<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended MARCH 31, 1997 or
[ ] 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 0-19439
MAIC Holdings, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0720042
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
100 Brookwood Place, Birmingham, AL 35209
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(205) 877-4400
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
--- ---
As of March 31 1997, there were 10,261,285 shares of the registrant's common
stock outstanding.
Page 1 of 11
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Table of Contents
<TABLE>
<S> <C> <C>
Part I - Financial Information
Item l. Condensed Consolidated Financial Statements (Unaudited)
of MAIC Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets...............................3
Condensed Consolidated Statements of Income.........................4
Condensed Consolidated Statements of Cash Flows.....................5
Notes to Condensed Consolidated Financial Statements................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K...................................11
Signatures......................................................................11
</TABLE>
<PAGE> 3
MAIC Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
-----------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at market value $ 571,030 $ 564,938
Equity securities available for sale, at market value 31,688 33,036
Real estate, net 12,406 12,352
Investment in unconsolidated affiliate 30 30
Short-term investments 47,364 56,403
--------- ---------
Total investments 662,518 666,759
Cash and cash equivalents 21,638 14,033
Premiums receivable 62,784 33,896
Receivable from reinsurers 120,971 108,692
Prepaid reinsurance premiums 16,004 14,152
Deferred taxes 40,140 36,132
Other assets 30,624 31,644
--------- ---------
$ 954,679 $ 905,308
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Reserve for losses and loss adjustment expenses $ 571,497 $ 548,742
Unearned premiums 68,590 54,920
Reinsurance premiums payable 44,046 31,789
--------- ---------
Total policy liabilities 684,133 635,451
Income taxes payable 5,245 2,852
Other liabilities 19,280 22,440
--------- ---------
Total liabilities 708,658 660,743
Commitments and contingencies -- --
Stockholders' equity:
Common stock, par value $1 per share; 100,000,000
shares authorized;10,339,399 and 10,339,245 10,339 10,339
shares issued, respectively
Additional paid-in capital 123,223 123,218
Net unrealized gains on securities available for sale, net of
deferred taxes of $1,010 and $4,392, respectively 1,875 8,157
Retained earnings 111,441 103,027
--------- ---------
246,878 244,741
Less treasury stock at cost, 78,114 and 57,214 shares,
respectively (857) (176)
--------- ---------
Total stockholders' equity 246,021 244,565
--------- ---------
$ 954,679 $ 905,308
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
MAIC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Direct and assumed premiums written $ 52,090 $ 42,598
======== ========
Premiums earned $ 37,117 $ 29,019
Premiums ceded (8,715) (7,941)
-------- --------
Net premiums earned 28,402 21,078
Net investment income 9,458 8,723
Other income 611 459
-------- --------
Total revenues 38,471 30,260
Expenses:
Losses and loss adjustment expenses 30,175 25,407
Reinsurance recoveries (9,938) (9,375)
-------- --------
Net losses and loss adjustment expenses 20,237 16,032
Underwriting, acquisition and insurance expenses 7,141 5,734
-------- --------
Total expenses 27,378 21,766
-------- --------
Income before income taxes and minority interests 11,093 8,494
Provision for income taxes:
Current expense 3,305 2,671
Deferred (benefit) (626) (1,066)
-------- --------
2,679 1,605
-------- --------
Income before minority interests 8,414 6,889
Minority interests -- (33)
-------- --------
Net income $ 8,414 $ 6,856
======== ========
Earnings per share:
Net Income $ 0.82 $ 0.69
======== ========
Weighted average number of common shares
outstanding 10,274 9,931
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
MAIC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 8,414 $ 6,856
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 349 299
Amortization (733) 875
Net realized gain on sale of investments (198) (182)
Deferred income taxes (benefit) (626) (1,066)
Other 5 (78)
Changes in assets and liabilities:
Premiums receivable (28,888) (14,788)
Income taxes receivable/payable 2,393 3,113
Receivable from reinsurers (12,279) (9,083)
Prepaid reinsurance premiums (1,852) (11,287)
Other assets 2,066 (567)
Reserve for losses and loss adjustment expenses 22,755 14,372
Unearned premiums 13,670 18,802
Reinsurance premiums payable 12,257 6,216
Other liabilities (3,160) 2,135
-------- --------
Net cash provided by operating activities 14,173 15,617
INVESTING ACTIVITIES
Purchases of fixed maturities available for sale (39,167) (42,662)
Purchases of equity securities available for sale (2,827) (2,118)
Proceeds from sale or maturities of fixed
maturities available for sale 23,818 23,337
Proceeds from sale of equity securities available for sale 3,656 1,000
Net decrease in short-term investments 9,100 9,620
Other (467) (204)
-------- --------
Net cash used in investing activities (5,887) (11,027)
FINANCING ACTIVITIES
Purchase of treasury stock (681) --
-------- --------
Net cash used by financing activities (681) --
-------- --------
Increase in cash and cash equivalents 7,605 4,590
Cash and cash equivalents at beginning of period 14,033 4,238
-------- --------
Cash and cash equivalents at end of period $ 21,638 $ 8,828
======== ========
</TABLE>
See accompanying notes.
