FORM 10-K/A2*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
* Amendment No. 2 to Form 10-K for the fiscal year ended December 31, 1996
(MARK ONE)
( X ) Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the year ended December 31, 1996.
( ) 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: 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 Identification No.)
Incorporation or organization)
181 University Avenue, Suite 1101 M5H 3M7
Toronto, Ontario Canada
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (416) 594-1155 (Canada)
(317) 259-6300 (U.S.A.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the Issuer's Common Stock held by nonaffiliates,
as of March 25, 1997 was $128,101,996 (US).
The number of shares of Common Stock of the Registrant, without par value,
outstanding as of March 25, 1997 was 5,569,652.
Documents Incorporated By Reference:
Portions of the Annual Report to Shareholders and the Proxy Statement for the
1997 Annual Meeting of Shareholders are incorporated into Parts II and III. [ ]
<PAGE>
Exchange Rate Information
The accounts and financial statements of Goran Capital Inc. (the "Company") are
maintained in U.S. Dollars. In this Report all dollar amounts are expressed in
U.S. Dollars except where otherwise indicated.
The following table sets forth, for each period indicated, the average exchange
rates for U.S. Dollars expressed in Canadian Dollars on the last day of each
month during such period, the high and the low exchange rate during that period
and the exchange rate at the end of such period, based upon the noon buying rate
in New York City for cable transfers in foreign currencies, as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate").
Foreign Exchange Rates
U.S. to Canadian Dollars
For The Years Ended December 31,
1996 1995 1994 1993 1992
Average .7339 .7287 .7322 .7733 .8342
Period End .7301 .7325 .7129 .7544 .7865
High .7472 .7465 .7642 .8046 .8757
Low .7270 .7099 .7097 .7439 .7761
Accounting Principles
The financial information contained in this document is stated in U.S. Dollars
and is expressed in accordance with Canadian Generally Accepted Accounting
Principles unless otherwise stated.
<PAGE>
GORAN CAPITAL INC.
ANNUAL REPORT ON FORM 10-K/A
December 31, 1996
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The documents listed below are filed as a part of this Report except as
otherwise indicated:
1. Financial Statements. The following described consolidated financial
statements found on pages 14 through 33 of the 1996 Annual Report indicated
below are incorporated into Item 8 of this Report by reference.
Description of Financial Statement Item
Report of Independent Accountants
Consolidated Balance Sheets, December 31,
1996 and 1995
Consolidated Statements of Earnings, Years
Ended December 31, 1996 and 1995
Consolidated Statements of Retained Earnings
(Deficit), Years Ended December 31,
1996 and 1995
Consolidated Statements of Changes in Cash Resources,
Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements,
Years Ended December 31, 1996 and 1995
The following described consolidated financial statements found on pages 12
through 23 of the 1995 Annual Report indicated below are incorporated into Item
8 of this Report by reference.
Description of Financial Statement Item
Report of Independent Accountants
Consolidated Balance Sheets, December 31,
1995 and 1994
Consolidated Statements of Operations, Years
Ended December 31, 1995 and 1994
Consolidated Statements of Deficit,
Years Ended December 31, 1995 and 1994
Consolidated Statements of Changes in Cash Resources,
Years Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements,
Years Ended December 31, 1995 and 1994
<PAGE>
2. Financial Statement Schedules.
The following financial statement schedules are included herein.
Description of Financial Statement Item
Report of Independent Accountant On Differences
Between Canadian and United States Generally
Accepted Accounting Principles and
Supplementary Schedules
Differences Between Canadian And United States
Generally Accepted Accounting Principles
Exhibit 1 - Consolidated Statement of Changes
In Cash Resources
Exhibit 2 - Summary of Investments That Exceed
10% Of Shareholders' Equity
Exhibit 3 - Summary of Non Income Producing
Investments
Exhibit 4 - Amounts Due From Insurance Companies
In Excess of 10% of Shareholders' Equity
Exhibit 5 - Analysis Of Changes In Shareholders'
Equity
Schedule I - Summary Of Investments Other Than
Investments In Related Parties
Schedule II - Condensed Financial Information
Of Registrant
Schedule IV - Reinsurance
Schedule V - Valuation And Qualifying Accounts
Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations
Schedules other than those listed above have been omitted because the required
information is contained in the financial statements and notes thereto or
because such schedules are not required or applicable.
3. Exhibits. The Exhibits set forth on the Index to Exhibits are incorporated
herein by reference.
4. Reports on Form 8-K. Registrant filed no reports on Form 8-K during the
quarter ended December 31, 1996.
<PAGE>
GORAN CAPITAL INC.
Differences Between Canadian And United States General Accepted Accounting
Principles For The Years Ended December 31, 1996, 1995 and 1994
A reconciliation of financial statement amounts from Canadian Generally Accepted
Accounting Principles to U.S. Generally Accepted Accounting Principles is as
follows:
1996 1995 1994
Net Earnings In Accordance
With Canadian Generally
Accepted Accounting Principles $31,296 $7,171 $3,940
Add Effect Of Difference In
Accounting For:
Deferred Income Taxes
(See Note (e)) (64) (344) 1,180
Outstanding Claims
(See Note (f)) 62 (161) 88
Net Earnings In Accordance
With United States Generally
Accepted Accounting Principles $31,294 $6,666 $5,208
Applying United States Generally Accepted Accounting Principles, deferred income
tax assets would be increased by $1,357, $1,466 and $1,742, outstanding claims
would be increased by $1,261, $1,327 and $1,134 and cumulative translation
adjustment would be increased by $41, $36, and $14, as at December 31, 1996,
1995 and 1994, respectively. As a result of these adjustments, retained earnings
would be increased by $96, $139 and $608 as at December 31, 1996, 1995 and 1994,
respectively. The effect of the above noted differences on other individual
balance sheet items and on working capital is not significant.
B. Earnings Per Share
Earnings per share, as determined in accordance with United States Generally
Accepted Accounting Principles, are set out below. Primary earnings per share
are computed based on the weighted average number of common shares outstanding
during the year plus common share equivalents consisting of stock options and
warrants. Primary and fully diluted earnings per share are calculated using the
Treasury Stock method and assume conversion of securities when the result is
dilutive.
The following average number of shares were used for the compilation of primary
and fully diluted earnings per share:
1996 1995 1994
Primary $5,724,476 $5,567,644 $5,399,463
Fully Diluted 5,724,476 5,567,644 5,399,463
Earnings per share, as determined in accordance with U.S. Generally
Accepted Accounting Principles, are as follows:
1996 1995 1994
Primary Earnings Per Share $5.47 $1.20 $0.96
Fully Diluted Earnings Per Share 5.47 1.20 0.96
C. Statement Of Changes In Cash Resources
U.S. Generally Accepted Accounting Principles require that the components of the
changes in cash resources, in most cases, be reported on a gross basis.
Exhibit 1 is a Statement of Cash Resources that incorporates the necessary added
disclosure detail.
<PAGE>
D. Supplemental Cash Flow Information
Cash paid for interest and income taxes is summarized as follows:
1996 1995 1994
Cash Paid For Interest $4,005 $1,548 $1,773
Cash Paid For Income Taxes,
Net of Refunds 9,825 1,953 166
E. Income Taxes
The difference in accounting for deferred income taxes reflects the adoption for
U.S. Generally Accepted Accounting Principles, effective January 1, 1993, of
Statement of Financial Accounting Standards No. 109 ("SFAS" No. 109"),
"Accounting for Income Taxes". This standard requires an asset and liability
approach that takes into account changes in tax rates when valuing the deferred
tax amounts to be reported in the balance sheet.
Deferred tax assets recognized under Canadian Generally Accepted Accounting
Principles and Accounting Principles Board Opinion No. 11, which require
realization beyond a reasonable doubt in order to record the assets, amounted to
$NIL, $73 and $214 at December 31, 1996, 1995 and 1994, respectively, and
pertained to Canadian operations only.
The adoption of SFAS No. 109 results in additional deferred tax assets
recognized for deductible temporary differences and loss carry-forwards in the
amount of $3,531, $2,581 and $2,375 net of valuation allowances of $NIL, $69 and
$260 and deferred tax liabilities recognized for taxable temporary differences
in the amount of $2,174, $1,114 and $633 at December 31, 1996, 1995 and 1994,
respectively.
F. Outstanding Claims
The difference in accounting for outstanding claims reflects the application for
U.S. Generally Accepted Accounting Principles of SEC Staff Accounting Bulletin
No. 62, "Discounting By Property/Casualty Insurance Companies". This standard
does not allow discounting of unpaid claim liabilities by public companies,
except in specific circumstances that are not applicable to the Company.
G. Receivables From Sale Of Capital Stock
The SEC Staff Accounting Bulletins require that accounts or notes receivable
arising from transactions involving capital stock should be presented as
deductions from shareholders' equity and not as assets. Accordingly, in order to
comply with U.S. Generally Accepted Accounting Principles, shareholders' equity
would be reduced by $595, $563 and $593 at December 31, 1996, 1995 and 1994,
respectively, to reflect the loans due from certain shareholders which relate to
the purchase of common shares of the Company.
H. Concentration Of Investments
U.S. Generally Accepted Accounting Principles require that disclosure be made of
significant concentrations of investments and of investments that are non-income
producing. The Company considers investments whose value exceeds 10% of
shareholders' equity to be significant. The relevant disclosures are provided in
Exhibits 2 and 3, respectively.
I. Concentrations of Credit Risk
U.S. Generally Accepted Accounting Principles require disclosure of significant
concentrations of credit risk. The Company's credit risk is with respect to
amounts receivable from other insurance companies. The Company considers credit
risks in excess of 10% of shareholders' equity to be significant. The relevant
disclosure is provided in Exhibit 4.
J. Unrealized Loss On Investments
U.S. Generally Accepted Accounting Principles require that unrealized losses on
investment portfolios be included as a component in determining shareholders'
equity. In addition, SFAS No. 115 permits prospective recognition of unrealized
gains on investment portfolios for year-ends commencing after December 15, 1993.
As a result, shareholders' equity would be increased by $1,225 as at December
31, 1996 and reduced by $221 and $1,383 as at December 31, 1995 and 1994,
respectively.
<PAGE>
K. Changes In Shareholders' Equity
An analysis of the components of the change in shareholders' equity, determined
in accordance with Canadian Generally Accepted Accounting Principles, is
provided in Exhibit 5.
A reconciliation of shareholders' equity from Canadian Generally Accepted
Accounting Principles to U.S. Generally Accepted Accounting Principles
is as follows:
1996 1995 1994
Shareholders' Equity In Accordance
With Canadian Generally
Accepted Accounting Principles $47,258 $12,622 $ 5,067
Add (deduct) Effect Of Difference
In Accounting For:
Deferred Income Taxes (See
Note (a)) 1,357 1,466 1,742
Outstanding Claims (See
Note (a)) (1,261) (1,327) (1,134)
Receivables From Sale Of
Capital Stock (See Note (g)) (595) (563) (593)
Unrealized Gain (Loss) On
Investments (See Note (j)) 1,225 (221) (1,383)
Shareholders' Equity (Deficiency)
In Accordance With U.S.
Generally Accepted
Accounting Principles $47,984 $11,977 $ 3,699
<PAGE>
GORAN CAPITAL INC.
