UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-21988
KAYE GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 13-3719772
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
122 East 42nd Street, New York, N.Y. 10168
(Address of principal executive office)
(Zip code)
212-338-2100
(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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 9, 1997 - 7,020,000
- - Total number of pages filed including cover and under pages 15
- - Exhibit index is located on page 12
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-21988
KAYE GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 13-3719772
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
122 East 42nd Street, New York, N.Y. 10168
(Address of principal executive office)
(Zip code)
212-338-2100
(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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 9, 1997 - 7,020,000
<PAGE>
KAYE GROUP INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION 12
2
<PAGE>
Item 1. - Financial Statements
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(in thousands, except par value per share)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
INSURANCE BROKERAGE COMPANIES
Current assets:
Cash and cash equivalents
( including short term investments and funds held in a fiduciary
capacity of $12,641 and $23,879) $ 15,873 $ 24,789
Premiums and other receivables 24,223 56,255
Prepaid expenses and other assets 1,656 1,587
Intercompany receivable 1,419
-------- --------
Total current assets 43,171 82,631
Fixed assets ( net of accumulated depreciation of $7,900 and $7,646) 2,855 2,349
Expiration lists ( net of accumulated amortization of $1,692 and $1,600) 2,000 2,092
Deferred income taxes 508 1,354
Other assets 207 237
-------- --------
Total assets - insurance brokerage companies 48,741 88,663
-------- --------
PROPERTY AND CASUALTY COMPANIES
Investments available-for-sale:
Fixed maturities, at market value (amortized cost: 1997, $39,966;
1996, $39,216) 39,754 39,145
Equity securities, at market value (cost:1997, $2,446; 1996, $2,246) 2,516 2,316
Short term investments, at cost, which approximates market value 4,351 1,336
-------- --------
Total investments 46,621 42,797
Cash and cash equivalents 5,822 2,714
Accrued interest and dividends 934 969
Premiums receivable 775 4,079
Premiums receivable - insurance brokerage companies 184 2,904
Prepaid reinsurance premiums 343 283
Reinsurance recoverable on unpaid losses and loss expenses 1,765 882
Funds held under deposit contracts, at market value (amortized cost:
1997, $3,841; 1996, $3,844) 3,839 3,847
Deferred acquisition costs 3,019 4,073
Deferred income taxes 801 639
Other assets 1,936 2,266
Intercompany receivable 556
-------- --------
Total assets - property and casualty companies 66,039 66,009
-------- --------
CORPORATE
Cash and cash equivalents 293 456
Prepaid expenses and other assets 315 443
Investments available-for-sale:
Equity securities, at market value (cost:1997 and 1996, $557) 525 513
Fixed maturities, at market value (amortized cost :1996, $9) 9
Deferred income taxes 2 9
-------- --------
Total assets - corporate 1,135 1,430
-------- --------
Total assets $115,915 $156,102
======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(in thousands, except par value per share)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES:
INSURANCE BROKERAGE COMPANIES
Current liabilities:
Premiums payable $ 27,545 $ 63,081
Premiums payable - property and casualty companies 184 2,904
Accounts payable and accrued liabilities 5,536 6,074
Notes payable 638 595
Deferred income taxes 1,122
Intercompany payable 344
--------- ---------
Total current liabilities 33,903 74,120
Notes payable 959 537
Note payable - KILP 6,000 6,000
--------- ---------
Total liabilities-insurance brokerage companies 40,862 80,657
--------- ---------
PROPERTY AND CASUALTY COMPANIES
Liabilities:
Unpaid losses and loss expenses 16,660 15,227
Unearned premium reserves 9,801 13,176
Deposit contracts 3,506 3,448
Accounts payable and accrued liabilities 4,996 4,991
Reinsurance payable 90 170
Intercompany payable 558
--------- ---------
Total liabilities - property and casualty companies 35,611 37,012
--------- ---------
CORPORATE
Current liabilities:
Accounts payable and accrued liabilities 599 704
Intercompany payable 861 212
Note payable 1,475 850
Income taxes payable 597 95
--------- ---------
Total current liabilities 3,532 1,861
Note payable-long-term 5,625 6,250
--------- ---------
Total liabilities-corporate 9,157 8,111
--------- ---------
Total liabilities 85,630 125,780
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN EQUITY OF
KAYE HOLDING CORP 5,327 5,338
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000 shares authorized;
none issued or outstanding
Common stock, $.01 par value; 20,000 shares authorized;
7,020 shares issued and outstanding 70 70
Paid - in capital 7,776 7,776
Depreciation of investments available-for-sale, net of
deferred income tax benefit, ( 1997 , $56; 1996 , $16) (109) (31)
Retained earnings 17,221 17,169
--------- ---------
