<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 September 30, 1996
COMMISSION FILE NUMBER 0-22280
PHILADELPHIA CONSOLIDATED HOLDING CORP.
---------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2202671
------------ ----------
(State of Incorporation) (IRS Employer Identification No.)
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
(610) 617-7900
--------------
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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 November 12, 1996.
Preferred Stock, $.01 par value, no shares outstanding
Common Stock, no par value, 6,041,382 shares outstanding
1
<PAGE> 2
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C>
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations - For the three and nine
months ended September 30, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders' Equity - For
the nine months ended September 30, 1996 and year ended
December 31, 1995 5
Consolidated Statements of Cash Flows - For the nine
months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of Operations and
Financial Condition 8-11
Part II - Other Information 12
Signatures 13
Exhibits 14
</TABLE>
2
<PAGE> 3
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF
----------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $129,757 AND $117,740)(INCLUDING
$26,980 AND $30,648 IN TRUST ACCOUNTS).............. $132,142 $121,848
EQUITY SECURITIES AT MARKET (COST $16,782 AND $9,685)
(INCLUDING $101 AND $118 IN TRUST ACCOUNTS).......... 22,323 12,558
-------- --------
TOTAL INVESTMENTS................................... 154,465 134,406
CASH AND CASH EQUIVALENTS (INCLUDING
$4,645 AND $3,048 IN TRUST ACCOUNTS)................. 11,949 5,680
ACCRUED INVESTMENT INCOME.............................. 2,077 2,172
PREMIUMS RECEIVABLE.................................... 9,302 7,898
PREPAID REINSURANCE PREMIUMS AND
REINSURANCE RECEIVABLES............................... 18,122 12,785
DEFERRED ACQUISITION COSTS............................. 8,741 5,157
PROPERTY AND EQUIPMENT................................. 5,125 3,868
GOODWILL-LESS ACCUMULATED AMORTIZATION OF
$1,173 AND $1,120..................................... 911 964
DEFERRED INCOME TAXES.................................. - 4
OTHER ASSETS........................................... 1,743 1,214
-------- --------
TOTAL ASSETS........................................ $212,435 $174,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES.............. $ 92,848 $ 77,686
UNEARNED PREMIUMS..................................... 30,413 18,119
-------- --------
TOTAL POLICY LIABILITIES AND ACCRUALS............... 123,261 95,805
PREMIUMS PAYABLE....................................... 1,626 2,445
PAYABLE FOR INVESTMENT PURCHASES....................... 320 1,017
OTHER LIABILITIES...................................... 7,590 6,051
INCOME TAXES PAYABLE................................... 219 514
DEFERRED INCOME TAXES.................................. 143 -
-------- --------
TOTAL LIABILITIES................................... 133,159 105,832
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING.......................... - -
COMMON STOCK, NO PAR VALUE, 50,000,000 SHARES
AUTHORIZED, 6,034,007 AND 5,813,851 SHARES ISSUED
AND OUTSTANDING...................................... 41,170 39,057
NOTES RECEIVABLE FROM SHAREHOLDERS ................... (1,010) -
UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION),
NET OF DEFERRED INCOME TAXES......................... 5,231 4,608
RETAINED EARNINGS..................................... 33,885 24,651
-------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... 79,276 68,316
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $212,435 $174,148
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE> 4
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
GROSS EARNED PREMIUMS............................ $ 37,854 $ 29,847 $ 91,380 $ 74,939
CEDED EARNED PREMIUMS............................ (17,531) (12,458) (38,050) (30,184)
-------- -------- -------- --------
NET EARNED PREMIUMS.............................. 20,323 17,389 53,330 44,755
NET INVESTMENT INCOME............................ 2,041 1,689 5,772 4,742
NET REALIZED INVESTMENT GAIN..................... 140 169 235 256
OTHER INCOME..................................... 79 82 203 248
-------- -------- -------- --------
TOTAL REVENUE................................ 22,583 19,329 59,540 50,001
-------- -------- -------- --------
LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES................ 13,590 11,296 33,794 31,234
NET REINSURANCE RECOVERIES....................... (1,470) (1,773) (3,911) (6,276)
-------- -------- -------- --------
NET LOSS AND LOSS ADJUSTMENT EXPENSES............ 12,120 9,523 29,883 24,958
ACQUISITION COSTS AND OTHER UNDERWRITING
EXPENSES........................................ 5,920 5,812 16,863 13,987
OTHER OPERATING EXPENSES......................... 58 583 956 1,947
-------- -------- -------- --------