Consolidated Statement of Changes
In Cash Resources
For the Year Ended December 31,
(In Thousands of U.S. Dollars)
1996 1995 1994
Cash Provided By Operating
Activities:
Net income for the period $ 31,296 $7,171 $3,941
Items Not Affecting Cash
Resources:
Amortization 2,438 693 566
Minority Interest In Net
Income Of Consolidated
Subsidiary 2,801 (16) 16
Loss (gain) On Sale Of
Investments 637 198 (358)
Loss (gain) On Sale Of Capital
Assets (4) (7) (1)
Increase in Unearned Premiums 13,178 9,247 (7,037)
Increase (Decrease) In
Outstanding Losses (4,545) 29,289 (18,341)
Decrease (Increase) In Deferred
Policy Acquisition Costs 1,649 (3,058) (864)
Decrease In Deferred Income
Taxes 73 147 214
Decrease In Goodwill 0 0 0
Decrease (Increase) in
Reinsurance Recoverable on
outstanding claims 8,464 (25,930) 22,259
Decrease (Increase) in prepaid
reinsurance premiums (8,785) 916 (3,548)
Decrease (Increase) In Other
Assets (2,433) (470) 78
Items Not Involving Cash 13,473 11,009 7,058
Increase (Decrease) In Accounts
Payable 5,576 (2,291) 1,352
Decrease (Increase) In Accounts
Receivable (19,448) (6,252) (13,775)
Changes In Operating Working
Capital (13,872) (8,543) (12,423)
30,897 9,637 (1,424)
Financing Activities:
Issue Of Share Capital 599 303 34
Reduction Of Subordinated
Debenture (11,085) (1,462) (1,047)
Increase (Decrease) Of
Borrowed Funds 42,189 220 722
Increase (Decrease) in
Contributed Surplus 2,775 0 0
Increase (Decrease) in
Minority Interest 38,225 0 0
Investing Activities:
Net (Purchase) Sale Of
Marketable Securities (11,996) (4,147) 2,118
Acquisition of subsidiary (66,590) 0 0
Proceeds On Sale Of Capital
Assets 14 11 5
Net Purchase Of Capital Assets (2,473) (1,692) (634)
Other 563 155 (401)
Change In Cash Resources
During The Year 23,118 3,025 (627)
Cash Resources, Beginning Of Year 10,613 7,588 8,215
Cash Resources, End Of Year 33,731 10,613 7,588
Cash Resources Are Comprised Of:
Cash 4,679 4,171 (116)
Short-Term Investments 29,052 6,442 7,704
33,731 10,613 7,588
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED SUMMARY OF INVESTMENTS
THAT EXCEED 10% OF SHAREHOLDERS' EQUITY
For The Year Ended December 31, 1996
(In Thousands of U.S. Dollars)
Fixed Short-Term Total
Maturities Investments Investment
Federal Home
Loan Bank $ 9,770 $ $ 9,770
Federal
National
Mortgage
Association $14,885 $ $14,885
U.S.
Treasury
Notes $26,318 $ $26,318
U.S.
Treasury
Bills $ $10,292 $61,265
<PAGE>
GORAN CAPITAL INC.
Consoldiated Shareholders' Equity In Accordance
With United States GAAP
As At December 31, 1996
(In Thousands of U.S. Dollars)
Consolidated Shareholders' Equity
in Accordance with U.S. GAAP $47,983,000
Threshold (Rounded) 4,798,300
<PAGE>
GORAN CAPITAL INC.
Concentration of Credit Risk
Amounts Due From Other Insurance
Companies Paid and Unpaid Claims
As At December 31, 1996
(In Thousands of U.S. Dollars)
Company Name Amount
Centre Reinsurance (Bermuda) Limited $16,764
Federal Crop Insurance Corporation $21,800
Total $38,564
Notes: Accounts listed above are amounts greater than $4,798,000 (U.S.) which is
approximately 10% of Shareholders' Equity at December 31, 1996. Amounts are net
of trust accounts posted as collateral with original cedents, with respect to
certain retrocession agreements in which the Company is a retrocessionnaire.
<PAGE>
GORAN CAPITAL INC.
ANALYSIS OF CHANGES IN SHAREHOLDERS' EQUITY
As at December 31,
(In Thousands of U.S. Dollars)
1996 1995 1994
Capital Stock $16,875 $ 16,126 $ 16,091
Contributed Surplus 0 0 0
Deficit (3,895) (11,066) (15,007)
Cumulative Translation Adjustment (358) 7 (173)
Shareholders' Equity -
Opening Balance $12,622 $ 5,067 $ 911
Activity For The Year
Issue Of Share Capital 541 749 35
Contributed Surplus 2,775 0 0
Net Income For The Year 31,296 7,171 3,941
Translation Adjustment for The Year 24 (365) 180
Shareholders' Equity -
Ending Balance 47,258 12,622 5,067
Comprised Of:
Capital Stock 17,416 16,875 16,126
Contributed Surplus 2,775 0 0
Retained Earnings (Deficit) 27,401 (3,895) (11,066)
Cumulative Translation Adjustment (334) (358) 7
Shareholders' Equity -
Ending Balance 47,258 12,622 5,067
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
As at December 31, 1996
(In Thousands of U.S. Dollars)
Estimated Amount On
Type of Investment Cost Market Value Balance Sheet
Fixed Maturities:
Bonds:
Government and Government
Agencies $ 57,804 $ 57,826 $ 57,804
States and Municipalities 3,587 3,651 3,587
Public Utilities 350 379 350
All Other Corporate Bonds 76,071 76,527 76,071
Total Fixed Maturities $137,812 $138,383 $137,812
Equity Securities:
Common Stocks $ 28,075 $ 28,729 $ 28,075
Preferred Stocks 0 0 0
Total Equity Securities $ 28,075 $ 28,729 $ 28,075
Mortgage Loans on Real Estate 2,430 2,430 2,430
Real Estate 4,548 4,548 4,548
Other Long-Term Investments 75 75 75
Short Term Investments 29,052 29,052 29,052
Total Investments $201,992 $203,217 $201,992
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (Parent Company)
Balance Sheet
As At December 31,
(In Thousands U.S. Dollars)
1995 1996
Assets
Cash $ 319 $ 812
Accounts Receivable 419 379
Capital and Other Assets 543 750
Investment In Subsidiaries 10,772 10,807
Total Assets $ 12,054 $ 12,748
Liabilities and Shareholders' Equity
Accounts Payable $ 9,758 $ 1,225
Other Payables 973 757
Subordinated Debenture 0 11,084
Total Liabilities 10,731 13,066
Shareholders' Equity
Common Shares 18,473 18,002
Deficit (17,150) (18,320)
Total Shareholders' Equity 1,323 (318)
Total Liabilities and Shareholders' Equity $12,054 $12,748
GORAN CAPITAL INC.
Statement of Earnings (Loss)
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
1996 1995 1994
Revenues
Management Fees $ 352 $ 796 $ 901
Royalty Income 0 0 69
Dividend Income 3,500 0 0
Other Income 0 0 1,449
Net Investment Income 264 448 399
Total Revenues 4,116 1,244 2,818
Expenses
Debenture Interest Expense 868 998 1,089
Amortization 200 114 160
General, Administrative And
Acquisition Expenses 1,879 1,338 1,170
Total Expenses 2,946 2,450 2,419
Net Income (Loss) $ 1,170 $ (1,206) 399
Deficit, beginning of year (18,320) (17,114) (17,513)
Deficit, end of year (17,150) (18,320) (17,114)
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
For The Years Ended December 31, 1994, 1995
and 1996
(In Thousands of U.S. Dollars)
1994 1995 1996
Cash Flows From Operations:
Net Income (Loss) $ 1,170 $ (1,206) $ 399
Items Not Involving Cash:
Amortization 199 114 160
Gain on Sale of Capital Assets (4) (7) 0
Decrease (Increase) in Accounts
Receivable (40) 1,822 40
Decrease (Increase) in Other
Assets (3) (29) (2)
Increase (Decrease) in Accounts
Payable 8,533 1,227 (164)
Increase (Decrease) in Other
Payables 0 (141) (214)
Net Cash Provided (Used) by Operations 10,071 1,780 219
Cash Flows From Financing Activities:
Redemption of Share Capital by
Subsidiary 0 0 623
Proceeds on Sale of Capital
Assets 14 11 0
Issue of Common Shares 599 305 35
Net Cash Provided By Financing
Activities 613 316 658
Cash Flows From Investing Activities:
Purchase of Fixed Assets 0 (3) 0
Other, net (93) 3 0
Reduction of Debentures (11,084) (1,454) (1,076)
Net Cash Used by Investing Activities: (11,177) (1,454) (1,076)
Net Increase (Decrease) in Cash (493) 642 (199)
Cash at Beginning of Year 812 170 369
Cash At End of Year 319 812 170
Cash Resources are Comprised of:
Cash 187 109 (29)
Short-Term Investments 132 703 199
319 812 170
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL
INFORMATION OF REGISTRANT
For The Years Ended December 31, 1994, 1995
and 1996
Basis of Presentation
The condensed financial information should be read in conjunction with the
consolidated financial statements of Goran Capital Inc. The condensed financial
information includes the accounts and activities of the Parent Company which
acts as the holding company for the insurance subsidiaries.
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE IV - REINSURANCE
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
1996 1995 1994
Direct Amount $102,178 $122,088 $298,596
Assumed From Other
Companies $ 24,800 $ 29,629 $ 9,038
Ceded To Other
Companies $ 68,505 65,356 87,202
Net Amount $ 58,473 $ 86,361 $220,432
Percentage Of Amount
Assumed To Net 42.4% 34.3% 4.1%
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
1994-Allowance 1995-Allowance 1996-Allowance
for Doubtful for Doubtful for Doubtful
Accounts Accounts Accounts
Additions:
Balance At Beginning
Of Period $1,179 $1,209 $ 927
Charged To Costs
And Expenses (1) (86) 2,523 5,034
Charged to Other
Accounts - - - - - - 0
Deductions From
Reserves (116) (2) 2,805 (2) 4,981 (2)
Balance At End
Of Period $1,209 $ 927 $1,480
(1) In 1993, the Company began to direct bill policyholders rather than agents
for premiums. Therefore, bad debt expenses in 1993 increased accordingly.
During late 1994 and into 1995, the Company experienced an increase in
premiums written. During 1995, the Company further evaluated the
collectibility of this business and incurred a bad debt expense of approxi-
mately $2.5 million. The Company continually monitors the adequacy of its
allowance for doubtful accounts and believes the balance of such allowance
at December 31, 1993, 1994 and 1995 was adequate.
(2) Uncollectible accounts written off, net of recoveries.
<PAGE>
GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY - CASUALTY INSURANCE OPERATIONS
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
1996 1995 1994
Deferred Policy
Acquisition Costs $ 12,800 $ 2,379 $ 1,479
Reserves for Losses and
Loss Adjustment Expenses 101,719 59,421 29,269
Unearned Premiums 87,825 17,497 14,416
Earned Premiums 191,759 49,641 32,126
Net Investment Income 6,738 1,173 1,241
Losses And Loss Adjustment
Expenses Incurred Related To:
Current Years 137,895 35,184 26,268
Prior Years (570) 787 202
Paid Losses And Loss
Adjustment Expenses 130,895 31,075 26,995
Amortization Of Deferred
Policy Acquisition Costs 27,657 7,150 4,852
Premiums Written 305,499 $124,634 $103,134
Note: All amounts in the above table are net of the effects of reinsurance and
related commission income, except for net investment income regarding which
reinsurance is not applicable, premiums written liabilities for losses and loss
adjustment expenses, and unearned premiums which are stated on a gross basis.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this amended report to
be signed on its behalf by the undersigned, thereto duly authorized.
GORAN CAPITAL INC.
