UNITED STATES
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 June 30, 1996
Commission file number 000-24366
GORAN CAPITAL INC.
(Exact name of registrant as specified in its charter)
CANADA Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 University Avenue
Suite 1101 - Box 11
Toronto, Ontario Canada M5H 3M7
(Address of principal executive offices)
Registrant's telephone number, including area code 416 594-1155 (Canada)
317 259-6400 (USA)
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 June 30, 1996, there were 5,332,062 shares of Registrant's common
stock issued and outstanding exclusive of shares held by Registrant.
<PAGE>
Form 10-Q Index
For the Quarter Ended June 30, 1996
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1 Financial Statements. . . . . . . . . . . . . . . . . . 3
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995
and June 30, 1996 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the Three and
Six Months Ending June 30, 1996 and 1995 . . . . . . . . . 5, 6
Consolidated Statements of Changes in Cash Resources
for the Six Months Ending June 30, 1996 and 1995. . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 13
PART 2. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 17
Consolidated Analysis of Earnings per Share - US GAAP. . . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
GORAN CAPITAL INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
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 financial position, results of
operations and cash flows for the interim periods. The results for the
three and six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the entire year.
These quarterly interim financial statements are unaudited.
<PAGE>
<TABLE>
GORAN CAPITAL INC.
CONSOLIDATED BALANCE SHEET
(Canadian GAAP, stated in US $)
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and Investments $183,633,992 $ 54,365,700
Accounts Receivable
Premiums receivable 60,361,735 11,233,392
Due from insurance companies 27,929,446 34,836,681
Due from associated companies 393,421 0
Accrued and other receivables 2,580,967 1,231,418
Sub-total 91,265,569 47,301,491
Capital Assets 4,312,692 2,088,056
Other Assets 5,432,550 1,417,137
Deferred policy acquisition costs 15,190,593 7,640,728
Deferred income taxes 36,520 73,249
Goodwill 3,140,320 0
Total Assets $303,012,235 $112,886,362
LIABILITIES
Accounts Payable
Due to insurance companies $ 0 $ 1,986,381
Due to associated companies 0 188,334
Accrued and other payables 20,677,821 8,310,563
Sub-total $ 20,677,821 10,485,278
Outstanding claims $ 95,583,356 45,988,288
Unearned premiums 79,973,966 26,895,391
Bank loans 55,750,000 5,810,999
Subordinated Debenture 11,052,699 11,084,273
Minority interest in subsidiary 21,598,376 0
Total Liabilities $284,636,219 $100,264,230
SHAREHOLDERS' EQUITY
Capital stock $ 17,227,238 $ 16,874,923
Retained Earnings (deficit) 1,488,084 (3,895,014)
Cumulative translation adjustment (339,306) (357,777)
Total Shareholders' Equity $ 18,376,016 $ 12,622,132
Total Liabilities and
Shareholders' Equity $303,012,235 $112,886,362
/TABLE
<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDING
(Canadian GAAP, Stated in US $)
<CAPTION>
June 30, June 30,
1996 1995
<S> <C> <C>
Gross premium revenue $109,859,879 $ 50,244,266
Net premiums earned 51,072,513 19,379,790
Net investment and other income 5,599,771 1,977,457
Total Revenue $ 56,672,285 $ 21,357,247
Net claims incurred 39,951,261 13,790,488
General and administrative expenses 10,763,139 4,782,850
Interest expense 1,401,585 427,696
Total Expenses $ 52,115,985 $ 19,001,034
Income before undernoted items 4,556,300 2,356,213
Provision for income taxes 978,351 465,538
Minority interest 398,376 1,488
Net Income $ 3,179,573 $ 1,889,187
Earnings per share - basic $ 0.61 $ 0.38
Earnings per share - fully diluted $ 0.56 $ 0.33
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING
(Canadian GAAP, Stated in US $)
<CAPTION>
June 30, June 30,
1996 1995
<S> <C> <C>
Gross premium revenue $151,281,496 $86,046,896
Net premiums earned 75,590,824 34,662,511