TOTAL LOSSES AND EXPENSES.................... 18,098 15,918 47,702 40,892
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES........................ 4,485 3,411 11,838 9,109
-------- -------- -------- --------
INCOME TAX EXPENSE (BENEFIT):
CURRENT.......................................... 1,059 563 2,778 2,500
DEFERRED......................................... (36) 119 (174) (678)
-------- -------- -------- --------
TOTAL INCOME TAX EXPENSE..................... 1,023 682 2,604 1,822
-------- -------- -------- --------
NET INCOME........................................ $ 3,462 $ 2,729 $ 9,234 $ 7,287
======== ======== ======== ========
PER AVERAGE COMMON SHARE DATA:
NET INCOME...................................... $ 0.49 $ 0.40 $ 1.30 $ 1.07
======== ======== ======== ========
WEIGHTED AVERAGE SHARES AND SHARE EQUIVALENTS USED
IN COMPUTATION OF NET INCOME PER COMMON SHARE.... 7,091,936 6,882,059 7,091,333 6,799,141
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE> 5
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended September 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
COMMON SHARES:
BALANCE AT BEGINNING OF PERIOD..................... 5,813,851 5,813,851
ISSUANCE OF SHARES
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 81,906 -
PURSUANT TO EMPLOYEE STOCK OPTION PLAN............ 138,250 -
---------- ----------
BALANCE AT END OF PERIOD........................... 6,034,007 5,813,851
========== ==========
COMMON STOCK:
BALANCE AT BEGINNING OF PERIOD..................... $ 39,057 $ 39,096
ISSURANCE OF SHARES
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 1,181 -
PURUSANT TO EMPLOYEE STOCK OPTION PLAN............ 932 -
OTHER............................................. - (39)
--------- ---------
BALANCE AT END OF PERIOD........................... 41,170 39,057
--------- ---------
NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF PERIOD..................... - -
NOTES RECEIVABLE ISSUED
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... (1,181) -
COLLECTION OF NOTES RECEIVABLE..................... 171 -
--------- ----------
BALANCE AT END OF PERIOD........................... (1,010) -
--------- ----------
UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION)
NET OF DEFERRED INCOME TAXES:
BALANCE AT BEGINNING OF PERIOD..................... 4,608 (1,317)
CHANGE IN UNREALIZED INVESTMENT APPRECIATION
(DEPRECIATION), NET OF DEFERRED INCOME TAXES...... 623 5,925
---------- ----------
BALANCE AT END OF PERIOD........................... 5,231 4,608
---------- ----------
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD..................... 24,651 14,821
NET INCOME......................................... 9,234 9,830
---------- ----------
BALANCE AT END OF PERIOD........................... 33,885 24,651
---------- ----------
TOTAL SHAREHOLDERS' EQUITY...................... $ 79,276 $ 68,316
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME.......................................... $ 9,234 $ 7,287
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
CHANGE IN PREMIUMS RECEIVABLE..................... (1,404) (3,158)
CHANGE IN OTHER RECEIVABLES AND PREPAIDS.......... (5,242) (4,165)
CHANGE IN DEFERRED ACQUISITION COSTS.............. (3,584) (1,025)
CHANGE IN OTHER ASSETS............................ (529) (392)
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT
EXPENSES......................................... 15,162 14,592
CHANGE IN UNEARNED PREMIUMS....................... 12,294 3,682
CHANGE IN PREMIUMS PAYABLE AND OTHER LIABILITIES.. 720 (463)
CHANGE IN INCOME TAXES PAYABLE.................... (295) 127
NET REALIZED INVESTMENT GAIN...................... (235) (256)
DEPRECIATION AND AMORTIZATION EXPENSE............. 675 751
DEFERRED INCOME TAX BENEFIT....................... (174) (678)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 26,622 16,302
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITY
SECURITIES AVAILABLE FOR SALE...................... 2,594 12,291
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED
MATURITY SECURITIES AVAILABLE FOR SALE............. 8,406 727
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED
MATURITY SECURITIES HELD TO MATURITY............... - 932
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED
MATURITY SECURITIES HELD TO MATURITY............... - 915
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY
SECURITIES......................................... 1,735 4,680
COST OF FIXED MATURITY SECURITIES AVAILABLE FOR SALE
ACQUIRED........................................... (23,658) (39,018)
COST OF FIXED MATURITY SECURITIES HELD TO MATURITY
ACQUIRED........................................... - (301)
COST OF EQUITY SECURITIES ACQUIRED.................. (8,820) (3,700)
OTHER - NET......................................... - (3,000)
PURCHASE OF PROPERTY AND EQUIPMENT.................. (1,713) (387)
------- -------
NET CASH USED BY INVESTING ACTIVITIES........... (21,456) (26,861)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN....................... 1,181 -
PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO
EMPLOYEE STOCK OPTION PLAN......................... 932 -
NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN................................ (1,181) -
COLLECTION OF NOTES RECEIVABLE...................... 171 -
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 1,103 -
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 6,269 (10,559)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 5,680 16,464
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $11,949 $ 5,905
======= =======
CASH PAID DURING THE PERIOD FOR:
INCOME TAXES $ 1,305 $ 2,313
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements as of and for the nine months
ended September 30, 1996 and 1995 are unaudited, but in the opinion of
management, have been prepared on the same basis as the annual audited
consolidated financial statements and reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation of the information set forth therein. The results of
operations for the nine months ended September 30, 1996 are not
necessarily indicative of the operating results to be expected for the
full year or any other period. Certain prior year amounts have been
reclassified for comparative purposes.
These financial statements should be read in conjunction with the
financial statements and notes as of and for the year ended December
31, 1995 included in the Company's Annual Report on Form 10-K.
2. Investments
During 1995 implementation guidance for SFAS No. 115 was adopted.
Upon adoption, the appropriateness of the classifications for all
securities held was reassessed. This reassessment resulted in
reclassifying all securities in the Held To Maturity category to the
Available For Sale category. The aggregate market value, amortized
cost and unamortized unrealized loss on these securities was
$25,601,000, $24,690,000, and $243,000, respectively. The
reclassification from this one-time reassessment pursuant to the
initial adoption of the implementation guidance does not call into
question the intent to potentially hold other debt securities to
maturity in the future.
3. Earnings Per Share
Earnings per common share has been calculated by dividing net income
for the period by the weighted average number of common shares and
common share equivalents outstanding during the period.
4. Income Taxes
The effective tax rate differs from the 34% marginal tax rate
principally as a result of interest exempt from tax, the dividend
received deduction and other differences in the recognition of
revenues and expenses for tax and financial reporting purposes.
5. Shareholders' Equity
On May 9, 1996 the Company's shareholders approved a non-qualified
Employee Stock Purchase Plan (the "Plan"). The aggregate maximum
number of shares that may be issued pursuant to the Plan is 250,000.
Shares may be purchased under the plan by eligible employees during
designated one-month offering periods established by the Compensation
Committee of the Board of Directors at a purchase price of the lesser
of 85% of the fair market value of the shares on the first business
day of the offering period or the date the shares are purchased. The
purchase price of shares may be paid by the employee over six (6)
years pursuant to the execution of a promissory note. The promissory
note will be collateralized by such shares purchased under the Plan
and will be interest free. Subscription agreements for 81,906 shares
were received by the Company as of September 30, 1996.
7
<PAGE> 8
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
GENERAL
Although the Company's financial performance is dependent upon its own specific
business characteristics, certain risk factors can affect the profitability of
the Company. These include:
- Industry factors - In the current environment, insurance industry
pricing in general continues to be soft, however the Company's
strategy is to focus on underwriting profits and accordingly the
Company's marketing organization is being directed into those niche
businesses that exhibit the greatest potential for underwriting
profits.
- Competition - The Company competes in the commercial property and
casualty business with other domestic and international insurers
having greater financial and other resources than the Company.
- Regulation - The Company's insurance subsidiaries are subject to a
substantial degree of regulatory oversight, which generally is
designed to protect the interests of policyholders, as opposed to
shareholders.
- Inflation - Commercial property and casualty insurance premiums are
established before the amount of losses and loss adjustment expenses,
or the extent to which inflation may effect such amounts is known.
- Investment Risk - Substantial future increases in interest rates could
result in a decline in the market value of the Company's investment
portfolio and resulting losses and/or reduction in shareholders'
equity.