May 19, 1997 By: /s/ Alan G. Symons
--------------------------------------
Alan G. Symons,
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Reference to
Regulation S-K
Exhibit No. Document
1 Final Draft of the Underwriting Agreement dated November 4
1996 among Registrant, Symons International Group, Inc.,
Advest, Inc. and Mesirow Financial, Inc.
3.1 The Registrant's Articles of Incorporation are incorporated
by reference to Exhibit 1 of the Registrant's Form 20-F,
filed October 31, 1994.
3.2 Registrant's Restated Bylaw 1
4.1 Sample Share Certificate and Articles of Amalgamation
defining rights attaching to common shares are incorporated
by reference to Exhibit 2 of Registrant's Form 20-F filed
October 31, 1994.
10.1 The Stock Purchase Agreement among Registrant, Symons
International Group, Inc., Fortis, Inc. and Interfinancial,
Inc. dated January 31, 1996 is incorporated by reference to
Exhibit 10.1 of Symons International Group, Inc.'s
Registration Statement on Form S-1, Reg. No. 333-9129.
10.2(1) The Stock Purchase Agreement among GGS Management Holdings,
Inc., GS Capital Partners II, L.P., Registrant and Symons
International Group, Inc. dated January 31, 1996 is
incorporated by reference to Exhibit 10.2(1) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.2(2) The First Amendment to the Stock Purchase Agreement by and
among GGS Management Holdings, Inc., GS Capital Partners II,
L.P., Registrant and Symons International Group, Inc. dated
March 28, 1996 is incorporated by reference to Exhibit
10.2(2) of Symons International Group, Inc.'s Registration
Statement on Form S-1, Reg. No. 333-9129.
10.2(3) The Second Amendment to the Stock Purchase Agreement by and
among GGS Management Holdings, Inc., GS Capital Partners II,
L.P., Registrant and Symons International Group, Inc. dated
April 30, 1996 is incorporated by reference to Exhibit
10.2(3) of Symons International Group, Inc.'s Registration
Statement on Form S-1, Reg. No. 333-9129.
10.2(4) The Third Amendment to the Stock Purchase Agreement by and
among GGS Management Holdings, Inc., GS Capital Partners II,
L.P., Registrant, Symons International Group, Inc. and Pafco
General Insurance Company dated September 24, 1996 is
incorporated by reference to Exhibit 10.2(4) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.3(1) The Stockholders Agreement among GGS Management Holdings,
Inc., GS Capital Partners II, L.P., Symons International
Group, Inc. and Registrant dated April 30, 1996 is
incorporated by reference to Exhibit 10.3(1) of the Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.3(2) The Amended and Restated Stockholder Agreement among GGS
Management Holdings, Inc., GS Capital Partners II, L.P.,
Symons International Group, Inc. and Registrant dated
September 24, 1996 is incorporated by reference to Exhibit
10.3(2) of Symons International Group, Inc.'s Registration
Statement on Form S-1, Reg. No. 333-9129.
10.4 The Registration Rights Agreement among GGS Management
Holdings, Inc., GS Capital Partners II, L.P., Registrant and
Symons International Group, Inc. dated April 30, 1996 is
incorporated by reference to Exhibit 10.4 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.5 The Management Agreement among Superior Insurance Company,
Superior American Insurance Company, Superior Guaranty
Insurance Company and GGS Management, Inc. dated April 30,
1996 is incorporated by reference to Exhibit 10.5 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
<PAGE>
10.6 The Management Agreement between Pafco General Insurance
Company and Symons International Group, Inc. dated May 1,
1987, as assigned to GGS Management, Inc. effective April
30, 1996, is incorporated by reference to Exhibit 10.6 of
Symons International Group, Inc.'s Registration Statement on
Form S-1, Reg. No. 333-9129.
10.7 The Administration Agreement between IGF Insurance Company
and Symons International Group, Inc. dated February 26,
1990, as amended, is incorporated by reference to Exhibit
10.7 of the Symons International Group, Inc.'s Registration
Statement on Form S-1, Reg. No. 333-9129.
10.8 The Agreement between IGF Insurance Company and Symons
International Group, Inc. dated November 1, 1990 is
incorporated by reference to Exhibit 10.8 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.9(1) The Credit Agreement between GGS Management, Inc., various
Lenders and The Chase Manhattan Bank (National Association),
as Administrative Agent, dated April 30, 1996 is
incorporated by reference to Exhibit 10.11(1) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.9(2) The Pledge Agreement between GGS Management Holdings, Inc.
and Chase Manhattan Bank, N.A. dated April 30, 1996 is
incorporated by reference to Exhibit 10.11(2) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.9(3) The Pledge Agreement between GGS Management, Inc. and Chase
Manhattan Bank, N.A. dated April 30, 1996 is incorporated by
reference to Exhibit 10.11(3) of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.9(4) The First Amendment to the Credit Agreement between GGS
Management, Inc., various Lenders and Chase Manhattan Bank,
N.A., as Administrative Agent, dated September 26, 1996
10.9(5) The Second Amendment to the Credit Agreement between GGS
Management, Inc., various Lenders and Chase Manhattan Bank,
N.A., as Administrative Agent, dated December 31, 1996
10.9(6) The Third Amendment to the Credit Agreement between GGS
Management, Inc., various Lenders and Chase Manhattan Bank,
N.A., as Administrative Agent, dated March 26, 1997
10.10 The Registration Rights Agreement between Registrant and
Symons International Group, Inc. dated May 29, 1996 is
incorporated by reference to Exhibit 10.13 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.11(1) The License, Improvement and Support Agreement between
Tritech Financial Systems, Inc. and Symons International
Group, Inc. dated August 30, 1995 is incorporated by
reference to Exhibit 10.14(1) of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.11(2) The License of Computer Software between Tritech Financial
Systems, Inc. and Symons International Group, Inc. dated
August 30, 1995 is incorporated by reference to Exhibit
10.14(2) of Symons International Group, Inc.'s Registration
Statement on Form S-1, Reg. No. 333-9129.
10.12(1) The Agreement among Cliffstan Investments, Inc., Pafco
General Insurance Company and Gage North Holdings, Inc.
dated September 1, 1989 is incorporated by reference to
Exhibit 10.15(1) of Symons International Group, Inc.'s
Registration Statement on Form S-1, Reg. No. 333-9129.
10.12(2) The Purchase of Promissory Note and Assignment of Security
Agreement between Pafco General Insurance Company and
Granite Reinsurance Company, Ltd., dated September 30, 1992
is incorporated by reference to Exhibit 10.15(2) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
<PAGE>
10.12(3) The Guarantee of Alan G. Symons dated April 22, 1994 is
incorporated by reference to Exhibit 10.15(3) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.12(4) The Share Pledge Agreement between Symons International
Group, Ltd. and Pafco General Insurance Company dated April
22, 1994 is incorporated by reference to Exhibit 10.15(4) of
Symons International Group, Inc.'s Registration Statement on
Form S-1, Reg. No. 333-9129.
10.13(1) The Employment Agreement between GGS Management Holdings,
Inc. and Alan G. Symons dated January 31, 1996 is
incorporated by reference to Exhibit 10.16(1) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.13(2) The Employment Agreement between GGS Management Holdings,
Inc. and Douglas H. Symons dated January 31, 1996 is
incorporated by reference to Exhibit 10.16(2) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.14(1) The Employment Agreement between IGF Insurance Company and
Dennis G. Daggett effective February 1, 1996 is incorporated
by reference to Exhibit 10.17(1) of Symons International
Group, Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.14(2) The Employment Agreement between IGF Insurance Company and
Thomas F. Gowdy effective February 1, 1996 is incorporated
by reference to Exhibit 10.17(2) of Symons International
Group, Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.15 The Employment Agreement between Superior Insurance Company
and Roger C. Sullivan, Jr. dated May 9, 1996 is incorporated
by reference to Exhibit 10.18 of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.16 The Employment Agreement between Registrant and Gary P.
Hutchcraft effective June 30, 1996 is incorporated by
reference to Exhibit 10.19 of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.17 The Goran Capital Inc. Stock Option Plan is incorporated by
reference to Exhibit 10.20 of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.18 The GGS Management Holdings, Inc. 1996 Stock Option Plan is
incorporated by reference to Exhibit 10.21 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.19 The Symons International Group, Inc. 1996 Stock Option Plan
is incorporated by reference to Exhibit 10.22 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.20 The Symons International Group, Inc. Retirement Savings Plan
is incorporated by reference to Exhibit 10.24 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.21 The Insurance Service Agreement between Mutual Service
Casualty Company and IGF Insurance Company dated May 20,
1996 is incorporated by reference to Exhibit 10.25 of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.22(1) The Automobile Third Party Liability and Physical Damage
Quota Share Reinsurance. Contract between Pafco General
Insurance Company and Superior Insurance Company is
incorporated by reference to Exhibit 10.27(1) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
<PAGE>
10.22(2) The Crop Hail Quota Share Reinsurance Contract and Crop
Insurance Service Agreement between Pafco General Insurance
Company and IGF Insurance Company is incorporated by
reference to Exhibit 10.27(2) of Symons International Group,
Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.22(3) The Automobile Third Party Liability and Physical Damage
Quota Share Reinsurance Contract between IGF Insurance
Company and Pafco General Insurance Company is incorporated
by reference to Exhibit 10.27(3) of Symons International
Group, Inc.'s Registration Statement on Form S-1, Reg. No.
333-9129.
10.22(4) The Multiple Line Quota Share Reinsurance Contract between
IGF Insurance Company and Pafco General Insurance Company is
incorporated by reference to Exhibit 10.27(4) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.22(5) The Standard Revenue Agreement between Federal Crop
Insurance Corporation and IGF Insurance Company is
incorporated by reference to Exhibit 10.27(5) of Symons
International Group, Inc.'s Registration Statement on Form
S-1, Reg. No. 333-9129.
10.23 The Commitment Letter, effective October 24, 1996, between
Fifth Third Bank of Central Indiana and Symons International
Group, Inc. is incorporated by reference to Exhibit 10.28 of
Symons International Group, Inc.'s Registration Statement on
Form S-1, Reg. No. 333-9129.
10.24 The Reinsurance Agreement No. 1000-91 (Quota Share
Agreement) and Reinsurance agreement No. 1000-90 (Stop Loss
Reinsurance and Reserves Administration Agreement) are
incorporated by reference to Exhibit 3(c) of Registrant's
Form 20-F filed October 31, 1994.
10.25 The Form of Share Option Agreement is incorporated by
reference to Exhibit 10.05 of Registrant's Form 10-K for the
year ended December 31, 1994.
10.26 The Share Pledge Agreement between Symons International
Group, Ltd and Registrant is incorporated by reference to
Exhibit 10.06 of Registrant's Form 10-K for the year ended
December 31, 1994.
10.27 The MPCI Mulit-Year Stop Loss Reinsurance Agreement is
incorporated by reference to Exhibit 10.07 of Registrant's
Form 10-K for the year ended December 31, 1994.
10.28 The Automobile Liability and Physical Damage Quota Share
Reinsurance Agreement, as amended, is incorporated by
reference to Exhibit 10.08 of Registrant's Form 10-K for the
year ended December 31, 1994.
11 Statement re Computation of Per Share Earnings
13.1 Annual Report to Security Holders, 1995 *
13.2 Annual Report to Security Holders, 1996
21 The Subsidiaries of the Registrant are incorporated by
reference to Footnote 1 of the Registrant's consolidated
financial statements contained in its 1996 Annual Report to
Security Holders filed hereunder as Exhibit 13.
