BLANCH E W HOLDINGS INC, 10-Q, 2000-05-01

BLANCH E W HOLDINGS INC
10-Q, 2000-05-01
INSURANCE CARRIERS, NEC

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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

[ ] 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: 1-11794

E. W. BLANCH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 41-1741779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

500 NORTH AKARD, SUITE 4500, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (214) 756-7000

NONE
(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 ____

The number of shares of the Registrant's common stock outstanding as of April
21, 2000 was 13,343,798.

<PAGE>

Part I. Financial Information
Item 1. Financial Statements

E. W. Blanch Holdings, Inc.

Consolidated Statements of Income
(in thousands, except per share amounts)

Unaudited

THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
--------------------------
Revenues:
Operations $ 53,743 $ 59,668
Interest income 3,172 2,344
--------------------------
Total revenues 56,915 62,012

Expenses:
Salaries and benefits 32,549 25,885
Travel and marketing 4,670 3,503
General and administrative 13,689 12,212
Amortization of intangibles 1,440 896
Interest expense 1,432 320
--------------------------
Total expenses 53,780 42,816
--------------------------

Income before taxes 3,135 19,196

Income taxes 1,300 7,894
--------------------------
Net income before minority interest and
equity in loss of unconsolidated
subsidiaries, net of tax 1,835 11,302

Minority interest, net of tax (45) 231
Equity interest in (gain) loss of unconsolidated
subsidiaries, net of tax (280) 1,581
--------------------------
Net income $ 2,160 $ 9,490
==========================

Earnings per share - basic $ 0.16 $ 0.74
Earnings per share - assuming dilution $ 0.16 $ 0.70

Cash dividends declared per share $ 0.14 $ 0.12

SEE ACCOMPANYING NOTES.

2
<PAGE>

E. W. Blanch Holdings, Inc.
Consolidated Balance Sheets
(in thousands)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 13,297 $ 6,662
Due from fiduciary accounts 42,934 55,423
Prepaid insurance 664 1,129
Investments, trading portfolio 5,401 5,128
Other current assets 12,123 9,563
---------------------------------
Total current assets 74,419 77,905

Long-term investments 27,644 32,322
Investments in unconsolidated subsidiaries 10,756 7,948
Property and equipment, net 42,122 40,918
Intangibles, net 82,458 84,226
Other assets 18,785 18,704
Fiduciary accounts--assets 825,531 969,842
---------------------------------
Total assets $ 1,081,715 $ 1,231,865
=================================

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Current liabilities:
Accrued compensation $ 4,115 $ 6,037
Notes payable to banks under lines of credit 52,557 59,360
Accounts payable 18,669 19,310
Current portion of long-term liabilities 313 308
Other current liabilities 14,202 12,901
---------------------------------
Total current liabilities 89,856 97,916

Long-term debt, less current portion 168 249
Other liabilities, less current portion 7,565 6,809
Commitments and contingencies -- --
Fiduciary accounts--liabilities 825,531 969,842
---------------------------------
Total liabilities 923,120 1,074,816

MINORITY INTEREST: 64 114

SHAREHOLDERS' EQUITY:
Common stock - par value $0.01 per share (authorized
30,000,000 shares; issued and outstanding: 14,141,671
shares in 2000 and 1999) 141 141
Additional paid-in capital 66,663 64,518
Treasury stock (800,628 shares in 2000 and 854,171
shares in 1999) (21,131) (21,446)
Accumulated other comprehensive income 491 1,675
Retained earnings 112,367 112,047
---------------------------------
Total shareholders' equity 158,531 156,935
---------------------------------
Total liabilities, minority interest and shareholders' equity $ 1,081,715 $ 1,231,865
=================================
</TABLE>

SEE ACCOMPANYING NOTES.

3
<PAGE>

E. W. Blanch Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,160 $ 9,490
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,940 3,071
Deferred income tax provision 217 3,733
Undistributed (earnings) losses of unconsolidated
subsidiaries (280) 1,581
Non-cash compensation expense 1,096 971
Changes in operating assets and liabilities:
Due from fiduciary accounts 12,493 9,830
Other current assets (2,094) (938)
Accrued compensation (1,922) (4,936)
Accounts payable and other current liabilities 1,480 (683)
Purchases of trading portfolio investments (1,673) (354)
Sales of trading portfolio investments 1,482 185
Other operating activities, net (2,776) (247)
-----------------------------
Net cash provided by operating activities 14,123 21,703

INVESTING ACTIVITIES:
Purchases of long-term investments (220) (636)
Sales of long-term investments 4,875 1,085
Purchases of property and equipment, net (4,276) (3,255)
Acquisition of unconsolidated subsidiaries -- (1,250)
Other investing activities, net 406 (37)
-----------------------------
Net cash provided by (used in) investing activities 785 (4,093)

FINANCING ACTIVITIES:
Dividends paid (1,840) (1,533)
Proceeds from issuance of treasury shares related to
employee stock plans 2,753 849
Purchases of treasury stock (2,440) (3,193)
Net repayments on lines of credit (6,803) (4,964)
Net payments on long-term debt (17) (21)
Other financing activities, net 74 75
-----------------------------
Net cash used in financing activities (8,273) (8,787)
-----------------------------

Net increase in cash and cash equivalents 6,635 8,823
Cash and cash equivalents at beginning of period 6,662 707
-----------------------------
Cash and cash equivalents at end of period $ 13,297 $ 9,530
=============================
</TABLE>

SEE ACCOMPANYING NOTES.