5
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MAIC Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of MAIC Holdings, Inc. and its subsidiaries, together referred to
as the Company. The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjust ments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the December 31, 1996 audited
consolidated financial statements and accompanying notes.
At December 31, 1996, MAIC Holdings, Inc. had 100 million shares of authorized
common stock and 50 million shares of authorized preferred stock. The Board of
Directors has the authorization to determine the provisions for the issuance of
shares of the preferred stock, including the number of shares to be issued and
the designations, powers, preferences and rights, and the qualifications,
limitations or restrictions of such shares. At March 31, 1997, the Board of
Directors had not authorized the issuance of any preferred stock nor determined
any provisions for the preferred stock.
2. INCOME TAXES
Income tax expense differs from the normal relationship to financial statement
income principally because of tax-exempt interest income.
3. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserves for losses and loss adjustment expenses represent management's best
estimate of the ultimate cost of all losses incurred but unpaid. Incurred losses
and loss adjustment expenses for the three month periods ending March 31, 1997
and 1996 were principally based on the application of an expected loss ratio to
premiums earned. These loss ratios take into consideration prior loss
experience, loss trends, the Company's loss retention levels, changes in
frequency and severity of claims and rates charged.
4. INVESTMENTS
Proceeds from sales of investments in fixed maturities available for sale were
$10,804,000 and $11,028,000 for the three months ended March 31, 1997 and 1996,
respectively. Gross realized gains on such sales were $198,000 and $182,000 at
March 31, 1997 and 1996, respectively; there were no gross realized losses on
such sales at March 31, 1997 and 1996. Realized gains and losses are included as
a component of other income.
6
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MAIC Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. INVESTMENTS (CONTINUED)
The amortized cost of fixed maturities and equity securities available for sale
was $599,833,000 and $585,425,000 at March 31, 1997 and December 31, 1996,
respectively.
5. EARNINGS PER SHARE
On December 4, 1996 the Board of Directors declared a 6% stock dividend. Cash
was paid to shareholders for fractional shares. Earnings per share data for 1996
has been restated as if the above dividend had been declared on January 1, 1996.
Shares issued as part of the Company's December 1996 purchase of MOMED Holding
Company affect only the 1997 earnings computation.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per share, which is required to be adopted on December 31, 1997.
The Statement requires a change in the method currently used to compute earnings
per share and the restatement of all prior periods disclosed. The Company does
not expect Statement 128 to materially affect the Company's earnings per share
as disclosed in the accompanying financial statements.
6. DEFERRED POLICY ACQUISITION COSTS
Costs that vary with and are directly related to the production of new and
renewal premiums (primarily premium taxes, commissions and underwriting
salaries) are deferred to the extent they are recoverable against unearned
premiums and are amortized as related premiums are earned. Amortization of
deferred acquisition costs amounted to approximately $2,977,000 and $2,115,000
for the three months ended March 31, 1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising primarily from claims
made under insurance policies; these legal actions have been considered by the
Company in establishing its reserves. While the outcome of all legal actions is
not presently determinable, the Company's management and its legal counsel are
of the opinion that the settlement of these actions will not have a material
adverse effect on the Company's financial position or results of operations.
8. BUSINESS EXPANSION
Effective December 20, 1996 the Company purchased MOMED Holding Company (MOMED).
MOMED is the parent company of Missouri Medical Insurance Company, which is a
provider of medical malpractice insurance. The accompanying 1996 condensed
consolidated statement of income does not include any amounts attributable to
MOMED.
7
<PAGE> 8
ITEM. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For purposes of this management discussion and analysis, the term
"Company" refers to MAIC Holdings, Inc. and its subsidiaries. The consolidated
subsidiaries consist principally of operating insurance companies.
LIQUIDITY AND CAPITAL RESOURCES
The payment of losses, loss adjustment expenses, and operating expenses
in the ordinary course of business is currently the Company's principal need for
liquid funds. Cash used to pay these items has been provided by operating
activities. Cash provided from these activities was sufficient during the first
three months of 1997 to meet the Company's operating needs, and the Company
believes those sources will be sufficient to meet its cash needs for operating
purposes for at least the next twelve months. Prolonged and increasing levels of
inflation could cause increases in the dollar amount of losses and loss
adjustment expenses and may therefore adversely affect future reserve
development. To minimize such risk, the Company (i) maintains what its
management considers to be strong and adequate reinsurance, (ii) conducts
regular actuarial reviews to ensure, among other things, that reserves do not
become deficient, and (iii) maintains adequate asset liquidity.