<PAGE>
99.1 Management Proxy Circular with respect to 1997 Annual
Meeting of Shareholders of Registrant
99.2 Section captioned "Voting Securities and Beneficial Owners"
in the definitive proxy statement of Symons International
Group, Inc. for the 1997 annual meeting of common
stockholders.
99.3 Section captioned "Indebtedness of Management" in the
definitive proxy statement of Symons International Group,
Inc. for the 1997 annual meeting of common stockholders.
99.4 Section captioned "Certain Relationships/Related
Transactions" in the definitive proxy statement of Symons
International Group, Inc. for the 1997 annual meeting of
common stockholders.
- ---------------
* Included herewith, as revised to correct electronic filer error.
Chairman's Letter
We've been around for 32 years in Canada and the U.S. I'd like to tell you
about some of the significant milestones we have passed.
December 31, 1976, ended our twelfth year since the inception of the
originating company in our group. We concluded that year by writing
$20 million of gross premiums and had a profit of $600,000, record figures
for our company, which, at the time, had offices in four locations;
Vancouver, Toronto, Montreal and Fort Lauderdale. As exciting as the
year was, it was of consequence to only a small group of people, for we
were a "private" company at the time, with a staff of forty.
In 1978 we formed Symons General Insurance Company and followed
that with the acquisition of Pafco Insurance Company in 1983. In less than
three years we took Pafco Financial Holdings "public" on the Toronto
Stock Exchange, with a market valuation of twenty times the net price
we paid for the underlying company, Pafco Insurance Company Ltd.
In 1985 we acquired the Ontario General Insurance Company which we
later sold to take advantage of certain financial aspects in the company.
In 1987 we began focusing on our development in the United States.
We purchased the "desirable" business of a company in Indianapolis
which specialized, as did Pafco Insurance Company of Canada, in the writing
of non-standard automobile insurance. To underwrite this and other
business, we licensed Pafco General Insurance Company of Indiana and then
expanded its operations to other states, obtaining licensing where it was
advantageous to do so.
In June of 1990, in a move to strengthen our Untied States operations, we
sold The Canadian Pafco Insurance Company and the Canadian book of
insurance business in Granite Insurance Company, formerly Symons
General Insurance Company. Concurrently we formed Granite Reinsurance
Company of Barbados to provide a finite reinsurance facility.
Granite Reinsurance concluded 1995 with a gross premium income of
$47,810,000 and a profit of $4,862,000 for the year. Originally established
with a paid in capital of $125,000 and a contribution of $700,000 to
surplus from Granite Insurance Company. Granite Re ended
<PAGE>
1995 with a net worth of $18,087,000, which, apart from the contributions to
capital noted above, was self funded from the operations of the company.
In November of 1990, we acquired IGF Insurance Company of Des
Moines, a crop insurer, for $6.1 million and have seen it develop to such
an extent that we were recently offered in excess of 6 times our original
acquisition price. This was declined by the Board of Directors because
it was considered to be inadequate as there are better means of capitalizing
its growth potential.
As you will read in this report, IGF increased its profits substantially in 1995
and doubled its gross revenues to $93,087,147 (U.S.). For the first quarter of
1996 we have seen this pattern of growth continue and, with the recently
enacted 1996 Farm Bill signed by President Clinton on April 5, 1996, we
expect this growth to accelerate.
This asset, IGF, has become increasingly important to our Group, not only for
the extraordinary growth of its income, but for the increasingly profitable
nature of that income.
A major business transaction was initiated on January 31, 1996, which
may well prove to be the most outstanding thing we have done to date. We
formed a partnership arrangement with Goldman Sachs Capital Partners II, an
affiliate of Goldman Sachs & Co., the highly regarded U.S. investment house,
creating GGS Management Holdings, Inc. This new company will become a major
player in the non-standard auto insurance business in the United States. The
Company entered into an agreement to acquire the Superior American Insurance
Company, Superior Guaranty Insurance Company and another corporation known
as Standard Plan, Inc. We merged our Pafco General Insurance Company to GGS
Management. (No, the initials aren't mine, they represent Goran, Goldman
Sachs.)
Superior writes in excess of $100 million in non-standard auto insurance, which,
along with similar business underwritten by Pafco General Insurance Company of
approximately $49 million, will make the new entity the 13th largest writer of
non-standard auto insurance in the U.S. This segment of the insurance business
exceeded $15 billion of premium nationwide in 1995.
The acquisition of Superior, et. al. was at a very attractive price of 5% over
GAAP book value, approximately $67 million. As a comparison to this, the sale of
our Canadian business in June of 1990 has approximated 200% over GAAP book
value, albeit over a period of five years.
Oh yes, we now operate in 13 locations throughout Canada, the U.S., Barbados and
Bermuda.
It has been a fabulous year for the Company and I can't wait to
conclude a report on the activities for 1996. They could be even more
outstanding. As an example of our anticipated growth, we have set as a
target for 1996 to double gross sales of our products. This would require that
we exceed $400 million of business, a large step towards the stated aim of
Goran's President to reach annual sales of $500 million by the year 2000.
No company can succeed without a great deal of effort. We are no exception and
it would be less than fitting if I didn't mention that a lot of hard work
and long hours go into our results. We have progressed to such a degree that
I would have to fill most of a page if I were to single out those who have
made
<PAGE>
sacrifices of their time to the improvement and development of the company. In
fact, I would probably have to include the names of all of our more than 400
employees.
During the year, we extended the Board of Goran to include Jim Torrance Q.C., a
former Director who again agreed to serve with the company, and John McKeating,
a new appointee. This brought the complement of the Board back to where it
should be, with more outside Directors than "insiders", a desirable position for
a public company.
We have had extensive meetings throughout the year, not unusual considering the
many activities of our group. The Board has given unstinting assistance to me
and I wish to thank them and praise them for their considered and practical
deliberations and advice.
/s/ G. Gordon Symons
G. Gordon Symons
Chairman of the Board
April 16, 1996
================================================================================
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: The statements contained in this letter are forward looking
statements that involve risks and uncertainties, including, but not limited
to, product demand and market acceptance risks, the effect of economic
conditions, the impact of competitive products and pricing, product develop-
ment, the results of financial efforts, acquisitions completed or
attempted, the effect of the Company's accounting policies, and other
risks detailed in the Company's Securities and Exchange Commission filings.
================================================================================
<PAGE>
Management's Discussion and Analysis
Financial Condition and
Results of Operations
Results of Operations
- --------------------------------------------------------------------------------
Once again, Goran's gross premium and net income reached record levels
in 1995. The Company's 1995 gross premium written increased to
$208,216,310 from $173,413,709 in 1994. More than half of the
increase in premium in 1995 over 1994 resulted from growth in the
crop insurance business, gross premium written grew $18.9 million in
1995 as compared to 1994, with premium growth coming from
both the multi peril and the hail business. The crop premium volume in
1995 of $93.3 million recognized a gain in U.S. government subsidies of $28.2
million compared to $16.3 million of subsidies in 1994 included in a total crop
premium of $74.4 million for 1994. Gross written premiums for 1994 was
restated to include the subsidy of $16.3 million on a basis consistent with
that of 1995. All other lines of business experienced gross written premium
increases from 1994 to 1995 as follows: finite reinsurance premiums increased
by $8.1 million to $40.7 million, nonstandard automobile premiums increased
by $5.1 million to $67.3 million and surplus lines premiums increased by
$2.7 million to $7.0 million.
In 1995, net premiums written (gross written less reinsurance to government FCIC
program and third party reinsurers) increased by 48.3% from $79.9 million in
1994 to $118.5 million in 1995. This increase resulted from higher premium
volumes on a gross basis as described above, combined with a reduced
dependence on quota share reinsurance in both the nonstandard automobile lines
(reduced from approximately 38% in 1994 to 25% in 1995) and on hail
reinsurance. The quota share reinsurance that was placed with third party
reinsurers in 1994 was taken over internally for 1995.
<PAGE>
In 1995, the Group's net premiums earned grew to $104.4 million from
$75.0 million in 1994. The earning of premium follows the term of the
respective policies, net premiums earned trails net premiums written. For
example, in a growing book of business, net premiums earned will also grow but
will lag behind the written premium.
In 1995, investment income grew to $4.8 million from $4.6 million in
1994, an increase of approximately 5%. The increase of the Company's investment
portfolio in 1995 was partially offset by reduced investment yields in 1995 as
interest rates trended lower. Investment income in 1993 of $5.6 million reduced
to an investment income of $4.6 million in 1994 due to lower yields, and
lower investment assets in 1994 in Granite Reinsurance due to settlement of
claims.
Other income includes billing fees and bad debt provisions, decreased to
$3.2 million in 1995 from $4.4 million in 1994, which later amount included a
payment of $2 million of a written down note from the Company's parent,
Symons International Group Ltd. Without this unusual income in 1994, other
income would have increased from $2.4 million in 1994 to $3.2 million in 1995.
Approximately half of the increase resulted from increased billing fee revenue
from a combination of increased nonstandard automobile volume along with an
increased billing fee rate implemented in the last half of 1995. In addition
other income increased in 1995 due to increased commissions from business
written in the Company's surplus lines operations.
Net claims incurred increased to $74.4 million in 1995 from $58.2 million in
1994, which increase is more than offset by the increase in net premiums
earned. The loss ratio decreased from 77.5% in 1994 to 71.2% in 1995
primarily as a result of improved loss ratios from the finite reinsurance
<PAGE>
division which were 71.3% in 1994 and 59.1% in 1995, as well as
increased profitability in the Company's crop hail business in 1995 compared
with 1994.
Net commissions expense is composed of three components: (i) commission expense
paid to the Company's agents; (ii) commission income from reinsurers,
including a 31% commission earned by the Company's crop operations with
respect to multi peril crop insurance; and (iii) underwriting gain or loss on
the Company's multi peril crop insurance business reported by the Company
as an adjustment to the Company's commission income on this business.
In 1995 the Company recorded a net commission recovery of $1.2 million
compared to a net commission expense of $2.0 million in 1994. Commissions
paid to the Company's agents in 1995 of $34.4 million remained relatively
constant with that paid in 1994 of $35.0 million.
Ceded commission income in 1995 of $35.6 million increased from $33.0
million in 1994. Included in these amounts is an underwriting gain adjustment
from the multi peril crop line of business of $13.2 million in 1995 and $4.5
million in 1994. The effect of the increased multi peril underwriting gain
included in commission income is partly offset by reduced ceding commissions on
nonstandard automobile quota share reinsurance in 1995 versus 1994.
Operating expenses of $23.7 million in 1995 compared with $15.1 million
in 1994, with such expenses increasing proportionately with net premiums earned
in the respective years with an expense ratio on this basis of 20.2% in 1994 and
22.6% in 1995. Included in 1995's operating expenses is an accrual for bad
debt expenses of $1.9 million with respect to the nonstandard automobile book
of
<PAGE>
business, of which $960,000 relates to an adjustment of 1993 and 1994
balances. During 1995, the Company identified such uncollected amounts and
implemented a full collection department to curtail such write-offs in the
future. Without the write-off in 1995 of bad debt expense relating to prior
years, the expense ratio for 1995 would have been 21.7%.
Interest expense in 1995 was $2.4 million compared to$2.5 million in
1994. Interest savings in 1995 and 1994 resulting from principal repayments to
the Company's debenture holders and the retirement of the Company's term
loan by SIG in June 1995.
In 1995, income tax expense of $3.4 million relates to a tax provision on
income emanating from the U.S. operations. By comparison, a tax provision in
1994 of $939,000 was accounted for by an amortization of deferred income
taxes of $300,000 with the balance of the provision emanating from a tax
provision on the income from U.S. operations.