4
<PAGE>

E. W. Blanch Holdings, Inc.

Notes to Consolidated Financial Statements
March 31, 2000

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the interim periods are
not necessarily indicative of the results for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report to shareholders for the year
ended December 31, 1999.

E.W. Blanch Holdings, Inc. and its subsidiaries ("the Company") and its
predecessor organizations have been in operation since 1957. The Company is a
leading provider of risk management and distribution services including
reinsurance intermediation and technical, analytical, and financial consulting
services. These services are sold both on bundled and component bases. The
consolidated financial statements include the accounts of the Company and its
wholly and majority owned subsidiaries.

Certain prior year amounts have been reclassified to conform with current year
presentation.

2. ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly and majority owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.

Foreign Currency Translation

The Company's primary functional currency is the U.S. dollar. The functional
currency of the Company's foreign operations is the currency of the primary
economic environment in which the subsidiary operates. The Company translates
income and expense accounts at the average rate in effect for the period.
Balance sheet accounts are translated at the period end exchange rate.
Adjustments resulting from the balance sheet translation are reflected in
Shareholders' Equity. The cumulative translation adjustment at March 31, 2000,
is an unrealized $18,000 loss.

5
<PAGE>

3. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 2000. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.

While an analysis is not complete, based on the Company's derivative positions
at March 31, 2000, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company. Because the standard allows certain foreign currency
transactions to be accounted for as hedges for financial reporting purposes that
were not previously treated as hedges, the Company may change its policies
toward the management of certain foreign currency exposures. Any changes that
may occur would be to further reduce the Company's exposure to foreign currency
risks.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." SAB No.
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company will adopt SAB No. 101 in the second quarter of 2000. Management is
currently analyzing the effect of applying SAB No. 101 and the impact on prior
periods, if material, will be reported in the second quarter of 2000 as a
cumulative effect adjustment.

4. EARNINGS PER SHARE

The following table sets forth basic and diluted weighted average shares
outstanding for the period ended March 31 (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Weighted average shares - basic 13,184 12,773
Effect of dilutive securities 631 780
--------------------------------
Weighted average shares - assuming dilution 13,815 13,553
================================
</TABLE>

5. BUSINESS SEGMENT INFORMATION

The following is additional business segment information for the three months
ended March 31 (in thousands):

PROFIT (LOSS), NET OF TAX 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic operations $2,459 $8,689
Foreign operations (299) 801
---------------------------------------
Consolidated $2,160 $9,490
=======================================
</TABLE>

<PAGE>

REVENUES 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic operations $37,640 $48,042
Foreign operations 19,275 13,970
---------------------------------------
Consolidated $56,915 $62,012
=======================================

</TABLE>

6. COMPREHENSIVE INCOME

During the three months ended March 31, 2000 and 1999, total other comprehensive
income (loss) amounted to ($1,184,000) and ($487,000), respectively. Total
comprehensive income for the three months ended March 31, 2000 and 1999 amounted
to $976,000 and $9,003,000, respectively.

7
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

FORWARD-LOOKING STATEMENTS

Statements other than historical information contained herein are considered
forward-looking and involve a number of risks and uncertainties. Forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. There are certain important factors
that could cause results to differ materially from those anticipated by some of
the statements made herein. Some of the factors that could cause actual results
to differ materially are the following: market dynamics (including the workers'
compensation reinsurance market as discussed below), interest rate changes,
regulatory changes, competition, ability to effectively and efficiently
integrate operations, timing and completion of non-recurring transactions,
changes in personnel and legal proceedings that could impact reinsurance
placements facilitated by the Company. Additional information concerning those
and other factors are contained in the Company's Securities and Exchange
Commission filings, including but not limited to the most recent Form 10-K,
copies of which are available from the Company without charge.

EUROPEAN MONETARY UNIT

The Company completed its analysis of the new European Monetary Unit ("EMU") and
its effects on the Company's business processes and IT system requirements in
the second quarter of 1999. The Company's core back office processing and
financial systems are currently capable of handling multiple currencies and will
therefore be able to handle the EMU as another currency. However, the Company
did identify several minor system modifications to accommodate decimalization
and rounding issues, currency conversions, and the new reporting requirements of
the EMU. These modifications have been completed and are currently being tested.
The acquisition of Crawley Warren in the fourth quarter of 1999 and related
system conversion efforts resulted in a delay in the EMU testing in the first
quarter of 2000. The Company will conduct the remaining EMU testing in
conjunction with the Crawley Warren conversion testing in the second and third
quarters of 2000. The Company's management believes that the costs associated
with upgrading IT systems and the impact on business processes will be
immaterial to the Company's results of operations, liquidity and financial
condition.

