $18.1 million
over the prior year, primarily in the homeowner's line. Policy
acquisition and other underwriting expenses decreased $0.5 million,
to $114.0 million for the nine months ended September 30, 1998,
reflecting reductions in employee related expenses.
11
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Commercial segment
Commercial segment premiums represented 32.0% and 32.1% of total net
premiums earned for the quarters ended September 30, 1998 and 1997,
respectively. Commercial segment premiums represented 31.9% and 31.8%
of the total net premiums earned for the nine months ended September
30, 1998 and 1997 respectively.
<TABLE>
<S>
<C> <C> <C> <C>
For the Periods Ended Three Months Nine Months
September 30, (in millions) ------ ------ ------ ------
1998 1997 1998 1997
------ ------ ------ ------
Net premiums earned $ 70.6 $ 68.9 $210.6 $201.9
Losses and loss adjustment
expenses 56.6 57.3 169.0 151.4
Policy acquisition and other
underwriting expenses 16.9 18.2 52.8 53.5
Policyholders' dividends 0.9 1.3 3.7 4.7
------ ------ ------ ------
Underwriting loss (3.8) (7.9) (14.9) (7.7)
====== ====== ====== ======
</TABLE>
Commercial segment net premiums earned increased $1.7 million, or
2.5%, to $70.6 million for the quarter ended September 30, 1998 from
$68.9 million for the quarter ended September 30, 1997. Commercial
segment net premiums earned increased $8.7 million, or 4.3%, to $210.6
million for the nine months ended September 30, 1998, from $201.9
million for the nine months ended September 30, 1997. The increases
in net premiums earned primarily reflects growth in policies in force
of 11.9% in the commercial multiple peril line since September 30,
1997, and twelve month average rate increases of 8.0% and 6.2% in
commercial multiple peril and commercial automobile lines,
respectively. These increases are partially offset by a 13.6%
decrease in policies in force since September 30, 1997 and a twelve
month average rate decrease of 6.6% in the workers' compensation line.
Management believes that competitive conditions in Michigan in the
workers' compensation line may continue to impact future growth in net
premiums earned.
The commercial segment underwriting loss was $3.8 million and $7.9
million for the quarters ended September 30, 1998 and 1997,
respectively. The decrease in underwriting loss is attributable to a
$6.1 million increase in favorable development on prior year reserves,
partially offset by a $2.1 million increase in catastrophe losses,
primarily in the commercial multiple peril line. Policy acquisition
and other underwriting expenses decreased $1.3 million as a result of
a decrease in employee related costs.
The commercial segment underwriting loss was $14.9 million for the
nine months ended September 30, 1998, compared to a $7.7 million
underwriting loss for the nine months ended September 30, 1997. The
increase in underwriting loss is attributable to a $11.5 million
increase in catastrophe losses, primarily in the commercial multiple
peril line and unfavorable current year claims activity in the
workers' compensation line. These increases are partially offset by
favorable current year claims activity in the commercial multiple
peril and commercial automobile lines. Policy acquisition and other
underwriting expenses decreased $0.7 million as a result of a decrease
in employee related costs.
12
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Reserve for Losses and Loss Adjustment Expenses
The Company regularly updates its reserve estimates as new information
becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior reserve estimates
are reflected in results of operations in the year such changes are
determined. The table below provides a reconciliation of the
beginning and ending reserve for unpaid losses and LAE as follows:
<TABLE>
<S> <C> <C>
For the nine months ended September 30, 1998 1997
(in millions) ---------- ----------
Reserve for losses and LAE, beginning of
period $ 1,206.1 $ 1,238.5
Reserve for losses and LAE, net of
reinsurance recoverable:
Provision for insured events of the
current period 555.8 526.2
Decrease in provision for insured
events of prior years (37.9) (37.8)
---------- ----------
Total incurred losses and LAE 517.9 488.4
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured
events of current period 282.5 272.9
Losses and LAE attributable to insured
events of prior years 230.8 223.7
---------- ----------
Total payments 513.3 496.6
Change in reinsurance recoverable on
unpaid losses 1.3 0.5
---------- ----------
Reserve for losses and LAE, end of period $ 1,212.0 $ 1,230.8
========== ==========
</TABLE>
As part of an ongoing process, the reserves have been re-estimated for
all prior accident years and were decreased by $37.9 million, and
$37.8 million, for the nine months ended September 30, 1998 and 1997,
respectively. The overall favorable reserve development in both years
primarily reflects the initiatives taken by the Company to manage
claim adjustment costs, and a modest shift over the past few years of
the workers' compensation business to Western and Northern Michigan,
which have demonstrated more favorable loss experience than Eastern
Michigan.
