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 June 30, 1999
----------------
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 0-22316
---------
Penn-America Group, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2731409
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 South York Road, Hatboro, Pennsylvania 19040
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(Address of principal executive offices, including zip code)
(215) 443-3600
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(Registrant's telephone number, including area code)
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 other 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 ___.
At August 10, 1999, 8,489,411 shares of the registrant's common stock, $.01 par
value, were outstanding.
Page 1
<PAGE>
Penn-America Group, Inc. and SubsidiarIES
Index
Page Number
Part I - Financial Information
Consolidated Unaudited Balance Sheets - June 30, 1999 and
December 31, 1998 3
Consolidated Unaudited Statements of Earnings - For the three
and six months ended June 30, 1999 and 1998 4
Consolidated Unaudited Statement of Stockholders' Equity -
For the six months ended June 30, 1999 5
Consolidated Unaudited Statements of Cash Flows -
For the six months ended June 30, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II - Other Information 25
Page 2
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost 1999, $ 109,041 $ 105,598
$110,806; 1998, $103,365)
Held to maturity, at amortized cost (fair value 1999,
$21,623; 1998, $27,270) 21,632 26,956
Equity securities, at fair value (cost 1999, $26,667; 1998, $23,358) 26,913 25,238
Short-term investments, at cost, which approximates fair value -- 997
--------- ---------
Total investments 157,586 158,789
Cash 13,186 24,077
Receivables:
Accrued investment income 1,740 1,871
Premiums receivable, net 9,321 10,349
Reinsurance recoverable 17,811 18,766
--------- ---------
Total receivables 28,872 30,986
Prepaid reinsurance premiums 2,666 2,809
Deferred policy acquisition costs 9,084 8,728
Capital lease 1,884 2,051
Deferred income taxes 3,428 1,598
Income tax recoverable 174 884
Other assets 455 582
--------- ---------
Total assets $ 217,335 $ 230,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 86,902 $ 88,937
Unearned premiums 34,432 34,253
Accounts payable and accrued expenses 881 1,179
Capitalized lease obligation 1,889 2,080
Other liabilities 2,680 3,425
--------- ---------
Total liabilities 126,784 129,874
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,000,000 shares;
none issued -- --
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 1999, 9,990,436 and 1998, 9,938,179 shares, outstanding 1999,
8,489,411 and 1998, 9,395,854 shares 100 99
Additional paid-in capital 69,590 69,035
Accumulated other comprehensive (loss) income (1,002) 2,714
Retained earnings 38,284 34,779
Treasury stock, 1999, 1,501,025 shares, 1998, 542,325 shares, at cost (16,061) (5,643)
--------- ---------
90,911 100,984
Unearned compensation from restricted stock awards (360) (354)
--------- ---------
Total stockholders' equity 90,551 100,630
--------- ---------
Total liabilities and stockholders' equity $ 217,335 $ 230,504
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 3
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
For the three and six month periods ended June 30, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $21,359 $22,074 $42,820 $45,109
Net investment income 2,349 2,749 4,760 5,524
Net realized investment gains 682 477 1,238 443
------- ------- ------- -------
Total revenues 24,390 25,300 48,818 51,076
------- ------- ------- -------
Losses and expenses:
Losses and loss adjustment expenses 13,822 13,855 27,546 28,146
Amortization of deferred policy acquisition costs 6,087 6,054 12,240 12,424
Other underwriting expenses 1,431 1,779 2,884 3,173
Interest expense 36 45 73 89
------- ------- ------- -------
Total losses and expenses 21,376 21,733 42,743 43,832
------- ------- ------- -------
Earnings before income tax 3,014 3,567 6,075 7,244
Income tax 817 1,042 1,670 2,139
------- ------- ------- -------
Net earnings $ 2,197 $ 2,525 $ 4,405 $ 5,105
======= ======= ======= =======
Net earnings per share
Basic $ 0.25 $ 0.25 $ 0.50 $ 0.52
Diluted $ 0.25 $ 0.25 $ 0.49 $ 0.51
Weighted average number of shares outstanding
Basic 8,647 9,910 8,887 9,900
Diluted
8,724 10,018 8,965 10,012
Cash dividends per share $0.0525 $ 0.05 $0.1025 $ 0.10
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 4
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the six months ended June 30, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
Unearned
Compensation
Accumulated From
Common Stock Additional Other Restricted
------------------- Paid-In Comprehensive Retained Treasury Stock
Shares Amount Capital Income (Loss) Earnings Stock Awards Total
--------- ------- --------- ------------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 9,938,179 $99 $69,035 $2,714 $34,779 $(5,643) $(354) $100,630
Net earnings 4,405 4,405
Other comprehensive (loss)
income, net of tax:
Unrealized losses on investments,
net of reclassification adjustment (3,716) (3,716)
--------
Comprehensive income 689
--------
Issuance of common stock 52,257 1 464 465
Unearned compensation from restricted
stock awards 91 (91) --
Amortization of compensation expense from
restricted stock awards issued 85 85
Cash dividends paid ($0.1025 per share) (900) (900)
Purchase of treasury stock, 958,700 shares (10,418) (10,418)
----------------------------------------------------------------------------------------
Balance at June 30, 1999 9,990,436 $100 $69,590 $(1,002) $38,284 $(16,061) $(360) $90,551
========================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 5
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended June 30, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,405 $ 5,105
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Amortization and depreciation expense 311 296
Net realized investment gains (1,238) (443)
Deferred income tax 85 (342)
Net decrease in premiums receivable, prepaid reinsurance premiums
and unearned premiums 1,350 392
Net (decrease) increase in unpaid losses and loss adjustment expenses
and reinsurance recoverable (1,079) 2,833
(Increase) decrease in:
Accrued investment income 131 (209)
