<PAGE>
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
COMMISSION FILE NUMBER 0-28214
MEDICAL DEFENSE HOLDING CO.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1696112
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1311 EAST WOODHURST, SPRINGFIELD, MISSOURI 65804
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (417) 887-3120
__________________________________________
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.
X YES NO
----- -----
As of November 11, 1996 there were 999,998 shares of the Registrant's Class
A Common Stock, $.50 par value outstanding and there were 19,604 shares
outstanding of the Registrant's Class B Common Stock, $.50 par value.
________________________________________________________________________________
<PAGE>
MEDICAL DEFENSE HOLDING CO.
Quarterly Report - Form 10Q
Table of Contents
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ITEM 1. Financial Statements
Medical Defense Holding Co. Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 (Unaudited) 3, 4
Medical Defense Holding Co. Consolidated Statements of Operations for
the quarter and nine months ended September 30, 1996 and 1995
(Unaudited) 5
Medical Defense Holding Co. Consolidated Statements of Cash Flow for
the nine months ended September 30, 1996 and 1995 (Unaudited) 6
Medical Defense Holding Co. Notes to Consolidated Financial Statements
(Unaudited) 7-17
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
________
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Investments:
Fixed maturity investments, at market
value (amortized cost of $79,487,933
and $82,944,882, respectively) $ 78,427,355 $ 84,258,601
Short-term investments, at cost 7,053,392 7,489,028
------------ ------------
Total investments 85,480,747 91,747,629
Other assets:
Cash and cash equivalents 5,206,932 4,952,745
Accrued investment income 1,008,237 1,158,529
Premium receivable 2,953,276 2,552,893
Deferred policy acquisition costs 141,044 120,527
Reinsurance recoverable on loss
and loss expenses:
Paid claims 69,355 0
Unpaid claims 1,947,000 2,383,000
Property and equipment, net of
accumulated depreciation of $1,153,476
and $1,074,167, respectively 1,157,049 1,083,539
Federal income tax:
Current 1,521,526 0
Deferred 3,695,266 3,512,609
Other assets 478,158 687,739
------------ ------------
Total assets $103,658,590 $108,199,210
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1996 and December 31, 1995
(Unaudited)
_________
<TABLE>
<CAPTION>
LIABILITIES & September 30, December 31,
STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
Liabilities:
Claims and policy liabilities:
Unpaid losses and loss adjustment expenses $ 65,309,380 $ 65,660,000
Unearned premiums 8,298,913 8,054,837
------------ ------------
Total claims and policy liabilities 73,608,293 73,714,837
Other liabilities:
Retrospective premium due reinsurers 2,195,496 2,195,496
Amounts withheld or retained by Company
for account of others 287,966 366,637
Current income taxes payable 618,474
Other liabilities 2,434,424 1,746,668
------------ ------------
Total liabilities 78,526,179 78,642,112
------------ ------------
Stockholders' equity:
Preferred stock, par value $1.00 per share;
12,000,000 shares authorized; 11,990,189 shares
issued and outstanding 11,990,189 11,990,189
Class A common stock, $0.50 per share;
1,000,000 shares authorized; 999,998 shares
issued and outstanding 499,999 499,999
Class B common stock, $0.50 per share;
24,000,000 shares authorized; 19,604 shares
issued and outstanding 9,802 9,802
Unrealized gains (losses) on investments
(net of recoverable deferred income taxes (provision)
of $360,076 and $(448,239), respectively (698,970) 870,111
Retained earnings 13,331,391 16,186,997
------------ ------------
Total stockholders' equity 25,132,411 29,557,098
------------ ------------
Total liabilities, redeemable preferred
stock, and stockholders' equity $103,658,590 $108,199,210
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
-----------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned, net of retrospective
premium due reinsurers of $-0-,$-0-,
$-0-, and $-0-, respectively $ 3,270,672 $ 4,268,883 $ 9,704,034 $11,403,481
Investment income 1,366,854 1,480,711 4,223,119 4,320,618
Net realized investment gains (3,586) 28,400 68,543 69,911
Other income 96 76 401 371
----------- ----------- ----------- -----------
Total revenues 4,634,036 5,778,070 13,996,097 15,794,381
----------- ----------- ----------- -----------
Expenses:
Losses and loss adjustment expenses,
net of reinsurance recoveries of
$436,000, $742,000, $436,000 and
$535,000, respectively 5,774,132 6,125,629 15,219,500 13,529,955
Amortization of policy acquisition
costs 65,044 28,393 182,116 28,626
Other underwriting and insurance
expenses 510,677 480,277 1,633,296 1,820,734
Investment expenses 59,105 61,118 197,182 193,222
Other operating expenses 37,396 24,465 83,952 33,833
----------- ----------- ----------- -----------
Total expenses 6,446,354 6,719,882 17,316,046 15,606,370
----------- ----------- ----------- -----------
Income/(Loss) before provision
for federal income taxes (1,812,318) (941,812) (3,319,949) 188,011
----------- ----------- ----------- -----------
Provision for federal income taxes:
Current (400,000) (78,000) (1,090,000) 250,000
Deferred (75,298) (212,513) 625,658 (28,403)
----------- ----------- ----------- -----------
Total tax provision/(benefit) (475,298) (290,513) (464,342) 221,597
----------- ----------- ----------- -----------
Net Income/(Loss) $(1,337,020) $ (651,299) $(2,855,607) $ (33,586)
=========== =========== =========== ===========
Earnings per common share and common
equivalent share (Note 9):
Primary-Weighted average shares 24,999,980 24,999,980 24,999,980 24,999,980
=========== =========== =========== ===========
Net income/(loss) per common share $ (0.05) $ (0.03) $ (0.11) $ (0.03)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF CASH FLOW