UNICOVER LITIGATION AND WORKERS' COMPENSATION REINSURANCE ISSUES

The workers' compensation reinsurance industry was impacted in 1999 by certain
events principally surrounding an entity called Unicover Managers, Inc.
("Unicover"). Unicover served as a managing general underwriter for various
insurance companies that provided reinsurance coverage to the workers'
compensation primary insurance industry. It has been alleged that Unicover, on
behalf of companies it represented, assumed reinsurance exposures at prices and
volume levels that were imprudent for those companies and their
retrocessionaires, and that correspondingly were advantageous to the customers
who procured reinsurance coverage through Unicover. Various clients of the
Company, employing the Company's reinsurance intermediary services, procured
workers' compensation reinsurance coverage through Unicover in late 1998 and
early 1999.

One client that the Company assisted in procuring reinsurance through Unicover
was the "AIG" group of insurance companies. A lawsuit was commenced in 1999
relating to that reinsurance program. The Company is the third-party defendant
and cross-claimant in that litigation, which is described in more detail in Part
II, Item 1. Legal Proceedings. The Company also assisted various other clients
in procuring workers' compensation reinsurance coverage with Reliance Insurance
Company ("Reliance"), managed by Unicover. In 1999, Reliance engaged in
negotiations with those clients of the Company, to settle Reliance's reinsurance
obligations to those clients of the Company. In

<PAGE>

January 2000, Reliance announced that those settlement negotiations had been
successfully concluded. Also in January 2000, Reliance and the Company reached
an agreement in principle concerning the Company's brokerage revenue associated
with these settled reinsurance placements. As a result of this agreement, the
Company will not experience any material adverse impact with respect to revenues
the Company has previously recognized for these placements.

The Company also assisted another client company, EBI Indemnity Company ("EBI"),
in procuring workers' compensation reinsurance coverage through Unicover. The
Company has been advised that the reinsurance companies represented by Unicover
settled their obligations to EBI in January 2000. To date, the Company has not
reached an agreement with EBI or those reinsurers concerning the Company's
brokerage revenues associated with the reinsurance program, although discussions
are ongoing. In 1999, the Company recognized revenue for this program in
accordance with its standard revenue recognition practices, through the third
quarter of 1999. Some, but not all, of that recognized revenue has been received
by the Company. If the Company is not successful in negotiating a satisfactory
resolution of its right to brokerage for the EBI reinsurance program, it intends
to pursue its legal remedies to enforce its rights.

The Company also assisted a client, Superior National Insurance Group ("SNIG"),
in procuring workers' compensation reinsurance coverage. This coverage was
procured through a competitor of Unicover, Web Management LLC ("WEB"), which
represented a reinsurer named United States Life Insurance Co. of the City of
New York ("U.S. Life"). The Company is advised that U.S. Life in late 1999
commenced an arbitration proceeding against SNIG. The Company is advised that
U.S. Life alleges, possibly among other things, that this reinsurance program
should be rescinded, for alleged nondisclosure of material information. The
Company is not a party to this arbitration proceeding. However, it is possible
that in the event U.S. Life is successful in that proceeding, the Company may be
required to return reinsurance brokerage previously received and recognized. If
the Company were required to return all of its previously recognized and
received brokerage for this program, the amount would have a material adverse
impact on the Company's financial position and results of operations. However,
based on currently available information, the Company does not believe that this
is likely to occur.

The Company has not made any material accruals for any loss contingency relating
to the revenues recognized to date on the Unicover litigation and workers'
compensation reinsurance issues discussed above, because in the Company's
opinion, no such loss contingencies are likely to occur. However, the Company is
of the opinion that there is a reasonable possibility (i.e., more than remote
but less than likely) of a loss contingency with respect to certain of those
issues, and estimates a possible range of loss for these reasonably possible
loss contingencies of zero to $7.1 million. The Company intends to continue to
vigorously pursue and defend its rights to brokerage on these matters, including
its rights to brokerage in addition to what it has recognized to date.

9
<PAGE>

GENERAL

The Company is a leading provider of integrated risk management and distribution
services, including reinsurance intermediation and technical, analytical, and
financial consulting services.

The following is a summary of revenues and income (loss) before taxes by
geographic area for the three months ended March 31 (in thousands):

<TABLE>
<CAPTION>
2000 1999
------------------------------------- -----------------------------------------
Income Income
Revenues before taxes Revenues before taxes
---------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Domestic operations $37,640 $3,223 $48,042 $17,070
Foreign operations 19,275 (88) 13,970 2,126
---------------- ----------------- ------------------ ------------------
$56,915 $3,135 $62,012 $19,196
================ ================= ================== ==================
</TABLE>

FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999

OPERATIONS

The following are the components of revenue from operations for the three months
ended March 31 (in thousands):

<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Domestic operations $35,471 $46,242
Foreign operations 18,272 13,426
------------ -----------
$53,743 $59,668
============ ===========
</TABLE>

Domestic operations decreased $10.8 million, or 23.3%, from the prior year due
primarily to workers' compensation reinsurance placement revenues recognized in
1999, some placed with Unicover Managers, Inc., that were not replaced in the
first quarter of 2000 and recognition of a $3.5 million gain from the sale of a
personal lines property program in the first quarter of 1999. These were
partially offset by a gain of $1.9 million from the sale of a long-term
investment in the first quarter of 2000.