This favorable development reflects the Company's reserving philosophy
consistently applied over the periods. Conditions and trends that
have affected development of the losses and LAE reserves in the past
may not necessarily occur in the future.
Inflation generally increases the cost of losses covered by insurance
contracts. The effect of inflation on the Company varies by product.
Property and casualty insurance premiums are established before the
amount of losses and LAE, and the extent to which inflation may affect
such expenses, are known. Consequently, the Company attempts, in
establishing rates, to anticipate the potential impact of inflation in
the projection of ultimate costs. The impact of inflation has been
relatively insignificant in recent years. However, inflation could
contribute to increased losses and LAE in the future.
The company regularly reviews its reserving techniques, its overall
reserving position and its reinsurance. Based on (i) review of
historical data, legislative enactment, judicial decisions, legal
developments in impositions of damages, changes in political attitudes
and trends in general economic conditions, (ii) review of per claim
13
=============================================================
information, (iii) historical loss experience of the Company and the
industry, (iv) the relatively short-term nature of most policies and
(v) internal estimates of required reserves, management believes that
adequate provision has been made for loss reserves. However,
establishment of appropriate reserves is an inherently uncertain
process and there can be no certainty that current established
reserves will prove adequate in light of subsequent actual experience.
A significant change to the estimated reserves could have a material
impact on the results of operations.
Reinsurance
The Company maintains a reinsurance program designed to protect
against large or unusual losses and allocated LAE activity. This
includes pro-rata, excess of loss reinsurance and catastrophe
reinsurance. Catastrophe reinsurance serves to protect the ceding
insurer from significant aggregate losses arising from a single event
such as windstorm, hail, hurricane, tornado, riot or other
extraordinary events. The Company determines the appropriate amount of
reinsurance based on the Company's evaluation of the risks accepted
and analyses prepared by consultants and reinsurers and on market
conditions including the availability and pricing of reinsurance. The
Company has reinsurance for casualty business.
Effective January 1, 1998, the Company modified its catastrophe
reinsurance program to include a higher retention. Under the Company's
1998 catastrophe reinsurance program, the Company retains the first
$45.0 million. For losses in excess of $45.0 million and up to $180.0
million, the Company retains 10% of the loss. Effective June 1, 1998,
the Company purchased an additional treaty for losses in excess of
$180.0 million and up to $230.0 million, of which the Company retains
10% of the loss. Amounts in excess of $230.0 million are retained
100% by the Company. Under the Company's 1997 catastrophe reinsurance
program, the Company retained 5% of losses in excess of $10.0 million,
up to $25.0 million. For losses in excess of $25.0 million and up to
$180.0 million, the Company retained 10% of the loss. Amounts in
excess of $180.0 million were retained 100% by the Company.
Under the Company's casualty reinsurance program, the reinsurers are
responsible for 100% of the amount of each loss in excess of $0.5
million per occurrence up to $30.5 million for general liability and
workers' compensation. Additionally, this reinsurance covers workers'
compensation losses in excess of $30.5 million to $60.5 million per
occurrence. Amounts in excess of $60.5 million are retained 100% by
the Company.
The Company cedes to reinsurers a portion of its risk and pays a fee
based upon premiums received on all policies subject to such
reinsurance. Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company. The Company also
believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with
respect to lines of business covered, limit and retention, arbitration
and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company
believes that its reinsurers are financially sound.
Investment Results
Net investment income before taxes was $25.1 million and $25.2 million
for the quarters ended September 30, 1998 and 1997, respectively. The
decrease is the result of a $1.0 million decrease in income from
limited partnerships to a $0.5 loss from a $0.5 gain for the quarters
ended September 30, 1998 and 1997, respectively. This is partially
offset by a decrease in investment expenses. The limited partnerships
pursue investment opportunities primarily through global fixed-income
trading strategies. The average pre-tax yields on debt securities
were 6.6% for both the quarters ended September 30, 1998 and 1997.