Deferred policy acquisition costs (356) (81)
Income tax recoverable 710 (266)
Other assets 64 (99)
Increase (decrease) in:
Accounts payable and accrued expenses (298) (1,599)
Other liabilities (745) 1,937
-------- --------
Net cash provided by operating activities 3,340 7,524
-------- --------
Cash flows from investing activities:
Purchases of equity securities (5,634) (11,739)
Purchases of fixed maturities available for sale (24,270) (38,890)
Purchases of fixed maturities held to maturity (2,100) --
Proceeds from sales of equity securities 3,520 11,790
Proceeds from sales and maturities of fixed maturities available for sale 16,921 15,080
Proceeds from maturities and calls of fixed maturities held to maturity 7,258 11,067
Change in short-term investments 997 9,382
-------- --------
Net cash used by investing activities (3,308) (3,310)
-------- --------
Cash flows from financing activities:
Issuance of common stock 465 633
Purchase of treasury stock (10,418) --
Principal payments on capital lease obligations (70) (65)
Dividends paid (900) (991)
-------- --------
Net cash used by financing activities (10,923) (423)
-------- --------
(Decrease) increase in cash (10,891) 3,791
Cash, beginning of period 24,077 2,163
-------- --------
Cash, end of period $ 13,186 $ 5,954
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 73 $ 89
Taxes 875 2,748
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 6
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Organization and Basis of Presentation
Penn-America Group, Inc. ("PAGI") is an insurance holding company whose
principal asset is the common stock of Penn-America Insurance Company
("Penn-America"). The "Company" refers to PAGI and Penn-America, as well as to
Penn-America's wholly-owned subsidiary, Penn-Star Insurance Company. Penn
Independent Corporation ("Penn Independent") currently owns approximately 36.3%
of the outstanding common stock of PAGI as of June 30, 1999.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the financial statements and notes for the year ended
December 31, 1998. In the opinion of management, the financial information
reflects all adjustments (consisting only of normal recurring adjustments),
which are necessary for a fair presentation of the Company's financial position,
results of operations, and cash flows for the interim periods. The Company's
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year.
Note 2 - Reinsurance
Premiums earned are net of amounts ceded to reinsurers of $1.8 million and
$1.9 million for the three months ended June 30, 1999 and June 30, 1998,
respectively. Losses and loss adjustment expenses are net of amounts ceded to
reinsurers of $3.5 million and $1.5 million for the three months ended June 30,
1999 and June 30, 1998, respectively.
Premiums earned are net of amounts ceded to reinsurers of $3.5 million and
$3.8 million for the six months ended June 30, 1999 and June 30, 1998,
respectively. Losses and loss adjustment expenses are net of amounts ceded to
reinsurers of $4.1 million and $3.2 million for the six months ended June 30,
1999 and June 30, 1998, respectively
Note 3 - Comprehensive Income
Accumulated other comprehensive (loss) income of the Company consists
solely of net unrealized (loss) gains on investment securities.
Page 7
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
The following are components of other comprehensive (loss) income (in
thousands):
<TABLE>
<CAPTION>
Six months ended June 30, 1999
-----------------------------------------
Before Tax Tax Net of Tax
Amount Expense Amount
-------- ------- -------
<S> <C> <C> <C>
Unrealized losses on investments:
Unrealized holding losses arising
during period $(4,392) $ 1,493 $(2,899)
Less: reclassification adjustment for
gains realized in net earnings (1,238) 421 (817)
--------------------------------------
Other comprehensive loss $(5,630) $ 1,914 $(3,716)
======================================
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1998
------------------------------------------
Before Tax Tax Net of Tax
Amount Expense Amount
------- -------- -------
<S> <C> <C> <C>
Unrealized gains on investments:
Unrealized holding gains arising
during period $ 684 $ (236) $ 448
Less: reclassification adjustment for
gains realized in net earnings (443) 153 (290)
--------------------------------------
Other comprehensive income $ 241 $ (83) $ 158
======================================
</TABLE>
For the three months ended June 30, 1999, comprehensive loss of $184,000
consisted of net income of $2,197,000 and other comprehensive loss of
$2,381,000.
Comprehensive income for the three and six months ended June 30, 1998 was
$2,226,000 and $5,263,000 which consisted of net income of $2,525,000 and
$5,105,000 and other comprehensive income (loss), net of tax of ($299,000) and
$158,000, respectively.
Page 8
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
Note 4 - Basic and Diluted Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS:
Net earnings $ 2,197 $ 2,525 $ 4,405 $ 5,105
------- ------- ------- -------
Weighted average common
shares outstanding 8,647 9,910 8,887 9,900
------- ------- ------- -------
Basic EPS $ 0.25 $ 0.25 $ 0.50 $ 0.52
======= ======= ======= =======
Diluted EPS:
Net earnings $ 2,197 $ 2,525 $ 4,405 $ 5,105
------- ------- ------- -------
Weighted average common
shares outstanding 8,647 9,910 8,887 9,900
Additional shares outstanding
after the assumed exercise
of options by applying the
treasury stock method 77 108 78 112
------- ------- ------- -------
Total weighted average common
shares outstanding 8,724 10,018 8,965 10,012
======= ======= ======= =======
Diluted EPS $ 0.25 $ 0.25 $ 0.49 $ 0.51
======= ======= ======= =======
</TABLE>
Page 9
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
Note 5- Segment Information
In 1998, the Company implemented Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
which establishes standards about a company's operating segments.
The Company has two reportable segments: personal automobile and commercial
lines. These segments are managed separately because they have different
customers, pricing and expense structures. The Company does not allocate assets
between segments because assets are reviewed in total by management for
decision-making purposes.
