SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 33-83116
ASSOCIATED BUSINESS & COMMERCE
INSURANCE CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0496132
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
4700 NW BOCA RATON BOULEVARD, SUITE 400, BOCA RATON, FL 33431
- - ------------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (407) 997-0708
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) 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 [ ]
The number of the outstanding Preferred Stock held by nonaffiliates of the
Registrant on March 31, 1996, was 251,536 shares.
<PAGE>
ASSOCIATED BUSINESS & COMMERCE
INSURANCE CORPORATION
Table of Contents
Part I. Financial Information
Statement of Operations (unaudited), three months ended March 31, 1996.......3
Balance Sheets, March 31, 1996 (unaudited) and December 31, 1995.............4
Statements of Changes in Stockholders' Equity, three months ended
March 31, 1996 (unaudited) and the year ended December 31, 1995............6
Statement of Cash Flows (unaudited), three months ended March 31, 1996.......7
Notes to Financial Statements (unaudited)....................................8
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................11
Part II Other Information
Item 1. Legal Proceedings.................................................13
Item 2. Changes in Securities.............................................13
Item 3. Defaults Upon Senior Securities...................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 5. Other Information.................................................13
Item 6. Exhibits and Reports on Form 8-K..................................13
Signatures....................................................................14
Exhibit Index...................................................................
<PAGE>
PART I FINANCIAL INFORMATION
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
UNAUDITED
Revenues:
Standard premium earned, net of discounts $ 6,917,029
Less premium ceded for reinsurance 4,979,331
-------------
Net premium earned 1,937,698
-------------
Less loss and loss adjustment expenses 1,382,313
-------------
Premiums available for operations 555,385
Earned premium LPT transaction 162,757
Interest earnings 248,041
-------------
966,183
Policy acquisition and other underwriting expenses 848,359
-------------
Income before income taxes 117,824
Income tax expense 40,000
-------------
Net income $ 77,824
=============
Earnings per common share and
common share equivalent $ 0.76
=============
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
BALANCE SHEET
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
ASSETS
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
Investments with fixed maturities $12,548,087 $14,439,231
Cash and cash equivalents 2,718,356 2,242,245
Premiums receivable, less allowance for
doubtful accounts 1996 $744,246; 1995 $613,125 3,881,855 4,849,556
Reinsurance and related recoverables:
Paid loss recoverable 169,842 94,598
Loss and loss adjustment expenses 15,642,408 14,471,111
Prepaid reinsurance premiums 98,161 530,957
Advances receivable 319,582 175,832
Accrued investment income 145,389 211,277
Prepaid expenses 1,204,050 1,821,000
Deferred income taxes 1,028,700 1,084,000
Deferred policy acquisition costs 563,474 389,737
Equipment, less accumulated depreciation
1996 $19,749; 1995 $4,837 316,661 289,871
Other assets, net 211,939 101,202
----------- -----------
$38,848,504 $40,700,617
=========== ===========
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
BALANCE SHEET - CONTINUED
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
RESERVES, LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
Reserves for losses and loss adjustment expenses $27,825,314 $28,306,416
Liabilities:
Accounts payable and accrued expenses 2,094,654 2,709,469
Unearned and return premium payable 2,433,710 2,346,983
Deferred gain on loss portfolio transfer 598,121 760,878
Accrued income taxes and special tax deposits 12,900 1,078,200
----------- -----------
5,149,385 6,895,530
Commitments and contingencies
Total reserves and liabilities 32,974,699 35,201,946
Stockholders' equity:
Convertible preferred stock series A, 6% cumulative,
$1 par value, authorized shares 900,000; issued and
outstanding 251,536 shares (aggregate liquidation
preference of $2,515,360 at March 31, 1996) 251,536 221,805
Additional paid - in capital, preferred series A 2,263,824 1,996,245
Convertible preferred stock series B, $1 par value,
authorized, issued and outstanding 3,200,000 share 3,200,000 3,200,000
Common stock, $1 par value, authorized 15,000,000
shares; 102,501 shares issued and outstanding 102,501 102,501
Retained earnings (deficit) 55,944 (21,880)