Foreign operations increased $4.8 million or 36.1% from the prior year,
primarily as a result of the acquisition of Crawley Warren in the fourth quarter
of 1999.

INTEREST INCOME

The following are the components of interest income for the three months ended
March 31 (in thousands):

<TABLE>
<CAPTION>
2000 1999
--------------- --------------
<S> <C> <C>
Domestic operations $2,169 $1,800
Foreign operations 1,003 544
--------------- --------------
$3,172 $2,344
=============== ==============
</TABLE>

Interest income is $3.2 million for the three months ended March 31, 2000
compared to $2.3 million the prior year, an increase of $0.8 million or 35.3%.
This increase is primarily due to the acquisition of Crawley Warren in the
fourth quarter of 1999.

10
<PAGE>

EXPENSES

Domestic operating expenses increased $3.4 million to $34.4 million, or 11.1%,
for the three months ended March 31, 2000 compared to $31.0 million the prior
year.

Foreign operating expenses increased $7.5 million to $19.4 million, or 63.5% for
the three months ended March 31, 2000 compared to $11.8 million the prior year.

The increase in operating expenses is primarily due to the acquisitions of
Crawley Warren and JD Warren in late 1999 and a delay in achieving cost
synergies in connection with the Crawley Warren acquisition. Subsequent to March
31, 2000, the Company began to realize these cost synergies. These cost
synergies are expected to have a favorable impact on operating expenses in the
future. The Company is continually scrutinizing ongoing expenses to ensure
resources are focused on producing revenues.

PROFIT MARGINS

Operating profit margins, calculated as income before taxes and allocation of
central costs as a percentage of total revenues, were 8.6% for domestic
operations for the three months ended March 31, 2000, compared to 35.5% for the
same period in the prior year.

Operating profit margins, calculated as income before taxes and allocation of
central costs as a percentage of total revenues, were (0.5)% for foreign
operations for the three months ended March 31, 2000, compared to 15.2% for the
same period in the prior year.

INCOME TAXES

The Company's combined federal and state effective tax rate was 41.5% for the
three months ended March 31, 2000 as compared to 41.1% for the same period the
prior year.

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of funds consist primarily of brokerage commissions and
fees and interest income. Funds are applied generally to the payment of
operating expenses, the purchase of equipment used in the ordinary course of
business, the repayment of outstanding indebtedness, and the distribution of
earnings. The Company's cash and cash equivalents were $13.3 million at March
31, 2000.

The Company generated $14.1 million of cash from operations during the first
three months of 2000 compared with $21.7 million for the same period in 1999.
The decrease in operating cash flow in 2000 is primarily due to a decrease in
earnings and the timing of changes in various operating assets and liabilities.

Cash flow provided by investing activities was $0.8 million for the three months
ended March 31, 2000. The Company received proceeds from the sale of long-term
investments of $4.9 million.

<PAGE>

The Company used $4.3 million of cash for the purchase of property and
equipment, primarily computer equipment, real property, furniture and office
equipment and enhancements to the Company's Catalyst(R) software. The Company
used $0.2 million for the purchase of long-term investments.

Cash flow used in financing activities was $8.3 million for the three months
ended March 31, 2000. The primary source of cash from financing activities were
proceeds of $2.8 million from the issuance of treasury shares to fund employee
benefit plans. The primary uses of cash for financing activities were $6.8
million for the repayment on lines of credit, $2.4 million for the purchase of
treasury stock and $1.8 million of dividends paid to shareholders. Of the $2.4
million used for the purchase of treasury stock, $0.7 million was used to
purchase 15,798 shares of the Company's common stock from its Chairman.

The Company's long-term investment portfolio at March 31, 2000, was $27.6
million, comprised of equity and debt instruments. The market value of the
Company's investment portfolio at March 31, 2000, was $1.3 million above cost.
The Company's investment in unconsolidated subsidiaries at March 31, 2000 was
$10.8 million. The Company's trading portfolio at March 31, 2000 was $5.4
million, which is comprised of debt investments. The market value of the
Company's trading portfolio at March 31, 2000 was $0.1 million less than cost.
Cash, short-term investments and the Company's line of credit are available and
managed for the payment of its operating and capital expenditures. The Company
is not subject to any significant regulatory capital requirements in connection
with its business.

On February 1, 2000, the Board of Directors declared a regular quarterly cash
dividend of $0.14 per share, payable March 1, 2000 to shareholders of record as
of February 7, 2000. On April 27, 2000, the Board of Directors declared a
regular quarterly cash dividend of $0.14 per share, payable June 1, 2000 to
shareholders of record as of May 8, 2000.

