<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-24800
THE TENERE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Missouri 43-1675969
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1903 E. Battlefield, Springfield, MO 65804
(Address of principal executive offices) (Zip code)
417-889-1010
(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 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
---------- -----------
As of March 31, 1996 there were 1,999,774 shares of Common Stock, $.01 par
value, issued and outstanding.
<PAGE> 2
TENERE GROUP, INC.
PAGE NO.
--------
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
Three Months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16-17
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE TENERE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
---- ----
<S> <C> <C>
Investments:
Bonds held to maturity, at amortized cost
(market - $1,834,151 in 1996; $1,854,359 in 1995) $ 1,858,265 $ 1,867,111
Bonds held available for sale, at market value (amortized cost -
$21,818,818 in 1996; $19,961,424 in 1995) 21,740,205 20,536,518
Common stock 340 340
----------- -----------
Total investments 23,598,810 22,403,969
Other assets:
Cash and cash equivalents, including interest-bearing
deposits of $27,875,893 and $29,614,311 in 1996 and 1995,
respectively 27,593,076 31,180,925
Premiums receivable 2,926,700 3,720,202
Reinsurance recoverable 1,609,851 1,162,495
Prepaid reinsurance premiums 832,314 1,175,252
Accrued investment income 448,311 567,306
Deferred policy acquisition costs 94,957 140,450
Deferred income taxes 2,065,734 1,772,314
Reinsurance premium recoverable 517,845 -
Other 902,412 491,101
----------- -----------
Total other assets 36,991,200 40,210,045
----------- -----------
Total assets $60,590,010 $62,614,014
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Liabilities:
Reserve for losses and loss adjustment expenses $26,531,559 $26,623,138
Unearned premium reserve 9,173,204 10,447,006
Reinsurance premium payable - 137,878
Policyholder dividends payable 44,872 152,042
Income taxes payable 152,359 214,444
Other 408,329 502,228
----------- -----------
Total liabilities 36,310,323 38,076,736
Stockholders' equity:
Common stock, $.01 par value; 7,000,000 authorized shares,
1,999,774 issued and outstanding 19,998 19,998
Gross paid in and contributed capital 21,940,828 21,940,828
Retained earnings 2,318,861 2,576,452
----------- -----------
Total stockholders' equity 24,279,687 24,537,278
----------- -----------
$60,590,010 $62,614,014
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
THE TENERE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Direct premiums written $ 1,529,668 $ 1,455,629
Premiums ceded to reinsurers 490,032 458,867
----------- -----------
Net premiums written 1,039,636 996,762
Decrease in unearned premium reserve 1,248,639 1,625,174
----------- -----------
Net premiums earned 2,288,275 2,621,936
Net investment income 699,752 615,591
Net realized investment gains - 22,129
Other income 1,110 337
----------- -----------
Total revenues 2,989,137 3,259,993
Expenses:
Sales and marketing expenses 316,330 260,156
Other underwriting expenses 519,415 400,195
Loss and loss adjustment expenses 1,900,072 1,977,338
Dividends to policyholders (10,733) 156,020
----------- -----------
Total losses and expenses 2,725,084 2,793,709
----------- -----------
Income before income taxes 264,053 466,284
Income tax expense 90,196 153,320
----------- -----------
Net Income $ 173,857 $ 312,964
=========== ===========
Net Income Per Share $ 0.09 $ N.A.