Net investment income after taxes was $21.2 million and $20.8 million
for the quarters ended September 30, 1998 and 1997, respectively. Net
realized gains on investments before taxes were $24.1 million during
the third quarter of 1998 compared to $8.3 million for the comparable
period in 1997. The increase is the result of the sale of $60.0
million of equity securities resulting in $20.0 million in realized
gains on equity securities.
Net investment income before taxes was $75.8 million and $74.9 million
for the nine months ended September 30, 1998 and 1997, respectively.
The increase is the result of a shift from equity securities to higher
yielding debt securities and reduced investment expenses. This was
partially offset by $3.2 million decrease in income from limited
partnerships to a loss of $0.4 for the nine months ended September
30, 1998 from a gain of $2.8 for the same period in 1997. The average
pre-tax yield on debt securities was 6.6% during the first nine months
of 1998 and 6.7% for the same period in 1997. Net investment income
after taxes was $63.5 million and $61.8 million for the nine months
ended September 30, 1998 and 1997, respectively. Net realized gains
on investments before taxes were $29.9 million and $27.4 million
during the first nine months of 1998 and 1997 respectively.
14
=============================================================
Investment Portfolio
The Company's investment portfolio decreased $0.5 million, to $1,721.1
million during the first nine months of 1998, from $1,721.6 million at
December 31, 1997, primarily due to market depreciation of high yield
debt securities and a $4.2 million permanent impairment write-down of
long term partnership investments. Debt securities increased $61.6
million, to $1,584.0 million, from $1,522.4 million, and represented
92.0% and 88.5% of the carrying value of all investments at September
30, 1998 and December 31, 1997, respectively. Tax-exempt securities
represented 70.8% of total debt securities at September 30, 1998
compared to 66.1% at December 31, 1997. The Company may make modest
extensions in portfolio incremental credit risk and adjustments to its
taxable and tax-exempt positions in the future to seek to maximize
after tax income.
The unrealized appreciation in the investment portfolio at September
30, 1998 was $115.8.0 million compared to $140.6 million at December
31, 1997. Unrealized depreciation during the first nine months of the
year was $1.9 million for bonds, and unrealized appreciation on other
investments and equity securities was $22.9 million.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient
cash flows to meet the cash requirements of business operations. As a
holding company, Citizens' primary source of cash for payment of
dividends to its shareholders is dividends from its insurance
subsidiaries, which are subject to limitations imposed by state
regulators. Such limitations require that dividends be paid only out
of statutory earned surplus (unassigned funds) and a restriction on
the payment of "extraordinary" dividends without prior approval of the
state authorities.
Underwriting and investing, typically the two distinct, but not
separate operations in an insurance company, are the sources of cash
for Citizens Insurance. The primary sources of cash are premiums
collected, investment income and maturing investments. Primary cash
outflows are paid losses and LAE, policy acquisition expenses, other
underwriting expenses, and purchases of investments. Cash outflows
related to claim losses and LAE can be variable because of
uncertainties surrounding settlement dates for unpaid losses and the
potential for large losses either individually or in the aggregate.
Accordingly, the Company's strategy is to monitor available cash and
short-term investment balances in relation to projected cash needs by
matching the maturities of its investments to expected payments of
current and long-term liabilities.
Net cash (used for) provided by operating activities, for the nine
months ended September 30, 1998, was $(0.3) million compared to $35.2
million in the prior year period. The decrease in cash provided by
operating activities is primarily due to the high level of
catastrophes during 1998. In addition, the company paid $13.6 million
, in the second quarter of 1998, to First Allmerica Financial Life
Insurance Company (FAFLIC) for the transfer of benefit plan
liabilities.
Net cash provided by (used for) investing activities for the Company
was $22.3 million and $(22.8) million for the first nine months of
1998 and 1997, respectively, resulting primarily from a decline in
purchases of debt securities due to a decrease in cash provided by
operations.
Net cash used for financing activities for the Company was $13.2
million and $5.2 million, for the first nine months of 1998 and 1997,
respectively. The increase in cash used for financing activites
represents treasury stock repurchased in 1998. Dividends paid to
shareholders were $5.3 million for both the nine months ended
September 30, 1998 and 1997.