The Company did not borrow any funds during the three months ended
March 31, 1997 and 1996, and currently has no requirements indicating a need to
borrow significant funds in the next twelve months. However, the need for
additional capital may arise in order to achieve the Company's ultimate goal of
expansion, as discussed in subsequent paragraphs. The Company continues to have
available through a lending institution a line of credit in the amount of $40
million that could be used for these additional capital requirements. The
Company is not charged a fee nor is it required to maintain compensating
balances in connection with this line of credit.
The Company's Board of Directors has authorized the purchase of up to
$10 million of its common stock in the open market. At March 31, 1997,
approximately $2.7 million remains available for purposes of purchasing its own
common stock in the open market.
BUSINESS EXPANSION
The Company, through Mutual Assurance, Inc. (Mutual Assurance), has
been developing a marketing strategy to address the insurance needs of hospitals
and vertically integrated health care providers. The Company expects
organizations such as these to represent increasing market opportunities for
professional liability and related insurance products because of the trend
toward the consolidation of health care providers. In certain instances, Mutual
Assurance's surplus is a competitive factor in this "large account" market
because its principal competitors are larger than those with whom Mutual
Assurance has historically had to compete.
In addition to its expansion into this growing market for "large
accounts", the Company also intends to expand through the acquisition of, or
combination with, medical professional liability insurers that have a
significant presence in states other than Alabama. Effective December 20, 1996
the Company purchased MOMED Holding Company (MOMED). MOMED is the parent company
of Missouri Medical Insurance Company, which is a provider of medical
malpractice insurance.
8
<PAGE> 9
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1996
Premiums
The following table presents information related to consolidated
written and earned premiums and reinsurance expense (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------- Increase
1997 1996 (Decrease)
-------------------- ----------
<S> <C> <C> <C>
Direct and assumed premiums written $ 52,090 $ 42,598 $ 9,492
======== ======== ========
Premiums earned $ 37,117 $ 29,019 $ 8,098
Premiums ceded (8,715) (7,941) 774
-------- -------- --------
Net premiums earned $ 28,402 $ 21,078 $ 7,324
======== ======== ========
</TABLE>
Premiums written increased $9,492,000 for the three months ended March
31, 1997 as compared to the three months ended March 31, 1996. The increase in
premiums written is attributable to (i) $2,543,000 of premiums written by MOMED
and (ii) an increase in direct and assumed premiums written in states other than
Alabama. Earned premiums increased for the quarter ended March 31, 1997 as a
result of new premiums written during 1997 and 1996. The increase in premiums
ceded is principally a result of additional written and assumed premiums in
states other than Alabama, and as respects this new business, increased cessions
of risks to reinsurers.
Investment Income
The Company had consolidated net investment income of $9,458,000 for
the three months ended March 31, 1997, as compared to $8,723,000 for the three
months ended March 31, 1996. The increase in investment income from March 31,
1996 to March 31, 1997 is a result of an increase in the amount of investments
held by the Company, including $75,378,000 held by MOMED; this increase is
somewhat offset by a reduction in the average rate of return on investments from
6.8% at March 31, 1996 to 5.9% at March 31, 1997.
For purposes of the above discussion, invested assets are comprised of
fixed maturities, and equity securities at amortized cost, short-term
investments and investment in unconsolidated subsidiary; the earnings on such
invested assets constitute the related net investment income. The Company
calculates the yield on invested assets by dividing the related investment
income (annualized for interim periods) by the monthly average of invested
assets.
The principal investment objective of the Company is to achieve a high
level of after-tax income while minimizing risk. Although fixed maturity
securities are purchased with the initial intent to hold such securities until
their maturity, disposals of securities prior to their respective maturities may
occur if management believes such disposals are consistent with the Company's
overall investment objectives, including maximizing after-tax yields.
Equity securities of $31,688,000 at March 31, 1997 and $33,036,000 at
December 31, 1996 are primarily fixed rate preferred stocks. Disposition of
investments prior to maturity may result in a net gain or loss which would be
classified as "Other Income".
9
<PAGE> 10
Losses
Consolidated losses and loss adjustment expenses (losses) and the
related loss ratios are summarized in the following table (dollars in
thousands). The ratio for losses is based on premiums earned; the ratio for net
losses is based on net premiums earned.