Net investment and other income 7,063,020 3,245,514
Total Revenue $ 82,653,844 $37,908,025
Net claims incurred 56,548,363 23,713,615
General and administrative expenses 16,755,942 9,205,771
Interest expense 1,738,644 719,980
Total Expenses $ 75,042,949 $33,639,366
Income before undernoted items 7,610,895 4,268,659
Provision for income taxes 1,829,421 1,127,077
Minority interest 398,376 4,488
Net Income $ 5,383,098 $ 3,137,094
Earnings per share - basic $ 1.04 $ 0.63
Earnings per share - fully diluted $ 0.96 $ 0.57
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN
CASH RESOURCES FOR THE SIX MONTHS ENDING
(Canadian GAAP, stated in US $)
<CAPTION>
June 30, June 30,
1996 1995
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income for the period $ 5,383,098 $ 3,137,094
Items not affecting cash resources:
Amortization 155,152 74,599
Loss (gain) on disposal of investments (2,208,002) (19,760)
Minority interest in net income of
consolidated subsidiary 398,376 (9,032)
Decrease (increase) in accounts
receivable (8,875,820) (31,046,013)
Decrease (increase) in other assets (2,038,449) 213,320
Decrease (increase) in deferred
policy acquisition costs 353,369 (909,503)
Decrease (increase) in deferred
income taxes 36,520 72,860
Increase (decrease) in accounts
payable (640,589) 10,202,755
Increase (decrease) in unearned
premiums 7,875,189 9,471,091
Increase (decrease) in outstanding
losses 5,303,070 10,147,334
Sub-total $ 5,741,915 $ 1,334,743
FINANCING ACTIVITIES
Increase (reduction) of borrowed
funds $49,955,554 $(1,433,718)
Increase (decrease) in minority
interest 21,200,670 0
Issue of share capital 400,384 264,372
Sub-total $71,556,608 $(1,169,346)
INVESTING ACTIVITIES
Net purchase of marketable
securities $(12,895,528) $ (381,173)
Acquisition of Subsidiary (66,389,000)
Net purchase of capital assets (536,098) (554,827)
Sub-total $(79,820,627) $ (936,000)
Effect of exchange rate changes on
cash resources $ (51,897) $ 108,815
Change in cash resources during the year $(2,574,000) $ (661,788)
Cash resources, beginning of year $10,613,027 $ 7,588,135
Cash resources, end of year $ 8,039,027 $ 6,926,347
<PAGE>
Cash resources are comprised of:
Cash $ 77,070 $(1,265,502)
Short-term investments 7,961,957 8,191,848
Sub-total $ 8,039,027 $ 6,926,347
</TABLE>
<TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Canadian GAAP, stated in US $)
<CAPTION>
June 30, June 30,
1996 1995
<S> <C> <C>
Retained Earnings (deficit)
beginning of year $ (3,895,014) $(11,065,904)
Net income for the year $ 5,383,098 $ 3,137,094
Retained Earnings (deficit)
end of year $ 1,488,084 $ (7,928,810)
</TABLE>
<PAGE>
GORAN CAPITAL INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Three and Six Months Ended June 30, 1996
(All amounts in Canadian dollars unless otherwise stated)
NOTE 1 - BASIS OF PRESENTATION
The foregoing consolidated condensed financial statements are unaudited.
However, in the opinion of management, all adjustments necessary for a fair
presentation of the results of the interim period presented have been
included. All adjustments are of a normal and recurring nature. Results for
any interim period are not necessarily indicative of results to be expected
for the year. The consolidated financial statements include the accounts of
Goran Capital Inc. and its wholly-owned subsidiaries, Symons International
Group, Inc. (and its subsidiaries IGF Insurance Company, Pafco General
Insurance Company and Superior Insurance Company), Granite Reinsurance Company
Ltd., Granite Insurance Company and Symons International Group - Florida.
The consolidated condensed interim financial statements have been prepared in
accordance with Form 10-Q specifications and, therefore, do not include all
information and footnotes normally shown in full annual financial statements.
These unaudited consolidated financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in Canada
(CDN GAAP). These principles also conform in all material respects with
accounting principles generally accepted in the United States (US GAAP)
except as disclosed in Note 5.