RESULTS OF OPERATIONS (NINE MONTHS ENDED SEPTEMBER 30, 1996 VS SEPTEMBER 30,
1995)
Premiums: Gross written premiums grew $25.0 million (31.8%) to
$103.7 million for the nine months ended September 30, 1996 from $78.7
million for the same period of 1995; gross earned premiums grew $16.4 million
(21.9%) to $91.3 million for the nine months ended September 30, 1996 from
$74.9 million for the same period of 1995; net written premiums increased $14.6
million (30.4%) to $62.6 million for the nine months ended September 30, 1996
from $48.0 million for the same period of 1995; and net earned premiums grew
$8.5 million (19.0%) to $53.3 million in 1996 from $44.8 million in 1995. The
overall growth in premiums and the varying growth rates for gross written
premiums, gross earned premiums, net written premiums and net earned premiums
are attributable to a number of factors:
- - Overall premium growth is primarily attributable to: the recent growth
in the field production underwriting organization enabling the
expansion of the Company's marketing efforts to non-profit
organizations, the health and fitness industry and selected
professional liability products; and continued favorable market
conditions for certain leasing products.
- - Overall premium growth has been offset in part by a continued decrease
in premiums from rental products due primarily to decreased pricing
levels which are currently being experienced as a result of market
competition. Consistent with the Company's conservative underwriting
and pricing guidelines the underwriting of certain rental products has
been curtailed. The Company does not anticipate an improvement in
these market conditions in the foreseeable future. Additionally,
there have been recent consolidations in the rental industry the
effect of which, if any, are not known at this time.
- - A revision in the Company's supplemental liability reinsurance
programs, in the third quarter of 1996 retroactive to January 1, 1996.
While this change increased by $1.3 million the written and earned
premiums the Company ceded in 1996, (and hence lowered new written and
earned premiums), an offsetting ceding commission which lowered
acquisition costs and other underwriting expenses was received by the
Company. A comparable supplemental liability reinsurance revision for
1995 occurred in the fourth quarter. The amount of this adjustment
which pertained to the nine months ended September 30, 1995
approximated $1.2 million. After consideration of this adjustment,
comparable net written and earned premium growth was 33.8% and 22.3%
respectively.
Net Investment Income: Net investment income approximated $5.8
million for the nine months ended September 30, 1996 and $4.7 million for the
same period of 1995. Total investments grew to $154.5 million at September 30,
1996 from $123.8 million at September 30, 1995, primarily due to cash flows
provided from operating activities.
8
<PAGE> 9
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(continued)
Net Realized Investments Gain: Net realized investment gains were
$235,000 for the nine months ended September 30, 1996 compared to $256,000 for
the same period of 1995.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $4.9 million (19.6%) to $29.9 million for the nine months
ended September 30, 1996 from $25.0 million for the same period of 1995 and the
Company's statutory loss ratio increased to 56.1% in 1996 from 55.8% in 1995.
However, if net earned premiums for the nine months ended September 30, 1995
were restated for the $1.2 million increase in ceded earned premiums due to the
retroactive change in the supplemental liability reinsurance programs (see
Premiums), the statutory loss ratio is 57.3% (see Acquisition Costs and Other
Underwriting Expenses). The increase in net loss and loss adjustment expenses
was due primarily to the growth (22.3% restated for retroactive reinsurance
change) in net earned premiums. Additionally, since there was relatively
higher net earned premium growth on products with low loss experience, the
percentage increase in net loss and loss adjustment expenses (19.6%) was lower
than the 22.3% (restated) net earned premium growth.
Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $2.9 million (20.7 %), to $16.9
million for the nine months ended September 30, 1996 from $14.0 million for the
same period of 1995. However, if acquisition costs and other underwriting
expenses for the nine months ended September 30, 1995 were restated for the
$1.2 million increase in ceding commissions due to the retroactive change in
the supplemental liability reinsurance programs (see Premiums), acquisition
costs and other underwriting expenses would have increased by 32.0%. The 32.0%
(restated) increase in acquisition costs and other underwriting expenses
exceeds the 22.3% (restated - See Premiums) net earned premium growth due to
increased commission expense as a result of the Company beginning to market its
niche underwriting to preferred and program brokers.