<TABLE>
<CAPTION>
Three months ended
March 31, 1997 March 31, 1996
------------------------------------------
Loss Loss
Losses Ratio Losses Ratio
------------------ -------------------
<S> <C> <C> <C> <C>
Losses and loss adjustment expenses $ 30,175 81% $ 25,407 88%
== ==
Reinsurance recoveries (9,938) (9,375)
-------- --------
Net losses and loss adjustment expenses $ 20,237 71% $ 16,032 76%
======== == ======== ==
</TABLE>
The Company's losses for the three months ended March 31, 1997, which
include losses attributable to MOMED of $1,686,000, reflect a loss ratio of 81%
compared to a loss ratio of 88% for the three months ended March 31, 1996.
Losses for both periods are principally based on the application of an expected
loss ratio to premiums earned. These loss ratios take into consideration prior
loss experience, loss trends, the Company's loss retention levels, changes in
frequency and severity of claims, and rates charged.
The increase in reinsurance recoveries primarily results from the
increase in losses and the increased cessions to reinsurers.
Other Income
Other income increased by $152,000 for the three months ended March 31,
1997 compared to the three months ended March 31, 1996. This increase is
principally a result of (i) other income of $77,000 attributable to MOMED and
(ii) increased capital gains realized from sales or other dispositions of
securities during the first three months of 1997 compared to the first three
months of 1996.
Underwriting, Acquisition, and Insurance Expenses
Consolidated expenses increased by $1,407,000 for the three months
ended March 31, 1997 compared to the three months ended March 31, 1996. Expenses
incurred by MOMED during the three months ended March 31, 1997 account for
$536,000 of this increase. The remainder of the increase results primarily from
policy acquisition costs associated with new business, along with the other
costs associated with the Company's current business strategy. This strategy
calls for the Company to continue investigating potential acquisition
opportunities and the possibility of expansion into additional markets.
Income Taxes
The Company's effective tax rates of 24% and 19% for the three months
ended March 31, 1997 and 1996, respectively, are lower than the statutory rate
of 35%. The principal reason for the Company's lower effective tax rate is the
effect of tax exempt investment income.
10
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit (27) required of Item 601 of Regulation SK-Financial Data
Schedule (for SEC use only).
(b) Reports on 8-K. The Company filed one report 8-K on January 2, 1997,
which reported the acquisition of MOMED pursuant to Item 2 of Form 8-K.
No financial statements were required to be filed with the report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAIC Holdings, Inc.
May 9, 1997 By: /s/ James J. Morello
-------------------------------
James J. Morello, Treasurer
(duly authorized officer and
principal financial officer)
11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF MAIC HOLDINGS, INC.
AND SUBSIDIARIES FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND IS QULIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 571,030
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 31,688
<MORTGAGE> 0<F1>
<REAL-ESTATE> 12,406
<TOTAL-INVEST> 662,518
<CASH> 21,638
<RECOVER-REINSURE> 120,971
<DEFERRED-ACQUISITION> 0<F1>
<TOTAL-ASSETS> 954,679
<POLICY-LOSSES> 571,497
<UNEARNED-PREMIUMS> 68,590
<POLICY-OTHER> 44,046
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0<F1>
0
0
<COMMON> 10,339
<OTHER-SE> 235,682
<TOTAL-LIABILITY-AND-EQUITY> 954,679
28,402
<INVESTMENT-INCOME> 9,458
<INVESTMENT-GAINS> 198
<OTHER-INCOME> 413
<BENEFITS> 20,237
<UNDERWRITING-AMORTIZATION> 2,977
<UNDERWRITING-OTHER> 4,164
<INCOME-PRETAX> 11,093
<INCOME-TAX> 2,679
<INCOME-CONTINUING> 8,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,414
<EPS-PRIMARY> .82
<EPS-DILUTED> 0
<RESERVE-OPEN> 548,742
<PROVISION-CURRENT> 36,975
<PROVISION-PRIOR> (6,800)
<PAYMENTS-CURRENT> (1,653)
<PAYMENTS-PRIOR> (5,767)
<RESERVE-CLOSE> 571,497
<CUMULATIVE-DEFICIENCY> 6,800
<FN>
<F1>DEFERRED POLICY ACQUISITION COSTS AND MORTGAGE NOTES PAYABLE ARE NOT SEPARATELY
DISCLOSED IN FORM 10-Q BECAUSE ITEMS ARE IMMATERIAL FOR INDIVIDUAL DISCLOSURE.
DEFERRED POLICY ACQUISITION COSTS ARE INCLUDED AS A COMPONENT OF OTHER ASSETS,
AND MORTGAGE NOTES PAYABLE ARE INCLUDED AS A COMPONENT OF OTHER LIABILITIES.
</FN>
</TABLE>