=========== ===========
Stockholders' equity:
Beginning of period $24,537,278 $19,368,556
Change in unrealized investment gains (losses) (431,448) 946,958
Net income 173,857 312,964
----------- -----------
End of period $24,279,687 $20,628,478
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
THE TENERE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income $ 173,857 $ 312,964
Adjustments to reconcile net income to net cash
provided by operating activities:
Net realized investment gains - (22,129)
Depreciation and amortization expense 40,092 38,024
Amortization of deferred acquisition costs 45,494 46,299
Deferred income taxes (benefit) (71,161) 264,673
Net amortization of discount on bonds 33,619 153,865
Change in operating assets and liabilities:
Premiums receivable 793,502 1,037,669
Reinsurance balances (760,141) 215,808
Accrued investment income 118,995 662,233
Income taxes recoverable - 399,442
Prepaid expenses and other assets (410,304) 4,587
Reserve for losses and loss adjustment expenses 75,766 202,333
Unearned premium reserve (1,273,802) (1,625,174)
Income taxes payable (62,085) -
Policyholder dividends payable (107,170) (98,997)
Other liabilities (261,242) (204,289)
----------- -----------
Net cash provided by (used in) operating activities (1,664,580) 1,387,308
----------- -----------
Cash flows from investing activities:
Maturity of bonds held to maturity or available for sale - -
Sale of bonds held available for sale 1,700,000 1,068,250
Purchase of bonds held to maturity or available for sale (3,582,168) -
Purchase of furniture and equipment (41,101) (26,864)
----------- -----------
Net cash provided by (used in) investing activities (1,923,269) 1,041,386
----------- -----------
Net increase (decrease) in cash and cash equivalents (3,587,849) 2,428,694
Cash and cash equivalents at beginning of period 31,180,925 1,650,059
----------- -----------
Cash and cash equivalents at end of period $27,593,076 $ 4,078,753
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
THE TENERE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
unaudited and are prepared in accordance with the rules and
regulations of the Securities and Exchange Commission with regard to
interim financial statements. In the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been made. Such adjustments consisted of only normal
recurring items. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results which may
occur for the full year. The accompanying unaudited financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the 1995 Annual
Report.
(2) INVESTMENTS
The amortized cost and estimated market values of investments in bonds
as of March 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
March 31, 1996 Gross Gross Estimated
Amortized unrealized unrealized market
Type of Investment cost gains losses value
- - - ------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed Maturities
Held-to-maturity:
United States government,
government agencies
authorities $ 1,858,265 -- ($24,114) $ 1,834,151
----------- ------- --------- -----------
Available-for-sale:
United States government,
government agencies and
authorities 19,818,013 91,612 (162,220) 19,747,405
States, municipalities and
political subdivisions 2,000,805 -- (8,005) 1,992,800
----------- ------- --------- -----------
Total available-for-sale 21,818,818 91,612 (170,225) 21,740,205
----------- ------- --------- -----------
Total fixed maturities $23,677,083 $91,612 ($194,339) $23,574,356
=========== ======= ========= ===========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
December 31, 1995 Gross Gross Estimated
Amortized unrealized unrealized market
Type of Investment cost gains losses value
- - - ------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed Maturities
Held-to-maturity:
United States government,
government agencies
authorities $ 1,867,111 -- ($12,752) $ 1,854,359
----------- -------- -------- -----------
Available-for-sale:
United States government,
government agencies and
authorities 17,960,592 579,886 -- 18,540,478
States, municipalities
political subdivisions 2,000,832 -- (4,792) 1,996,040
----------- -------- -------- -----------
Total available-for-sale 19,961,424 579,886 (4,792) 20,536,518
----------- -------- -------- -----------
Total fixed maturities $21,828,535 $579,886 ($17,544) $22,390,877
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated market value of investments in
fixed maturities at March 31, 1996 are shown below by contractual
maturity. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to maturity Available for sale
----------------------- ------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Due in one year or less -- -- $ -- $ --
Due after one year
through five years 1,749,553 1,728,026 3,503,912 3,507,968
Due after five years
through ten years 108,712 106,125 18,314,906 18,232,237
---------- ---------- ----------- -----------
$1,858,265 $1,834,151 $21,818,818 $21,740,205
========== ========== =========== ===========
</TABLE>
Proceeds from the sale of available-for-sale securities were
$1,700,000 and $1,068,250 in 1995 and 1994, respectively. Gross gains
of $-0- and $23,048 and gross losses of $-0-and $919 were realized on
those sales for the three months ended March 31, 1996 and 1995,
respectively.