The accounting policies of the segments are the same as those more fully
described in the summary of significant accounting policies in the Company's
annual report. The Company evaluates segment profit based on profit or loss from
operating activities. Segments profits or losses from operations is pre-tax and
does not include unallocated expenses but does include investment income
attributable to insurance transactions. Segment profit or loss therefore
excludes federal income taxes, unallocated expenses and investment income
attributable to equity as opposed to investment income attributable to insurance
transactions.
As of June 30, 1999, the Company's insurance business comprised two
distinct segments: commercial lines, which represent approximately 84% of the
Company's gross written premiums for the six months ended June 30, 1999, and
minimum limits non-standard personal automobile insurance. The Company announced
in April 1999, that it would run-off its remaining portfolio of the personal
lines non-standard automobile business, which was underwritten through a single
agent in California. This followed a move earlier this year to eliminate the
rest of the Company's non-standard personal automobile portfolio of this
business in six other states.
The Company currently has one major customer accounting for more than 10%
of the Company's revenue. The Company derived approximately 10.7% and 18.8% of
its revenues from this agent for the three months ended June 30, 1999 and 1998,
respectively, and 11.8% and 20.1% of its revenues from this agent for the six
months ended June 30, 1999 and 1998, respectively. This major customer is the
agent who writes personal non-standard automobile coverage in the states of
California and Nevada that the Company is currently running off.
Page 10
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
The following is a summary of the Company's segment revenues, expenses and
profit for the three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands) Three months ended June 30, 1999
--------------------------------
Personal
Commercial Automobile Total
----------------------------------------
<S> <C> <C> <C>
Premiums earned $17,422 $ 3,937 $21,359
Net investment income from
insurance operations 1,326 233 1,559
----------------------------------------
Total segment revenues 18,748 4,170 22,918
----------------------------------------
Segment losses and LAE 10,575 3,247 13,822
Segment expenses 5,225 1,273 6,498
----------------------------------------
Total segment expenses 15,800 4,520 20,320
----------------------------------------
Segment profit (loss) $ 2,948 $ (350) $ 2,598
----------------------------------------
Plus unallocated items:
Net investment income from equity 1,472
Unallocated expenses (1,056)
Income tax (817)
---------
Net earnings $ 2,197
=========
(in thousands) Three months ended June 30, 1998
--------------------------------
Personal
Commercial Automobile Total
----------------------------------------
Premiums earned $ 15,513 $ 6,561 $ 22,074
Net investment income from
insurance operations 1,303 236 1,539
----------------------------------------
Total segment revenues 16,816 6,797 23,613
----------------------------------------
Segment losses and LAE 9,460 4,395 13,855
Segment expenses 4,839 2,200 7,039
----------------------------------------
Total segment expenses 14,299 6,595 20,894
----------------------------------------
Segment profit $ 2,517 $ 202 $ 2,719
----------------------------------------
Plus unallocated items:
Net investment income from equity 1,687
Unallocated expenses (839)
Income tax (1,042)
--------
Net earnings $ 2,525
========
</TABLE>
Page 11
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
The following is a summary of the Company's segment revenues, expenses and
profit for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands) Six months ended June 30, 1999
------------------------------------------
Personal
Commercial Automobile Total
------------------------------------------
<S> <C> <C> <C>
Premiums earned $ 34,035 $ 8,785 $ 42,820
Net investment income from
insurance operations 2,623 460 3,083
------------------------------------------
Total segment revenues 36,658 9,245 45,903
------------------------------------------
Segment losses and LAE 20,692 6,854 27,546
Segment expenses 10,226 2,849 13,075
------------------------------------------
Total segment expenses 30,918 9,703 40,621
------------------------------------------
Segment profit (loss) $ 5,740 $ (458) $ 5,282
------------------------------------------
Plus unallocated items:
Net investment income from equity 2,915
Unallocated expenses (2,122)
Income tax (1,670)
--------
Net earnings $ 4,405
========
(in thousands) Six months ended June 30, 1998
------------------------------------------
Personal
Commercial Automobile Total
------------------------------------------
Premiums earned $ 30,467 $ 14,642 $ 45,109
Net investment income from
insurance operations 2,284 523 2,807
------------------------------------------
Total segment revenues 32,751 15,165 47,916
------------------------------------------
Segment losses and LAE 18,573 9,573 28,146
Segment expenses 9,044 4,715 13,759
------------------------------------------
Total segment expenses 27,617 14,288 41,905
------------------------------------------
Segment profit $ 5,134 $ 877 $ 6,011
------------------------------------------
Plus unallocated items:
Net investment income from equity 3,160
Unallocated expenses (1,927)
Income tax (2,139)
--------
Net earnings $ 5,105
========
</TABLE>
Page 12
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended June 30, 1999 and 1998
Premiums earned decreased 3.2% to $21.4 million for the three months ended
June 30, 1999 from $22.1 million for the three months ended June 30, 1998, due
to a 40.0% decline in non-standard personal lines automobile premiums earned
caused by the run off of personal lines as discussed below, partially offset by
an 12.3% increase in commercial premiums earned.
Gross written premiums increased 1.6% for the three months ended June 30,
1999 to $24.4 million compared to $24.0 million in 1998; net written premiums
increased 0.7% for the three months ended June 30, 1999 to $22.4 million
compared to $22.2 million in 1998.
Net investment income decreased 14.5% to $2.3 million for the three months
ended June 30, 1999, from $2.7 million for the three months ended June 30, 1998.
This decrease resulted principally from an overall decline in invested assets,
an increased investment in tax-exempt municipal securities, the participation of
the Company in its stock repurchase program, and a decrease in tax equivalent
investment yields from 6.58% as of June 30, 1998 to 6.19% as of June 30, 1999.