Total stockholders' equity 24,958 24,984
--------- ---------
Total liabilities and stockholders' equity $ 115,915 $ 156,102
========= =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1997 and 1996
(in thousands, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
INSURANCE BROKERAGE COMPANIES
Revenues:
Commissions and fees, net $ 6,205 $ 6,557
Commissions and fees, net - Property and Casualty Companies 222 (155)
Interest and dividends 485 274
------- -------
Total revenues 6,912 6,676
------- -------
Expenses:
Salaries and benefits 4,847 5,020
Other operating expenses 3,183 3,239
------- -------
Total operating expenses 8,030 8,259
------- -------
Interest expense 150 150
------- -------
Loss before income taxes-insurance brokerage companies (1,268) (1,733)
------- -------
PROPERTY AND CASUALTY COMPANIES
Revenues:
Net premiums written 1,793 215
Change in unearned premiums 3,435 3,923
------- -------
Net premiums earned 5,228 4,138
Net investment income 666 670
Net realized gains on investments 89
Other income 57 147
------- -------
Total revenues 5,951 5,044
------- -------
Expenses:
Losses and loss expenses 2,008 1,433
Acquisition costs and general and administrative expenses 2,072 1,769
------- -------
Total expenses 4,080 3,202
------- -------
Income before income taxes-property and casualty companies 1,871 1,842
------- -------
CORPORATE
Revenues:
Net investment income 3 33
Expenses:
Other operating expenses 86 57
Interest expense 124 133
------- -------
Net expenses before income taxes-corporate (207) (157)
------- -------
Income (loss) before income taxes and minority interest 396 (48)
------- -------
Provision (benefit) for income taxes:
Current 501 288
Deferred (382) (303)
------- -------
Total provision (benefit) for income taxes 119 (15)
------- -------
Income (loss) before minority interest 277 (33)
Minority interest (49) 6
------- -------
NET INCOME (LOSS) $ 228 ($ 27)
======= =======
NET INCOME PER SHARE $ 0.03 $ 0.00
======= =======
Weighted average shares outstanding 7,020 7,020
======= =======
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $228 ($27)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred acquisition costs 1,054 1,270
Amortization of bond premium, net 168 128
Deferred income taxes (382) (341)
Depreciation and amortization 352 456
Minority interest 49 (6)
Net realized gains on investments (89)
Change in assets and liabilities:
Accrued interest and dividends 35 102
Premiums and other receivables 37,114 44,028
Prepaid expenses and other assets 407 (259)
Unpaid losses and loss expenses 1,433 (344)
Unearned premium reserves (3,375) (3,998)
Premiums payable (38,337) (42,637)
Income taxes payable 502 1,489
Accounts payable and accrued liabilities (638) (4,773)
-------- --------
Net cash used in operating activities (1,390) (5,001)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available-for-sale :
Purchase of fixed maturities (1,753) (6,879)
Purchase of equity securities (500)
Purchase of short term investments (3,015) (171)
Maturities of fixed maturities 735 350
Sales of fixed maturities 100 8,845
Sales of equity securities 300
Funds held under deposit contracts:
Purchase/sales of short term investments (648) (707)
Sales of fixed maturities 300 526
Maturities of fixed maturities 350 140
Purchase of fixed assets (760) (114)
-------- --------
Net cash provided by (used in) investing activities (4,891) 1,990
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts under deposit contracts 58 56
Notes payable-repayment (147) (134)
Proceeds from borrowings 612
Payment of dividends (176) (176)
Payment of dividends to minority interest stockholder (37) (37)
-------- --------
Net cash provided by (used in) financing activities 310 (291)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENT (5,971) (3,302)
Cash and cash equivalents at beginning of period 27,959 13,864
-------- --------
Cash and cash equivalents at end of period $21,988 $10,562
======== ========
Supplemental cash flow disclosure:
Interest expense paid $496 $445
Income taxes paid (refunded) $0 ($1,200)
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
ITEM 1. - Financial Statements (continued)
KAYE GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1) General
The consolidated financial statements as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996 are unaudited, and have been prepared in
accordance with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of the results for such periods.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the financial
statements and related notes in the Company's 1996 Form 10-K. The December 31,
1996 consolidated balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
2) Organization
Effective October 2, 1995 Old Lyme Holding Corporation ("Old Lyme") combined its
operations with the insurance brokerage operations (the "Retail Brokerage
Business") of Kaye International, L.P. ("KILP") and changed its name to Kaye
Group Inc. (the "Company"). For further details of the combination, reference is
hereby made to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as previously filed with the Securities and Exchange
Commission.