NOTE 2 - ACQUISITION, FORMATION OF SUBSIDIARY AND PUBLIC OFFERING
In January, 1996 Pafco General Insurance Company adopted a Plan of
Reorganization whereby it would transfer its wholly owned subsidiary, IGF
Insurance Company, to Pafco General Insurance Company's parent, Symons
International Group, Inc. This process was actually begun in early 1994
as Pafco General Insurance Company began responding to the requirements of
various insurance regulatory bodies to remove its investment in IGF Insurance
Company from its admitted asset base. Over the course of the next 18 months,
Pafco General Insurance Company attempted to gain regulatory approval for a
number of different methodologies to separate its investment in IGF Insurance
Company. After adoption of the Plan of Reorganization in January, 1996, Pafco
General Insurance Company formed a wholly owned subsidiary, IGF Holdings, Inc.
and formally submitted the Plan of Reorganization to the Indiana Department of
Insurance for regulatory approval. Once regulatory approval was obtained from
the Indiana Department of Insurance on April 26, 1996, Pafco General Insurance
Company completed the steps in the Plan by transferring the outstanding shares
of capital stock of IGF Insurance Company to IGF Holdings, Inc. IGF Holdings,
Inc., in turn, made a distribution to Pafco General Insurance Company of $7.5
Million in cash and a subordinated promissory note in the principle amount of
$3.5 Million. Subsequent to that distribution, Pafco General Insurance Company
then completed the steps in the Plan by transferring the outstanding capital
stock of IGF Holdings, Inc. to Pafco General Insurance Company's parent, Symons
International Group, Inc.
Symons International Group, Inc. purchased Superior Insurance Company
("Superior") from Interfinancial, Inc. on April 30, 1996 for a purchase price
of approximately $66 Million, resulting in goodwill on the transaction of
approximately $3.2 Million. Simultaneously with the execution of the
Superior purchase agreement, Goran Capital Inc., Symons International Group,
Inc., GGS Management Holdings, Inc. and GS Capital Partners II, L.P., a
Delaware limited partnership, entered into an agreement (the "GGS Agreement")
to capitalize GGS Management Holdings, Inc. and to cause GGS Management
Holdings, Inc. to issue its capital stock to Symons International Group, Inc.
and to various funds affiliated with Goldman Sachs & Co., (collectively,
"GS Funds"), so as to give Symons International Group, Inc. a 52% ownership
interest and the GS Funds a 48% ownership interest. Pursuant to the GGS
Agreement, (a) Symons International Group, Inc. contributed to GGS Management
Holdings, Inc. (i) Pafco General Insurance Company common stock with a book
value determined in accordance with US GAAP of at least $15.3 Million as
reflected on an audited post-closing balance sheet of Pafco General Insurance
Company, (ii) its right to acquire Superior Insurance Company pursuant to the
Superior purchase agreement and (iii) certain fixed assets, including office
furniture and equipment, having a value of approximately $350,000 and (b) the
GS Funds contributed to GGS Management Holdings, Inc. $21.2 Million in cash.
On July 30, 1996 Symons International Group, Inc. filed a Registration
Statement on Form S-1 with the Securities and Exchange Commission to effectuate
an initial public offering of 30% of Symons International Group, Inc.'s common
stock. The proceeds of the offering will be used to increase the
capitalization of IGF Insurance Company, repay certain indebtedness of Symons
International Group, Inc., including certain amounts owed to the Company, and
pay the Company a dividend.
NOTE 3 - REINSURANCE
Effective January 1, 1996 reinsurance is placed as follows: For the
nonstandard automobile segment, the Company only purchases excess of loss and
catastrophic protections which result in minimal ceded premiums in proportion
to gross written premiums. For the crop segment, the Company reinsures to the
federal government FCIC program a significant portion of its MPCI business
and the Company reinsures stop loss to third party reinsurers on MPCI crop
hail.