The decline in invested assets is due to capital used to purchase treasury stock
and the overall decline in net written premiums. Investment in tax-exempt
municipal securities increased 45.7% to $38.3 million in the second quarter of
1999 compared to $26.3 million in the same quarter of 1998.
Losses and loss adjustment expenses decreased to $13.8 million for the
three months ended June 30, 1999, from $13.9 million for the three months ended
June 30, 1998. The decrease was due to a decline in net premiums earned,
partially offset by an increase in the non-standard personal automobile lines
loss ratio, which increased to 82.5% for the second quarter of 1999, compared to
67.0% for 1998. The commercial lines loss ratio decreased to 60.7% in the second
quarter of 1999, compared to 61.0% in 1998.
Amortization of deferred policy acquisition costs was $6.1 million for both
the three months ended June 30, 1999 and 1998. Despite the decline in net earned
premiums, amortization of deferred acquisition costs, as a percentage of earned
premium, increased slightly, primarily due to an increase in commission rates
for commercial business from 20% to 22%.
Other underwriting expenses decreased 19.6% to $1.4 million for the three
months ended June 30, 1999 compared to $1.8 million in for the same period in
1998, primarily due to certain non-recurring expenses incurred in the second
quarter of 1998.
Page 13
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
The overall statutory combined ratio for the Company increased to 98.5% for
the three months ended June 30, 1999, from 96.9% for the three months ended June
30, 1998, primarily due to the increase in the loss ratio to 64.7% in 1999,
compared to 62.8% in 1998. The increase in the loss ratio is primarily due to
the non-standard personal automobile loss ratio, which was 82.5% in 1999,
compared to 67.0% in 1998. The expense ratio declined to 33.8% for the three
months ended June 30, 1999, compared to 34.1% for the three months ended June
30, 1998.
As a result of the factors described above, the Company's net income for
the three months ended June 30, 1999 decreased 13.0% to $2.2 million or $0.25
per share (basic and diluted), from $2.5 million or $0.25 per share (basic and
diluted) for the three months ended June 30, 1998. Per share amounts for the
three months ended June 30, 1999 are based on weighted averages shares
outstanding of 8,647,000 (basic) and 8,724,000 (diluted). Per share amounts for
the three months ended June 30, 1998 are based on weighted average shares
outstanding of 9,910,000 (basic) and 10,018,000 (diluted).
Commercial Lines
Premiums earned for commercial lines increased 12.3% to $17.4 million for
the second quarter of 1999, compared to $15.5 million for the same period in
1998. The increase is primarily attributable to the growth in gross written
premiums, which increased 15.5% to $21.5 million compared with $18.6 million for
the second quarter of 1998. Net written premiums increased 15.5% to $19.5
million compared with $16.9 million in 1998.
Investment income from insurance operations was $1.3 million for both the
second quarters of 1999 and 1998.
Incurred losses and loss adjustment expenses increased 11.8% to $10.6
million for the second quarter of 1999 compared to $9.5 million in the second
quarter of 1998. The increase is primarily attributable to the growth of net
earned premiums as the loss and loss adjustment expense ratio improved to 60.7%
in 1999, compared to 61.0% in 1998.
Underwriting expenses allocated to commercial lines increased 8.0% to $5.2
million for the second quarter of 1999 compared to $4.8 million in 1998,
primarily due to the increase in net earned premiums in commercial lines,
partially offset by a decline in the commercial segment expense ratio to 30.0%
in 1999 from 31.2% in 1998.
As a result of the factors described above, the commercial lines segment
profit increased 17.1% to $2.9 million for the second quarter of 1999, compared
to $2.5 million for the second quarter of 1998.
14
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Non-Standard Personal Automobile Lines
Premiums earned for non-standard personal automobile lines decreased 40.0%
to $3.9 million for the second quarter of 1999 compared to $6.6 million for the
same period in 1998. The decrease is primarily attributable to the 46.4% decline
in gross written premiums in the second quarter of 1999 to $2.9 million compared
with $5.4 million for the same quarter in 1998. Net written premiums decreased
46.1% to $2.9 million compared with $5.4 million in 1998. The decrease was due
to actions taken by the Company to run-off its entire non-standard personal
automobile portfolio.
Investment income from insurance operations was $233,000 for the second
quarter of 1999, compared to $236,000 for the second quarter of 1998.
Incurred losses and loss adjustment expenses declined 26.1% to $3.2 million
for the second quarter of 1999 compared to $4.4 million in the second quarter of
1998. The decrease was less than the decrease in net earned premiums due to an
increase in the loss ratio to 82.5% for the second quarter of 1999 compared to
67.0% for the second quarter of 1998. The increase in the loss ratio is
attributed to unfavorable development in the current and prior accident years.
Underwriting expenses allocated to non-standard personal automobile lines
decreased 42.1% to $1.3 million for the second quarter of 1999 compared to $2.2
million in 1998, primarily due to the decline in net earned premiums in
non-standard personal automobile lines.
As a result of the factors described above, the non-standard personal
automobile segment recorded a loss of $350,000 in the second quarter of 1999,
compared to a $202,000 profit in the second quarter of 1998.
Six Months Ended June 30, 1999 and 1998
Premiums earned decreased 5.1% to $42.8 million for the six months ended
June 30, 1999 from $45.1 million for the six months ended June 30, 1998, due to
a 40.0% decline in non-standard personal lines automobile premiums earned,
partially offset by an 11.7% increase in commercial premiums earned.
Gross written premiums decreased 4.3% for the six months ended June 30,
1999 to $46.5 million compared to $48.6 million in 1998; net written premiums
decreased 4.1% for the six months ended June 30, 1999 to $43.1 million compared
to $45.0 million in 1998.
Net investment income decreased 13.8% to $4.8 million for the six months
ended June 30, 1999, from $5.5 million for the six months ended June 30, 1998.