Financial Condition
The Company's assets have grown to $154,112,461 in 1995, up from
$130,372,717 in 1994 and $112,852,129 in 1993. The largest component of
assets is investments in bonds and stocks. A breakdown of these
investments is highlighted in the Notes to Consolidated Financial Statements.
The Company's second largest asset category is accounts receivable.
This primarily represents monies held on behalf of our insurance and
reinsurance subsidiaries by major third party reinsurance
<PAGE>
or insurance companies to support outstanding claims and unearned
premiums. The majority of these funds earn interest and are held
in trust for Granite Re. Receivables from insurance companies
were $47,559,037 in 1995, up from $34,391,569 in 1994 due to
increased volume and the corresponding increased reinsurance
claims reserves, and 1994 was up from $24,922,897 in 1993, also due
to increased insurance claims reserves that follows increased business.
Total receivables represented 42% of total assets in 1995 and 43%
in 1994. Also included in the above receivables is premium recorded
but not yet received from the insured. This is business that has been
taken on but the premium has not been paid to us at the date of this
statement.
Deferred acquisition costs is the amount paid to agents and premium tax
that would be refunded to us should all our policies in force be canceled on
December 31. The offset is the unearned premium. In 1995 increased to
$10.4 million from $6.3 million in 1994. This increase in deferred costs
reflects increases in unearned premiums to $36.7 million in 1995 from
$22.8 million in 1994.
The total liabilities of the Company were $136,880,727 in 1995, compared to
$123,264,530 in 1994. Outstanding claims increased in 1995 to $62.8
million from $58.2 million in 1994, reflecting an increase in volume in
1995 over 1994, partially offset by a lower loss ratio from 77.5% in 1994
to 71.2% in 1995. Management believes the capital and surplus of the
Company is currently sufficient to support its current level of premiums
written. However, from time to time the Company may consider raising
additional capital to pursue acquisition opportunities or to finance
internal growth.
<PAGE>
Shareholders' equity has continued to grow, reaching $17,231,734 at
year-end 1995, compared to $7,108,187 at the end of 1994. While
shareholders' equity is now $17,231,734, it does not reflect the equity
upon which Goran conducts its various insurance operations. The
underlying insurance subsidiaries had statutory surplus at December
31, 1995 of: Pafco, $11,967,800 (U.S.); IGF, $9,219,463 (U.S.);
Granite Re, $18,086,777; and Granite, $3,792,638. This amounts
to a total $50.8 million. It is on these equity bases that the Company's
insurance business is written as a ratio to capital and surplus of $50.8
million is 2.33 to 1.00, which is well below the industry threshold of
3.00 to 1.00.
Goran's long term debt decreased to $15,132,250 in 1995 from
$18,530,800 in 1993. The repayment of debt resulted from scheduled
principle payments to the Company's debenture holders in the amount
of $1,995,750 at December 31, 1995 and the scheduled retirement of
SIG's term loan with a fixed payment of $1,000,000 during 1995. During
1995, debenture holders exercised warrants at $3 per common share,
yielded a total of $393,750. The number of outstanding warrants
at December 31, 1995 was 337,625. These warrants do not trade.
During 1995, IGF continued to profit by borrowing funds under a
revolving line of credit to finance premium receivables from the farmers.
By utilizing this lower cost of credit, revolving line of credit, IGF stops
the running of 15% interest payable to FCIC while continuing to earn
15% interest on the receivables from the farmer.
<PAGE>
Overview
U.S. Operations
Symons International Group, Inc. ("SIG") is a wholly owned subsidiary of
Goran Capital, Inc. SIG is a holding company located in Indianapolis, Indiana.
Its subsidiaries write various lines of insurance. SIG owns 100% and
operates the following companies:
Pafco General Insurance Company ("Pafco"), Indianapolis, IN
(nonstandard automobile)
IGF Insurance Company ("IGF"), Des Moines, IA and has 5 branch
offices throughout the U.S.A (crop insurance)
Symons International Group, Inc. (Florida) ("SIGF"), Ft Lauderdale,
FL (surplus lines insurance)
The results of each of these subsidiaries are discussed below, following
a general discussion on the consolidated results of the U.S. operations. For
the benefit of the reader, it is felt that the entity discussions should
center on the specific product lines written by each organization. Pafco
would refer to the nonstandard automobile insurance business of Goran which is
written predominantly by Pafco; however, the licenses of IGF are used in certain
states where we write non standard automobile but Pafco does not have a
license. The crop insurance business is written by IGF, however, the licenses
of Pafco are used in certain jurisdictions to facilitate business where IGF is
not licensed itself. The remaining aspects of the U.S. operations is surplus
lines property and casualty business written through SIG Florida.
<PAGE>
Consolidated Results of SIG
Gross premium volume for the U.S. operations increased 18.4% to
$122,088,007 (U.S.) in 1995 versus $103,133,564 (U.S.). All three
product lines showed increases in 1995 with a significant increase
coming from the crop insurance business.
Net written premiums for 1995 were $53,447,000 (U.S.) compared to
$35,139,000 (U.S.) in 1994. This was an increase of 52.1% resulting
primarily from the Company's decision to reduce its dependence on quota
share reinsurance. This allowed the Company to retain more of the gross
premiums being written by its nonstandard automobile segment as well as
its crop insurance business.
IGF's crop insurance business enjoyed significant growth and profitability
during 1995. The Crop Insurance Reform Act signed into law in October 1994
enabled the crop insurance industry to increase its premium writings, and IGF
materially grew its premium volume as well. With increased premium production
and normal crop growing season, the multi peril crop business produced good
underwriting profits. The crop hail business also produced profits along with a
growth in premium writings from $9 million in 1994 to $16 million in 1995. IGF
focused on increasing its crop hail premium writings in order to spread its
risk. The Company utilizes stop loss reinsurance minimize the effect of adverse
weather conditions on the Company's results.
The recently enacted "Freedom to Farm" bill will allow IGF to
experience increased growth for 1996,
<PAGE>
as the government withdraws from the delivery basis catastrophe
insurance coverage and the insurance industry takes this over.
Nonstandard automobile insurance operations experienced a slight
growth in premium volume during 1995, reversing a two year period of
decline. During 1995 the operations focused on simplifying its processes
and on improving service to customers. Although premium production
grew, competition remained strong. The competitive market kept the
company from meaningless growth and rate increase resulting in a higher
than expected loss ratio for the year. In addition, severe winter storm
activity at the end of the year added to the loss ratio. The
expense ratio of non standard automobile was much higher than
budgeted as the company geared up for the growth and improved
business for 1996. The first quarter of 1996 is benefiting by these
expenses in 1995 as premiums is growing and less ratios reducing.
SIG Florida continued the growth it enjoyed in both 1993 and 1994 by
recording gross premiums written on behalf of Pafco of $6,792,490
(U.S.) in 1995 as compared to $5,159,795 (U.S.) in 1994. The Florida
operation continues to prosper from the growth in the surplus lines
market opportunities in the southeast United States, and the addition of
sound management and marketing staff, SIG Florida also generates
commission income on products sold for third party companies.
Pafco General Insurance Company ("Pafco")
[PAFCO LOGO]
Pafco underwrites nonstandard automobile business through its
headquarters in Indianapolis, Indiana. A portion of the business is placed
through IGF in order to utilize licenses it has in Missouri, Arkansas and
Illinois. Pafco's gross written premiums in 1995, excluding crop insurance
fronted for
<PAGE>
IGF, were $44,577,000 (U.S.) as compared to $39,795,000 (U.S.) in 1994.
In spite of a moderate growth in gross premiums, net premiums grew
significantly to $34,018,000 (U.S.) in 1995 as compared to $24,713,000
(U.S.) in 1994. The growth in net premiums was principally a result of a
further reduction in quota share reinsurance on the nonstandard
automobile business. The net operating results of $(250,000) for 1995
compared to $(350,000) for 1994 are inclusive of dividend income from
IGF Insurance Company in 1995 of $2,000,000 (U.S.) and $350,000
(U.S.) in 1994. 1995 saw the Company focus its attention on
improving its service to its agents and the ease by which both agents and
our customers are able to do business with Pafco. This has borne fruit in
the first quarter of 1996 with material increase in volume and improved
combined loss ratio.
Pafco's statutory capital and surplus in 1995 increased to $11,967,800
(U.S.) up from $7,848,000 (U.S.) in 1994. The strong performance of
the crop insurance business on IGF increased the value of Pafco's
investment in IGF significantly.
IGF Insurance Company ("IGF")
[IGF LOGO]
IGF writes principally MPCI and crop hail insurance and provides
licenses for Pafco's automobile insurance in three states. Although
premiums for this coverage are included in IGF, the net profit or loss is
transferred to Pafco through reinsurance programs. Gross premiums
written in 1995 were $78,216,551 (U.S.) as compared to $64,239,124
(U.S.) in 1994. IGF's 1995 performance increased significantly as a
result of gains in its crop insurance business which reflect favorable
growing conditions. The Crop Insurance Reform Act enacted in October
1994 provided opportunity for the crop insurance industry to increase its
premium volumes. IGF benefited from this Act and also grew
<PAGE>
at a rate faster than most of its principal competitors due to the
marketing efforts of its management team.
IGF exceeded industry results on its multi peril and crop hail business,
because of its unique underwriting criteria. IGF continued to benefit from
its change in 1994 to an in-house adjusting force, which resulted in
enhanced effectiveness on adjusting crop claims. By hiring full time
employees to perform this function, IGF has benefited by tighter claims
controls and cost savings.
IGF's statutory capital and surplus increased in
1995 to $9,219,463 (U.S.) from $4,875,465 (U.S.) in 1994. The
increase in surplus 1995 related to crop insurance increase in business
and underwriting profits.
In 1995, IGF concluded its repurchase of the balance of its outstanding
common shares which were principally held by small investors who
purchased stock when IGF was created in 1972. At year-end 1995,
Goran owned 100% of the Company versus 98.8% in 1994.
Symons International Group, Inc. (Florida) ("SIGF")
Through its specialized surplus lines underwriting unit, Goran writes third
party property and casualty insurance coverage in Pafco and other insurance
companies under contract with SIG Florida. The volume of business continues to
increase and operating results have further improved as a result of decreased
competition in the southeast United States in this market segment and addition
of quality underwriters. Further automation in 1995 has enhanced the processing
capabilities in the office in order to accommodate its growth in premium
writing.
<PAGE>
Non-U.S. Operations
Goran's business outside the United States is conducted through the
following wholly-owned subsidiaries:
Granite Insurance Company (Toronto, Canada) ("Granite") (sold
its business in 1990 in runoff)
Granite Reinsurance Company Limited (Barbados and Bermuda)
("Granite Re") (Finite reinsurance)
Granite Insurance Company ("Granite")
[Granite Insurance LOGO]
Granite is a Canadian federally licensed insurance company which is
presently servicing its investment portfolio and its very few outstanding
claims. Granite stopped writing business on December 31, 1989 and
sold its book of Canadian business in June 1990. The outstanding claims
continue to be settled in accordance with actuarial estimates and
management's expectations. During 1995, Granite's invested assets
reduced to $7,456,155 from $10,195,091 in 1994. This was the result of
settlements of claims and the runoff of outstanding claims.
Total outstanding claims decreased to $2,950,000 in 1995 from
$4,411,000 in 1994. It is expected that the run off of outstanding claims
will continue at least until 1998. Granite's net earnings were $270,156 in
1995, compared to $826,423 in 1994 reflecting the reduction of invested
assets, which in turn reduces earnings from investment yields.