3) Changes in Accounting Policies
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - Earnings per Share (the "Statement").
The Statement becomes effective for financial statements issued for periods
ending after December 15, 1997. This Statement establishes standards for
computing and presenting earnings per share ("EPS"). This Statement simplifies
the standards for computing EPS previously found in APB Opinion No. 15, Earnings
per Share, and makes them comparable to international EPS standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This Statement
requires restatement of all prior-period EPS data presented. The Company
anticipates presenting its EPS in compliance with the dual presentation
standards mandated by this Statement at December 31, 1997.
The Company has calculated basic and diluted EPS as defined by this Statement
and interpreted by the Company based on information currently available, and has
determined that such amounts do not differ materially from primary EPS which is
reflected in the Company's Statement of Operations.
7
<PAGE>
4) Funds Held In Fiduciary Capacity
Premiums collected by the Insurance Brokerage Companies but not yet remitted to
insurance carriers, are restricted as to use by law in certain states in which
the Insurance Brokerage Companies operate. These balances are held in cash and
cash equivalents or short term investments. The offsetting obligation is
recorded in premiums payable.
5) Notes Payable
The Company has a $8,125,000, revolving line of credit with a bank,
collateralized by the stock of the Insurance Companies. Currently $7,100,000 has
been borrowed under this revolving line of credit. The proceeds are available
for general corporate purposes. Any borrowings will bear interest at the bank's
equivalent of the prime rate of interest as maintained from time to time or at
the Company's option, a LIBOR based rate. A commitment fee is assessed in the
amount of 1/4% per annum on the unused balance. Among other covenants, the
agreement requires maintenance of minimum consolidated net worth, statutory
surplus, ratios of net premiums written to surplus and minimum interest
coverage. As of March 31, 1997, the Company is in compliance with the covenants
of the debt agreement.
The bank's commitment under the revolving line of credit is reduced $625,000
each quarter. Available credit as of the end of each respective years is
$6,250,000 in 1997, $3,750,000 in 1998, $1,250,000 in 1999 and none in 2000. The
Company's required payments for the respective years are $850,000 in 1997,
$2,500,000 in 1998, $2,500,000 in 1999 and $1,250,000 in 2000. Interest accrued
under the revolving credit line for the three months ended March 31, 1997 was
$124,000.
6) Net Income Per Share
Net income per share is based on the weighted average number of common shares
outstanding. Common stock equivalents (originating in 1993) are not dilutive.
7) Dividends
On March 20, 1997, the Board of Directors declared a quarterly dividend of $.025
per share, payable April 21, 1997 to stockholders of record on March 31, 1997.
8) Contingent Liabilities
In the ordinary course of business, the Company and its subsidiaries are subject
to various claims and lawsuits consisting primarily of alleged errors and
omissions in connection with the placement of insurance. Subject to specified
limits, the shareholders of predecessors to the Retail Brokerage Business are
responsible for any costs arising from those claims which were asserted prior to
November 1, 1991, the date on which KILP was formed. In the opinion of
management, the ultimate resolution of all asserted and potential claims both
prior and subsequent to the formation of KILP, will not have a material adverse
effect on the consolidated financial position of the Company.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Kaye Group Inc. (the "Company") owns 82.4% of the issued and outstanding
stock of Kaye Holding Corp. ("Holding"), (collectively "Corporate") , which is
the primary asset of the Company. The Company's business is conducted
principally through the wholly owned subsidiaries of Holding.
The Company operates in two business segments- "Insurance Brokerage", which
includes the Retail Brokerage Business and the Program Brokerage Business (the
"Insurance Brokerage Companies") and "Property and Casualty Insurance", or
"Insurance" which comprises the Insurance Companies and Claims Administration
(the "Property and Casualty Companies").
Overview
The Insurance Brokerage Companies derive their revenue principally from
commissions associated with the placement of insurance coverage for corporate
clients. These commissions are paid by the insurance carriers and are usually a
fixed percentage of the total premiums. There is normally a lag between receipt
of funds from the insured and payment to the insurance company. Investment of
these funds over this period generates additional revenue in the form of
interest income.
The Insurance business underwrites property and casualty risks for insureds
in the United States and is sold principally through specially designed Programs
covering various types of businesses and properties which have similar risk
characteristics. The Insurance business generally underwrites the first layer of
insurance under the Programs and unaffiliated Program insurers provide coverage
for losses above the first layer of risk. Substantially all of the Insurance
business revenues are derived from premiums on this business, plus the
investment income generated by the investment portfolio of the Insurance
business.