for the nine months ended September 30, 1996 and 1995
(Unaudited)
-----------------------
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Operating activities:
Net income/(loss) $ (2,855,607) $ (33,586)
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized investment gains (68,543) (69,911)
Depreciation and amortization of deferred
policy acquisition costs 246,068 93,204
Provision for deferred income tax 625,658 (28,403)
Change in assets and liabilities:
Accrual and amortization of investment
income 106,283 229,114
Premiums receivable from policyholders (400,384) 840,052
Deferral of policy acquisition costs (202,633) (135,761)
Reinsurance recoverable on loss & loss
expenses:
Paid claims (69,355) 2,224,896
Unpaid claims 436,000 535,000
Unpaid losses & loss adjustment expenses (350,620) 1,131,433
Unearned premiums 244,076 388,834
Amounts withheld or retained by Company
on account of others (78,671) 47,979
Income tax (2,140,000) 490,000
Other assets 209,581 (51,016)
Other liabilities 687,756 (118,538)
------------ ------------
Net cash provided (used) by operating
activities (3,610,391) 5,543,297
------------ ------------
Investing activities:
Proceeds from:
Fixed maturity investments - Sales 5,572,813 4,927,457
Fixed maturity investments - Maturities 4,785,684 4,318,806
Short-term investments 16,890,844 2,940,000
Purchase of investments:
Fixed maturity investments (7,026,093) (12,864,828)
Short-term investments (16,221,208) (5,292,402)
Purchases of property and equipment (net) (137,462) (32,984)
------------ ------------
Net cash provided/(used) by investing
activities 3,864,578 (6,003,951)
------------ ------------
Financing activities:
Proceeds from sale of stock 0 499,996
------------ ------------
Net cash provided by financing activities 0 499,996
------------ ------------
Net increase/(decrease) in cash and
cash equivalents 254,187 39,342
Cash and cash equivalents, beginning of period 4,952,745 5,625,817
------------ ------------
Cash and cash equivalents, end of period $ 5,206,932 $ 5,665,159
============ ============
Federal income taxes paid (refunded) $ 1,050,000 $ (240,000)
============ ============
</TABLE>
The accompanying notes are an integral part of
the accompanying financial statements.
6
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_________
1. Organization and Related Matters:
--------------------------------
Medical Defense Holding Co. (the "Company") is a Missouri general business
corporation formed on November 28, 1994, for the purpose of facilitating the
consummation of a series of transactions whereby Medical Defense Associates
("MDA") converted from a mutual assessment insurance organization under
Chapter 383 RSMo to a wholly-owned stock insurance company subsidiary of the
Company. MDA's conversion was completed on June 26, 1995 in accordance with
an agreement and plan of conversion dated November 29, 1994. The agreement
and plan of conversion was approved by eligible policyholders at a special
meeting on April 3, 1995.
MDA was organized in 1976 as a mutual assessment insurance organization for
the purpose of providing protection against loss from medical professional
liability claims for Missouri health care professionals. MDA's wholly-owned
subsidiary, Medical Defense Services Corp. ("MDS") provides management
services primarily to MDA. Medical Defense Services Corp.'s wholly-owned
subsidiary, Medical Defense Insurance Company ("MDIC"), is a stock insurance
company organized under Chapter 379 RSMo for the purpose of providing
protection against loss from medical professional liability claims. MDIC is
licensed to operate in Missouri and Kansas but only wrote business in Kansas
from its inception in 1982 until September 1, 1988 when it ceased writing
business. In June of 1994, MDIC again began writing policies in Kansas.
2. Basis of Presentation:
---------------------
All September 30, 1996 and 1995 information contained in the following
footnotes is unaudited. It is management's opinion that the financial
statements as of September 30, 1996 and 1995 and for the nine months then
ended reflect all adjustments which are necessary to present a fair
statement of results for the interim periods presented. The financial
statements of MDA and its subsidiaries as of September 30, 1995, have been
consolidated with the Company in a manner similar to a pooling of interests
to reflect the conversion of MDA to a wholly-owned stock subsidiary of the
Company, effective on June 26, 1995. All other adjustments made are of a
normal recurring nature.
3. Summary of Significant Accounting Policies:
------------------------------------------
The following is a description of the significant accounting policies under
generally accepted accounting principles followed by the Company in the
preparation of the accompanying consolidated financial statements:
A. Pervasiveness of Estimates:
--------------------------
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
7
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
_________
3. Summary of Significant Accounting Policies, continued:
------------------------------------------
B. Investments:
-----------
In May, 1993, the Financial Accounting Standards Board published
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities"
which, among other things, requires companies to classify debt and
equity securities into three categories. Held-to-maturity debt
securities that the Association has the positive intent and ability to
hold to maturity are reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and
are to be reported at fair value, with unrealized gains and losses
included in earnings. Debt and equity securities not classified in the
other two categories are classified as available-for-sale securities
and reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of surplus as
regards policyholders.