The effects of reinsurance on the Company's premiums and claims incurred are as
follows:<PAGE>
<TABLE>
<CAPTION>
For The Three Months Ended: For The Three Months Ended:
June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Premiums Written Earned Written Earned
Gross $ 109,859,879 $ 95,350,334 $50,244,266 $48,702,795
Ceded (52,095,108) (44,277,821) (23,591,997) (29,323,005)
Net $ 57,764,771 $ 51,072,513 $26,652,269 $19,379,790
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Claims Incurred:
Gross $ 49,368,258 $19,304,554
Ceded (9,416,997) (5,514,066)
Net $ 39,951,261 $13,790,488
</TABLE>
<TABLE>
<CAPTION>
For The Six Months Ended: For The Six Months Ended:
June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Premiums Written Earned Written Earned
Gross $151,281,496 $143,302,477 $86,046,896 $75,899,896
Ceded (68,177,443) (67,711,653) (41,772,436) (41,237,385)
Net $ 83,104,053 $ 75,590,824 $44,274,460 $34,662,511
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Claims Incurred:
Gross $78,437,241 $34,691,358
Ceded (21,888,877) (10,977,742)
Net $56,548,363 $23,713,615
</TABLE>
The effects of reinsurance on the Company's unearned premiums and outstanding
claims are as follows:
<TABLE>
<CAPTION>
As at As at
June 30, 1996 December 31, 1995
<S> <C> <C>
Unearned Premiums:
Gross $122,380,607 $ 33,158,805
Ceded (42,406,641) (6,263,414)
Net $ 79,973,966 $ 26,895,391
Outstanding Claims:
Gross $119,212,982 $ 87,654,793
Ceded (23,629,626) (41,666,505)
Net $ 95,583,356 $ 45,988,288
/TABLE
<PAGE>
NOTE 4 - CAPITAL STOCK
For the three and six months ended June 30, 1996, 201,958 common shares and
271,833 common shares, respectively, were issued by the Company pursuant to
warrants previously issued to debenture holders and pursuant to an established
Company Employee Stock Option Plan.
NOTE 5 - UNITED STATES ACCOUNTING PRINCIPLES
These unaudited consolidated financial statements have been prepared in
accordance with CDN GAAP. The differences between CDN GAAP and US GAAP are
as follows:
<TABLE>
<CAPTION>
As At As At
June 30, 1996 June 30, 1995
<S> <C> <C>
Net Income - CDN GAAP $ 5,383,098 $ 3,137,094
US/CANADA GAAP Differences
Deferred Income Taxes $ (637,226) $ 165,575
Net Income - US GAAP $ 4,745,872 $ 3,302,669
Earnings Per Share - US GAAP $ 0.85 $ 0.60
Assets - CDN GAAP $303,012,235 $126,199,738
US/CANADA GAAP Differences
Loans to Purchase Shares (561,683) (601,093)
Outstanding Claims Ceded 23,629,626 10,976,945
Unearned Premiums Ceded 42,406,641 8,452,138
Deferred Income Taxes 2,176,047 1,948,270
Unrealized Loss on Investment (339,046) (563,206)
Assets - US GAAP $370,323,820 $146,412,792
Shareholders' Equity - CDN GAAP $ 18,376,016 $ 8,521,213
US/CANADA GAAP Differences
Deferred Income Taxes 2,176,047 1,948,270
Discounting on Claims (1,323,497) (1,159,199)
Loans to Purchase Shares (561,683) (601,093)
Unrealized Loss on Investment (339,046) (563,206)
Shareholders' Equity - US GAAP $ 18,327,837 $ 8,145,985
</TABLE>
NOTE 6- CONTINGENT LIABILITY
One of the Company's subsidiaries, IGF Insurance Company ("IGF"), is the
administrator of a run-off book of business. The Federal Crop Insurance
Corporation ("FCIC") has requested that IGF take responsibility for the claims
liabilities of these policies under its administration. IGF has requested
reimbursement of certain expenses from the FCIC with respect to this run-off
activity. IGF instituted litigation against the FCIC on March 23, 1995 in the
United States District Court for the Southern District of Iowa seeking $4.3
million (US) as reimbursement for these expenses. The FCIC has counterclaimed
for approximately $1.2 million (US) in claims payments for which FCIC
contends IGF is responsible for as successor to the run-off book of business.
While the final result of this lawsuit cannot be predicted with certainty, the
Company believes that the final resolution of this lawsuit will not have a
material adverse effect on the financial condition of the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Gross premium revenue increased 118.7% to $109,859,879 for the three months
ended June 30, 1996 from $50,244,266 for the comparable period in the prior
year, and increased 75.8% to $151,281,496 for the six months ended June 30,
1996 from $86,046,896 for the comparable period in the prior year. Net income
increased 68.3% to $3,179,573 from $1,889,187 for the three months ended June
30, 1996 and increased 71.6% to $5,383,098 from $3,137,094 for the six months
ended June 30, 1996. Earnings per share increased to $0.61 from $0.38 for
three months and to $1.04 from $0.63 for the six month period ending June 30,
1996. Results of operations in 1996 include the results of Superior
Insurance Company since the acquisition on April 30, 1996. The results also
reflect the 48% minority interest in the nonstandard automobile segment
beginning May 1, 1996, of the GS Funds.