The Company has a $100 million revolving credit facility with several banks that
is used to fund general corporate requirements. This facility, which expires in
2001, carries market rates of interest which may vary depending upon the
Company's degree of leverage. Commitment fees of .200% to .375% are payable on
any unused portion. The facility contains several financial covenants and
restrictions related to acquisitions, payment of dividends and sales of assets.
Covenants contained in the agreement require the Company to exceed minimum
levels of net worth and meet a fixed charge ratio. The Company is currently in
compliance with all of its covenants governing its indebtedness. The Company had
a $51.0 million balance outstanding under this facility as of March 31, 2000
with an average rate of interest of 6.6%.

The Company also has a (pound)7.0 million secured revolving credit facility,
which translates to $11.1 million at March 31, 2000. As of March 31, 2000, the
Company had no outstanding balance under this facility and the interest rate was
0.32% above the London Inter Bank Offer Rate ("LIBOR"). In April 2000, the
interest rate increased to 1.0% above LIBOR. In addition, the Company has a
HK$7.1 million secured revolving credit facility, which translates to $0.9
million at March 31, 2000. As of March 31, 2000, the Company had $0.9 million
outstanding under this facility and the interest rate was 0.32% above the Hong
Kong Inter Bank Offer Rate ("HIBOR"). In April 2000, the interest rate increased
to 1.0% above HIBOR. Also, the Company has a HK$5.0 million secured revolving
credit facility, which translates to $0.6 million at March 31, 2000. As of March
31, 2000, the Company had $0.6 million outstanding under this facility and the
interest rate was 0.32% above HIBOR. In April 2000, the interest rate increased
to 1.0% above HIBOR. These credit facilities are used for general corporate
funding requirements.

The Board of Directors of the Company authorized a stock repurchase program on
April 17, 2000, to purchase up to twenty percent (20%) of the Company's current
outstanding common stock. The purchases may be made from time-to-time at
prevailing prices in the open market, by block purchases or in private
transactions for a two-year period, subject to possible renewal at the end of
that period. The shares repurchased will be available for reissuance to satisfy
employee stock plans and for other corporate purposes.

<PAGE>

The Company believes that its cash and investments, combined with its borrowing
facilities and internally generated funds, will be sufficient to meet its
present and reasonably foreseeable long-term capital needs.

<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in market risk for the Company during the first
three months of 2000.

Part II. Other Information

Item 1. Legal Proceedings

The Company is engaged in legal proceedings in the ordinary course of business,
none of which, either individually or in the aggregate, will, in the opinion of
management, have a material adverse effect on the consolidated financial
position of the Company or the results of its operations.

The various lawsuits to which the Company is a party are routine in nature and
incidental to the Company's business, with the following exception:

E.W. Blanch Co. ("Blanch"), a subsidiary of the Company, is a third-party
defendant in a lawsuit venued in the Supreme Court of the State of New York,
County of New York. This lawsuit was instituted on February 16, 1999, and Blanch
was added as a third-party defendant on March 23, 1999. Plaintiffs are AIU
Insurance Company and various other insurance companies, all of whom are part of
the "AIG" group of companies. Defendants are Unicover Managers, Inc.
("Unicover") and ReliaStar Life Insurance Company ("ReliaStar"). Blanch was
joined in the lawsuit as a third-party defendant by ReliaStar.

In this lawsuit, AIG as plaintiff alleges that ReliaStar, through its agent
Unicover, agreed to provide certain reinsurance protection to AIG, relating to
workers' compensation insurance policies issued by the plaintiff AIG companies
in California and elsewhere in the United States. Defendants assert that the
reinsurance coverages in issue never were bound, and defendant ReliaStar further
asserts that if defendant Unicover in fact did bind those coverages, it acted
beyond the authority granted by ReliaStar.

In ReliaStar's third-party complaint against Blanch, ReliaStar alleges that
Blanch, as AIG's reinsurance broker on the reinsurance placements in issue, knew
or should have known that the reinsurance coverages were not bound and knew or
should have known that Unicover did not have the authority to bind ReliaStar to
those coverages.

The relief being sought by AIG in its complaint against ReliaStar and Unicover
is that defendants be required to honor the reinsurance commitments that AIG
alleges were made, and be required to pay an unspecified amount of money damages
for alleged breach of those reinsurance commitments and (with respect to
Unicover) for negligent misrepresentation.

The relief being sought by ReliaStar in its third-party complaint against Blanch
is that, in the event ReliaStar is found to be liable to AIG, Blanch be required
to indemnify and hold ReliaStar harmless for that liability, or in the
alternative, Blanch be required to make a contribution for a portion of that
liability in an amount to be determined by the Court.

Blanch, in turn, has filed a counterclaim against ReliaStar and Unicover. The
counterclaim alleges that ReliaStar and Unicover, in fact, did bind the
reinsurance coverages in issue, and therefore, they owe Blanch the reinsurance
brokerage to which Blanch is entitled under those reinsurance contracts.
Alternatively, if it is determined that Unicover misrepresented its authority to
bind ReliaStar, Blanch should be awarded money damages resulting from its
reliance on those

14
<PAGE>

misrepresentations.

This lawsuit is in the pre-trial stage, with a trial expected to occur sometime
in 2000. Blanch intends to defend vigorously the claims made against it by
ReliaStar and to pursue vigorously its counterclaims against ReliaStar and
Unicover.