7
<PAGE> 8
Net investment income for the three months ended March 31, 1996 and
1995 is comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
Investment income:
<S> <C> <C>
Interest on certificates of
deposit and interest-bearing
cash accounts $427,036 $ 45,529
Interest on bonds 293,986 600,062
-------- --------
Gross investment income 721,022 645,591
Investment expenses 21,270 30,000
-------- --------
Net investment income $699,752 $615,591
======== ========
</TABLE>
The net change in unrealized investment gains (losses) are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Gross unrealized investment gains (losses) ($653,707) $1,434,784
Federal income taxes (222,259) 487,826
--------- ----------
($431,448) $ 946,958
========= ==========
</TABLE>
(3) RESERVE FOR LOSSES AND LOSS
ADJUSTMENT EXPENSES AND REINSURANCE
A summary of the reserves for losses and loss adjustment expenses
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Undiscounted reserve for losses and loss
adjustment expenses $28,752,750 $29,555,760
Less discount (2,221,191) (2,932,622)
----------- -----------
Discounted reserve for losses and loss
adjustment expenses $26,531,559 $26,623,138
=========== ===========
</TABLE>
8
<PAGE> 9
Premiums, premium related reinsurance amounts and reinsurance
recoveries for the three months ended March 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Ceded premiums on an earned basis $518,627 $430,759
============ ============
Ceded loss and loss adjustment expenses $447,357 $148,045
============ ============
</TABLE>
Activity in the reserve for loss and loss adjustment
expenses during the periods ended March 31, 1996 and December 31,
1995 was:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Balance at January 1 $26,623,138 $26,279,977
Less reinsurance 1,162,495 (584,913)
------------ ------------
25,460,643 25,695,064
------------ ------------
Incurred related to:
Current year 2,438,776 8,629,800
Prior year (538,704) (953,312)
------------- ------------
Total incurred 1,900,072 7,676,488
------------ ------------
Paid related to:
Current year 293,983 3,077,457
Prior year 2,145,025 4,833,452
------------ ------------
Total paid 2,439,008 7,910,909
------------ ------------
24,921,707 25,460,643
Plus reinsurance 1,609,852 1,162,495
------------ -----------
Balance at end of period $26,531,559 $26,623,138
=========== ===========
</TABLE>
(4) FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return. Income
tax expense varies from the amount which would be provided by applying
the federal income tax rates to income before income taxes. The
following reconciles the expected provision for income tax expense
using the federal statutory tax rate of 34% to the provision for
income tax expense reported herein for the three months ended March
31, 1996 and March 31, 1995:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Expected tax expense using statutory
rates $89,895 $158,537
Other, net 301 (5,217)
------------ ------------
$90,196 $153,320
============ ===========
</TABLE>
9
<PAGE> 10
Income taxes consist of the following at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Current expense $161,357 ($111,352)
Deferred expense (benefit) (71,161) 264,672
-------- ----------
Income taxes $ 90,196 $ 153,320
======== ==========
</TABLE>
Deferred income taxes arise from timing differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. The sources of these differences and the tax effect of each are as
follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Losses and loss adjustment expenses
incurred for financial reporting
purposes but not deductible for
tax purposes ($153,962) $140,769
Unearned premiums not deductible for
tax purposes 84,907 110,513
Other, net (2,106) 13,390
--------- --------
($ 71,161) $264,672
========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1996 and
December 31, 1995 are presented below:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Discounted unpaid loss reserves $1,658,958 $1,504,996
Discounted unearned premium reserves 609,651 694,558
Investments adjusted to market value 26,728 --
Deferred commissions payable 18,862 26,747
Net operating loss carryforwards 196,114 201,591
---------- ----------
Total gross deferred tax assets 2,510,313 2,427,892
Less valuation allowance (400,000) (400,000)
---------- ----------
Net deferred tax assets $2,110,313 $2,027,892
Deferred tax liabilities:
Investments adjusted to market value -- (195,531)
Deferred acquisition costs 32,285 (47,753)
Other 12,294 (12,294)
---------- ----------
Total gross deferred liabilities 44,579 (255,578)
---------- ----------
Net deferred tax asset $2,065,734 $1,772,314
========== ==========
</TABLE>
10
<PAGE> 11
The valuation allowance for deferred tax assets at March 31,
1996 was $400,000. Based on the Company's historical earnings, future
expectations of adjusted taxable income and its ability to change its
investment strategy, as well as reversing gross deferred tax
liabilities, management believes it is more likely than not that the
Company will fully realize the gross deferred tax assets less the
valuation allowance. However, there can be no assurances that the
Company will generate the necessary adjusted taxable income in any
future period.
(5) RECONCILIATION TO STATUTORY ACCOUNTING
The Company's two wholly-owned insurance subsidiaries, Intermed
Insurance Co. and Interlex Insurance Co., are required to file
statutory financial statements with state regulatory authorities.
Accounting principles used to prepare the statutory financial
statements differ from financial statements prepared on the basis of
generally accepted accounting principles.