----------- -----------
5,873,805 5,498,671
----------- -----------
$38,848,504 $40,700,617
=========== ===========
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
THE YEAR ENDED DECEMBER 31, 1995
Additional
Paid - in
Preferred stock Capital Retained
--------------------- Preferred Common Earnings
Series A Series B Series A Stock (Deficit)
-------- ---------- ---------- -------- --------
Balance, beginning $ - $ - $ - $102,501 $(10,245)
Preferred stock
issued
for cash 221,805 3,200,000 1,996,845
Net (loss) (11,635)
-------- ---------- ---------- -------- --------
Balance,
December 31, 1995 221,805 3,200,000 1,996,845 102,501 (21,880)
Preferred stock
issued
for cash
(Unaudited) 29,731 267,579
Net income
(Unaudited) 77,824
-------- ---------- ---------- -------- --------
Balance March 31,
1996 (Unaudited) $251,536 $3,200,000 $2,264,424 $102,501 $ 55,944
======== ========== ========== ======== ========
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 77,824
Adjustments:
Change in net insurance reserves (1,727,643)
Change in premiums receivable 967,701
Accrued income taxes (1,065,300)
Other 345,806
-------------
Net cash and cash equivalents
(used in) operating activities (1,401,612)
-------------
INVESTING ACTIVITIES
Proceeds from investment maturities 1,875,806
Payments for other assets (112,251)
Purchase of equipment (39,392)
Payments of advances, net (143,750)
-------------
Net cash and cash equivalents
provided by investing activities 1,580,413
-------------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 297,310
-------------
Net cash and cash equivalents provided
by financing activities 297,310
-------------
Net increase in cash and cash equivalents 476,111
Cash and cash equivalents, beginning of period 2,242,245
-------------
Cash and cash equivalents, end of period $ 2,718,356
=============
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
These financial statements rely, in part, on estimates. In the opinion of
management, all necessary adjustments have been reflected for a fair
presentation of the results of operations, financial position and cash flows
in the accompanying unaudited financial statements. The results for the period
are not necessarily indicative of the results to be expected for the entire
year.
Reference should be made to the "Notes to Financial Statements" on pages F - 8
through F - 22 of the registrant's Form 10 - K for the year ended December 31,
1995. The amounts in those notes have not changed except as a result of
transactions in the ordinary course of business or as otherwise disclosed in
these notes.
Some figures in the 1995 financial statements have been reclassified to
conform with the 1996 presentation. These reclassifications have no effect on
net income or stockholders' equity, as previously reported.
Comparative results of operations and cash flow information is not presented
because the registrant did not begin insurance operations until December,
1995. Activity until that time was limited to organizational activities.
NOTE 2 - EARNINGS PER SHARE
Earnings per common share were calculated by dividing net income by the
adjusted average number of common shares outstanding. There was no adjustment
of net income required because there were no preferred stock dividends
declared during the period. There was no change in the average number of
outstanding common shares from December 31, 1995, and there was no dilution of
common stock because the preferred stock is not convertible to common stock
before January 1, 2000.
NOTE 3 - INVESTMENTS
Investment activity for the period ending March 31, 1996 consisted entirely of
the collection of maturities and early call proceeds of fixed maturity
securities, which totalled $1,875,806. Market value of the Company's available
for sale fixed maturity securities continued to approximate amortized cost,
accordingly no provision for appreciation (depreciation) in investments is
recorded in stockholders' equity.
-8-
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
UNAUDITED
NOTE 4 - INCOME TAXES
The provision for income taxes for the period ended March 31, 1996 is as
follows:
Federal income taxes currently payable (refundable) $ (15,300)
Deferred federal income taxes 55,300
---------
$ 40,000
=========
NOTE 5 - REINSURANCE
The Company's financial statements reflect the effects of ceded reinsurance
transactions. The Company does not assume reinsurance in the ordinary course
of business. However, effective November 30, 1995, the Company, in a
transaction approved by the Florida Department of Insurance, assumed the
insurance assets and liabilities of Associated Business & Commerce Workers'
Compensation Self - Insurance Fund by virtue of a loss portfolio transaction.
