-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JL9PihfWrHYmoClyDbo1wF5HJcdHMh5WAJ/GSTKIMgfeQ24XmAFNXCaJKnQ8xaEZ CKbdFbRioDMhodeHc+KLAQ== 0000100716-98-000004.txt : 19980330 0000100716-98-000004.hdr.sgml : 19980330 ACCESSION NUMBER: 0000100716-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICO AMERICAN CORP CENTRAL INDEX KEY: 0000100716 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952583928 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-03978 FILM NUMBER: 98575894 BUSINESS ADDRESS: STREET 1: 23251 MULHOLLAND DR CITY: WOODLAND HILLS STATE: CA ZIP: 91364 BUSINESS PHONE: 8185919800 MAIL ADDRESS: STREET 1: 23251 MULHOLLAND DRIVE CITY: WOODLAND HILLS STATE: CA ZIP: 91364 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL COVERAGE CORP DATE OF NAME CHANGE: 19730823 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 Commission File No. 0-3978 UNICO AMERICAN CORPORATION (Exact name of registrant as specified in its charter) Nevada 95-2583928 (State or other jurisdiction of (I.R.S. Employee incorporation or organization) Identification No.) 23251 Mulholland Drive, Woodland Hills, California 91364 (Address of Principal Executive Offices) (Zip Code) (818) 591-9800 Registrant's telephone number Securities registered pursuant to Section 12(b) of the Act: None (Title of each class) Securities registered pursuant to section 12(g) of the Act: Common Stock, No Par Value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy of information statements incorporated by reference as Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of Registrant's voting stock held by non-affiliates as of March 20, 1998 was $58,607,584 (based on the closing sales price on such date, as reported by the Wall Street Journal). 6,158,861 Number of shares of common stock outstanding as of March 20, 1998 Portions of the definitive proxy statement which Registrant intends to file pursuant to Regulation 14(A) by a date no later than 120 days after December 31, 1997, to be used in connection with the annual meeting of shareholders, are incorporated herein by reference into Part III hereof. If such definitive proxy statement is not filed in the 120 day period, the information called for by Part III will be filed as an amendment to this Form 10-K not later than the end of the 120 day period. 1 PART I Item 1. Business - ----------------- Unico American Corporation is referred to herein as the "Company" or "Unico" and such references include both the corporation and its subsidiaries, all of which are wholly owned, unless otherwise indicated. Unico was incorporated under the laws of Nevada in 1969. Unico American Corporation is an insurance holding company which provides property, casualty, health and life insurance and related premium financing through its wholly owned subsidiaries. Crusader Insurance Company ("Crusader"), the Company's property and casualty insurance company, represents approximately 85% of the Company's total revenues. General Agency Operations ------------------------- The Company's general agency subsidiaries are as follows: Unifax Insurance Systems, Inc., ("Unifax") primarily sells and services business package insurance policies. In addition, it also sells and services commercial liability, commercial property, and workers' compensation insurance policies. In February 1997, management decided to discontinue writing new commercial automobile policies for a non-affiliated insurer. These policies were only sold in California. Subsequent to February 1997, Unifax only serviced and renewed existing commercial automobile policies until the book of business was sold to a non-affiliated party in June 1997. Unifax's workers' compensation policies are sold in Arizona and California for a non-affiliated insurer. All other policies are sold and serviced by Unifax in Arizona, California, Nevada, Ohio, Oregon, Pennsylvania, and Washington for Crusader. Bedford Insurance Services, Inc., ("Bedford") sells and services daily automobile rental policies in most states for a non-affiliated insurer. National Coverage Corporation ("NCC") renewed and serviced commercial and personal automobile policies in California for a non-affiliated insurer. This program was terminated in August 1996, and the corporation is now inactive. As general agents, these subsidiaries market, rate, underwrite, inspect and issue policies, bill and collect insurance premiums, and maintain accounting and statistical data. Unifax is the exclusive general agent for Crusader. Unifax and Bedford are non-exclusive general agents for non-affiliated insurance companies. The Company's marketing is conducted through advertising to independent insurance agents and brokers. For its services, the general agent receives a commission (based on the premium written) from the insurance company and, in some cases, a service fee from the customer. These subsidiaries all hold licenses issued by the California Department of Insurance and other states where applicable. Insurance Claim Adjusting Operation ----------------------------------- The Company's subsidiary, U.S. Risk Managers, Inc., ("U.S. Risk") provides insurance claim adjusting services to the non-affiliated property and casualty insurance company that Bedford represents as a general agent. This service consists of receiving, reserving, adjusting, paying and accounting for insurance claims. U.S. Risk engages independent field examiners for all work performed outside the Company's office. For its services, U.S. Risk receives a percentage of the premium written by the general agent. U.S. Risk operates under a license issued by the California Department of Insurance and other states where applicable. All claim adjusting services for Crusader policies are administered by Crusader. Crusader engages independent field examiners for all work performed outside the Company's office. Insurance Premium Finance Operation ----------------------------------- American Acceptance Corporation ("AAC") is a licensed insurance premium finance company which provides insurance purchasers with the ability to pay their insurance premiums on an installment basis. The premium finance company pays the insurance premium to the insurance company in return for a premium finance note from the insured. These notes are paid off by the insured in nine monthly installments and are secured by the unearned premiums held by the insurance company. The premium finance company provides premium financing to Crusader. 