Management believes, based on current information, that these actions will not
have a material adverse effect upon the financial position or results of
operations of the Company.

Items 2, 3, 4, and 5 are not applicable and have been omitted.

Item 6. Exhibits and Reports on Form 8-K.

(a.) The Exhibits required to be a part of this Report are listed in the
Index to Exhibits on page 17 hereof.

(b.) The registrant filed a current report on Form 8-K on March 22, 2000.
The report contained the Company's press release reporting preliminary
results for the first quarter ending March 31, 2000 and the resignation
of Rodman R. Fox. Mr. Fox was a member of the Board of Directors of the
Company, and was President and Chief Operating Officer of E.W. Blanch
Co. (a subsidiary of the registrant).

The registrant filed a current report on Form 8-K on April 28, 2000.
The report contained the Company's press release, dated April 18, 2000,
reporting earnings for the first quarter ended March 31, 2000.

15
<PAGE>

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.

E. W. BLANCH HOLDINGS, INC.

Dated: May 1, 2000 /s/ Susan B. Wollenberg
------------------------ -----------------------
Susan B. Wollenberg
Senior Vice President
and Chief Financial Officer

<PAGE>

EXHIBIT INDEX

Exhibit 10.1 Employment Agreement between the Company and Kaj Ahlmann

Exhibit 10.2 Employment Agreement between the Company and Susan B. Wollenberg

Exhibit 27 Financial Data Schedule

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

AGREEMENT between E. W. Blanch Holdings., Inc., a Delaware corporation
(hereinafter called the "Company"), and Kaj Ahlmann (hereinafter called the
"Employee").

1. EFFECTIVE DATE. The effective date of this Agreement shall be
November 24, 1999.

2. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions hereinafter set forth.

3. TERM. The term of this Agreement shall be from the effective date of
this Agreement to March 31, 2004 and shall automatically renew for annual
periods thereafter unless the Company gives notice of its intention not to
renew, not less than 30 days prior to the end of the current annual period. This
Agreement is also subject to early termination by the Company for "Cause."

For purposes of this Agreement, the Company shall have Cause to
terminate Employee's employment hereunder upon (a) any misrepresentation or
concealment of a material fact for the purpose of securing this employment
agreement; (b) theft, fraud, embezzlement, dishonesty, or other similar behavior
by the Employee; (c) any material breach by the Employee of the terms of this
Agreement; (d) any repeated or material neglect of duty or misconduct of the
Employee in discharging any of his duties and responsibilities hereunder; (e)
any conduct of the Employee which is materially detrimental or embarrassing to
the Company, including but not limited to the Employee being convicted of a
felony; and/or (f) any refusal or material or repeated failure by the Employee
to comply with the policies, rules, and regulations of the Company. In the event
that this Agreement shall be terminated for Cause, the Company shall continue to
make payments hereunder for all services rendered by the Employee up to the date
of termination but shall have no further obligations to make payments after that
date.

The Company may terminate the Employee's employment hereunder if (i)
the Employee becomes disabled, as such term is defined in the group disability
insurance policy of Employer or (ii) the Employee dies. In any such case, the
Company shall have no further obligation or liability under this Agreement.

4. Compensation. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee at a salary rate of not less than
$650,000.00 per year, payable in accordance with the Company's payroll practice
as from time to time in effect.

Employee will participate in the Company's bonus and incentive
compensation plans as may exist from time to time at the discretion of the
Company, subject to the eligibility and other provisions of those plans.

5. DUTIES. The Employee is engaged as an executive of the Company and
hereby promises to perform and discharge faithfully and efficiently the duties,
which may be assigned to him from time to time. Employee will work out of Kansas
City, Kansas and will not be expected to relocate to Dallas or elsewhere.

6. EXTENT OF SERVICES. The Employee shall devote substantially his full
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any other substantial business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; but this shall not be construed as preventing the
Employee from investing his personal assets in businesses which do not compete
with the Company in such form or manner as

- 1 -

<PAGE>

will not require any substantial services on the part of the Employee in the
operation of the affairs of the companies in which such investments are made and
in which his participation is solely that of an investor and except that the
Employee may purchase securities in any corporation whose securities are
regularly traded, provided that such purchases shall not result in him
collectively owning beneficially at any time more than 1% of any class of
securities of any corporation engaged in a business competitive with that of the
Company.

7. COVENANTS NOT TO SOLICIT, COMPETE OR INTERFERE. For a period of two
(2) years from and after the termination of Employee's employment hereunder for
any reason, other than a material breach by the Company hereunder, Employee will
not, directly or indirectly, as a sole proprietor, member of a partnership, or
stockholder, investor, officer or director of a corporation, or as an employee,
agent, associate or consultant of any person, firm or corporation:

(a) Solicit or accept business (i) from any clients or
prospects of the Company or its affiliates who were solicited or
serviced directly by the Employee or where the Employee supervised,
directly or indirectly, in whole or in part, the solicitation or
service activities related to such clients or prospects or (ii) from
any former client of the Company or its affiliates who was such within
one (1) year prior to Employee's date of termination and who was
solicited or serviced directly by the Employee or where the Employee
supervised, directly or indirectly, in whole or in part, the
solicitation or service activities related to such former client; or

(b) Solicit, or assist anyone else in the solicitation of, any
of the Company's employees to terminate their employment with the
Company and to become employed by any business enterprise with which
the Employee may then be associated, affiliated, or connected; or

(c) Engage in the business of the type performed by the
Company or its affiliates, including but not limited to reinsurance
brokerage and related business. The geographic area encompassed by this
restriction shall be the entire United States. Employee acknowledges
that, in light of his senior management position within the Company,
this is a reasonable and appropriate geographic restriction.