The excess of premium received over losses assumed was treated as deferred LPT
premium on the balance sheet.
The deferred LPT premium is earned in the ratio of assumed losses paid to
total assumed losses. Deferred LPT premium earned for the period ended March
31, 1996 totalled $162,757.
Ceded reinsurance involves transferring certain risks the Company has
underwritten to other insurance companies who agree to share these risks. The
primary purpose of ceded reinsurance is to protect the company from potential
losses in excess of the amount it is prepared to accept.
The Company expects those with whom it has ceded reinsurance to honor their
obligations. In the event these companies are unable to honor their
obligations, the Company will pay the shortfall.
The following table summarizes the effect of reinsurance on premiums earned
and insurance losses and loss adjustment expenses for the period ended March
31, 1996:
Premiums earned:
Direct $ 6,917,029
Ceded (4,979,331)
------------
Net premiums earned $ 1,937,698
============
Insurance losses and loss adjustment expenses:
Direct $ 4,190,627
Ceded (2,808,314)
------------
Net insurance losses $ 1,382,313
============
-9-
<PAGE>
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
UNAUDITED
NOTE 6 - LEGAL PROCEEDINGS
From time to time, the Company may be involved in workers' compensation
proceedings relating to claims arising out of its operations in the normal
course of business. As of the date of the accountants' report, the Company is
not party to any legal proceedings outside of its ordinary workers
compensation settlement business which management believes would materially
affect the financial position or operations of the Company with the exception
of the matter described below.
In July, 1992, the Fund filed a lawsuit in the State Circuit Court of Palm
Beach County, Florida, for breach of contract against Advanced Risk Management
Incorporated ("ARMI") claiming damages for excess fees and advances collected
by ARMI, the former service company of the Fund. A counterclaim was filed by
ARMI alleging breach of contract, breach of fiduciary duty and fraud. On
January 2, 1994, the court granted summary judgment in favor of the Fund with
respect to all of the counterclaims made by ARMI. The summary judgment was
appealed by ARMI and reversed by the Fourth District Court of Appeal, which
remanded the matter back to the trial court to resolve specific issues. On
December 15, 1995 the trial court granted the Fund's renewed motion for
summary judgment. ARMI has filed an appeal as to this judgment as well. The
Fund intends to continue to pursue and defend this claim on its own behalf.
There can be no assurance however, that, in the event of an unfavorable ruling
against the Fund, recovery would not be sought from the Company. In the event
there is an unfavorable outcome, which management believes to be unlikely, the
Fund's liability is estimated at less than $1,000,000.
-10-
<PAGE>
ASSOCIATED BUSINESS & COMMERCE
INSURANCE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1996
RESULTS OF OPERATIONS
The Company is reporting income before taxes for the first quarter of 1996 of
$118,000 based on premium volume of $6,900,000. Annualized premium as of March
31, 1996 amounts to approximately $27,700,000 or a slight reduction from the
calendar year 1995 amount of $27,900,000. As discussed in the Company's Form
10-K for 1995, certain insureds elected not to renew their coverage with the
Company effective January 1, 1996, which management perceived as being the
result of increased competition generated by favorable 1993 legislative changes
and also the late date in 1995 that the Company completed its plan to announce
the availability of non-assessable insurance coverage. Since the Form 10-K was
prepared and filed, the Company has written new business which has resulted in a
restoration to 1995 writing levels. The adjustments to premium pricing and
availability factors as discussed in Form 10-K, have resulted in a greater
portion of submissions being accepted by potential customers. Although writings
have been restored to 1995 levels, leading management to be optimistic regarding
the Company's 1996 writings, the adjustments to budgeted expenditures made by
management in response to the reduction of January 1, 1996 renewals remain in
place, to be modified only to the extent required by increasing premium volume.
As a result of the full absorption of the Company's 70% quota-share
arrangements, earned premiums ceded for reinsurance (including excess loss
re-insurance) amounts to 72% of earned premium. Loss and operating expense
ratios are effected somewhat by the ceding of premium in comparison to 1995's
ratios during which the quota-share treaty was only in effect for the last
quarter of the year.