The accompanying consolidated GAAP financial statements of the Company
for the nine months ended September 30, 1996 and the year ended
December 31, 1995 have been prepared in accordance with SFAS 115, and
the Company has classified all investments in fixed maturities as
available for sale. Should the Company experience declines in market
value that are other than temporary, the difference between amortized
cost and market would be recognized through current earnings.
Fair value is defined as market value based on third-party quoted
market prices or, when unavailable, on similar investments.
Investment income includes amortization of premium and accretion of
discount relating to fixed maturities acquired at other than par value.
C. Reinsurance:
-----------
The Company has adopted Statement of Financial Accounting Standards No.
113 ("SFAS 113"), "Accounting and Reporting for Reinsurance of Short-
duration and Long-duration Contracts" which requires certain changes in
the manner in which insurance enterprises account for and report on
insurance contracts. Among other things, SFAS 113 eliminates the
practice by insurance enterprises of reporting assets and liabilities
related to reinsurance contracts net of the effects of reinsurance. It
requires reinsurance receivables and prepaid reinsurance premiums to be
reported as assets.
D. Income Taxes:
------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns.
8
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
4. Capital Stock:
-------------
The Company has issued shares of $1.00 par value redeemable convertible
preferred stock to the eligible policyholders of MDA in exchange for their
mutual policyholders' rights in MDA. Each share of preferred stock is
convertible into two shares of Medical Defense Holding Co. Class B Common
Stock, at the holder's option, and may be converted at any time prior to
redemption. Each share of preferred stock is redeemable, at the Company's
option, after three years from the date of issuance at a price per share of
$1.00. The preferred stock does not provide a stated dividend and no
dividends may be paid on any Company common stock while there are preferred
stock shares outstanding. Subsequent to the conversion of MDA to a stock
company, 9,802 shares of preferred stock were converted to 19,604 shares of
Class B common stock.
The Company has issued shares of $0.50 par value Class A common stock in
accordance with an agreement and plan of conversion dated November 29, 1994,
in exchange for cash.
5. Investments:
-----------
The following information summarizes the difference between amortized cost
and market value of fixed maturities investments:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
September 30, 1996
------------------
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $41,167,844 $ 129,093 $ 579,296 $40,717,641
Corporate debt securities 6,379,000 67,661 81,339 6,365,322
Mortgage-backed securities 28,813,446 148,917 699,091 28,263,272
Other debt securities 3,127,643 14,714 61,237 3,081,120
----------- ---------- ---------- -----------
$79,487,933 $ 360,385 $1,420,963 $78,427,355
=========== ========== ========== ===========
December 31, 1995
-----------------
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $40,744,234 $ 927,384 $ 77,008 $41,594,610
Corporate debt securities 6,582,096 218,052 7,370 6,792,778
Mortgage-backed securities 32,741,359 418,313 148,756 33,010,916
Other debt securities 2,877,193 16,484 33,380 2,860,297
----------- ---------- ---------- -----------
$82,944,882 $1,580,233 $ 266,514 $84,258,601
=========== ========== ========== ===========
</TABLE>
9
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
-----------
The change in net unrealized holding gain or loss on available for sale
securities, net of deferred taxes, for the nine months ended September 30,
1996 and the year ended December 31, 1995, is as follows:
September 30, December 31,
1996 1995
------------- ------------
$ (1,569,081) $ 4,309,126
============= ===========
The amortized cost and estimated market value of debt securities by contractual
maturity are shown as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
September 30, 1996 Cost Value
------------------ ----------- -----------
<S> <C> <C>
Due in one year or less $ 8,077,903 $ 7,973,164
Due after one year through five years 45,125,120 44,618,610
Due after five years through ten years 20,602,642 20,239,951
Due after ten years 5,682,268 5,595,630
----------- -----------
$79,487,933 $78,427,355
=========== ===========
</TABLE>
For purposes of the above, bonds without prepayment characteristics have been
included at their stated maturity date. Bonds with prepayment features are
included at their estimated maturity date as supplied by the Company's
investment adviser.
Accrued investment income at September 30, 1996 and December 31, 1995, is as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
U.S. Treasury securities $ 734,934 $ 801,524
Corporate bonds 94,040 147,178
Mortgage-backed securities 165,251 193,528
Other debt securities 14,012 15,374
Short-term investments 0 925
---------- ----------
$1,008,237 $1,158,529
========== ==========
</TABLE>
10
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
-----------
Securities on Deposit With Statutory Authorities:
------------------------------------------------
To comply with the Missouri Department of Insurance, MDA had a U.S.
Treasury Note with a par value of $1,400,000 as of September 30, 1996,
on deposit with the State of Missouri.
To comply with a special agreement with the Missouri Department of
Insurance related to the conversion of MDA to a Chapter 379 stock
insurance company and the release of MDA members from potential future
assessment liability, MDA had U.S. Treasury Notes with a total par value
of $5,000,000, on deposit with the State of Missouri.
To comply with the Missouri Department of Insurance, MDIC had a U.S.
Treasury Note with a par value of $850,000 as of September 30, 1996 and
December 31, 1995, on deposit with the State of Missouri.
Escrow Funds:
------------
Pursuant to the settlement agreement for a specific claim, MDA has
deposited $400,000 in escrow to guarantee future annuity payments. The
Company receives all earnings on the escrowed funds. At September 30,
1996 and December 31, 1995, the escrowed funds were invested in a
$400,000 par value U.S. Treasury Note maturing October 13, 1996 with a
fair value of $400,376 and $408,248, respectively, which is included
with investments on the balance sheet.