[PAGE CONTAINS PHOTOGRAPHS OF AUTOMOBILES IN THE
MIDDLE MARGIN]
<PAGE>
Investment income in 1995 was $683,637 compared to $986,683 in 1994.
Granite Reinsurance Company Limited ("Granite Re")
[Granite Reinsurance LOGO]
Granite Re is managed by Jardine Pinehurst Management Company Ltd.
of Bermuda. Granite Re underwrites finite risk reinsurance and stop loss
reinsurance. This reinsurance involves a defined maximum risk at the
time of entering into a contract. The Company participates in various
programs of reinsurance in Bermuda, the United States and Canada.
Reinsurance normally requires that a substantial premium be paid upon
the purchase of cover. Such premiums are invested in high grade
bonds, some of which are pledged to support the liabilities assumed
under the reinsurance program. The amount pledged is reflected in the
Notes To Consolidated Financial Statements. One of Granite Re
Canadian Treaties has expired and will not be renewed. The runoff will
provide continuous revenue for years to come but gross written
premiums of about $30,000,000 will cease and will be replaced with new
programs over the next few years. Gross premiums written during the 12
months ended November 30, 1995 were $34,802,851 (U.S.) compared to
$23,844,330 (U.S.) during the 11 months ended November 30, 1994.
Net income rose to $3,975,350 (U.S.) in 1995 compared to $1,887,687
(U.S.) in 1994. This increased profitability resulted primarily from
a reduced loss ratio on the Company's finite book from 71.6% in 1994 to
59.1% in 1995, combined with increased premium volumes in 1995.
Granite Re began operation on July 1, 1990, with a capital base of
$125,000 (U.S.) And $700,000 (U.S.) In 1992. The impact of profitable
underwriting since the inception of the Company is reflected in the
growth of its shareholders' equity to $13,248,445 (U.S.) in 1995 from
$9,343,095 (U.S.) in
[PAGE CONTAINS PHOTOGRAPHS OF FARM SCENERY IN THE
MIDDLE MARGIN]
<PAGE>
1994. Granite Re will continue to focus selling reinsurance that limits its
liability to a defined amount. In addition, Granite Re intends to broaden
its base to include captive reinsurance, which will generate fees for the
Company on a risk free basis. Such programs are risk free because they
generally require that users furnish full collateral funds, which the
reinsurer then reinvests. Granite Re thereby expects funds available for
reinvestment to increase, generating greater investment returns.
The programs currently underwritten by Granite Re generate a loss
portfolio that is matched with cash. Such portfolios take about eight
years to runoff, thus generating investment returns and underwriting
gains during the life of the runoff. Meanwhile, new business written in
1995 and beyond will be added to the portfolio of outstanding losses and
invested assets, perpetuating the growth of Granite Re through fees,
investment income and underwriting profits.
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
TABLE OF CONTENTS
Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Deficit 4
Consolidated Statements of Changes in Cash Resources 4
Notes to Consolidated Financial Statements 5 - 18
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Goran Capital Inc.
We have audited the consolidated balance sheets of Goran Capital Inc.
as at December 31, 1995 and 1994 and the consolidated statements of
operations, deficit and changes in cash resources for the years then ended.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31,
1995 and 1994 and the results of its operations and the changes in its
financial position for the years then ended in accordance with
generally accepted accounting principles.
/s/ Schwartz Levitsky Feldman
Toronto, Ontario
March 18, 1996 Chartered Accountants
Except as to notes 2(h) and 20,
which are March 11, 1997
<PAGE>
- - ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- - ------------------------------------------------------------------------------
AS AT DECEMBER 31
(In thousands of U.S. dollars)
Assets 1995 1994
-------- --------
Cash and investments (note 4) $ 54,366 $ 46,328
-------- --------
Accounts receivable
Premiums receivable 11,233 13,948
Due from insurance companies 34,837 24,516
Accrued and other receivables 1,231 1,485
-------- --------
47,301 39,949
Reinsurance recoverable on outstanding claims 41,667 15,315
Prepaid reinsurance premiums 6,263 6,987
Capital assets (note 5) 2,088 861
Other assets (notes 6 and 12) 1,417 1,063
Deferred policy acquisition costs 7,641 4,460
Deferred income taxes 73 214
Goodwill -- 62
-------- --------
Total Assets $160,816 $115,239
Liabilities
Accounts payable
Due to insurance companies $ 1,986 $ 8,441
Due to associated companies 188 135
Accrued and other payables 8,310 3,858
-------- --------
10,484 12,434
Outstanding claims (notes 2(e) and 3) 87,655 56,801
Unearned premiums (note 3) 33,159 23,270
Bank loans (note 7) 5,811 5,441
Debentures (note 8) 11,085 12,210
Minority interest in subsidiary -- 16
-------- --------
Total Liabilities 148,194 110,172
Shareholders' Equity (note 10) 12,622 5,067
-------- --------
Total Liabilities and
Shareholders' Equity $160,816 $115,239
/s/ /s/
Director Director
Approved on behalf of the board
2
<PAGE>
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- - ------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
(In thousands of U.S. dollars, except per share data)
1995 1994
--------- ---------
Revenue
Gross premiums written $ 151,717 $ 126,978
Net premiums earned $ 76,102 $ 54,944
Net investment and other income (note 4 and 13(a)) 5,872 6,624
--------- ---------
81,974 61,568
--------- ---------
Expenses
Net claims incurred 54,193 42,595
Commissions and operating expenses (note 16(b)) 16,352
12,516
Interest expense 1,761 1,843
--------- ---------
72,306 56,954
--------- ---------
Income before undernoted items 9,668 4,614
Provision for income taxes (note 11) 2,497 688
Minority interest -- (14)
--------- ---------
Net income $ 7,171 $ 3,940
========= =========
Earnings per share - basic $ 1.43 $ 0.81
========= =========
Earnings per share - fully diluted $ 1.26 $ 0.71
========= =========
<PAGE>
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF DEFICIT
- - ------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
(In thousands of U.S. dollars)
1995 1994
-------- --------
Retained earnings (deficit), beginning of year $(11,066) $(15,006)
Net income for the year 7,171 3,940
-------- --------
Retained earnings (deficit), end of year $ (3,895) $(11,066)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN CASH
RESOURCES
- --------------------------------------------------------------------------------
(In thousands of U.S. dollars)
1995 1994
-------- --------
Cash provided by (used in):
Operating activities
Net income $ 7,171 $ 3,940
Items not involving cash 11,010 7,058
Changes in working capital relating to operations (8,544) (12,422)
-------- --------
9,637 (1,424)
-------- --------
Financing activities
Reduction of debentures (1,462) (1,047)
Increase of borrowed funds 220 722
Issue of share capital 303 34
-------- --------
(939) (291)
-------- --------
Investing activities
Net (purchase) sale of marketable securities (4,147) 2,118
Net purchase of capital assets (1,681) (628)
Foreign currency translation adjustment 155 (402)
-------- --------
(5,673) 1,088
-------- --------
Increase (decrease) in cash resources during the year 3,025 (627)
Cash resources, beginning of year 7,588 8,215
-------- --------
Cash resources, end of year $ 10,613 $ 7,588
Cash resources are comprised of:
Cash (bank overdraft) $ 4,171 $ (116)
Short-term investments 6,442 7,704
-------- --------
$ 10,613 $ 7,588
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
1. Organization
- --------------------------------------------------------------------------------
Goran Capital Inc. ("Goran") is the parent company of the Goran
group of companies.
The consolidated financial statements include the accounts of all
subsidiary companies of Goran, which are 100% owned, as follows:
1. Symons International Group, Inc. ("SIG Inc.") including its
subsidiary companies for which SIG Inc. acts as a manager, as
follows:
a) Pafco General Insurance Company ("PGIC") - an
Indiana based insurance company;
b) IGF Insurance Company ("IGF") - an Indiana based
insurance company;
c) Pafco Premium Finance Company - an Indiana based
premium finance company;
d) Hailplus, Corp. - an Iowa based premium finance
company; and
e) Symons International Group, Inc. of Ft. Lauderdale,
Florida ("SIG-FL") - a Florida based managing general
insurance agency.
2. Granite Reinsurance Company Ltd. ("Granite") - a finite risk
reinsurance company based in Barbados.
3. Granite Insurance Company ("GIC") - a Canadian federally
licensed insurance company which ceased writing new
insurance policies on January 1, 1990.
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies
- --------------------------------------------------------------------------------
These consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in Canada
("Canadian GAAP").
a) Basis of consolidation
The consolidated financial statements include the accounts of Goran and
its subsidiary companies, all of which are 100% owned.
All significant intercompany transactions and balances have been
eliminated.
b) Premiums
Premiums are taken into income evenly over the lives of the related
policies.
c) Commissions
Commission expenses and related reinsurance commission recoveries
are recorded at the effective date of the respective insurance
policy.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (cont'd)
- --------------------------------------------------------------------------------
d) Deferred policy acquisition costs
Deferred policy acquisition costs comprise of agents' commissions,
premium taxes and certain general expenses which are related
directly to the acquisition of premiums. These costs, to the extent
that they are considered recoverable, are deferred and amortized
over the same period that the related premiums are taken into
income.
e) Outstanding claims
The reserve for outstanding claims has been reported on by
independent actuaries. The Company's policy regarding the
recognition of the time value of money on outstanding claims is as
follows:
i) Direct claims
The reserve includes the recognition of the time value of
money on direct claims liabilities. Using an interest rate of 7.5%
(1994 - 7.5%) net claims incurred have been decreased by $161 (1994 -
increased by $88) and outstanding claims at December 31, 1995 reduced
by $1,327 (1994 - $1,134).
ii) Assumed claims
The Company has not recognized the time value of money with
respect to assumed claims liabilities over which it does not have direct
control over the timing of settlement of the liabilities. If the Company had
discounted these claims using an interest rate of 7.5% (1994 - 7.5%) net
claims incurred would have been increased by $1,147 (1994 reduced
by $1,264) and outstanding claims at December 31, 1995 would have
been reduced by $2,348 (1994 - $3,401).
f) Investments
Investments in bonds, mortgages and debentures are carried at
amortized cost providing for the amortization of the discount or
premium to maturity date. Investments in short-term investments,
real estate, and equities are carried at cost. Gains and losses on
disposal of investments are taken into income when realized.
When there has been a loss in value of an investment that is other than
a temporary decline, the investment is written down to recognize
the loss.
g) Capital assets
Capital assets are recorded at cost, net of accumulated
amortization. Amortization is provided at rates sufficient to
amortize the costs over the estimated useful lives of the assets.
h) Foreign currency translation
Foreign currency transaction gains and losses are included in the
statement of operations.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (cont'd)
- --------------------------------------------------------------------------------
h) Goran and each of its subsidiaries have been determined to be
self-sustaining operations and are translated using the current rate
method whereby all assets and liabilities are translated into U.S. dollars at
the year end rate of exchange and revenue and expense items are
translated at the average rate of exchange for the year. The resulting
unrealized translation gain or loss is deferred and shown separately in
shareholders' equity. These adjustments are not included in operations
until realized through a reduction in the Company's net investment in such
operations.