This decrease resulted principally from an overall decline in invested assets,
an increased investment in tax-exempt municipal securities and a decrease in tax
Page 15
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
equivalent investment yields from 6.58% as of June 30, 1998 to 6.19% as of June
30, 1999. The decline in invested assets is due to capital used to purchase
treasury stock and the overall decline in written premiums.
Losses and loss adjustment expenses decreased 2.1% to $27.5 million for the
six months ended June 30, 1999, from $28.1 million for the six months ended June
30, 1998. The decrease was due to a decline in net premiums earned, partially
offset by an increase in the personal lines loss ratio, which increased to 78.0%
for the six months ended June 30, 1999, compared to 65.4 % for the same period
in 1998. The commercial lines loss ratio decreased to 60.7% in the six month
period in 1999, compared to 61.0% in the same period in 1998.
Amortization of deferred policy acquisition costs decreased 1.5% to $12.2
million for the six months ended June 30, 1999, compared to $12.4 million for
the six months ended June 30, 1998, primarily due a decline in net earned
premiums and partially offset by an increase in commission rates for commercial
business from 20% to 22%.
The overall statutory combined ratio for the Company increased to 98.7% for
the six months ended June 30, 1999, from 95.8% for the six months ended June 30,
1998, primarily due to the increase in the loss ratio to 64.3% in 1999, compared
to 62.4% in 1998. The increase in the loss ratio is primarily due to the
non-standard personal automobile loss ratio, which was 78.0% in 1999, compared
to 65.4% in 1998. The expense ratio increased to 34.4% for the six months ended
June 30, 1999, compared to 33.4% for the six months ended June 30, 1998.
As a result of the factors described above, the Company's net income for
the six months ended June 30, 1999 decreased 13.7% to $4.4 million or $0.50 per
share (basic) and $0.49 per share (diluted), from $5.1 million or $0.52 per
share (basic) and $0.51 per share (diluted) for the six months ended June 30,
1998. Per share amounts for the six months ended June 30, 1999 are based on
weighted averages shares outstanding of 8,887,000 (basic) and 8,965,000
(diluted). Per share amounts for the six months ended June 30, 1998 are based on
weighted average shares outstanding of 9,900,000 (basic) and 10,012,000
(diluted).
Commercial Lines
Premiums earned for commercial lines increased 11.7% to $34.0 million for
the six months ended June 30, 1999, compared to $30.5 million for the same
period in 1998. The increase is primarily attributable to the growth in gross
written premiums, which increased 9.6% to $39.2 million compared with $35.7
million for the six months ended June 30, 1998. Net written premiums increased
11.3% to $35.8 million compared with $32.2 million in 1998. Net premiums written
for the six months ended June 30, 1999 increased more significantly than gross
premiums. This is primarily due to an increase in the Company's retention on its
casualty excess of loss reinsurance treaty from limits of $500,000 to $1 million
Page 16
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
effective January 1, 1999. This was partially offset by growth in the commercial
automobile liability lines where retention is primarily at $100,000. Effective
July 1, 1999, the Company amended the casualty excess of loss reinsurance treaty
to return to a retention of $500,000. The Company accounted for the casualty
unearned premium retention change on July 1, 1999 as an unearned transfer to its
reinsurer.
Investment income from insurance operations increased 14.8% to $2.6 million
for the six months ended June 30, 1999, compared to $2.3 million for the six
months ended June 30, 1998.
Incurred losses and loss adjustment expenses increased 11.4% to $20.7
million for the six months ended June 30, 1999 compared to $18.6 million for the
six months ended June 30, 1998. The increase is primarily attributable to the
growth of net earned premiums as the loss and loss adjustment expense ratio
improved to 60.8% in 1999, compared to 61.0% in 1998.
Underwiting expenses allocated to commercial lines increased 13.1% to $10.2
million for the six months ended June 30, 1999 compared to $9.0 million in the
same period of 1998, primarily due to the increase in net earned premiums. The
commercial segment expense ratio was 30.0% for the six months ended June 30,
1999 compared to 29.7% in the same period in 1998.
As a result of the factors described above, the commercial lines segment
profit increased 11.8% to $5.7 million for the six months ended June 30, 1999,
compared to $5.1 million in the same period of 1998.
Non-Standard Personal Automobile Lines
Premiums earned for non-standard personal automobile lines decreased 40.0%
to $8.8 million for the six months ended June 30, 1999 compared to $14.6 million
for the same period in 1998. The decrease is primarily attributable to the 42.9%
decline in gross written premiums for the six months ended June 30, 1999 to $7.3
million compared with $12.9 million for the same period in 1998. Net written
premiums decreased 42.9% to $7.3 million compared with $12.8 million in 1998.
The decrease was due to actions taken by the Company to run-off its entire
non-standard personal automobile portfolio.
Investment income from insurance operations was $460,000 for the six months
ended June 30, 1999, compared to $523,000 for the six months ended June 30,
1998.
Incurred losses and loss adjustment expenses declined 28.4% to $6.9 million
for the six months ended June 30, 1999 compared to $9.6 million in the six
months ended June 30, 1998.
Page 17
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
The increase is primarily attributable to the decline of the non-standard
personal automobile lines net earned premiums offset by an increase in the loss
and loss adjustment expense ratio to 78.0% for the six months ended June 30,
1999 compared to 65.4% for the six months ended June 30, 1998. The increase in
the loss ratio is attributed to unfavorable development in the current and prior
accident years.
Underwriting expenses allocated to non-standard personal automobile lines
decreased 39.6% to $2.8 million for the six months ended June 30, 1999 compared
to $4.7 million for the six months ended June 30, 1998, primarily due to the
decline in net earned premiums in non-standard personal automobile lines.