Other Operating Expenses: Other operating expenses decreased $991,000
(50.9%), to $956,000 for the nine months ended September 30, 1996 compared to
$1,947,000 for the same period of 1995 principally due to a greater portion of
expenses being attributable to acquisition costs and other underwriting
expenses.
Income Tax Expense: The Company's effective tax rates for the nine
months ended September 30, 1996 and 1995 were 22.0% and 20.0%, respectively.
The effective rates differed from the 34% statutory rate principally due to
investments in tax-exempt securities.
RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 30, 1996 VS SEPTEMBER 30,
1995)
Premiums: Gross written premiums grew $13.1 million (40.1%) to
$45.8 million for the three months ended September 30, 1996 from $32.7 million
for the same period of 1995; gross earned premiums grew $8.0 million (26.8%) to
$37.9 million for the three months ended September 30, 1996 from $29.9 million
for the same period of 1995; net written premiums increased $6.1 million
(30.8%) to $25.9 million for the three months ended September 30, 1996 from
$19.8 million for the same period of 1995; and net earned premiums grew $2.9
million (16.7%) to $20.3 million in 1996 from $17.4 million in 1995. The
overall changes in premiums for gross written, gross earned, net written and
net earned are attributable to a number of factors:
- - Overall premium growth is primarily attributable to: the growth in the
field production underwriting organization enabling the expansion of
the Company's marketing efforts to non-profit organizations, the
health and fitness industry and selected professional liability
products; and continued favorable market conditions for certain
leasing products.
- - Overall premium growth has been offset in part by a continued decrease
in premiums from rental products due primarily to decreased pricing
levels which are currently being experienced as a result of market
competition. Consistent with the Company's conservative underwriting
and pricing guidelines the underwriting of certain rental products has
been curtailed. The Company does not anticipate an improvement in
these market conditions in the foreseeable future.
9
<PAGE> 10
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(continued)
- - A revision in the Company's supplemental liability reinsurance
programs, in the third quarter of 1996 retroactive to January 1, 1996.
While this change increased by $1.3 million the written and earned
premiums the Company ceded in 1996, (and hence lowered new written and
earned premiums), an offsetting ceding commission which lowered
acquisition costs and other underwriting expenses was received by the
Company. Of this $1.3 million amount, $.4 million pertained to the
three months ended September 30, 1996. A comparable supplemental
liability reinsurance revision for 1995 occurred in the fourth
quarter. The amount of the adjustment which pertained to the three
months ended September 30, 1995 was $.7 million. After consideration
of this adjustment, comparable net written and earned premium growth
was 40.3% and 26.9% respectively.
Net Investment Income: Net investment income approximated $2.0
million for the three months ended September 30, 1996 and $1.7 million for the
same period of 1995. Total investments grew to $154.5 million at September 30,
1996 from $123.8 million at September 30, 1995, primarily due to cash flows
provided from operating activities.
Net Realized Investments Gain: Net realized investment gains were
$140,000 for the three months ended September 30, 1996 compared to $169,000 for
the same period of 1995.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $2.6 million (27.4%) to $12.1 million for the three months
ended September 30, 1996 from $9.5 million for the same period of 1995 and the
Company's statutory loss ratio increased to 59.6% in 1996 from 54.6% in 1995.
However, if net earned premiums for the respective periods were restated for
the increase in ceded earned premiums due to the retroactive change in the
supplemental liability reinsurance programs (see Premiums), the statutory loss
ratios are 57.1% and 57.2% for the three months ended September 30, 1996 and
1995, respectively (see Acquisition Costs and Other Underwriting Expenses).
The increase in net loss and loss adjustment expenses was due primarily to the
growth (26.9% restated for retroactive reinsurance change) in net earned
premiums.
Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $.1 million (1.7 %), to $5.9 million
for the three months ended September 30, 1996 from $5.8 million for the same
period of 1995. However, if acquisition costs and other underwriting expenses
for the respective periods were restated for the increase in ceding commissions
due to the retroactive change in the supplemental liability reinsurance
programs (see Premiums) applicable within the period, acquisition costs and
other underwriting expenses would have increased by 34.5%. The 34.5%
(restated) increase in acquisition costs and other underwriting expenses
exceeds the 26.9% (restated - See Premiums) net earned premium growth due to
increased commission expense as a result of the Company beginning to market its
niche underwriting to preferred and program brokers.