Net investment income by source was as follows for the nine months ended
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Investment income:
Fixed maturity investments $3,867,877 $3,943,101
Short-term investments 355,242 377,517
---------- ----------
Total investment income 4,223,119 4,320,618
Less investment expenses 197,182 193,222
---------- ----------
Net investment income $4,025,937 $4,127,396
========== ==========
</TABLE>
11
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
-----------
Realized gains on investments reflected in the results of operations for
the nine months ended September 30, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Sale of fixed maturity investments:
Realized gains $74,849 $71,925
Realized losses (6,306) (2,014)
------- -------
Net realized gains $68,543 $69,911
======= =======
</TABLE>
6. Statutory Disclosures:
---------------------
Net income and surplus reported by MDA separately in its reports filed
with the Missouri Department of Insurance utilizing statutory accounting
principles and practices prescribed or permitted by the Missouri
Department of Insurance are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net income/(loss) for nine months ended
September 30 $(2,432,703) $ (323,327)
=========== ===========
Surplus (including equity in MDS and
MDIC), September 30 $21,467,433 $25,448,119
=========== ===========
</TABLE>
Net income and surplus reported by MDIC separately in its reports filed
with the Missouri Department of Insurance utilizing statutory accounting
principles and practices prescribed or permitted by the Missouri
Department of Insurance are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net income for nine months ended
September 30 $ 19,242 $ 23,746
========== ==========
Surplus, September 30 $4,424,799 $4,390,603
========== ==========
</TABLE>
12
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
7. Federal Income Tax:
------------------
The Company files a consolidated federal income tax return. MDA and MDIC
are statutorily exempt from state income taxes. State income taxes
relating to the Company and MDS are included in other operating expenses
in the consolidated statement of income.
The following table accounts for the differences between the actual
current tax provision and the amounts obtained by applying the statutory
U.S. federal income tax rate to income before income taxes:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
----------------------------- ------------------------
Income Effective Income Effective
Taxes Tax Rate Taxes Tax Rate
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
Pre-tax income calculated at
statutory tax rates $(1,128,783) (34.00)% $ 63,924 34.00%
Nondeductible expenses 19,319 0.58 96,863 51.52
Other permanent differences (7,608) (0.23) 17,372 9.24
Change in valuation allowance 652,730 19.66 43,438 23.1<C> 0
------------ ------ -------- ------
Provision for income taxes $ (464,342) (13.99)% $221,597 117.86%
============ ====== ======== ======
</TABLE>
The components of the net deferred tax asset at September 30, 1996 and
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
---------------------------- -------------------------
Deferred Deferred Deferred Deferred
Tax Asset Tax Liability Tax Asset Tax Liability
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Tax discounting of loss reserves $ 4,599,995 $ 4,582,544
Tax acceleration of unearned premium 564,326 547,729
Deferred policy acquisition costs $ 47,955 $ 40,979
Unrealized gain/loss 360,076 448,239
----------- -------- ----------- --------
$ 5,524,397 $ 47,955 $ 5,130,273 $489,218
=========== ======== =========== ========
Net deferred federal income tax asset $ 5,476,442 $ 4,641,055
Valuation allowance (1,781,176) (1,128,446)
----------- -----------
Net realized deferred tax asset $ 3,695,266 $ 3,512,609
=========== ===========
</TABLE>
13
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
7. Federal Income Tax, continued:
------------------
The valuation allowance represents the difference between the total
deferred tax asset related to loss reserve discounting required by the
Internal Revenue Service and the amount that is more likely than not to
be realized. Medical malpractice is a long tail line of business. MDA's
payout pattern as well as the industry payout pattern for this line of
business is expected to be 15 years or longer.
Management evaluates the payout pattern based on advice from its outside
actuary concerning trends in claim frequencies and severities and needed
changes in future premium rates, industry trends and experience of direct
Missouri competitors in these matters.
Projection of future income is inherently uncertain and the achievability
of any projection is made more difficult by the length of the discount
period. Historical losses cannot be adjusted precisely to future cost
levels and the impacts of future emergence of new classes of losses or
types of losses which may not be represented sufficiently in MDA's data
base or which are not yet quantifiable, cannot be precisely anticipated.
Utilizing an outside actuary, management believes that it can reasonably
estimate the amount of the loss reserves which will likely settle in the
next three years. Based on this estimate, management can determine how
much of the discount will likely reverse and could be recovered, if
necessary, from taxes paid in the three-year carryback period.
Management does not believe it can reasonably determine the amount of
loss reserve deferred tax benefit which can be recovered from future
taxable income arising more than three years in the future, using a more
likely than not standard.
The change in the valuation allowance is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
$ 652,730 $ (519,704)
========= ==========
</TABLE>
14
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
8. Unpaid Losses and Loss Adjustment Expenses:
------------------------------------------
The Company's reserves for loss and loss adjustment expenses represent
the estimated ultimate cost of all losses and loss adjustment expenses
which are unpaid at the balance sheet date, on a consolidated basis, for
both MDA and MDIC.
The reserves include estimates of future trends in claim frequency,
severity and cash flow, which could vary as the losses are ultimately
settled; thus, the ultimate liability may be in excess of, or less than,
the amounts provided in the accompanying financial statements.