As a result of the factors described above, the non-standard personal
automobile segment recorded a loss of $458,000 for the six months ended June 30,
1999, compared to a segment profit of $877,000 for the six months ended June 30,
1998.
Liquidity and Capital Resources
PAGI is a holding company, the principal asset of which is the common stock
of Penn-America. PAGI's cash flows depend primarily on dividends and other
payments from Penn-America and its subsidiary, Penn-Star. PAGI uses these funds
to pay (i) operating expenses, (ii) taxes and other payments, and (iii)
dividends to PAGI stockholders. Penn-America's source of funds consists
primarily of premiums, investment income and proceeds from sales and redemptions
of investments. Funds are used by Penn-America and Penn-Star principally to pay
claims and operating expenses, to purchase investments and to make dividend and
other payments to PAGI.
Net cash provided by operating activities decreased to $3.3 million for the
six months ended June 30, 1999, from $7.5 million for the six months ended June
30, 1998, due primarily to the decline in non-standard personal lines automobile
gross written premiums in 1999.
Net cash used by investing activities was $3.3 million for both the six
months periods ended June 30, 1999 and 1998.
Net cash used by financing activities was $10.9 million for the six months
ended June 30, 1999, compared to $423,000 for the same period in 1998. The
principal reason for the use of cash by financing activities was the purchase of
958,700 shares of treasury stock totaling $10.4 million for the six months ended
June 30, 1999. The Company announced a corporate stock buy-back program in July
1998. On April 28, 1999, the Board of Directors had authorized the repurchase of
Page 18
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
up to two million shares. As of June 30, 1999, the Company has acquired 1.5
million shares at an average cost of $10.70 per share. The funding for the
treasury stock program has been primarily provided by dividends from the
Company's insurance subsidiary, Penn-America Insurance Company. For the six
months ended June 30, 1999, Penn-America Insurance Company paid dividends of
$10.5 million to the Company. As a result of the dividends paid by Penn-America
to the Company, its statutory surplus as of June 30, 1999 decreased to $77.8
million from $87.2 million as of June 30, 1998.
The Company believes that it has sufficient liquidity to meet its
anticipated insurance obligations and operating and capital expenditure needs.
The Company's investment strategy emphasizes quality, liquidity and
diversification, as well as total return. With respect to liquidity, the Company
considers liability durations, specifically related to loss reserves, when
determining desired investment maturities. In addition, maturities have been
staggered to produce cash flows for loss payments and reinvestment
opportunities. The average duration of the fixed maturity portfolio as of June
30, 1999 was approximately 3.8 years.
The Company's fixed maturity portfolio of $130.7 million was 83% of the
total investment portfolio as of June 30, 1999. Approximately 99% of these
securities were rated "A-" or better by Standard & Poor's or Moody's. Equities,
the majority of which consist of preferred stocks, were $26.9 million or 17% of
total investments as of June 30, 1999.
As of June 30, 1999, the investment portfolio contained $20.1 million of
mortgage/ asset-backed obligations, which represents 12.8% of the total
investments as of June 30, 1999. All of these securities are "AAA" rated
securities issued by government, government-related agencies or publicly held
corporations, are publicly traded, and have market values obtained from an
independent pricing service. Changes in estimated cash flows due to changes in
prepayment assumptions from the original purchase assumptions are revised based
on current interest rates and the economic environment. The Company had no other
derivative financial instruments, real estate or mortgages in the investment
portfolio as of June 30, 1999.
In 1999, the Company engaged a third asset manager, Madison Monroe, Inc.,
to invest $10,000,000 of its investment portfolio. As of June 30, 1999,
approximately $8.8 million was invested in U.S. Treasury strip bonds. One of the
principals of Madison Monroe is a party related to the controlling shareholder
of the Company.
The principal source of cash for the payment of dividends to PAGI's
stockholders is dividends from Penn-America Insurance Company and its
subsidiary, Penn-Star Insurance Company. Penn-America is required by law to
maintain a certain minimum surplus on a statutory basis and is subject to
risk-based capital requirements and regulations under which payment of dividends
from statutory surplus may require prior approval from the Pennsylvania
Page 19
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
regulatory authorities. The maximum dividend that may be paid in 1999 by
Penn-America to PAGI without prior approval of regulatory authorities is
$9,455,000. For the twelve-month period ended June 30, 1999, Penn-America had
paid regular dividends of $9,455,000 and had obtained approval from the
Pennsylvania Insurance Department to pay extraordinary dividends of $6,745,000.
These dividends were used to fund the Company's stock repurchase program and
operating expenses of the Company.
The Year 2000
Introduction
The "Year 2000", or Y2K, refers to the problems that automated systems
could encounter as the year 2000 approaches due to computers' or other
electronic devices' inability to register the year 2000 correctly, rather than
as the year 1900. In this regard, the Company relies on its existing information
technology systems ("IT systems") to operate and to monitor all major aspects of
the Company's business, including underwriting, claims and various financial
systems. The Company also relies, to a lesser extent, on the IT systems of its
general agents and, indirectly, on those of the producing retail insurance
brokers. Finally, the Company relies on certain critical non-information
technology systems ("non-IT systems"), such as electricity, telephones,
facsimile machines, heating and air-conditioning and fire protection systems.
Any disruption in the operation of the IT and non-IT systems of either the
Company or any of its critical customers, vendors or suppliers could have a
material adverse effect on the Company's business, results of operations or
financial condition.
State of Readiness
IT systems: In an effort to remediate the problems associated with the Year
2000, the Company, in 1996, evaluated all its computer codes to determine what
software programs would be affected by date-sensitive fields. After this
identification process was completed, the Company hired an outside vendor to
implement the recoding that was required. In July 1997, the Company successfully
ran its second trial of all the revised programs. Based upon testing to date,
the Company believes that its programs are Year 2000 compliant. The Company,
however, continues to run periodic tests to make sure the programs will function
properly. The next series of tests are scheduled to be run at the end of the
third quarter of 1999. As of June 30, 1999, approximately 30,000 policies have
been successfully processed as new policies and renewals with an expiration date
of January 1, 2000 or after.