- --------------------------------------------------------------------------------
3. Reinsurance
- --------------------------------------------------------------------------------
a) The Company's insurance subsidiaries follow a policy of
underwriting and reinsuring contracts of insurance which limits
their liability to a maximum amount on any one claim of $220 (1994
- - - $214) in Canada, and $250 (1994 - $350) in the USA, with the
result that unearned premiums and outstanding claims are stated
net of reinsurance. As the primary insurers, the Company's insurance
subsidiaries maintain the principal liability to the policyholder.
b) The effect of reinsurance on the activities of the Group can be
summarized as follows:
1995 Gross Ceded Net
---- ----- ----- ---
Premiums written $151,717 $(65,357) $86,360
Premiums earned 145,366 (69,264) 76,102
Incurred losses and loss
adjustment expenses 148,001 (93,808) 54,193
Commission expense
(note 16(b)) 25,069 (25,950) (881)
Outstanding claims 87,655 (41,667) 45,988
Unearned premiums 33,159 (6,264) 26,895
1994 Gross Ceded Net
---- ----- ----- ---
Premiums written $126,978 $(68,503) $58,475
Premiums earned 120,241 (65,297) 54,944
Incurred losses and loss
adjustment expenses 76,321 (33,726) 42,595
Commission expense
(note 16(b)) 25,617 (24,174) 1,443
Outstanding claims 56,801 (15,315) 41,486
Unearned premiums 23,270 (6,987) 16,283
c) On June 30, 1991 Granite assumed an outstanding claims
portfolio of $22,630, with loss dates of May 31, 1990 and prior, and
received a bond and short-term investment portfolio with a value of
$22,546. The December 31, 1995 balances in the claims portfolio and
the investment portfolio are $3,509 (1994 - $5,535) and $4,761
(1994 - $8,333) respectively.
This portfolio has been deposited with a Canadian trust company
to support the liabilities assumed. The invested funds are used to
settle claims liabilities as they become due.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
4. Cash and investments
- --------------------------------------------------------------------------------
1995 1994
------------------------- -------------------------
Book Value Market Value Book Value Market Value
Cash (overdraft) $ 4,171 $ 4,171 $ (116) $ (116)
Short-term investments 6,442 6,442 7,704 7,704
Equities 6,421 6,069 7,634 6,867
Bonds and debentures 27,949 28,080 21,557 20,971
Mortgages 3,583 3,583 3,713 3,683
Real estate 3,922 3,922 3,912 3,912
Other loan receivable 1,878 1,878 1,924 1,924
-------- -------- -------- --------
$ 54,366 $ 54,145 $ 46,328 $ 44,945
======== ======== ======== ========
a) At December 31, 1995, cash and investments of approximately
$20,510 (1994 - $20,031) are on deposit or held in trust by cedents,
and to a limited amount regulatory authorities, to secure certain of the
outstanding claims of the Company.
b) The Company realized a net gain of $198 (1994 - $358) from
the sale of investments during the year, and recorded an unrealized
loss of $58 (1994 - $161) on equities, and $Nil (1994 - $190) on
bonds. The carrying value of equities and bonds held at December
31, 1995 includes a provision of $357 (1994 - $950) for
investments considered to have a decline in value that is other than
temporary. Where market value is not readily determinable, book value is
used as an approximation.
c) The hotel property in Las Vegas that was acquired in 1992
was sold in 1994 for $4,533. PGIC took back an 8% first mortgage of
$3,000 from the purchaser, and realized a gain of $147.
d) As part of the sale of a subsidiary in 1990, the Company and its
subsidiaries invested in junior subordinated participating debentures
of the purchaser maturing on January 1, 1996 equivalent to $2,007,
bearing interest at a rate of 10% per annum, and preferred shares of a
subsidiary of the purchaser. The debentures and shares were redeemed
by the issuer during 1995.
- --------------------------------------------------------------------------------
5. Capital assets
- --------------------------------------------------------------------------------
1995 1994
---------------------------- --------
Accumulated
Cost Amortization Net Net
Furniture, fixtures and
equipment $3,686 $1,613 $2,073 $ 836
Automobiles 133 118 15 25
------ ------ ------ ------
Total $3,819 $1,731 $2,088 $ 861
====== ====== ====== ======
See also note 12.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands U.S. dollars)
- --------------------------------------------------------------------------------
6. Other assets
- --------------------------------------------------------------------------------
Included in other assets are deferred charges relating to financing
activities and the acquisition of subsidiaries amounting to $155 (1994 -
$257).
- --------------------------------------------------------------------------------
7. Bank Loans
- --------------------------------------------------------------------------------
a) IGF maintained a secured revolving line of credit, bearing interest
at prime rate, in the amount of $6,000 at December 31, 1995, and is due
for renewal May 15, 1996.
At December 31, 1995, IGF had outstanding borrowings in the amount
of $5,811 (1994 - $4,191).
b) In December 1994, SIG Inc. obtained an unsecured line of credit,
bearing interest at prime rate plus 1% in the amount of $250. At December
31, 1995, SIG Inc. had outstanding borrowings in the amount of $ NIL
(1994 - $250).
c) As at December 31, 1995, the Company was in compliance with all
covenants under its bank loans.
- --------------------------------------------------------------------------------
8. Debentures
- --------------------------------------------------------------------------------
At December 31, 1995, the Company had secured and unsecured
notes in the amount of $11,085 (1994 - $12,210) outstanding.
The notes all bear an interest rate of 8% and mature on December
30, 1998. The Company has also agreed to secure these notes with a
general security agreement providing a fixed and floating charge over all
the assets of the Company and by a guarantee from Goran, whereby the
Company pledged the issued and outstanding common shares of
PGIC, GIC and Granite.
As at December 31, 1995, the Company was in compliance with,
or subsequently received waivers with respect to, all covenants pertaining
to the debentures.
The notes are due for principal repayment as follows:
December 30, 1996 $ 1,848
December 30, 1997 2,233
December 30, 1998 7,004
-------
$11,085
=======
The Company paid the principal payment of $1,462 due on December
30, 1995.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars, except share data)
- --------------------------------------------------------------------------------
9. Capital Stock
- --------------------------------------------------------------------------------
The Company's authorized share capital consists of:
First Preferred Shares
An unlimited number of first preferred shares, of which none are
outstanding at December 31, 1995 (1994 - NIL).
Common Shares
An unlimited number of common shares, of which 5,060,229 are
outstanding as at December 31, 1995 (1994 - 4,933,779).
During the year, pursuant to the exercise of warrants and options,
the Company issued 141,450 (1994 - 49,375) common shares for
aggregate consideration in the amount of $305 (1994 - $34).
The Company has reserved for issue 774,035 (1994 - 915,485) common
shares consisting of:
a) 337,625 (1994 - 468,875) shares issuable on the exercise of
warrants for the purchase of common shares at $2.19 per share,
issued to debentureholders, and;
b) 436,410 (1994 - 446,610) shares pursuant to the employee
incentive share option plan as follows:
Number of Exercise
Shares Price Expiry Date
92,500 $0.37 July 31, 1996
224,166 $1.16 September 15, 1997
3,000 $1.48 December 7, 1997
63,099 $1.82 March 8, 1998
53,645 $3.85 July 14, 1999
--------
436,410
- --------------------------------------------------------------------------------
10. Shareholders' equity
- --------------------------------------------------------------------------------
Shareholders' equity is comprised of the following components:
1995 1994
-------- --------
Capital stock $ 16,875 $ 16,126
Deficit (3,895) (11,066)
Cumulative translation adjustment (358) 7
-------- --------
Shareholders' equity $ 12,622 $ 5,067
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of dollars)
- --------------------------------------------------------------------------------
11. Income taxes
- --------------------------------------------------------------------------------
The provision for (recovery of) income taxes is analyzed as follows:
1995 1994
------- -------
Consolidated net income before income taxes $ 9,668 $ 4,628
------- -------
Income taxes at Canadian statutory rates 4,287 2,052
Effect on taxes resulting from:
Tax exempt income (1,571) (1,070)
U.S. statutory rate differential (750) (155)
Application of losses carried forward
and reserves (399) (359)
Operating loss for which no current
income tax benefit is recognized 785 --
Deferred income taxes 145 220
------- -------
$ 2,497 $ 688
At December 31, 1995, the Company's Canadian subsidiary had
reserves, unclaimed for income tax purposes, of $2,161 (1994 -
$2,495). In addition, the Company and its consolidated subsidiaries
have operating loss carry forwards of approximately $13,768 for tax
purposes which expire primarily after 1996. The Company also has net
capital losses carried forward of approximately $8,057 which can be
applied to reduce income taxes on any future taxable capital gains. The
potential tax benefit of these reserves and loss carry forwards have not
been recorded in these financial statements.
- --------------------------------------------------------------------------------
12. Amortization
- --------------------------------------------------------------------------------
The Company recorded amortization for the year as follows:
1995 1994
----- -----
Amortization of:
Goodwill $ 63 $ 47
Capital assets 483 336
Investments 3 (39)
Other assets 144 222
----- -----
$ 693 $ 566
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
13. Related party transactions
- --------------------------------------------------------------------------------
a) In 1989, the Company wrote off a loan of $5,135 owed by
a subsidiary of Symons International Group Ltd. (SIGL). SIGL,
the majority shareholder of Goran, guaranteed this loan and pledged
1.2 million escrowed common shares of Goran (the "escrowed
shares") as security for the loan. During 1994 and subsequent to
year-end, SIGL entered into agreements with Goran whereby as
consideration for the release of 766,600 of the escrowed shares, SIGL
repaid $1,465 of the loan. The balance due to Goran of $3,670
continues to be guaranteed by SIGL and is secured by the 433,400
remaining escrowed shares. Pursuant to the agreements, it is the intention
of SIGL to repay the balance of the loan wihin the next 4 years. The
$1,465 loan repayment was recorded in 1994 as a recovery and included in
other income.
b) Included in other receivables are $563 (1994 - $593) due
from certain shareholders and directors which relate to the purchase
of common shares of the Company. Approximately half of the
amounts due bear interest and are subject to principal repayment
schedules. The Company also provided, indirectly, an officer with a
second mortgage on a residence in the amount of $278 which bears
interest at 7% (1994 - $278).
c) Included in cash and investments is a $1,700 loan to a third
party corporation ("TPC"), together with capitalized interest of
$178 (1994 - $201) for a total of $1,878 (1994 - $1,901). The
loan is secured by a guarantee and a collateral mortgage from a
corporation one third owned by an individual who is related to
the majority shareholder of SIGL. The TPC loaned the $1,700
to SIGL. The interest rate is 7.8% per annum. The interest accrued
at December 31, 1995, was NIL (1994 - NIL).
Additional security for the loan is held in the form of 250,000
common shares of Goran pledged by SIGL. The security is
guaranteed by a $350 guarantee by SIGL.