Insurance coverage under the Programs is provided through a variety of
underwriting structures, including reinsurance arrangements where direct
coverage may not be possible. RLI Insurance Company ("RLI"), an unaffiliated
company, has had reinsurance agreements with the Property and Casualty Companies
since 1982 to provide direct coverage in certain of such circumstances. RLI
writes various policies from the first layer of risk under the Programs and
cedes to the Property and Casualty Companies a certain percentage of premiums to
purchase a stop loss policy in the event RLI's losses exceed a fixed percentage
of net premiums written. In the event losses are less than the fixed percentage,
the Insurance Brokerage Business will receive a contingent commission equal to
such amount (net of fees paid to RLI). Only the premiums ceded to the Property
and Casualty Companies for the stop loss policy are included in the net premiums
written and earned for the Insurance business.
Corporate operations include those expenses not directly related to the
Insurance Brokerage or Insurance businesses. These expenses are associated with
being a public company and interest expense on corporate debt.
9
<PAGE>
Results of Operations
Three Months ended March 31, 1997
compared with Three Months ended March 31, 1996
Insurance Brokerage Operations
Total revenues in 1997 were $6,912,000 compared with $6,676,000 in 1996, or
an increase of $236,000 (4%). Gross commissions and fees grew by $260,000 (4%)
as a result of new business exceeding lost business and continued price
reductions partially offset by an increase in the rate of commission expense
incurred to produce new and renewal business from 10% to 14%. Interest income
increased in 1997 by $211,000 primarily due to collection efficiencies resulting
in a longer holding period for fiduciary investments.
Salaries and related benefits decreased by $173,000 (3%) to $4,847,000 in
1997 compared to $5,020,000 in 1996. The modest reduction in work force was due
to continued operating efficiencies, lower executive compensation, and reduced
costs for prior year acquisitions. The Company's compensation committee has
reviewed and adjusted executive compensation to reflect a continued movement
toward performance based pay.
Other operating expenses (including depreciation) decreased by $56,000 (2%)
to $3,183,000 in 1997 compared with $3,239,000 in 1996. This decrease was the
result of the completion of organization cost amortization in 1996 partially
offset by additional finance charges related to premium finance agreements.
Loss before minority interest and income taxes decreased by $465,000 (27%)
to $1,268,000 in 1997 from $1,733,000 in 1996. The improved operating result was
due to increased investment income on fiduciary funds and the realignment of
executive compensation, as discussed above.
Property and Casualty Insurance Operations
Net premiums earned for 1997 increased $1,090,000 (26%), to $5,228,000 from
$4,138,000 in 1996. The Company's efforts to broadening the distribution network
of the Programs and coverage types has contributed to growth in the Residential
Real Estate and Restaurant Programs.
There were no net realized gains on investments for 1997 compared to
$89,000 in 1996. The realization of investment gains and losses is determined by
market conditions, call features on certain securities and management's decision
regarding the holding period of the portfolio.
Losses and loss expenses increased in 1997 by $575,000 (40%) to $2,008,000
from $1,433,000 in 1996. The loss ratio for 1997 and 1996 was 38% and 35%,
respectively. This increase was the result of growth in general liability
coverage in the Residential Real Estate Program, which generally experiences a
higher loss ratio than other coverages.
Acquisition costs and general and administrative expenses increased in 1997
by $303,000 (17%) to $2,072,000 from $1,769,000 in 1996. The expense ratio
(acquisition costs and general and administrative expenses) for 1997 and 1996
was 40% and 43%, respectively. This decrease was due mainly to reduced
contracted management incentive bonuses partially offset by increased
professional fees.
10
<PAGE>
Income before minority interest and income taxes increased in 1997 by
$29,000 to $1,871,000 from $1,842,000 in 1996. The increase in operating results
was due to increased net premiums earned partially offset by an increase in the
combined ratio (loss ratio and expense ratio) to 78% from 77%.
Corporate
Net expenses before minority interest and income taxes increased in 1997 by
$50,000 (32%) to $207,000 from $157,000 in 1996. This increase was the result of
lower investment income and additional costs incurred for acquisition
activities.