As used in this paragraph 7 and in paragraph 8, "affiliate" shall mean
any person, firm or corporation that, directly or indirectly, controls, is
controlled by, or is under common control with, the Company, whether such
control is through stock ownership, contract or otherwise, and shall expressly
include the Company's predecessor, E. W. Blanch Co. Limited Partnership; and
"prospect" shall mean any person or organization to whom a proposal for services
was rendered by the Company or its affiliates during the 12-month period
immediately preceding the Employee's date of termination; and "solicit" includes
but is not limited to any contact or communication of any nature with a prospect
or existing client for the purpose of or having the effect of maintaining or
establishing goodwill as a basis for any present, future or expanded business,
or otherwise furthering a business goal.

It is the desire and intent of the parties that the provisions of this
paragraph 7 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this paragraph 7 shall be adjudicated
to be invalid or unenforceable, this paragraph 7 shall be deemed amended to
permit a court to modify the portion thus adjudicated to be invalid or
unenforceable, so that this paragraph shall be legally

- 2 -
<PAGE>

enforceable to the full extent permitted in the law of the particular
jurisdiction in which such adjudication is made.

8. NONDISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that the Company's trade secrets and confidential or proprietary information,
including such trade secrets or information as may exist from time to time, and
information as to the identity of clients of the Company, reinsurance contract
data and other similar items, are valuable, special and unique assets of the
Company's business, access to and knowledge of which are essential to the
performance of the duties of Employee hereunder. Employee will not, during or
after the term hereof, in whole or in part, disclose such secrets or
confidential or proprietary information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, nor shall
Employee make use of any such property for his own purposes or for the benefits
of any person, firm, corporation or other entity (except the Company) under any
circumstances, during or after the term hereof, provided that after the term
hereof these restrictions shall not apply to such secrets or information which
are then in the public domain (provided that Employee was not responsible,
directly or indirectly, for such secrets or information entering the public
domain without the Company's consent).

9. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 7 or 8 of this Agreement, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach including recovery of and damages incurred by the
Company and any profits made by Employee as a result of such breach or
threatened breach. The Company shall be entitled to recovery of its legal fees
and related costs in the event of a breach or threatened breach of this
Agreement by Employee.

10. EMPLOYEE BENEFITS. During the term of this Agreement, Employee
shall participate in all employee benefit plans of the Company, subject to the
eligibility, enrollment and other requirements of such plans.

11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or certified mail,
return receipt requested, with first class postage prepaid, to his residence in
the case of Employee and to its principal office in the case of the Company.

12. BREACH, WAIVER OF BREACH. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee.

13. GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Texas (without regard to the conflict of laws
rules or statutes of any jurisdiction), and any and every legal proceeding
arising out of or in connection with this Agreement shall be brought in the
appropriate courts of the State of Texas, each of the parties hereby consenting
to the exclusive jurisdiction of said courts for this purpose.

14. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
of the Company and may be assigned, for all or any part of the term hereof, by
the Company to an affiliate of the Company or to any corporation (i) which at
the time controls the capital stock of the Company, (ii) which succeeds to
substantially all the assets of the Company or (iii) the controlling capital
stock of which is at the time

- 3 -
<PAGE>

owned by the Company; provided, however, that in the event of any transaction
specified in (i), (ii) or (iii) above, the Company shall remain liable with
respect to the obligations of the Company under this Agreement. In the event of
such assignment, any and all references to the "Company" in other paragraphs of
this Agreement shall be deemed to mean and include such assignee corporation.

15. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with respect to employment. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.

16. SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement, which by their express or implied terms extend
beyond the termination of Employee's employment hereunder (including, without
limitation, the provisions of paragraphs 7 and 8 relating to noncompetition and
nondisclosure of information), shall continue in full force and effect
notwithstanding Employee's termination of employment hereunder or the
termination of this Agreement, respectively.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the dates below.

E. W. Blanch Holdings, Inc.
500 North Akard, Suite 4500
Dallas, TX 75201

- ------------------------------------------ ------------------------------
Edgar W. Blanch, Jr., CEO Date

- ------------------------------------------ ------------------------------
Kaj Ahlmann

Address:

- ------------------------------------------

- 4 -

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

AGREEMENT between E. W. Blanch Holdings, Inc., a Delaware corporation
(hereinafter called the "Company"), and Susan B. Wollenberg (hereinafter called
the "Employee").

1. EFFECTIVE DATE. The effective date of this Agreement shall be
January 24, 2000.

2. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions hereinafter set forth.