Shareholders' equity was $913.6 million, or $26.11per share at
September 30, 1998, compared to $872.9, or $24.75 per share at
December 31, 1997. Changes in shareholders' equity related to the
unrealized values of underlying portfolio investments will continue to
be volatile as market prices of debt securities fluctuate with changes
in the interest rate environment.
The Company expects to continue to pay dividends in the foreseeable
future. However, payment of future dividends is subject to the Board
of Directors' approval and is dependent, among other things, upon
earnings and the financial condition of the Company.
15
=============================================================
Based on current trends, the Company expects to continue to generate
sufficient positive operating cash to meet all short-term and long-
term cash requirements. The Company maintains a high degree of
liquidity within the investment portfolio in fixed maturity
investments, common stock and short-term investments.
Recent Events
On October 27, 1998, Citizens Corporation announced that its parent
company, Allmerica Financial Corporation or one of its wholly-owned
subsidiaries, shortly will commence a cash tender offer to acquire the
outstanding shares of Citizens Corporation common stock that Allmerica
Financial Corporation or its subsidiaries do not already own at a
price of $29.00 per share. On November 2, 1998, Allmerica Financial
Corporation commenced the tender offer which, unless extended, will
expire on December 2, 1998. Based on the number of shares of Citizens
Corporation common stock held by unaffiliated stockholders, the
transaction is valued at approximately $171 million. Citizens
Corporation has established a special committee of the Board of
Directors, consisting of directors unaffilliated with Allmerica
Financial Corporation, to study the offer and make a recommendation to
Citizens Corporation stockholders.
Since the announcement by Citizens Corporation of Allmerica
Financial's intention to commence a tender offer to acquire all of the
outstanding shares of Citizens Corporation Common Stock that Allmerica
Financial Corporation or its subsidiaries do not own, five lawsuits
have been commenced by Citizens stockholders in the Delaware Court of
Chancery: Susser v. O'Brien, et. al., Civil Action No. 16745; Specht
v. O'Brien, et. al., Civil Action No. 16746; Steiner vs. O'Brien, et.
al., Civil Action No. 16747; Finkelstein v. O'Brien, et. al., Civil
Action No. 16748; and McKinnie v. O'Brien, et. al., Civil Action No.
16749. Each of the actions purports to be a class action brought on
behalf of the Citizens stockholders unaffiliated with Allmerica
Financial Corporation and asserts claims against Allmerica Financial
Corporation, Citizens Corporation and the members of the Citizens
Corporation Board of Directors. The actions each allege that, through
the conduct of the defendants, Allmerica Financial Corporation has
proposed to acquire the shares owned by the unaffiliated Citizens
stockholders at an unfair and inadequate price, in violation
of fiduciary duties allegedly owed by the defendants to the
unaffiliated Citizens stockholders. The various complaints purport
by their terms to seek injunctive relief preventing consummation
of the tender offer and related merger, or rescission if they are
successfully consummated, and compensatory damages. No motion for
injunctive relief has been filed. The complaints have been formally
served upon the defendants with regard to Susser v. O'Brien, et, al.,
Civil Action No. 16745, and the time within which the defendants have
to respond to the complaints has not expired. For the four remaining
lawsuits, the complaints have not yet been formally served upon the
defendants and the time within which the defendants have to respond
to the complaints accordingly has not expired. The defendants
anticipate that the complaints will be consolidated into a single
action. Citizens Corporation believes the actions to be without
merit, and intends to defend the actions vigorously.
Impact of the 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 date-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 miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on a third party assessment, the Company determined that
significant protions of its software required modification or
replacement to enable its computer systems to properly process dates
beyond December 31, 1999. The Company is presently completing the
process of modifying or replacing existing software and beleives that
this action will resolve the Year 2000 issue. However, if such
modifications and conversions are not made,or are not completed timely,
or should there be serious unanticipated interruptions from unknown
sources, the Year 2000 issue could have a material adverse impact on
the operations of the Company. Specifically, the Company could
experience, among other things, an interruption in its ability to
collect and process premiums, process claim payments, safeguard
and manage its invested assets, accurately maintain policyholder
information, accurately maintain accounting records, and perform
customer service. Any of these specific events, depending on duration,
could have a material impact on the results of operations and the
financial position of the Company.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issue. The Company's total Year 2000
project cost and estimates to complete the project include the
estimated costs and time associated with the impact of a third party's
Year 2000 issue, and are based on presently available information.