Reconciliations of statutory net income, as determined using statutory
accounting principles, to the amounts included in the accompanying
consolidated financial statements for the three months ended March
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Net income of insurance companies $ 170,190 $ 342,576
Increase (decrease):
Deferred policy acquisition costs (45,494) (46,300)
Deferred income taxes 71,161 264,672
Other adjustments, net (22,000) (247,984)
--------- ----------
Net income (loss) as reported herein $ 173,857 $ 312,964
========= ==========
</TABLE>
Reconciliations of statutory capital and surplus, as determined using
statutory accounting principles, to stockholders' equity included in
the accompanying consolidated financial statements at March 31, 1996
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Statutory capital and surplus of insurance companies $25,753,525 $25,558,424
Stockholder's equity of noninsurance subsidiaries 500 500
----------- -----------
Combined capital and surplus 25,754,025 25,558,924
Increase (decrease):
Deferred policy acquistion costs 94,957 140,450
Deferred income taxes 2,065,734 1,772,314
Unrealized gain (loss) on securities available for sale (51,884) 575,094
Excess statutory over statement reserves 1,760,000 1,760,000
Non-admitted assets and other adjustments, net 538,366 561,006
Consolidating eliminations and adjustments (5,881,511) (5,830,510)
----------- -----------
Stockholders' equity as reported herein $24,279,687 $24,537,278
=========== ===========
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis addresses the Company's financial
condition at March 31, 1996 as compared with December 31, 1995 and results of
operations for the three months ended March 31, 1996 and 1995.
RESULTS OF OPERATIONS
Premiums written during the three-month period ended March 31, 1996 totaled
$1.5 million, an increase of $74,000 or 5% over the comparable period of 1995.
Intermed Insurance Company, the Company's principal operating subsidiary,
implemented a claims-free discount program September 1, 1995 that replaced the
policyholder dividend program in place prior to that date. These discounts are
shown on the consolidated statements of operations as a reduction of premiums
written. Dividends, however, are shown as an expense. The difference in
presentation distorts comparability of premiums written on the consolidated
statements of operations. When premiums written are compared after reducing
the 1995 premiums by dividends, premiums written in the 1996 period increased
by $230,000. This increase was due to an increase in the number of
policyholders. Premiums ceded to reinsurers during the current quarter totaled
$490,000, an increase of $31,000 or 7% over the prior year. The increase in
ceded premiums in the 1996 period was primarily attributable to a new
reinsurance treaty between Intermed Insurance Co. and American Re-Insurance
Company effective January 1, 1996. The new treaty covers losses incurred in
1996 on claims-paid policies and also limits the Company's overall losses for a
four year period commencing January 1, 1996. The cover note for this treaty is
attached as Exhibit 10-13.
Net premiums written during the first quarter of 1996 totaled $1.0 million, an
increase of $43,000 or 4% over the prior year period. There was a release of
$1.2 million from the unearned premium reserve (UPR) in the current period
compared with a release of $1.6 million in the prior year period. The decline
in the release of unearned premium was primarily due to increased premium
writings offset by a release in the 1996 period of the death, disability and
retirement reserve (DDR) associated with claims-paid policies which converted
to claims-made policies during the quarter. DDR reserves are included in the
overall UPR reserve in accordance with industry practice. Due to the
significant decline in premiums released from the UPR in 1996 compared with
1995, net premiums earned in the 1996 period were $334,000 or 13% below the
prior year period.
Investment income was approximately $700,000 during the first quarter of 1996,
an increase of $84,000 or approximately 14% over the prior year period.
Factors contributing to the improvement were (a) the investment of a
significant portion of the portfolio in short-term investments with a yield in
excess of the yield on the long-term portfolio and (b) the investment of excess
cash overnight under a repurchase agreement for a full quarter in 1996 compared
to a partial quarter in 1995.
<PAGE> 13
Expenses totaled $2.7 million during the first quarter of 1996 compared with
$2.8 million in the comparable period of 1995. The reduction was entirely due
to a $167,000 reduction in dividends to policyholders. The dividend program
was eliminated effective September 1, 1995 and replaced with the claims-free
discount. The recovery of $10,700 during the current period was due to
cancellation of policies upon which dividends had been accrued but not yet
paid.
Losses and loss adjustment expenses totaled $1.9 million in the first quarter
of 1996, producing a loss ratio of 83%. Losses and loss adjustment expenses of
approximately $2.0 million in the prior year period produced a loss ratio of
only 75% because premiums earned in 1995 were 15% higher than in 1996.