Other Operating Expenses: Other operating expenses decreased $525,000
(90.0%), to $58,000 for the three months ended September 30, 1996 compared to
$583,000 for the same period of 1995 principally due to a greater portion of
expenses being attributable to acquisition costs and other underwriting
expenses.
Income Tax Expense: The Company's effective tax rates for the three
months ended September 30, 1996 and 1995 were 22.8% and 20.0%, respectively.
The effective rates differed from the 34% statutory rate principally due to
investments in tax-exempt securities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996 the Company's investments
classified as available for sale experienced unrealized investment appreciation
of $.6 million, net of the related deferred tax expense of $.3 million. The
change in unrealized appreciation is primarily due to changes in market
interest rates during the period. At September 30, 1996, 100% of the Company's
fixed maturity securities consisted of U.S. Government securities or securities
rated "1" or "2" by the NAIC, 96.1% were rated "A-" or better (with no security
rated lower than "BBB-") by Standard & Poor's Corporation.
The Company produced net cash from operations of $26.6 million and
$16.3 million, respectively, for the nine months ended September 30, 1996 and
1995. Management believes that the Company has adequate ability to pay all
claims and meet all other cash needs.
10
<PAGE> 11
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(continued)
Risk-based capital is designed to measure the acceptable amount of
capital an insurer should have based on the inherent specific risks of each
insurer. Insurers failing to meet this benchmark capital level may be subject
to scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently adopted, the
Company's insurance subsidiaries' capital and surplus is in excess of the
prescribed risk-based capital requirements.
11
<PAGE> 12
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. Page No. Description
----------- -------- -----------
11 14 Computation of Earnings Per Share.
27 FINANCIAL DATA SCHEDULE
b. The Company has not filed any reports on Form 8-K during the
quarter for which this report is filed.
12
<PAGE> 13
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.
PHILADELPHIA CONSOLIDATED HOLDING CORP.
---------------------------------------
Registrant
Date November 12, 1996 /s/ James J. Maguire
----------------- --------------------------------------------------
James J. Maguire
Chairman of the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)
Date November 12, 1996 /s/ Craig P. Keller
------------------ --------------------------------------------------
Craig P. Keller
Vice President, Secretary and
Chief Financial Officer (Principal Financial
and Accounting Officer)
13
<PAGE> 1
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars and Share Data in Thousands, except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
As of and for the As of and for the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding 6,027 5,814 5,906 5,814
Weighted Average Stock Options Outstanding 1,801 1,602 1,882 1,599
Assumed Shares Repurchased (736) (534) (697) (614)
----- ----- ----- -----
Weighted Average Shares and Share
Equivalents Outstanding 7,092 6,882 7,091 6,799
===== ===== ===== =====
Net Income $3,462 $2,729 $9,234 $7,287
====== ====== ====== ======
Net Income per Share $0.49 $0.40 $1.30 $1.07
===== ===== ===== =====
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 132,142
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 22,323
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 154,465
<CASH> 11,949
<RECOVER-REINSURE> 1,329
<DEFERRED-ACQUISITION> 8,741
<TOTAL-ASSETS> 212,435
<POLICY-LOSSES> 92,848
<UNEARNED-PREMIUMS> 30,413
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 41,170
<OTHER-SE> 38,106
<TOTAL-LIABILITY-AND-EQUITY> 212,435
53,330
<INVESTMENT-INCOME> 5,772
<INVESTMENT-GAINS> 235
<OTHER-INCOME> 203
<BENEFITS> 29,883
<UNDERWRITING-AMORTIZATION> 16,863
<UNDERWRITING-OTHER> 956
<INCOME-PRETAX> 11,838
<INCOME-TAX> 2,604
<INCOME-CONTINUING> 9,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,234
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.29
<RESERVE-OPEN> 68,246<F1>
<PROVISION-CURRENT> 29,883
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 4,594
<PAYMENTS-PRIOR> 11,840
<RESERVE-CLOSE> 81,695
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES DIFFER FROM THE AMOUNTS REPORTED
IN THE CONSOLIDATED FINANCIAL STATEMENTS BECAUSE OF THE INCLUSION HEREIN OF
REINSURANCE RECEIVABLES OF $11,153 AND $9,440 AT SEPTEMBER 30, 1996 AND
DECEMBER 31, 1995.
</FN>
</TABLE>