3. TERM. The term of this Agreement shall be from the effective date of
this Agreement to March 31, 2002 and shall automatically renew for annual
periods thereafter unless the Company gives notice of its intention not to
renew, not less than 30 days prior to the end of the current annual period. This
Agreement is also subject to early termination by the Company for "Cause."

For purposes of this Agreement, the Company shall have Cause to
terminate Employee's employment hereunder upon (a) incompetence, if not cured
within 30 days after written notice thereof from the Company; (b) any
misrepresentation or concealment of a material fact for the purpose of securing
this employment agreement; (c) theft, fraud, embezzlement, dishonesty, or other
similar behavior by the Employee; (d) any material breach by the Employee of the
terms of this Agreement; (e) any repeated or material neglect of duty or
misconduct of the Employee in discharging any of her duties and responsibilities
hereunder; (f) any conduct of the Employee which is materially detrimental or
embarrassing to the Company, including but not limited to the Employee being
convicted of a felony; and/or (g) any refusal or material or repeated failure by
the Employee to comply with the policies, rules, and regulations of the Company.
In the event that this Agreement shall be terminated for Cause, the Company
shall continue to make payments hereunder for all services rendered by the
Employee up to the date of termination but shall have no further obligations to
make payments after that date.

4. COMPENSATION. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee at a salary rate of not less than
$175,000 per year, payable in accordance with the Company's payroll practice as
from time to time in effect.

The Employee will be eligible to participate in the Company's
bonus and incentive compensation plans as may exist from time to time at the
discretion of the Company, subject to the eligibility and other provisions of
those plans. The Employee will be eligible for a minimum bonus of $75,000, for
fiscal year 2000, payable on or before March 31, 2001. Bonus payments shall be
conditioned on the Employee being employed with the Company at the date bonuses
are paid in any year.

- 1 -
<PAGE>

Subject to approval by the E. W. Blanch Holdings, Inc. Board of
Directors at their next regular meeting on January 27, 2000, the Employee will
be awarded 30,000 stock options, which will be subject to the provisions of the
E. W. Blanch Holdings, Inc. 1993 Stock Incentive Plan.

5. DUTIES. The Employee is engaged as an executive of the Company and
hereby promises to perform and discharge faithfully and efficiently the duties
which may be assigned to her from time to time.

6. EXTENT OF SERVICES. The Employee shall devote substantially her full
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any other substantial business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; but this shall not be construed as preventing the
Employee from investing her personal assets in businesses which do not compete
with the Company in such form or manner as will not require any substantial
services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made and in which her participation is
solely that of an investor and except that the Employee may purchase securities
in any corporation whose securities are regularly traded, provided that such
purchases shall not result in her collectively owning beneficially at any time
more than 1% of any class of securities of any corporation engaged in a business
competitive with that of the Company.

7. COVENANTS NOT TO COMPETE OR INTERFERE. For a period of two (2)
year(s) from and after the termination of Employee's employment hereunder for
any reason, Employee will not, directly or indirectly, as a sole proprietor,
member of a partnership, or stockholder, investor, officer or director of a
corporation, or as an employee, agent, associate or consultant of any person,
firm or corporation:

(a) Engage in the business of the type performed by the
Company or its affiliates. This restriction shall apply throughout the
United States. Employee acknowledges that the business engaged in by
the Company is national in scope, and that this geographic limitation
therefore is reasonable; or

- 2 -
<PAGE>

8. NONDISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that the Company's trade secrets and confidential or proprietary information,
including such trade secrets or information as may exist from time to time, and
information as to the identity of clients of the Company, reinsurance contract
data and other similar items, are valuable, special and unique assets of the
Company's business, access to and knowledge of which are essential to the
performance of the duties of Employee hereunder. Employee will not, during or
after the term hereof, in whole or in part, disclose such secrets or
confidential or proprietary information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, nor shall
Employee make use of any such property for her own purposes or for the benefits
of any person, firm, corporation or other entity (except the Company) under any
circumstances, during or after the term hereof, provided that after the term
hereof these restrictions shall not apply to such secrets or information which
are then in the public domain (provided that Employee was not responsible,
directly or indirectly, for such secrets or information entering the public
domain without the Company's consent).

11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or certified mail,
return receipt requested, with first class postage prepaid, to her residence in
the case of Employee and to its principal office in the case of the Company.

- 3 -

<PAGE>

to substantially all the assets of the Company or (iii) the controlling capital
stock of which is at the time owned by the Company; provided, however, that in
the event of any transaction specified in (i), (ii) or (iii) above, the Company
shall remain liable with respect to the obligations of the Company under this
Agreement. In the event of such assignment, any and all references to the
"Company" in other paragraphs of this Agreement shall be deemed to mean and
include such assignee corporation.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the dates below.

E. W. Blanch Holdings, Inc.
500 N. Akard, Suite 4500
Dallas, TX 75201

By:
------------------------------------ -----------------------
Chris Walker, President Date

------------------------------------ -----------------------
Susan B. Wollenberg Date
12823 Lucille
Overland Park, KS 66213

- 4 -

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