As the result of an increase in claims paid for MDA late in the first
quarter and during the second quarter of 1996, the Company's management
retained its independent actuary to prepare an interim reserve study.
Based on that study and an additional study performed by another actuary,
the Company determined to strengthen its reserve for losses and loss
adjustment expenses by approximately $2.4 million as of June 30, 1996. At
September 30, 1996, as in prior years, the Company had its actuary
perform an updated reserve study and based on this study the Company
recorded an additional approximate $2.2 million increase in reserves for
claim losses and claim loss adjustment expenses. This is compared to a
similar increase at September 30, 1995, of approximately $2.4 million for
these loss and loss adjustment expense reserves. This reserve
strengthening relates primarily to total expected ultimate losses for the
most recent years from 1993, up to and including the current year. The
Company will continue to monitor the level of claim severity, and to seek
input from actuaries as appropriate. Company management believes the
reserves are reasonably stated to cover the ultimate cost of losses and
related loss adjustment expenses which are unpaid at September 30, 1996
and December 31, 1995, respectively. There can be no assurance that the
estimates of the actuaries will prove to be accurate, or that the
Company's reserve for loss and loss adjustment expense is at the
appropriate level. In the event that claim severity increases in the
future, current reserve amounts may not prove to be adequate and may be
increased, however, if claim severity decreases in the future, current
reserve amounts may prove to be adequate or redundant.
MDIC's reserves for loss and loss adjustment expenses have not been
actuarially reviewed due to the few number of claims outstanding. MDIC's
reserves represent less than 1% of total reserves for the periods
represented by the financial statements.
15
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
8. Unpaid Losses and Loss Adjustment Expenses, continued:
------------------------------------------
Activity in the liability for unpaid claims and claim adjustment expenses
is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Balance at January 1 $65,660,000 $65,803,000
Less reinsurance recoverables 2,383,000 2,905,000
----------- -----------
Net balance at January 1 63,277,000 62,898,000
----------- -----------
Incurred related to:
Current year 11,625,986 18,115,000
Prior years 3,593,514 (1,956,478)
----------- -----------
Total incurred 15,219,500 16,158,522
----------- -----------
Paid related to:
Current year 170,409 1,333,057
Prior years 14,963,711 14,446,465
----------- -----------
Total paid 15,134,120 15,779,522
----------- -----------
Net balance at end of period 63,362,380 63,277,000
Plus reinsurance recoverables 1,947,000 2,383,000
----------- -----------
Balance at end of period $65,309,380 $65,660,000
=========== ===========
</TABLE>
9. Net Income/(Loss) Per Common Share:
----------------------------------
Net income/(loss) per common share is computed using net income/(loss)
divided by the weighted average number of common shares and common share
equivalents outstanding. All of the Company's outstanding shares of
preferred stock are convertible to common stock at a ratio of two shares
of common stock for each one share of preferred stock. Since the
Company's preferred stock has no stated dividend rate, and thus, no
effective yield, these securities are considered common stock equivalents
for the purpose of computing net income/(loss) per common share.
16
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
_________
9. Net Income/(Loss) Per Common Share:
----------------------------------
Other than the preferred stock discussed above, the Company does not have
any other potentially dilutive stocks. Therefore, the computations for
fully dilutive net income/(loss) per common share are not presented since
the results do not differ from primary net income per common share.
Net income/(loss) per share information is not computed for the periods
ending June 30, 1995 and prior, as the conversion of MDA to a stock
insurance company and a wholly-owned subsidiary of MDHC was not completed
until June 26, 1995, and therefore, virtually all of the earnings for those
periods are attributable to the pre-conversion earnings of MDA. Following
are the computations for the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------- -------------------
<S> <C> <C>
Net income/(loss) $(2,855,607) $ (33,586)
Less: Net income/(loss) of subsidiary through June 30, 1995 0 (617,713)
----------- -----------
Adjusted net income/(loss) $(2,855,607) $ (651,299)
=========== ===========
Weighted average common shares outstanding 1,019,602 999,998
=========== ===========
Weighted average common stock options expressed
as common stock equivalents 23,980,378 23,999,982
=========== ===========
Weighted average common and equivalent
shares outstanding 24,999,980 24,999,980
=========== ===========
Net income/(loss) per common share $ (0.11) $ (0.03)
=========== ===========
</TABLE>
10. Commitments and Contingencies:
-----------------------------
The Company is party to a number of insurance claims arising in the normal
course of business. While the results of litigation cannot be predicted
with certainty, management, based upon the advice of Company's counsel,
believes that the final outcome of such litigation will not have a material
adverse effect on the consolidated financial position or results of
operations of the Company.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
Medical Defense Holding Co. ("MDHC") is a Missouri general business corporation
formed for the purpose of facilitating the conversion of Medical Defense
Associates ("MDA") from a mutual insurance association to a stock insurance
company. On June 26, 1995, the conversion was completed with the exchange of the
policyholders' rights in MDA, the mutual insurance association, for shares of
convertible Preferred Stock in MDHC, the parent holding company. MDHC owns all
of the outstanding shares of MDA.
The accompanying consolidated financial statements and related discussion
include the accounts of MDHC and its wholly-owned insurance subsidiary, MDA, and
have been consolidated with MDHC in a manner similar to a pooling of interests
to reflect the conversion of MDA to a wholly-owned stock subsidiary of MDHC.