Financial Condition and Liquidity
Total assets decreased by $40,187,000 to $115,915,000 at March 31, 1997
from $156,102,000 at December 31, 1996. Total liabilities decreased by
$40,150,000 to $85,630,000 at March 31, 1997 from $125,780,000 at December 31,
1996. Due to the cyclical nature of the business, premiums receivable and
premiums payable fluctuate significantly from quarter to quarter. The collection
of premiums receivable and the amortization of acquisition costs, with the
corresponding payments to underwriters and the amortization of unearned premiums
related to the renewal of the Residential Real Estate Program, effective
December 20, accounted for the major portion of this decrease.
Stockholders' equity decreased by $26,000 to $24,958,000 at March 31, 1997
from $22,984,000 at December 31, 1996. The decrease in equity resulted from an
increase in unrealized depreciation of investments (net of deferred taxes) of
$78,000, dividends paid of $176,000 partially offset by net income $228,000. All
amounts are net of the effects of the minority interest in Kaye Holding Corp.
The Company's cash and cash equivalents decreased by $5,971,000 for three
months ended March 31, 1997. Operating activities used cash of $1,390,000 as a
result of decreased fiduciary funds on hand. Investing activities used cash of
$4,891,000 to purchase new computer software, and premiums receivable
collections within the Insurance Companies were invested in fixed maturities and
short term investments. Financing activities provided cash of $310,000 primarily
from proceeds of borrowing used to purchase computer software partially offset
by payment of dividends.
The Company maintains a substantial level of cash and liquid short term
investments which are used to meet anticipated payment obligations. As of March
31, 1997, the Company had cash and short term investments of $26,339,000. Of the
Company's total invested assets, certain amounts are pledged or deposited into
trust funds to collateralize the Company's obligations under reinsurance
agreements.
The Company has available a $8,125,000 revolving line of credit with a
bank, the proceeds of which are available for general operating needs and
acquisitions. At March 31, 1997, $7,100,000 is outstanding under the revolving
line of credit. The loan is collateralized by the stock of the Insurance Company
subsidiaries.
Management believes that the Company's operating cash flow, along with the
cash equivalents and short term investments will provide sufficient sources of
liquidity and capital to meet the Company's anticipated needs during the next
twelve months and the foreseeable future. The Company has no capital commitments
that are material individually or in the aggregate.
11
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to lawsuits arising in the normal course of
business. Virtually all pending lawsuits in which the Insurance Companies are a
party, involve claims under policies underwritten or reinsured by such
Companies. Management believes these lawsuits have been adequately provided for
in its established loss and loss expense reserves and that the resolution of
these lawsuits will not have a material adverse effect on the Company's
financial condition or results of operations.
The Brokerage Companies are subject to various claims and lawsuits from
both private and governmental parties, which include claims and lawsuits in the
ordinary course of business. The majority of pending lawsuits involve insurance
claims, errors and omissions, employment claims, and breaches of contract. The
Company believes that the resolution of these lawsuits will not have a material
adverse effect on the Company's financial condition or results of operations.
As licensed brokers, the Insurance Brokerage Companies are or may become
parties to administrative inquiries and at times to administrative proceedings
commenced by state insurance regulatory bodies. Certain subsidiaries have been
involved since 1992 in an administrative investigation by the New York Insurance
Department ("Department") relating to how property insurance policies were
issued for the Residential Real Estate Program. As a result, the manner in which
policies are structured for certain clients in this Program has been altered,
which has not had a material adverse effect on this Program. The Company is in
discussions with the Department regarding settlement of such investigation; if
such discussions are not successful, the Department could institute formal
proceedings against the subsidiaries seeking fines or license revocation. KILP
has agreed to indemnify Holding, the Company and the Insurance Brokerage
Companies for any fines or settlement payments in excess of $300,000 relating to
such investigation. Management does not believe the resolution of such issue
will have a material adverse effect on the Company.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit
Number Description
27 Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the period January 1, 1997
to March 31, 1997.
12
<PAGE>
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-Q or any other written or oral
statements made by or on behalf of the Company may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
(which are described in more detail elsewhere in documents filed by the Company
with the Securities and Exchange Commission) include, but are not limited to,
uncertainties relating to government and regulatory policies, volatile and
unpredictable developments (including storms and catastrophes), the legal
environment, the uncertainties of the reserving process and the competitive
environment in which the Company operates. The words "believe", "anticipate",
"project", "plan", "expect" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
13
<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.
KAYE GROUP INC.
-------------------------------------------
Registrant
May 13, 1997 /s/ Bruce D. Guthart
-------------------------------------------
Bruce D. Guthart, President &
Chief Executive Officer
May 13, 1997 /s/ Michael P. Sabanos
-------------------------------------------
Michael P. Sabanos, Senior Vice President &
Chief Financial Officer
14
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