For the first quarter of 1996, the loss and loss expense ratio is 71.3% and the
expense ratio is 43.8% or a combined ratio of 115.1%. The investment ratio
(interest and investment earnings divided by net earned premium) amounted to
12.8% for the first quarter resulting in an overall operating ratio of 102.3%.
Included within the statement of operations is recognition of deferred gain on
the loss portfolio transfer transaction between the Company and the Company's
predecessor, Associated Business & Commerce Workers' Compensation Self-Insurance
Fund (the "Fund"), of approximately $163,000. Without the recognition of this
gain, the Company would have recorded an operating loss before income taxes of
approximately $45,000.
For the three months ended March 31, 1995, the Fund reported earned premium of
approximately $6,600,000 and income before taxes of approximately $16,000 in its
unaudited financial statements. The Fund was not a party to any quota-share
reinsurance treaty during that period nor was any management agreement in effect
as is the case with the Company for the first quarter of 1996. Policy
acquisition and other underwriting expenses for the Company for the first
quarter include approximately $144,000 of amounts paid to the Company's parent,
Associated Business & Commerce Holdings, Inc. ("Holdings"), which was utilized
by Holdings for debt service on its loan from Underwriters Reinsurance Company
("Underwriters").
LIQUIDITY AND CAPITAL RESOURCES
As was anticipated and described in the Company's Form 10-K, cash flows from
operating activities for the 1st quarter were a negative $1,400,000. This was
anticipated because of the Company's quota-share arrangements with Underwriters.
Such negative cash flows from operations were offset by proceeds from investment
maturities and other investment activities realizing cash flows of approximately
$1,600,000 and from proceeds from the issuance of additional Series A preferred
stock of approximately $300,000 resulting in an overall increase in cash and
cash equivalents for the three months ended March 31, 1996 of $476,000.
<PAGE>
ASSOCIATED BUSINESS & COMMERCE
INSURANCE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1996
Invested assets reduced from $14,400,000 at the end of 1995 to $12,500,000 as of
March 31, 1996 with an increase in cash of approximately $500,000. Negative cash
flows from operations are expected to continue throughout 1996 as funding of the
quota-share recoverables continues by virtue of the transfer of premium to the
quota-share reinsurer pursuant to the quota-share treaty. As claims are settled
and paid in the future, management anticipates that such negative flows will
eventually reverse or stabilize as reimbursements due from the reinsurer for
claims paid and other reimbursements for operating expenses equal or exceed
premiums due pursuant to the treaty.
On a statutory basis, the Company is reporting statutory surplus of
approximately $4,800,000 and statutory net income of $21,500 for the quarter
ended March 31, 1996. Based upon the Company's current writings, required
statutory surplus is the minimum of $4,000,000, pursuant to Florida's Insurance
Code.
<PAGE>
ASSOCIATED BUSINESS & COMMERCE
INSURANCE CORPORATION
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS
There have been no significant developments in those matters discussed in Item 3
of the Company's Form 10-K for 1995.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K - The Company filed no reports on Form 8-K during the
quarter ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED BUSINESS & COMMERCE INSURANCE CORPORATION
Registrant
Date: May 20, 1996 /s/ JAMES R. NAU
----------------------------------------------------
James R. Nau
President
Date: May 20, 1996 /s/ CLIFFORD G. MERRITT
----------------------------------------------------
Clifford G. Merritt
Vice President, Finance
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND THE UNAUDITED BALANCE SHEET AS OF MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 3,130,265
<DEBT-CARRYING-VALUE> 9,417,822
<DEBT-MARKET-VALUE> 9,226,605
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,548,087
<CASH> 2,718,356
<RECOVER-REINSURE> 169,842
<DEFERRED-ACQUISITION> 563,474
<TOTAL-ASSETS> 38,848,504
<POLICY-LOSSES> 27,825,314
<UNEARNED-PREMIUMS> 2,443,710
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
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0
5,715,360
<COMMON> 102,501
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6,917,029
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<UNDERWRITING-AMORTIZATION> 152,000
<UNDERWRITING-OTHER> 696,359
<INCOME-PRETAX> 117,824
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 77,824
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</TABLE>