MDHC does not have any significant revenue producing operations of its own other
than through its ownership of MDA. Cash flow within MDHC consists of investment
income and operating expenses. Also included in the accompanying consolidated
financial statements are MDA's wholly-owned subsidiaries, Medical Defense
Services Corp. ("MDS") and Medical Defense Insurance Company ("MDIC"). MDS is a
wholly-owned subsidiary of MDA and provides management services primarily to
MDA. MDIC is a wholly-owned subsidiary of MDS and is a stock insurance company
organized under Chapter 379 RSMo for the purpose of providing protection against
loss from medical professional liability claims. During the past nine months,
MDIC has written a small amount of premium, less than $75,000, entirely in the
state of Kansas.
On September 12, 1996, MDHC initiated a tender offer for up to 5,000,000 shares
of its Preferred Stock, $1.00 par value. The purpose of this offer was to
respond to the desires of certain shareholders for a source to liquidate all or
a portion of their securities holdings in the Company, as no public market has
developed for the Preferred Stock and MDHC does not anticipate that such a
market will develop. This tender offer was conducted in a method commonly
referred to as a "Dutch auction". Under a Dutch auction method, shareholders
tender the shares they wish to sell at a price within a pre-selected range and
at the close of the tender offer the company selects the lowest purchase price
which will permit it to acquire up to the pre-announced number of shares. After
the purchase price has been selected, all tendering shares purchased by the
company are purchased at the same price, regardless of the price at which the
tendering shareholder tendered the shares. This tender offer by MDHC, which
concluded on November 1, 1996, had a pre-selected purchase price range of not
less than $.30 or in excess of $.40 per Preferred Share in cash, subject to the
terms and conditions of the offer. The tender offer concluded with 2,781,338
shares of Preferred Stock being accepted for purchase at a price of $.40 per
share.
Results of Operations
MDHC recorded a 19.8% decrease in total revenues in the third quarter of 1996
and an 11.4% decrease for the nine months ended September 30, 1996, compared
with the same periods in the prior year. The decrease in total revenues during
the quarter and the nine month period ended September 30, 1996, was primarily
due to a decrease in premium revenue. This decrease in premiums earned, which
occurred although MDA instituted a 14% overall rate increase effective January
1, 1996, was due to a decline in premiums written during the first nine months
of 1996 of approximately $1,800,000 or 15.9% compared to the same time frame in
1995. This decrease in premiums written was the result of an 8.8% decline in
total policyholders which was concentrated in the higher premium surgical
classifications. Management believes that the decline in policyholders is the
result of insureds becoming employees of health care systems that self-insure
their professional liability coverage and aggressive pricing used by some
competitors. There can be no assurance that this trend will not continue. The
remaining decreases were the result of various other changes in the Company's
book of business which primarily relate to specialty classifications and
discounts which policyholders are eligible to receive.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Results of Operations, continued
Investment income decreased 7.7% for the quarter ended September 30, 1996, and
decreased by 2.3% for the nine months ended September 30, 1996, compared to the
same periods in 1995. This variation was primarily the result of fluctuations in
market interest rates and a decrease in total invested assets during the first
nine months of 1996, compared with the same period in 1995. Due to pre-payments
on fixed income investments the company had realized investment losses of $3,586
in the quarter and realized investment gains of $68,543 for the nine month
period ended September 30, 1996, compared to realized investment gains of
$28,400 and $69,911 in the same prior year periods, respectively.
MDHC's total expenses for the quarter and nine month periods ended September 30,
1996, represented approximately 139% and 124% of total revenues, respectively,
compared to 116% and 99% during the same periods in 1995. The increase in
expenses during the first nine months of 1996, compared to the same period in
1995, is almost entirely the result of increased claim losses and claim loss
adjustment expenses. As the result of an increase in claims paid late in the
first quarter and during the second quarter of 1996, the Company's management
retained its independent actuary to prepare an interim reserve study as of June
30, 1996. Based on that study and an additional study performed by another
actuary, the Company determined to strengthen its reserve for losses and loss
adjustment expenses by approximately $2.4 million as of June 30, 1996. At
September 30, 1996, as in prior years, the Company had its actuary perform an
updated reserve study and based on this study the Company recorded an additional
approximate $2.2 million increase in reserves for claim losses and claim loss
adjustment expenses. This is compared to a similar increase at September 30,
1995, of approximately $2.4 million for these loss and loss adjustment expense
reserves. This reserve strengthening relates primarily to total expected
ultimate losses for 1993 and through the current period. The Company will
continue to monitor the level of claim severity, and to seek input from
actuaries as appropriate. There can be no assurance that the estimates of the
actuaries will prove to be accurate, or that the Company's reserve for loss and
loss adjustment expense is at the appropriate level. In the event that claim
severity increases in the future, current reserve amounts may not prove to be
adequate and may be increased. However, if claim severity decreases in the
future, current reserve amounts may prove to be adequate or redundant.
Other operating expenses for the quarter and nine months ended September 30,
1996, were generally consistent with the prior periods with the exception of
deferred acquisition costs which relate entirely to state premium tax that the
Company was generally not subject to prior to MDA's demutualization on June 20,
1995. For the nine months ended September 30, 1996, other underwriting and
insurance expenses decreased $187,438, or approximately 10%, due to non-
recurring expenses incurred in the first quarter of 1995 relating to MDA's
conversion and demutualization.