The nonstandard automobile segment, Pafco General Insurance Company and
Superior Insurance Company, is experiencing growth and improved profitability
through implementation of new management techniques and operational
efficiencies. The combined ratio of the nonstandard automobile segment has
decreased to 100.6% for the six months ended June 30, 1996 from 103.2% for the
comparable period in the prior year, while premium volume has for the six
months ended June 30, 1996 increased 217% from the comparable period in the
prior year, including a 129% increase due to the acquisition of Superior
Insurance Company, as a result of improved service to the agent,introduction
of new products and cost efficiencies through consolidation.
The crop insurance segment, IGF Insurance Company, has increased its gross
business for the six months ended June 30, 1996 by 67.6% from the comparable
period of the prior year as a result of larger market share, an increase in
its agency force and the products offered to the farming community developed
exclusively by IGF Insurance Company. This increased volume has generated a
broader geographic spread of risk which reduces exposure. Although
underwriting results for winter wheat crops were adversely affected by
drought conditions, these losses were offset, in part, by unusually good
results from Florida citrus crops. Additionally, weather conditions for
summer crops in most growing areas where IGF Insurance Company markets its
products have been favorable. The next main peril in the MPCI crop year is
freeze. Volume for hail business for the six months ended June 30, 1996 has
increased 47% from the comparable period of the prior year and the year-to-
date loss ratio is below historic results although final crop year results
have not been determined.
The reinsurance division, Granite Reinsurance Company Ltd., is benefiting from
the growth in the Florida book of business as it now reinsures 100% of the
Company's Florida business.
Shareholders' equity increased to $18,376,016 at June 30, 1996 from
$12,622,132 at December 31, 1995.
RESULTS OF OPERATIONS
For the three and six months ending June 30, 1996, the Company recorded net
income of $3,179,573 and $5,383,098 or $0.61 and $1.04 per share. This is
approximately a 68.3% and 71.6% increase from 1995 comparable amounts of
$1,889,187 and $3,137,094 or $0.38 and $0.63 per share. The improved earnings
were attributed to substantial improvement in the results of the nonstandard
automobile segment and continued growth and profit in the crop segment. The
nonstandard automobile segment demonstrated significant improvement due to the
acquisition of Superior Insurance Company and improved results from Pafco
General Insurance Company. This segment has premium growth of 217% for the
six months ended June 30, 1996 as compared to the corresponding period of the
prior year through marketing and product enhancements and improved loss and
expense ratios from operational innovations and effective claims management.
Changes in gross premium revenue for the three and six months ended June 30,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30
1996 1995 Increase Percentage
(Decrease)
<S> <C> <C> <C> <C>
Nonstandard Automobile $ 48,499,878 $ 8,136,987 $40,362,891 496.04%
Crop 59,551,893 34,812,399 24,739,494 71.07%
Other 1,808,108 7,294,880 (7,113,560) (75.21%)
Total $109,859,879 $50,244,266 $59,615,613 118.65%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995 Increase Percentage
(Decrease)
<S> <C> <C> <C>
Nonstandard Automobile $ 60,351,889 $19,522,602 $40,829,287 209.14%
Crop 84,867,738 50,648,379 34,219,359 67.56%
Other 6,061,869 15,875,915 (9,814,046) (61.82%)
Total $151,281,496 $86,046,896 $65,234,600 75.81%
</TABLE>
Changes in net premiums earned for the three and six months ended June 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30
1996 1995 Increase Percentage
(Decrease)
<S> <C> <C> <C> <C>
Nonstandard Automobile $39,218,078 $ 6,414,096 $32,803,982 511.44%
Crop 6,062,138 8,431,962 (2,369,824) (28.11%)
Other 5,792,297 4,533,732 1,258,565 27.76%
Total $51,072,513 $19,379,790 $31,692,723 163.53%
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995 Increase Percentage
(Decrease)
<S> <C> <C> <C> <C>
Nonstandard Automobile $52,844,012 $14,324,951 $38,519,061 268.89%
Crop 6,221,781 8,464,149 (2,242,368) (26.49%)
Other 16,525,031 $11,873,411 4,651,620 39.18%
Total $75,590,824 $34,662,511 $40,928,313 118.08%
</TABLE>
Increases in gross premium revenue and net premiums earned for the nonstandard
automobile segment for the six months ended June 30, 1996 include $25,202,196
and $23,428,791 due to the acquisition of Superior Insurance Company as of
April 30, 1996. Gross premium revenue in 1996 grew 61% and 44% for Superior
Insurance Company and Pafco General Insurance Company, respectively, due to
better management, improved service and multi-tier marketing. These same
factors, coupled with the elimination of the quota share reinsurance effective
January 1, 1996, led to growth in net premiums earned.