- --------------------------------------------------------------------------------
14. Contingent liabilities
- --------------------------------------------------------------------------------
a) The Company, and its subsidiaries, are named as defendants in
various lawsuits relating to their business. Legal actions arise
from claims made under insurance policies issued by the
subsidiaries. These actions were considered by the Company in
establishing its loss reserves. The Company believes that the
ultimate disposition of these lawsuits will not materially affect
the Company's operations or financial position.
b) IGF is responsible for the administration of a run-off book of
business. The Federal Crop Insurance Corporation ("FCIC")
has requested that IGF take responsibility for the claim
liabilities under its administration of these policies and IGF
has requested reimbursement of certain expenses from the
FCIC with respect to this run-off activity. It is the Company's
opinion, and that of its legal counsel, that there is no
liability on the part of the Company for claim liabilities of
other companies under IGF's administration.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
15. Segmented information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
United United
States States Other
Canada Crop Other P&C Foreign Elimination Consolidated
1995
<S> <C> <C> <C> <C> <C> <C>
Gross premiums
written $ -- $ 67,828 $ 54,260 $ 34,837 $(5,208) $ 151,717
========= ========= ========= ========= ========= =========
Net premiums
earned $ (84) $ 11,608 $ 38,034 $ 26,544 $ -- $ 76,102
========= ========= ========= ========= ========= =========
Segmented operating
profit $ 1,900 $ 447 $ 13,910 $ 12,898 $(1,374) $ 27,781
General expenses 3,746 (7,122) 15,934 9,356 (1,304) 20,610
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (1,846) $ 7,569 $ (2,024) $ 3,542 $ (70) $ 7,171
========= ========= ========= ========= ========= =========
Identifiable assets $ 6,884 $ 59,733 $ 47,372 $ 55,921 $(9,094) $ 160,816
========= ========= ========= ========= ========= =========
1994
Gross premiums
written $ -- $ 54,455 $ 48,679 $ 23,844 $ -- $ 126,978
========= ========= ========= ========= ========= =========
Net premiums
earned $ (61) $ 4,565 $ 27,561 $ 22,879 $ -- $ 54,944
========= ========= ========= ========= ========= =========
Segmented operating
profit $ 3,606 $ (2,286) $ 10,259 $ 8,812 $(1,418) $ 18,973
General expenses 3,069 (3,707) 10,775 6,328 (1,418) 15,047
Minority interest -- -- (14) -- -- (14)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 537 $ 1,421 $ (502) $ 2,484 $ -- $ 3,940
========= ========= ========= ========= ========= =========
Identifiable assets $ 12,363 $ 29,085 $ 35,749 $ 45,033 $(6,991) $ 115,239
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
15. Segmented information (cont'd)
- --------------------------------------------------------------------------------
The Canadian results are comprised of the operations of Goran as
an entity which incurred a loss of $1,472 (1994 - profit of $400) and
the run-off insurance activities of GIC which incurred a loss of $374 (1994
- - - profit of $137). Segmented operating profit is composed of
premiums earned, plus investment and other income net of claims incurred.
General expenses are composed of commissions and operating
expenses, interest and income taxes.
The United States results are comprised of the consolidated operations
of SIG Inc.
Other foreign results are comprised of the operations of Granite.
See also note 1.
- --------------------------------------------------------------------------------
16. Regulatory matters
- --------------------------------------------------------------------------------
a) Goran's insurance subsidiaries are subject to certain requirements
and restrictions in accordance with the regulations of their
respective jurisdictions. Statutory regulations require that the
subsidiaries maintain a minimum amount of capital to support
outstanding insurance in force and new premium writing. This
requirement and other regulations in the respective jurisdictions,
restricts the amount of dividends payable in any year by the
subsidiaries to the parent. The statutory surplus of the Company's
active insurance subsidiaries at December 31, 1995 amounted
to $34,436 (1994 - $23,616). Subsequent to Board of Directors
and regulatory approval, IGF declared and paid in December,
1995 an extraordinary dividend to PGIC in the amount of $2,000
on the convertible preferred stock owned by PGIC. In
December, 1995, upon Board of Directors and regulatory
approval, PGIC declared and paid to SIG Inc. a $1,500
dividend on the common stock owned by SIG Inc.
b) PGIC and IGF, domiciled in Indiana, prepare their statutory
financial statements in accordance with accounting practices
prescribed or permitted by the Indiana Department of Insurance
("IDOI"). Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
IGF received written approval from IDOI to reflect its business
transacted with the Consolidated Farm Services Agency
("CFSA") as a 100% cession with any net underwriting results
recognized in ceding commissions for statutory accounting
purposes, which differs from prescribed statutory accounting
practices. As of December 31, 1995, that permitted transaction
had no effect on statutory surplus or net income.
The net underwriting results, included in commissions and
operating expenses, for the years ended December 31, 1995 and
1994 were a gain of $9,653 and $3,275, respectively.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
16. Regulatory matters (cont'd)
c) During the year IGF and PGIC entered into a reinsurance
agreement in which IGF ceded $17,696 of multi peril crop business to
PGIC, who in turn ceded it to the CFSA. As a matter of course,
inter-company reinsurance agreements are filed with the IDOI
for their approval. IDOI approval has not yet been received with
respect to this agreement; however, management believes it will
be received in due course.
- --------------------------------------------------------------------------------
17. Events subsequent to December 31, 1995
- --------------------------------------------------------------------------------
Subsequent to December 31, 1995, the Company entered into an
agreement to purchase Superior Insurance Company ("Superior") for a
purchase price equal to 105% of the GAAP net book value of Superior
at the time of Closing. For 1995, Superior reported premiums in the
amount of $94,800, assets of $160,100 and a net book value of $61,600.
The acquisition is subject to normal regulatory approvals. Management
believes that such approvals will be forthcoming and that the transaction
is expected to close on or about April 30, 1996.
In addition, the Company has entered into agreements with Goldman,
Sachs & Co. to create a joint venture to acquire Superior. The
Company has agreed to contribute (i) its rights under the Superior
Purchase Agreement; (ii) 100% of the capital stock of PGIC at a minimum
book value of $14,000 and (iii) certain operational capital assets.
Investment funds affiliated with Goldman Sachs ("Goldman Entities")
agreed to contribute cash of approximately $20,000. With the cash
contributed by the Goldman Entities and the proceeds of a Senior Bank
Facility, the new company, GGS Management, Inc., will acquire
Superior. SIG Inc. will have a 52% interest in GGS Management, Inc.
through its ownership of shares in GGS Management Holdings, Inc.
- --------------------------------------------------------------------------------
18. Reconciliation of Canadian GAAP and United States generally
accepted accounting principles ("U.S. GAAP") and additional information
- --------------------------------------------------------------------------------
The consolidated financial statements are prepared in accordance
with Canadian GAAP. Material differences between Canadian and U.S.
GAAP are described below:
(a) Earnings and retained earnings
1995 1994
------- -------
Net earnings in accordance with
Canadian GAAP $ 7,171 $ 3,940
Add effect of difference in accounting for:
Deferred income taxes [see note (d)] (344) 1,180
Outstanding claims [see note (e)] (161) 88
------- -------
Net earnings in accordance with U.S. GAAP 6,666 5,208
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars, except share data)
- --------------------------------------------------------------------------------
18. Reconciliation of Canadian GAAP and United States generally
accepted accounting principles ("U.S. GAAP") and additional information
(cont'd)
- --------------------------------------------------------------------------------
(a) Earnings and retained earnings (cont'd)
Applying U.S. GAAP, deferred income tax assets would be
increased by $1,466 and $1,742, outstanding claims would be increased
by $1,327 and $1,134, and cumulative translation adjustment would
be increased by $36 and $84 as at December 31, 1995 and
1994, respectively. As a result of these adjustments, accumulated
deficit would be decreased by $139 and $608 as at December 31,
1995 and 1994, respectively. The effect of the above noted
differences on other individual balance sheet items and on working
capital is not significant.
(b) Earnings per share
Earnings per share, as determined in accordance with U.S. GAAP
are set out below. Primary earnings per share are computed based on
the weighted average number of common shares outstanding during
the year plus common share equivalents consisting of stock options
and warrants. Primary and fully diluted earnings per share are calculated
using the Treasury Stock method and assume conversion of securities when
the result is dilutive.
The following average number of shares were used for the
compilation of primary and fully diluted earnings per share:
1995 1994
---------- ----------
Primary $5,567,644 $5,399,463
Fully diluted 5,567,644 5,399,463
Earnings per share, as determined in accordance with U.S.
GAAP, are as follows:
1995 1994
---------- ----------
Primary earnings per share $1.20 $0.96
Fully diluted earnings per share 1.20 0.96
(c) Supplemental cash flow information
Cash paid for interest and income taxes is summarized as follows:
1995 1994
---------- ----------
Cash paid for interest 1,548 1,773
Cash paid for income taxes,
net of refunds 1,953 166
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
18. Reconciliation of Canadian GAAP and United States generally
accepted accounting principles (U.S. GAAP) and additional information
(cont'd)
- --------------------------------------------------------------------------------
(d) Income taxes
The difference in accounting for deferred income taxes reflects
the adoption for U.S. GAAP, effective January 1, 1993, of
Statement of Financial Accounting Standards No. 109 ("SFAS
No. 109"), "Accounting for Income Taxes." This standard
requires an asset and liability approach that takes into account
changes in tax rates when valuing the deferred tax amounts to be
reported in the balance sheet.
Deferred tax assets recognized under Canadian GAAP, which
require realization beyond a reasonable doubt in order to
record the assets, amounted to $73 and $214 at December 31,
1995 and 1994, respectively, and pertained to Canadian operations
only.
The adoption of SFAS No. 109 results in additional deferred tax
assets recognized for deductible temporary differences and loss
carry-forwards in the amount of $2,581 and $2,375 net of
valuation allowances of $69 and $260 and deferred tax liabilities
recognized for taxable temporary differences in the amount of
$1,114 and $633 at December 31, 1995 and 1994, respectively.
(e) Outstanding claims
The difference in accounting for outstanding claims reflects the
application for U.S. GAAP of SEC Staff Accounting Bulletin No.
62, "Discounting by Property/Casualty Insurance Companies".
This standard does not allow discounting of unpaid claim
liabilities by public companies, except in specific circumstances
that are not applicable to the Company.
(f) Receivables from sale of capital stock
The SEC Staff Accounting Bulletins require that accounts or
notes receivable arising from transactions involving capital
stock should be presented as deductions from shareholders'
equity and not as assets. Accordingly, in order to comply with
U.S. GAAP, shareholders' equity would be reduced by $563
and $593 as at December 31, 1995 and 1994, respectively, to
reflect the loans due from certain shareholders which relate to
the purchase of common shares of the Company.
(g) Unrealized loss on investments
U.S. GAAP require that unrealized losses on investment
portfolios be included as a component in determining
shareholders' equity. In addition, SFAS No. 115 permits
prospective recognition of unrealized gains on investment
portfolios for year-ends commencing after December 15, 1993.
As a result, shareholders' equity would be reduced by $221 and
$1,383 as at December 31, 1995 and 1994, respectively. As the
Company classifies its debt and equity securities as available for
sale, the adoption of SFAS No. 115 in 1994 has no effect on net
income.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
(In thousands of U.S. dollars)
- --------------------------------------------------------------------------------
18. Reconciliation of Canadian GAAP and United States generally
accepted accounting principles (U.S. GAAP) and additional information
(cont'd)
- --------------------------------------------------------------------------------
(h) Changes in shareholders' equity
A reconciliation of shareholders' equity from Canadian GAAP
to U.S. GAAP is as follows:
1995 1994
------- -------
Shareholders' equity in accordance
with Canadian GAAP 12,622 5,067
Add (deduct) effect of difference in accounting for:
Deferred income taxes (see note (a)) 1,466 1,742
Outstanding claims (see note (a)) (1,327) (1,134)
Receivables from sale of capital
stock (see note (f)) (563) (593)
Unrealized loss on investments
(see note(g)) (221) (1,383)
------- -------
Shareholders' equity in accordance with
U.S. GAAP 11,977 3,699
====== =====
- --------------------------------------------------------------------------------
19. Comparative figures
- --------------------------------------------------------------------------------
Certain comparative figures have been reclassified to conform to
the basis of presentation adopted in 1995.
- --------------------------------------------------------------------------------
20. Reporting currency
- --------------------------------------------------------------------------------
These financial statements, which are denominated in U.S. dollars,
reflect the conversion of the previously issued Canadian dollar
denominated financial statements, which were issued together with
an auditors' report thereon dated March 18, 1996.