Increased frequency and severity during the current quarter caused the higher
loss ratio, and this trend has continued into the second quarter of 1996.
Income before taxes was $264,000 in the 1996 period compared with $466,000 in
1995. Net income in the current period was $174,000 compared with $313,000 in
1995.
FINANCIAL CONDITION
Assets declined from $62.6 million at December 31, 1995 to $60.6 million at
March 31, 1996. The decline of $2.0 million was primarily attributable to a
$431,000 decline in the market value of bonds held available for sale and
carried at market on the balance sheet, an increase in losses and loss
adjustment expense payments of approximately $798,000 in the 1996 period
compared with 1995, and an increase in ceded premium payments of $595,000.
Cash and cash equivalents declined from $31.2 million at December 31, 1995 to
$27.6 million at March 31, 1996 due to the purchase of $3.6 million of bonds
during the first quarter. Bond prices declined briefly during the first
quarter and the bonds were purchased with an approximate yield of 7%.
The $794,000 decline in premiums receivable during the first quarter was due to
cyclical fluctuations. Premiums receivable at March 31, 1996 are comparable to
premiums receivable at March 31, 1995.
The decline in deferred policy acquisition costs is due to the purchase of an
agency which produced approximately 40% of total premiums written. Commissions
are no longer paid on this business and no longer deferred to, thus the amount
of commissions subject to deferral has decreased significantly.
The increase in deferred income taxes is primarily due to the decline in the
market value of bonds held available for sale and carried at market.
Reinsurance premiums recoverable of approximately $518,000 increased $656,000
from the December 31, 1995 reinsurance premium payable of approximately
$138,000 due to provisional premium payments and favorable development on
losses ceded under the experience-rated treaty with Lloyd's.
13
<PAGE> 14
The $411,000 increase in Other Assets is due to the purchase of Trout Insurance
Services, Inc. The acquisition cost will be amortized over three years.
Retained earnings declined $257,000 during the first quarter due to the
$431,000 decline in the market value of bonds carried at market.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was a negative $1.7 million in the first quarter of
1996 compared with a positive cash flow of $1.4 million in the prior year
period. This reversal was due to the $798,000 increase in paid losses and loss
adjustment expenses and to the $300,000 increase in ceded premiums attributable
to the new reinsurance treaty with American Re. Anticipated investment income
of $2.8 million in 1996 and the cash position of $28 million will provide
sufficient liquidity to preclude the necessity for selling bonds in order to
meet cash demands.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index
(b) Reports on Form 8-K: None
14
<PAGE> 15
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.
THE TENERE GROUP, INC.
(Registrant)
May 14, 1996 /s/ J D Williams
- - - ------------ -------------------
Date Joseph D. Williams, CPA
Vice President - Finance,
Chief Financial Officer and
Chief Accounting Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
-------- ----------- --------
NO.
---
<S> <C> <C>
3.1 Articles of Incorporation of the Registrant, filed as Exhibit 3.1 to
the Registrant's Registration Statement on Forms S-1 (Reg. No. 33-
78702) is incorporated herein by this reference. N/A
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-78702) is incorporated
herein by this reference. N/A
4.1 Form of common stock certificate, filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1 (Reg. No. 33-78702) is
incorporated herein by this reference. N/A
10.1 Management Contract, dated July 8, 1994, by and between RCA Mutual
Insurance Company, Interlex Insurance Co. and Insurance Services, Inc.,
filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10K for
the year ended December 31, 1995, is incorporated herein by reference.