However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have material
adverse effect on the Company. The Company does not believe that it
has material exposure to contingencies related to the Year 2000 Issue
for the products it has sold. Although the Company does not believe
16
=============================================================
that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material
contingencies will not arise.
The Company will utilize both internal and external resources to
reprogram, or replace, and test both information technology and
embedded technology systems for Year 2000 modifications. The Company
plans to complete the mission critical elements of the Year 2000
project by December 31, 1998. The cost of the Year 2000 project will
be expensed as incurred primarily over the next year, and is being
funded primarilythrough a reallocation of resources from discretionary
projects. Therefore, the Year 2000 project is not expected to
result in significant incremental technology costs or to have
material effect on the results of operations. Through September
30, 1998, the Company has incurred and expensed approximately $16.0
million related to the assessment of, and preliminary efforts in
connection with, the project and the development of a remediation
plan. The total remaining cost of the Year 2000 project is estimated
at $8.6 million.
The Company's contingency plans related to the Year 2000 issue are
addressed in a plan developed jointly with an outside vendor. The plan
contains immediate steps to keep business functions operating while
unforeseen Year 2000 issues are being addressed. It outlines
responses to situations that may affect critical business functions.
The COOP also provides triage guidance, a documented order of actions
to respond to problems. During the triage process, business priorities
are established and "Critical Points of Failure" are identified as
having a significant impact on the business. The Company's contingency
plans are designed to keep a business unit's operation functioning
in the event of a failure or delay due to Year 2000 record format
and date calculation changes.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources,
third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes,
and similar uncertainties.
Forward-Looking Statements
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected and in the future
could affect, the Company's actual results and could cause the
Company's actual results for 1998 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on
behalf of, the Company. When used in the MD&A discussion, the words
"believes," "anticipated," "expects" and similar expressions are
intended to identify forward-looking statements. See "Important
Factors Regarding Forward-Looking Statements" filed as Exhibit 99.1 to
the Company's 1997 Annual Report to Shareholders and incorporated
herein by reference.
Factors that may cause actual results to differ materially from those
contemplated or projected, forecast, estimated or budgeted in such
forward looking statements include among others, the following
possibilities: (i) adverse catastrophe experience and severe weather;
(ii) adverse loss development for events the Company insured in prior
years; (iii) heightened competition, including the intensification of
price competition, the entry of new competitors, and the introduction
of new products by new and existing competitors; (iv) adverse state
and federal legislation, including decreases in rates, limitations on
premium levels, increases in minimum capital and reserve requirements,
benefit mandates, limitations on the ability to manage care and
utilization, liabilities related to tobacco products, and tax
treatment of insurance products; (v) changes in interest rates causing
a reduction of investment income or in the market value of interest
rate sensitive investments; (vi) failure to obtain new customers,
retain existing customers or reductions in policies in force by
existing customers; (vii) higher service, administrative, or general
expense due to the need for additional advertising, marketing,
administrative or management information systems expenditures; (viii)
loss or retirement of key executives; (ix) increases in medical costs,
including increases in utilization, costs of medical services,
pharmaceuticals, durable medical equipment and other covered items;
(x) termination of provider contracts or renegotiation at less cost-
effective rates or terms of payment; (xi) changes in the Company's
liquidity due to changes in asset and liability matching; (xii)
restrictions on insurance underwriting, based on certain criteria;
(xiii) adverse changes in the ratings obtained by independent rating
agencies such as Moody's, Standard and Poors and A.M. Best; (xiv)
uncertainty related to the Year 2000 Issue; and (xv) potential
liabilities associated with Allmerica Financial Corporation's tender
offer for shares of Citizens Corporation common stock held by
unaffiliated stockholders.
17
=============================================================
PART II - OTHER INFORMATION
ITEM 4
------
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The registrant's annual shareholders' meeting was held on May 12,
1998. All six directors nominated for re-election by the board of
directors were named in the proxies for the meeting, which proxies
were solicited pursuant to Regulation 14A of the Securities Exchange
Act of 1934. The following individuals were elected to serve a one
year term:
VOTES FOR WITHHELD
---------- --------
James A. Cotter, Jr. 34,910,309 33,598
Neal J. Curtin 34,910,309 33,598
Dona Scott Laskey 34,910,309 33,598
J. Barry May 34,910,309 33,598
James R. McAuliffe 34,910,309 33,598
John F. O'Brien 34,909,809 34,098
Eric A. Simonsen 34,909,759 34,148
Shareholders ratified the appointment of PricewaterhouseCoopers LLP as
the Independent Public Accountants of Citizens Corporation for 1998:
for 34,936,512; against 3,895; withheld 3,500.