The Company's IT systems have also been tested against hypothetical
information supplied by its general agents. The IT systems currently are able to
read properly the information provided. Assuming the general agents don't alter
Page 20
<PAGE>
their records, the Company reasonably believes that its IT systems will function
properly. To the extent the general agents' records change, the Company requires
that the agents provide notice.
The Company's management information systems rely primarily on an
integrated property-casualty software package that is processed on an IBM AS/400
computer system. The system is leased from IBM and kept current or near current
in both hardware and operating systems. The IBM AS/400 model hardware was
upgraded in the fourth quarter of 1998 to the latest processor platform. The
AS/400 software was most recently upgraded in the second quarter of 1999, which
is software reported by IBM to be fully compliant with Year 2000.
The Company uses a Microsoft NT 4.0 Server to connect all employees to the
computer system. The LAN is reported to be Year 2000 compliant. The LAN is used
primarily for "service" applications including word processing, spreadsheets and
E-mail. The majority of the LAN-based applications are Microsoft products and
are current or near current in their software releases.
The LAN also consists of personal computers ("PCs") that are attached to a
series of servers. All PCs have been tested and correctly recognize the Year
2000. The IT Department of the Company supports an Internet web site and various
stand-alone third party PC software applications. These packages were assessed
for any Year 2000 problems and testing of these packages were completed in June
1999. The IT Department also supports IPPS, a document management software
package developed by DocuCorp, which is used by the majority of general agents
to produce Penn-America policies. FormMaker has been tested and, in its current
release, is reported by DocuCorp to be Year 2000 compliant.
Non-IT systems: The Company has identified, and relies on, the following
non-IT systems in its daily operations: telephones, voicemail, facsimile
machines and heating and air conditioning and fire protection systems. The
telephone system was tested as compliant. The voicemail system was identified as
non-compliant and was replaced with a compliant system in September 1998. The
heating and air conditioning systems have been tested and are compliant. The
Company has been informed that all of the remaining systems will not be affected
by the Year 2000 and the Company has received written confirmation to this
effect.
The Company continues to respond to requests for information from
customers, suppliers and vendors with whom the Company does business, including
various departments of insurance. The Company was recently informed of a Year
2000 compliance examination by the Insurance Department of Pennsylvania, the
Company's state of domicile, which should be completed by the Department during
the third quarter of 1999.
Page 21
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Key Customers, Suppliers and Vendors: As part of its remediation plan, the
Company is analyzing the Year 2000 readiness of the Company's critical outside
customers (including general agents), vendors and suppliers. Each department of
the Company was asked to identify key customers, suppliers and vendors with whom
the Company has an interdependent, material business relationship. In September
1998, the Company sent approximately 188 surveys to those identified
customers/suppliers/vendors to ask them: to provide the current status of their
Y2K plan; whether they will be compliant; and what plans they have in place in
the event they will not be compliant. Of the 188 surveys sent out, 100 were
returned with responses indicating that the recipients were or would be
compliant, 88 did not respond. In December 1998, the Company sent out a second
request for information to those who had not yet responded and for newly
identified critical customers, suppliers and vendors. As of April 30, 1999, the
responses were as follows: 55 indicated that they were compliant; 112 indicated
that they would be compliant before January 1, 2000; and 24 have yet to respond.
In June 1999, the Company sent out a third request for those 18 questionnaires
that the Company had not received any response. Of the 18 sent, 7 responded, 3
compliant and 4 to be compliant by December 31, 1999. Additionally, 75 follow-up
letters were sent to respondents who had previously indicated that they would be
compliant. Of the 23 responses as of June 30, 1999, 10 are now compliant and 13
will be compliant by December 31, 1999.
Despite all the procedures the Company has in place, there can be no
guarantee that the systems of other companies on which the Company's business
relies will be converted in a timely fashion, or that failure to convert by
another company or a conversion that is incompatible with the Company's systems
will not have a materially adverse effect on the Company and its operations.
Cost
The Company incurred costs of approximately $60,000 to recode its internal
programs. The costs were incurred by the Company to test significant insurance
hardware and software that the Company believes are compliant. These costs are
and will be minimal as these costs are built into the Company's standard
disaster recovery testing program. The current standard testing costs
approximately $28,000 per year. The Company does not separately track the
internal costs incurred for the Y2K project. Such costs are related primarily to
payroll costs for the Company's information technology personnel. The Company
also incurred an additional $13,000 to upgrade its voicemail system. Additional
expenses may arise during 1999. Management believes that at this time these
costs, including the estimated cost associated with the Pennsylvania Insurance
Department Y2K audit, will approximate $50,000 to $60,000.
Page 22
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Risks
The risks associated with the Company's inability to resolve all Year 2000
issues include the possibility of system failures or miscalculations causing
disruption in operations including, among other things, an inability to process
transactions, to send invoices, to send or to receive E-mail and voicemail, or
conduct similar normal business activities. Additionally, failure of third
parties upon whom the Company's business relies to remediate their Year 2000
problems in a timely fashion could result in disruption in the receipt and
processing of insurance policies, claims, payment of receivables and general
problems related to the Company's daily operations. If any of these
contingencies were to occur, the disruption in business could be temporary or
permanent, depending on the degree of failure. Until the Company receives
responses from all of the Company's agents and suppliers, the overall risks
associated with the Year 2000 remain difficult to describe accurately and to
quantify; and there can be no guarantee that the Year 2000 issue will not have a
material adverse effect on the Company and its operations.