10.2 Lease Agreement, dated December 7, 1994, by and between Georgetown
Square II, Ltd. and Insurance Services, Inc., filed as Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1995, is incorporated herein by reference. N/A
10.3 Medical Practitioners' Liability Primary Excess of Loss Reinsurance
Contract, dated October 1, 1993, by and between RCA Mutual Insurance
Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1995, is incorporated herein by reference. N/A
10.4 Addendum No. 1 to Medical Practitioners' Liability Primary Excess of
Loss Reinsurance Contract, dated February 1, 1995, by and between RCA
Mutual Insurance Company and Certain Reinsurers of Lloyd's of London,
filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the nine months ended September 30, 1995, is incorporated herein by
reference. N/A
10.5 Addendum No. 2 to Medical Practitioners' Liability Primary Excess of
Loss Reinsurance Contract, effective April 27, 1995, by and between RCA
Mutual Insurance Company and Certain Reinsurers of Lloyd's of London,
filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q
for the nine months ended September 30, 1995, is incorporated herein by
reference. N/A
10.6 Reinsurance Cover Note: 95/1146/RM to Medical Practitioners' Liability
Primary Excess of Loss Reinsurance Contract, dated October 16, 1995, by
and between RCA Mutual Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1995, is
incorporated herein by reference. N/A
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
NO. ----------- --------
- - - ---
<S> <C> <C>
10.7 Reinsurance Cover Note: 95/1212/RM(A) to Catastrophe "Awards Made"
Excess of Loss Reinsurance Contract, dated October 16, 1995, by and
between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's
of London, filed as Exhibit 10.7 to the Registrant's Quarterly Report
on Form 10-Q for the nine months ended September 30, 1995, is
incorporated herein by reference. N/A
10.8 Catastrophe "Awards Made" Excess of Loss Reinsurance Contract,
commencing February 1, 1995, by and between RCA Mutual Insurance
Company and Certain Reinsurers of Lloyd's of London including Amendment
No. 1, effective April 27, 1995, filed as Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1995, is incorporated herein by reference. N/A
10.9 Reinsurance Cover Note: 95/1249/IP to Lawyers' Professional Liability
Primary Excess of Loss Reinsurance Treaty, dated October 16, 1995, by
and between Interlex Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.9 to the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1995, is
incorporated herein by reference. N/A
10.10 Lawyers' Professional Liability Primary Excess of Loss Reinsurance
Contract, commencing July 1, 1995, by and between Interlex Insurance
Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit
10.10 to the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1995, is incorporated herein by reference. N/A
10.11 Reinsurance Cover Note: 95/1250/IP to Prior Agreement Excess of Loss
Reinsurance Contract, dated October 16, 1995, by and between Interlex
Insurance Company and Certain Reinsurers of Lloyd's of London, filed as
Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the
nine months ended September 30, 1995, is incorporated herein by
reference. N/A
10.12 Prior Agreement Excess of Loss Reinsurance Contract, commencing July 1,
1995, by and between Interlex Insurance Company and Certain Reinsurers
of Lloyd's of London, filed as Exhibit 10.12 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September 30,
1995, is incorporated herein by reference. N/A
10.13 Draft Reinsurance Slip by and between Intermed Insurance Company and
American Re-Insurance Company. N/A
27 Financial Data Schedules N/A
</TABLE>
17
<PAGE> 18
INTERMED INSURANCE COMPANY
REINSURANCE SLIP
COMPANY: Intermed Insurance Company
Springfield, Missouri
REINSURER: American Re-Insurance Company
Princeton, New Jersey
SHARE: 100%
COVERAGE A:
TERM: Effective January 1, 1996 through December
31, 1996
BUSINESS
COVERED: Incurred Losses and Allocated Loss Adjustment
Expenses (ALAE) as a result of the non-
renewal of claims-paid policies, net after
all other reinsurance.
COVERAGE: Subject Business Incurred Losses and ALAE
allocated to the 1996 Accident Year.
LIMITS: The Reinsurer shall indemnify the company up
to $4,800,000 in excess of $4,176,000 for the
Covered Business.
PREMIUM: $450,000
COVERAGE B:
TERM: Effective January 1, 1996 through December
31, 1999.
SUBJECT
BUSINESS: Incurred Losses and Allocated Loss Adjustment
Expenses (ALAE) attributable to Covered
Accident Year's during the term of this
Agreement net after all other reinsurances
whether collectible or not for all Medical
Malpractice business written by the Company.
COVERED
ACCIDENT
YEARS: Covered
Accident
Year: Period:
1996 January 1, 1996 through December 31, 1996
1997 January 1, 1997 through December 31, 1997
1998 January 1, 1998 through December 31, 1998
1999 January 1, 1999 through December 31, 1999
<PAGE> 19
LIMITS: The Reinsurer shall indemnify the Company up
to $2,000,000 for any individual Covered
Accident Year, and $6,000,000 in the
aggregate for all Covered Accident Years
hereunder.
RETENTIONS: The Company shall retain all losses and ALAE
up to a Loss and ALAE Ratio of 75% for
Accident Year 1996. The Retention will be
2-5%, as mutually agreed, above the
calculated loss ratio for the immediately
preceding 3 covered accident years, as
described below. If the attachment point
cannot be mutually agreed to, the attachment
point shall be 5% above the calculated loss
ratios, as described below.