Financial Condition
MDHC's total consolidated assets were $103,658,590 as of September 30, 1996
consisting primarily of cash and investments which comprised approximately 87%
of total assets. Approximately 78% of MDHC's total assets consisted of either
cash, U.S. Treasury bonds, U.S. government agency bonds, or other investments
either collateralized or guaranteed by U.S. government agencies or securities.
MDHC's total assets declined $4,540,620 during the nine months ended September
30, 1996, which was due primarily to an increase in the payment of claim losses
and loss adjustment expenses of approximately $3.3 million and a decline in
premiums written of approximately $1.8 million. MDHC does not hold, either
directly or indirectly, any real estate owned for investment purposes or any
fixed maturity investments rated below AA by nationally recognized rating
agencies. MDHC's total investment composition is not anticipated to change
substantially in the near future.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Liquidity and Capital Resources
MDHC's total consolidated liabilities as of September 30, 1996, were
$78,526,179, a decline of less than 1% from December 31, 1995. Approximately 83%
of MDHC's consolidated total liabilities at September 30, 1996, relate to unpaid
loss and loss adjustment expenses which, due to an increase in payments and a
corresponding increase in reserves, are virtually unchanged from the prior year
end.
Stockholders' equity decreased 15% as of September 30, 1996, compared with the
prior year-end due to a decline in the net unrealized losses on investments of
$1,569,081 and a net loss for the period of $2,855,607.
MDHC's cash flow is generated from its operations and investment portfolio. Net
cash used by operating activities increased $9,153,688 from an increase in cash
provided of $5,543,297 at September 30, 1995, to an increase in cash used by
operating activities of $3,610,391 at September 30, 1996. This increase in cash
used by operating activities was primarily a combination of an increase in claim
loss and loss adjustment expense payments of approximately $3.3 million, a
decline in premiums written of approximately $1.8 million compared to the same
period in 1995, an increase in amounts either paid or due relating to current
and deferred federal income taxes of approximately $2 million, an increase in
other liabilities of approximately $800,000, and the decrease in net income of
$2,822,021 for the nine months ended September 30, 1996, compared to the same
period in 1995.
MDHC's investing activities resulted in a net increase in cash provided by
investing activities of $3,864,578 at September 30, 1996, compared to a decrease
in cash provided by investing activities of $6,003,951 for the same period in
1995. This increase was due to the utilization of proceeds from short-term
investments for operating activities and a decline in the purchase of new fixed-
maturity investments of approximately $5.8 million as these funds were also
utilized in operating activities.
MDHC's cash flow from operations and its investment portfolio are utilized to
meet its obligations related to payment of losses and loss adjustment expenses,
payment of operating expenses, and other needs as deemed necessary from time to
time. MDHC anticipates that its future cash flow will be sufficient to meet the
Company's ongoing obligations for the foreseeable future. In addition, on July
1, 1996, MDHC acquired a bank line of credit of $2.5 million from Commerce Bank,
N.A., of Springfield, Missouri. This line of credit was acquired for use as
additional funds, if needed, for general business purposes including, but not
limited to, potential new business development. There are no commitment,
service, or administrative fees relating to this line of credit and MDHC has not
drawn on the line of credit since its inception on July 1, 1996.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits to this report are listed in the Exhibit Index on pages
E-1 and E-2 of this report, which index is incorporated herein by
reference.
(b) Reports on Form 8-K.
None.
21
<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.
Medical Defense Holding Co.
(Registrant)
November 11, 1996 /s/ Ronald G. Benson
- -------------------------- --------------------------------
Date Ronald G. Benson
President, CEO, and Chairman
of the Board (principal
executive officer); Director
November 11, 1996 /s/ Samuel J. Pippin
- -------------------------- --------------------------------
Date Samuel J. Pippin
Director of Accounting and
Finance (principal financial
and accounting officer)
22
<PAGE>
EXHIBIT 10.14
MEDICAL DEFENSE HOLDING COMPANY
MAXIMUM AMOUNT AND INTEREST
[LOGO OF COMMERCE BANK]
RCF/15905/crp No._________________
$2,500,000.00 and interest Springfield, Missouri June 24, 1996
- ------------------ ------------------------------------------------
(Maximum Amount) (City) (State) (Date)
THE UNDERSIGNED PROMISES TO PAY TO THE ORDER OF
Commerce Bank, N.A. ("Bank") at its office, the principal sum of Two Million
Five Hundred Thousand and no/100 Dollars or the then outstanding and unpaid
balance of sums advanced hereunder together with accrued interest on demand but
if no demand is made then on June 24, 1997. All sums advanced hereunder shall
bear interest from the date of such advance at the per annum rate of Fed. Funds
+ 2.50%. Interest shall be calculated on the actual number of days outstanding
on the basis of a year of 360 days, and shall be payable on the 24th day of
July, 1996 and on the 24th day of each month thereafter. Payments will be
applied first to interest then to principal.
Acceptance of payments after a date on which bank may demand payment in full
shall not constitute a waiver of the Bank's right to demand payment in full
thereafter. This note shall bear interest after maturity at the rate of 3% over
the stated rate but not exceeding the maximum rate allowed by law; and if not
paid annually, such interest shall be compounded annually. If used herein,
"prime rate" shall mean the per annum rate of interest established from time to
time by Commerce Bank, N.A. and designated as such for its internal convenience,
and no representation is made that the prime rate is the lowest, the best, or a
favored, rate of interest. The rate of interest charged on this note, if related
to such "prime rate" and unless otherwise provided herein, shall change with,
and be effective on the date of, each change in the "prime rate".