Shareholders voted against a shareholder sponsored proposal with
respect to commissioning a study as set forth in more detail in the
Proxy Statement: for 28,875; against 34,408,635; withheld 52,908; non-
vote 453,489.
18
=============================================================
ITEM 6
------
Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
.
(b) Reports on Form 8-K
On July 31, 1998, a report on Form 8-K was filed under Item 5,
Other Events, the Registrant's announcement that third quarter results
will be adversely impacted by catastrophe losses resulting from
electrical, rain and wind storms which struck the Detroit, Michigan
metropolitan area on July 22, 1998. Currently, the company expects
approximately $6.8 million in pre-tax catastrophe losses.
On October 15, 1998, a report on Form 8-K was filed under Item 5,
Other Events, the Registrant's announcement that third quarter results
will be adversely impacted by catastrophe losses attributable to
electrical, rain and wind storms in the Michigan area totaling $18.6
million. This total includes pre-tax catastrophe losses from storms
in the months of July and September totaling $13.7 million, in
addition to unfavorable loss development of $4.9 million on prior
storms reported in the months of May and June.
On October 27, 1998, a report on Form 8-K was filed under Item 5,
Other Events, the Registrant's announcement that its parent company,
Allmerica Financial Corporation or one of its wholly-owned
subsidiaries, shortly will commence a cash tender offer to acquire all
of the outstanding shares of Citizens Corporation common stock that it
does not already own at a price of $29.00 per share. Based on the
number of shared of Citizens Corporation common stock held by
unaffiliated stockholders, the transaction is valued at approximately
$171 million.
On November 3, 1998, a report on Form 8-K was filed under Item 5,
Other Events, the Registrant's announced its financial results for the
three months ended September 30, 1998.
19
=============================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Citizens Corporation
--------------------
Registrant
Dated November 13, 1998 /s/ John F. O'Brien
----------------- ------------------------
John F. O'Brien
President and Chief Executive
Officer, and Chairman of the Board
Dated November 13, 1998 /s/ Edward J. Parry, III
----------------- ------------------------
Edward J. Parry, III
Vice President, Chief Financial
Officer, Treasurer and Principal
Accounting Officer
20
==========================================================
[ARTICLE] 7
[MULTIPLIER] 1,000,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] SEP-30-1998
[DEBT-HELD-FOR-SALE] 1584
[DEBT-CARRYING-VALUE] 1517
[DEBT-MARKET-VALUE] 1584
[EQUITIES] 135
[MORTGAGE] 0
[REAL-ESTATE] 0
[TOTAL-INVEST] 1721
[CASH] 55
[RECOVER-REINSURE] 476
[DEFERRED-ACQUISITION] 55
[TOTAL-ASSETS] 2633
[POLICY-LOSSES] 1212
[UNEARNED-PREMIUMS] 404
[POLICY-OTHER] 0
[POLICY-HOLDER-FUNDS] 0
[NOTES-PAYABLE] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 914
[TOTAL-LIABILITY-AND-EQUITY] 2633
[PREMIUMS] 659
[INVESTMENT-INCOME] 76
[INVESTMENT-GAINS] 30
[OTHER-INCOME] 5
[BENEFITS] 518
[UNDERWRITING-AMORTIZATION] 111
[UNDERWRITING-OTHER] 0
[INCOME-PRETAX] 79
[INCOME-TAX] 14
[INCOME-CONTINUING] 65
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 65
[EPS-PRIMARY] 1.85
[EPS-DILUTED] 1.85
[RESERVE-OPEN] 1206
[PROVISION-CURRENT] 556
[PROVISION-PRIOR] (38)
[PAYMENTS-CURRENT] 283
[PAYMENTS-PRIOR] 231
[RESERVE-CLOSE] 1212
[CUMULATIVE-DEFICIENCY] 0
</TABLE>