The calculated loss ratio shall be weighted
as follows: 60% of the actual loss ratio for
the immediately preceding covered accident
year, 30% of the actual loss ratio for the
second preceding covered accident year; 10%
of the actual loss ratio for the third
preceding covered accident year.
The retention shall be determined by dividing
the Subject Net Losses, including a provision
for Incurred But Not Reported Losses (IBNR),
as defined herein, by Subject Net Earned
Premium as defined herein.
Subject Net Earned Premium shall be defined
as Gross Earned Premium less premium paid in
respect of all inuring reinsurances,
including premium ceded under this agreement.
However, the DD&R Premium shall not be
included in the calculation of Subject Net
Earned Premium.
Subject Net Losses Incurred shall be defined
as Gross Losses Incurred including ALAE less
recoveries under all inuring reinsurances,
whether collectible or not, but prior to any
recoveries hereunder.
It is hereby agreed that the reinsurances
shown in Exhibit A shall be deemed to be in
place, whether purchased by the Company or
not, whether fully subscribed or not in
determining Subject Net Losses Incurred to
this agreement.
ACCIDENT YEAR
PREMIUM: $1,200,000 for each Covered Accident Year
ALL COVERAGES:
- - - --------------
REINSURER'S
EXPENSE: 15% of Accident Year Premium
EXPERIENCE
BALANCE: Quarterly, within 30 days of the end of each
quarter, an Experience Balance shall be
calculated as follows:
Accident Year Premium Paid, less Reinsurer's
Expense, less Paid Losses, plus Interest
Credits, on any positive balance
<PAGE> 20
Interest Credits shall be calculated and
credited each quarter using the quarterly
equivalent to the average 1-year U.S. T-bill
rate.
REPORTS AND
REMITTANCES: Within 30 days following the end of each
quarter, the Company shall render a report
detailing Covered Losses and ALAE paid and
outstanding including a provision for IBNR
contemplating ultimate valuation of losses
and ALAE for both coverage sections. The
report shall also contain the Net Earned
Premiums for the coverage periods. Within 30
days of receipt of the report the Reinsurer
shall remit to the Company the amount of
settled losses in excess of the retention up
to the Accident Year and Aggregate Limits
applicable under both coverage sections of
this Agreement.
COMMUTATION: Beginning, but not before December 31, 1996,
and at any time thereafter, and with 30 days
prior written notice, the Company shall have
the option to commute this Agreement.
Failure to pay premiums; or a change in
ownership or control or management of the
company will result in immediate commutation.
Upon Commutation, 100% of the Experience Fund
account will be returned. Within thirty days
subsequent to the date of Commutation, the
Reinsurer shall remit the Positive Experience
Balance as compensation for a complete
release of all liability associated with the
Covered Accident Years being commuted under
this agreement.
GENERAL
CONDITIONS: Contract must be considered Reinsurance by
the State of Missouri Access to Records
Actuarial review of Ultimate Net Losses
Claims
Currency
Errors and Omissions
Insolvency
Offset and Security
Reserves
Salvage and Subrogation
Aggregate Ultimate Net Loss
Insolvency Funds Exclusion Clause
Pools, Associations & Syndicates Exclusion
Clause
Nuclear Incident Exclusion Clause
-Physical Damage-Reinsurance-No. 2
Pollution, Contamination, Debris Removal
-Exclusion Clause-No. 1
Others to be agreed
WORDING: To be agreed.
<PAGE> 21
FOR AND ON BEHALF OF INTERMED INSURANCE COMPANY:
NAME: Raymond A. Christy, MD TITLE: President
SIGNATURE /s/Raymond A. Christy DATE: 2-21-96
FOR AND ON BEHALF OF AMERICAN RE-INSURANCE COMPANY:
NAME: John Bunt TITLE: Vice-President
SIGNATURE: /s/ John S. Bunt DATE: 2/7/96
<PAGE> 22
EXHIBIT A
TYPE: CATASTROPHE "AWARDS MADE" EXCESS OF LOSS
REINSURANCE CONTRACT.
CLASS: Covering Medical Practitioners' Liability
policies (including Dentists' Liability) and
all other ancillary coverages as original:
but only to indemnify the Reassured in
respect of liability incurred as a result of
that portion of their Ultimate Net Loss
relating to awards in excess of their
original policy limit and/or relating to
claims related extra-contractual obligations
on such business.