If the Company and its business partners do not solve the Year 2000
problem, the Company could face business disruption, operational problems,
financial losses, legal liability and similar risks to the business. These risks
could have a material adverse impact on the Company.
Additionally, the Company may be exposed to insurance risk related to Y2K
exposures of its insureds. In order to mitigate this risk, the Company generally
began endorsing applicable new and renewal policies with effective dates after
November 1, 1998 with an exclusion endorsement. This endorsement excludes Y2K
computer and related electronic exposures by using the standard industry
exclusion. Certain states, however, may not accept this exclusion in all cases.
Contingency Plan
The Company has completed a second draft of a Year 2000 Contingency Plan
and anticipates having a final draft of the plan in place by the fourth quarter
of 1999. In the meantime, the Company maintains a Disaster Recovery Plan to
address various potential business interruptions.
The current Disaster Recovery Plan addresses the availability and
compatibility of hardware offsite that could be placed into action by the
Company. In September 1998, the Company tested the offsite facility and the
operation of significant insurance software that had been made Year 2000
compliant, as well as the operation of the offsite hardware. Under these test
Page 23
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
conditions, all dates were rolled forward to January 1, 2000. The test results
indicated that the Company's significant insurance-related software is
compliant.
The testing facility has indicated that the majority of its hardware and
equipment is fully compliant as of December 1998. The testing facility
previously noted that it would not upgrade certain of its systems until the
second quarter of 1999 so as to afford all subscribers an opportunity to upgrade
their systems. The Company recently followed up with the testing facility on its
system upgrades to see where they stand. The testing facility is also available
if electric, heat, water, telephones and office space should be required.
The foregoing is a "Year 2000 Readiness Disclosure" pursuant to the Year
2000 Readiness Disclosure Act. Readers are cautioned that forward-looking
statements contained in the Year 2000 disclosure contained herein should be read
in conjunction with the Company's disclosure titled "Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995". Forward-looking
statements include, but are not limited to, whether the Company will complete
its remediation and testing in a timely fashion, whether remediation will cost
more than anticipated, the impact of redeploying staff and the effect of third
parties on the Company's ability to function after the century date change.
New Accounting Standards
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued and
established standards for accounting and reporting of derivative instruments and
hedging activities. The statement as amended by SFAS No. 137 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is in the process of determining the effect, if any, of this statement on its
financial statements.
Page 24
<PAGE>
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote by Security Holders - (See Attached)
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
Page 25
<PAGE>
PART II, ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Shareholders of Penn-America Group, Inc. was held
on May 19, 1999 (the "Annual Meeting" or "Meeting"), with the following results:
The total number of shares represented at the Annual Meeting in person or
by proxy was 7,747,090 of the 8,736,201 share of common stock outstanding and
entitled to vote at the meeting.
On the proposal to elect Irvin Saltzman, Jon S. Saltzman, James E. Heerin,
Jr., Robert A. Lear, Jami Saltzman-Levy, M. Moshe Porat, Charles Ellman, Paul
Simon and Thomas Spiro as Directors to serve until the 2000 Annual Meeting and
until their successors are duly elected and qualified, the nominees for Director
received the number of votes set forth opposite their respective names.
Number of Votes
For Withheld
Irvin Saltzman 7,585,112 161,978
Jon S. Saltzman 7,586,112 160,978
James E. Heerin, Jr 7,586,112 160,978
Robert A. Lear 7,586,112 160,978
Jami Saltzman-Levy 7,586,112 160,978
M. Moshe Porat 7,626,112 120,978
Charles Ellman 7,586,112 160,978
Paul Simon 7,626,112 120,978
Thomas M. Spiro 7,626,112 120,978
There were no broker non-votes recorded. On the basis of the above vote,
Irvin Saltzman, Jon S. Saltzman, James E. Heerin, Jr., Robert A. Lear, Jami
Saltzman-Levy, M. Moshe Porat, Charles Ellman, Paul Simon and Thomas Spiro were
elected as Directors to serve until the 2000 Annual Meeting and until their
respective successors are duly elected and qualified. Subsequent to the May 19,
1999 Annual Shareholders Meeting, Mr. James E. Heerin and Mr. Thomas M. Spiro
resigned from the Board due to other business commitments. The nominating
committee of the Board of Directors will seek replacements for both directors in
the future.
Page 26
<PAGE>
SIGNATURE
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.
Penn-America Group, Inc.
Date: August 10, 1999 By: /s/ Jon S. Saltzman
--------------------------
Jon S. Saltzman
President and
Chief Executive Officer
By: /s/ Rosemary R. Ferrero
--------------------------
Rosemary R. Ferrero
Principal Finance and
Accounting Officer
Page 27
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statement of Earnings at June 30, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 109,041
<DEBT-CARRYING-VALUE> 21,632
<DEBT-MARKET-VALUE> 0
<EQUITIES> 26,913
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 157,586
<CASH> 13,186
<RECOVER-REINSURE> 17,811
<DEFERRED-ACQUISITION> 9,084
<TOTAL-ASSETS> 217,335
<POLICY-LOSSES> 86,902
<UNEARNED-PREMIUMS> 34,432
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 100
<OTHER-SE> 90,451
<TOTAL-LIABILITY-AND-EQUITY> 217,335
42,820
<INVESTMENT-INCOME> 4,760
<INVESTMENT-GAINS> 1,238
<OTHER-INCOME> 0
<BENEFITS> 27,546
<UNDERWRITING-AMORTIZATION> 12,240
<UNDERWRITING-OTHER> 2,884
<INCOME-PRETAX> 6,075
<INCOME-TAX> 1,670
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,405
<EPS-BASIC> .50
<EPS-DILUTED> .49
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