Increases in gross premium revenue for crop insurance for the three and six
months ended June 30, 1996 is due to improved marketing of products to
farmers electing higher crop price levels to be insured under MPCI buy-up
coverages, an increase in MPCI policies in force and the introduction of a new
product called Crop Reserve Coverage ("CRC"). During the six months ended June
30, 1996, this program was available for corn and soybeans in all counties in
Iowa and Nebraska. The FCIC subsequently announced this program will be
available for winter wheat in seven new states.
Decreases in gross premium revenue for the other business is due to the
cessation of the quota share treaty reinsured through Granite Reinsurance
Company Ltd. The treaty will continue to run-off, resulting in earned
premiums until completion of the run-off.
Net investment and other income increased $3,622,314 and $3,817,506 for the
three and six months ended June 30, 1996 as compared to the corresponding
periods of the prior year. Such increase was due to increased billing fees
of $310,671 and $1,696,075 due primarily to the acquisition of Superior
Insurance Company. The remaining increase was due to a combination of greater
invested assets and a repositioning of the Company's investment portfolio,
which included a realized gain of approximately $2,000,000 from the sale of
equity securities acquired as part of the Superior Insurance Company
acquisition.
Net claims incurred were $39,951,261 and $56,548,363 or 78.22% and 74.81% of
net premiums earned for the three and six months ended June 30, 1996 versus
$13,790,488 and $23,713,615 or 71.16% and 68.41% of net premiums earned for the
corresponding period of 1995. The loss ratios for 1996 have increased over the
prior year due to the substantial increase in the nonstandard automobile
premium volume as a percentage of the total business written.
Operating expenses have increased as a result of the increased volume of
business produced by the Company combined with a higher percentage of net
premiums retained and corresponding reductions in reinsurance commission
income. Operating expenses rose to $10,763,139 and $16,755,942 or 21.07%
and 22.17% of net premium earned for the three and six months ended June 30,
1996 compared to $4,782,850 and $9,205,771 or 24.68% and 26.56% of net
premium earned in the corresponding period of 1995. There is a
disproportionate relationship between increased operating expenses and
increased net retention of business. The expense ratio for the nonstandard
automobile segment improved to 29.8% for the first six months of 1996 as
compared to 33.2% in 1995 due to operational efficiencies and more effective
management focus.
Due to the unique accounting for the crop insurance segment, operating expenses
for the three and six months ended June 30, 1996 includes $13,885,000 and
$21,077,000, as compared to comparable amounts of $7,245,000 and $11,000,000
for 1995 for buy-up expense reimbursement payments and MPCI underwriting gain.
Interest expense increased $973,889 and $1,018,664 for the three and six
months ended June 30, 1996 as compared to the corresponding periods of the
prior year due primarily to interest incurred since April 30, 1996 on the $48
Million of debt incurred to purchase Superior Insurance Company and the $7.5
Million IGF Holdings Note.
The Superior acquisition debt was tied to one month LIBOR through November 15,
1996 and was effectively fixed at 8.31% through an interest rate swap. The
rate was subsequently converted to 3 month LIBOR and effectively fixed at 9.02%
through July 30, 1997 through extension of the swap agreement.
Provisions for income taxes were 21.47% and 24.04% of pre-tax income for the
three and six months ended June 30, 1996 as compared to 19.76% and 26.40% for
the corresponding periods of the prior year.