TERRITORIAL
SCOPE: As per the Reassured's original policies:
LIMIT: Section (A)
In respect of original losses with claims
made dates on or after 1st October, 1993.
To pay up to US $5,000,000 Ultimate Net Loss
each and every loss occurrence,
EXCESS OF
US $250,000 Ultimate Net Loss each and every
loss occurrence.
Reinsurers heron shall have the benefit of
all recoveries under all Excess of Loss
Contracts effected by the Reassured in
respect of all original losses coming within
the scope of the Section, as such Contracts
apply to the limit of the original policy
against which the Award is made: but only to
the extent of the limits of the Reassured's
applicable reinsurance programmes, whether
commuted exhausted or otherwise, which for
the purposes of this Section are deemed to be
in full force.
Section (B)
In respect of original losses with claims
made dates prior to 1st October, 1993:
To pay up to US $5,000,000 Ultimate Net Loss
each and every loss occurrence,
EXCESS OF
US $1,000,000 Ultimate Net Loss each and
every loss occurrence.
Reassured shall have the benefit of all
recoveries under reinsurances in respect of
all original losses coming within the scope
of this Section, provided always that the
Reassured retain net and unreinsured in any
way an amount of US $5,000,000 each and every
loss occurrence.
<PAGE> 23
However, the maximum limit recoverable
hereunder in respect of Sections (A) and (B)
combined shall not exceed US $5,000,000 each
and every loss occurrence.
CO-REINSURANCE
WARRANTY: Warranted that the Reassured retain 10% of
the premium and of any loss recoverable
hereunder, net and unreinsured in any way.
<PAGE> 24
TYPE: PRIMARY EXCESS OF LOSS REINSURANCE TREATY.
CLASS: Covering Medical Practitioners' Liability
policies (including Dentists' Liability) and
all other ancillary coverages as original.
TERRITORIAL
SCOPE: As per the Reassured's original policies.
LIMITS: To pay:
(A) Up to US $1,600,000 Ultimate Net Loss
each and every loss, each policy and/or
insured, excess of US $400,000 Ultimate Net
Loss each and every loss, each policy and/or
insured.
and, in addition, where two or more policies
and/or insureds are involved in the same loss
occurrence:
(B) Up to US $1,600,000 Ultimate Net Loss
each and every loss occurrence, excess of US
$500,000 Ultimate Net Loss each and every
loss occurrence.
Recoveries under Section (A) to inure to the
benefit of Section (B).
In the event that two or more policies or
insureds are involved in the same loss
occurrence and there is a difference in the
dates claims are made, the date on which the
first claims is made shall establish the date
of loss for all related claims arising out of
the same loss occurrence.
Notwithstanding the foregoing, in any loss
occurrence, should any claim made date(s)
fall prior to the inception of this Contract,
it is hereby understood and agreed that those
specific loss(es) shall be disregarded for
the purposes of determining recoveries
hereunder.
For the purposes of this Contract, the date
of loss shall be the date of receipt by the
Reassured of acceptable notice from its
original insured or a representative of its
original insured; that a claim is being or
may be made against that original insured.
Maximum recoverable hereon to be 300% of the
maximum reinsurance premium payable hereunder
for the Contract Period.
WARRANTY: Warranted Maximum Original Policy Limit US
$1,000,000 or so deemed, except as respects
Excess of Original Policy Limits and/or
Extra-Contractual Obligation coverage.
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 21,740,205
<DEBT-CARRYING-VALUE> 1,858,265
<DEBT-MARKET-VALUE> 1,834,151
<EQUITIES> 340
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 23,598,810
<CASH> 27,593,076
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 94,957
<TOTAL-ASSETS> 60,590,010
<POLICY-LOSSES> 26,531,559
<UNEARNED-PREMIUMS> 9,173,204
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 44,872
<NOTES-PAYABLE> 0
<COMMON> 19,998
0
0
<OTHER-SE> 24,259,689
<TOTAL-LIABILITY-AND-EQUITY> 60,590,010
2,288,275
<INVESTMENT-INCOME> 699,752
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,110
<BENEFITS> 1,900,072
<UNDERWRITING-AMORTIZATION> 316,330
<UNDERWRITING-OTHER> 519,415
<INCOME-PRETAX> 264,053
<INCOME-TAX> 90,196
<INCOME-CONTINUING> 173,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,857
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