Until the occurrence of any event of default or the maturity of this note,
whether by acceleration or otherwise, the undersigned may borrow and repay and
re-borrow such amounts as Bank in its sole discretion may determine to lend to
the undersigned, but not exceeding the maximum amount set forth above. All
advances and repayments hereunder shall be recorded by Bank and between the
undersigned and Bank such records shall be conclusively presumed to reflect the
amounts advanced and repaid hereunder and the then outstanding and unpaid
balance of the sums advanced or readvanced hereunder. Unless otherwise
instructed by the undersigned, all advances under this note will be credited to
checking account No. 093018393 carried on the books of Bank in the name of
Medical Defense Holding Company and the undersigned agrees that Bank may make
advances, at its discretion, upon oral instructions, of any of the undersigned
or upon occurrence of an overdraft in said checking account or any account of
the undersigned with Bank.
Upon the occurrence of any of the following events of default: Failure of the
undersigned to comply with any of the provisions contained in this note or in
any security instrument, directly or indirectly, securing the same or in any
other agreement between the undersigned and Bank, failure of any guarantor of
this note to comply with any provisions contained in any guaranty or security
instrument securing the same, or any event (such as transfer of collateral)
under any security instrument, directly or indirectly, securing this note or in
any other agreement to which the undersigned is a party, which allows Bank or
any other person to declare any indebtedness owing by the undersigned due and
payable in full, or death, dissolution, termination of existence, insolvency,
failure to pay debts as they mature, appointment of a receiver of any part of
the property of, an assignment for the benefit of creditors, or the
commencements of any proceedings under bankruptcy or insolvency laws by or
against any of the undersigned or any guarantor or endorser of this note, or if
Bank deems itself insecure, then or at any time thereafter, this note and all
other obligations of each of the undersigned, shall at the option of Bank,
become due and payable without notice or demand unless notice or demand be
required by law. Unless prohibited by law, the undersigned will pay on demand
all costs of collection, legal expenses and attorney's fees incurred or paid in
collecting and/or enforcing this note. Furthermore, Bank reserves the right to
offset without notice all funds held by Bank against matured debts owing to Bank
by undersigned.
If this note is secured by a mortgage, deed of trust or other security
instrument, reference is made to such security instrument for additional rights
as to acceleration of this indebtedness.
If credit life and/or disability insurance(s) are purchased through Bank it
will cover only the person(s) named in the statement or certificate of insurance
issued to the undersigned, or, if no statement or certificate is issued, the
person whose signature appears first below.
All without notice to and without affecting the liability to Bank of any of
the undersigned, each of the undersigned: (1) waives presentment, protest,
demand, notice of dishonor or default, and consents to the release of any party
or parties directly or indirectly liable for payment hereof or the release,
subordination or substitution of any collateral securing this obligation; and
(2) consents to any and all amendments, modifications (including changes in
interest rate), and/or renewals and extensions (including successive renewals or
extensions and whether for the same term or such shorter or longer terms as Bank
may require).
(check if applicable)
[_] This note is secured by a mortgage/deed of trust dated __________,19__
which secures future advances and obligations of the undersigned or
any of them if more than one.
As used herein "undersigned" shall mean each maker and each endorser, and
each, jointly and severally agrees to all the provisions hereof. This note shall
be construed in accordance with the laws of Missouri.
Funds Used For Business Purposes
Security for this note and all other indebtedness owing to Bank includes but is
not limited to the following:
Medical Defense Holding Company
- -------------------------------
By: /s/ Ronald G. Benson
- ------------------------------- --------------------------------------
Signature Signature Ronald G. Benson, M.D., President
By: /s/ Geri H. Morrison 6-24-96
- ------------------------------- --------------------------------------
Signature Signature Geri H. Morrison, Chief Operating
Officer
Address: P.O. Box 3817, Springfield, MO 65808
- -----------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
the Company's financial statements for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 78,427,355
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 85,480,747
<CASH> 5,206,932
<RECOVER-REINSURE> 2,016,355
<DEFERRED-ACQUISITION> 141,044
<TOTAL-ASSETS> 103,658,590
<POLICY-LOSSES> 65,309,380
<UNEARNED-PREMIUMS> 8,298,913
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 287,966
<NOTES-PAYABLE> 0
<COMMON> 509,801
0
11,990,189
<OTHER-SE> 12,632,421
<TOTAL-LIABILITY-AND-EQUITY> 103,658,590
9,704,034
<INVESTMENT-INCOME> 4,223,119
<INVESTMENT-GAINS> 68,543
<OTHER-INCOME> 401
<BENEFITS> 15,219,500
<UNDERWRITING-AMORTIZATION> 182,116
<UNDERWRITING-OTHER> 1,633,296
<INCOME-PRETAX> (3,319,949)
<INCOME-TAX> (464,342)
<INCOME-CONTINUING> (2,855,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,855,607)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<RESERVE-OPEN> 65,660,000
<PROVISION-CURRENT> 11,625,986
<PROVISION-PRIOR> 3,593,514
<PAYMENTS-CURRENT> 170,409
<PAYMENTS-PRIOR> 14,963,711
<RESERVE-CLOSE> 65,309,380
<CUMULATIVE-DEFICIENCY> 3,593,514
</TABLE>