FINANCIAL CONDITION
The Company's total assets of $303,012,235 at June 30, 1996 increased
$190,125,873 from the $112,886,362 total as of December 31, 1995. This
increase is principally due to the acquisition of Superior Insurance Company
which had assets of $164 Million at the date of acquisition plus growth in
business in the nonstandard automobile and crop segments.
The Company's total liabilities as of June 30, 1996 of $284,636,219 increased
as well from the total liabilities as of December 31, 1995 of $100,264,230 due
to the acquisition of Superior Insurance Company which had $101 Million of
liabilities at the date of acquisition; the $48 Million in the Superior
acquisition loan and the $21.6 Million minority interest.
The invested assets of the Company are $183,633,992 as of June 30, 1996,
increasing from $54,365,700 at December 31, 1995 primarily due to $119 Million
in invested assets acquired with Superior Insurance Company plus growth in
business in the nonstandard automobile and crop segments.
Goran's shareholders equity grew from $12,622,132 at December 31, 1995 to
$18,376,016 at June 30, 1996. The long term debt to equity ratio has increased
during 1996 as long term debt was increased by $49,907,427 due to the
acquisition of Superior Insurance Company. Long term debt to equity was 1.34
to 1 at December 31, 1995 and 3.64 to 1 at June 30, 1996. However, including
minority interest as a component of equity reduces this ratio to 1.67 to 1.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
One of the Company's subsidiaries, IGF Insurance Company ("IGF"),
is the administrator of a run-off book of business. The Federal
Crop Insurance Corporation ("FCIC") has requested that IGF
take responsibility for the claims liabilities of these policies
under its administration. IGF has requested reimbursement of
certain expenses from the FCIC with respect to this run-off
activity. IGF instituted litigation against the FCIC on March
23, 1995 in the United States District Court for the Southern
District of Iowa seeking $4.3 million (US) as reimbursement for
these expenses. The FCIC has counterclaimed for approximately
$1.2 million (U.S.) in claims payments for which the FCIC
contends IGF is responsible for as successor to the run-off
book of business. While the final result of this litigation
cannot be predicted with certainty, the Company believes that the
final resolution of this lawsuit will not have a material adverse
effect on the financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.01 computation of earnings per share in accordance
with United States Generally Accepted Accounting
Principles.
(b) Reports on Form 8-K
(1) The Company filed a Form 8-K on February 9, 1996
announcing the agreement to form a non-standard auto
insurance joint venture with investment funds
affiliated with Goldman Sachs, as well as the
execution of an agreement for such joint venture to
acquire, subject to regulatory approval, Superior
Insurance Company and subsidiaries.
(2) The Company filed Form 8-Ks on May 15, 1996,
July 15, 1996 and July 31, 1996 relating to the
formation of GGS Management Holdings, Inc. and the
acquisition of Superior Insurance Company and related
historical and pro-forma financial statements of
businesses acquired.
<PAGE>
<TABLE>
GORAN CAPITAL INC. Exhibit 11.01
CONSOLIDATED ANALYSIS OF EARNINGS PER SHARE - US GAAP
FOR THE SIX MONTHS ENDING
<CAPTION>
June 30, June 30,
1996 1995
<S> <C> <C>
TSE Trading Activity:
Period Covered Jan - June Jan - June
Volume Number 934,384 716,905
Value (US $) $11,009,126 $3,851,419
Average Price (US $) $ 11.78 $ 5.37
****************
Proceeds from Exercise
of Warrants and
Options (US $) $ 957,948 $1,366,522
Shares Repurchased - Treasury 81,304 254,365
Shares Outstanding - Weighted Average 5,172,105 4,976,049
Add: Option & Warrants Outstanding 502,202 794,535
Less Treasury Method - Shares
Repurchase (81,304) (254,365)
Shares Outstanding for US GAAP Purpose 5,593,003 5,516,219
Net Earnings in Accordance with US GAAP 4,745,872 3,302,669
Earnings Per Share - US GAAP
(Primary and Fully Diluted) $ 0.85 $ 0.60
Earnings Per Share - CDN GAAP
Basic $ 1.04 $ 0.63
Fully Diluted $ 0.96 $ 0.57
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 14, 1996 By:________/s/_____________
Alan G. Symons
President
Dated: August 14, 1996 By:________/s/_____________
Gary P. Hutchcraft
Vice President, Treasurer
and Chief Financial Officer