2 Health and Life Insurance Operations ------------------------------------ The Company's subsidiaries National Insurance Brokers, Inc., ("NIB") and American Insurance Brokers, Inc., ("AIB") market medical, dental, life, and accidental death and dismemberment insurance through non-affiliated insurance companies for individuals and groups. The services provided consist of marketing, billing and collection, accounting, and customer service. For its services, these subsidiaries receive a commission from the insurance company. Most of the business is produced through independent insurance agents and brokers who receive a commission from NIB or AIB. NIB and AIB hold licenses issued by the California Department of Insurance. All business is currently written in the State of California. Association Operation --------------------- The Company's subsidiary Insurance Club, Inc., DBA The American Association for Quality Health Care ("AAQHC"), is a membership association which provides various consumer benefits to its members, including participation in group health care and life insurance policies which AAQHC negotiates for the Association. For these services, AAQHC receives membership and fee income from its members. Insurance Company Operation --------------------------- General - ------- The insurance company operations are conducted through Crusader, which as of December 31, 1997, is licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon and Washington. Crusader is a multiple line property and casualty insurance company which began transacting business on January 1, 1985. As of December 31, 1997, it was primarily writing business package policies in all the states in which it is licensed. Crusader also writes commercial property and commercial liability policies in those states. Its business is sold through Unifax Insurance Systems, Inc., its sister corporation. Unifax has substantial experience with these classes of business. Crusader is licensed in all property and casualty and disability lines by the California Department of Insurance. Reinsurance - ----------- A reinsurance transaction occurs when an insurance company transfers ("cedes") a portion of its exposure on business written by it to a reinsurer which assumes that risk for a premium ("ceded premium"). Reinsurance does not legally discharge the Company from primary liability under its policies; and if the reinsurer fails to meet the obligations, the Company must nonetheless pay its policy obligations. Crusader has reinsurance agreements with National Reinsurance Corporation and NAC Reinsurance Corporation, both California admitted reinsurers. National Reinsurance Corporation was acquired by General Reinsurance Corporation in 1996. These reinsurance agreements help protect Crusader against liabilities in excess of certain retentions, including major or catastrophic losses which may occur from any one or more of the property and/or casualty risks which Crusader insures. Crusader also has additional catastrophe reinsurance from various other reinsurance companies of which 77% of the participating reinsurers are admitted in California. The aggregate amount of earned premium ceded to the reinsurers was $6,394,328 for the fiscal year ended December 31, 1997, $4,387,450 for the twelve month period ended December 31, 1996, and $3,307,085 for the nine month fiscal year ended December 31, 1996. On July 1, 1997, Crusader increased its retention from $150,000 to $250,000 per risk subject to aggregate limits and to catastrophe and clash covers. The catastrophe and clash covers (subject to a maximum occurrence and annual aggregate amount) help protect the Company from one loss occurrence affecting multiple policies. The premium ceded to the reinsurers for the catastrophe and clash covers and for all exposures over $500,000 is a fixed percentage of the premium charged by Crusader. On exposures up to $500,000, the reinsurer charged a provisional rate which is subject to adjustment and is based on the amount of losses ceded, limited by a maximum percentage that can be charged by the reinsurer. This provisional rated treaty was cancelled and replaced by a flat rated treaty on January 1, 1998. On most of the premium that Crusader cedes to the reinsurer, the reinsurer pays a commission to Crusader which includes a reimbursement of the cost of acquiring the portion of the premium which is ceded. Crusader does not currently assume any reinsurance. The Company intends to continue obtaining reinsurance although the availability and cost may vary from time to time. The unpaid losses ceded to the reinsurer are recorded as an asset on the balance sheet. 3 Unpaid Losses and Loss Adjustment Expenses - ------------------------------------------ Crusader maintains reserves for losses and loss adjustment expenses with respect to both reported and unreported losses. Crusader establishes reserves for reported losses based on historical experience, upon case-by-case evaluation of facts surrounding each known loss and the related policy provisions. The amount of reserves for unreported losses is estimated by analysis of historical and statistical information. Historical data includes the 13 years that Crusader has been in operation and the data from its general agent developed with other insurance companies prior to 1985. Since the ultimate liability of Crusader may be greater or less than estimated reserves, all reserves are constantly monitored and adjusted when appropriate. Reserves for loss adjustment expenses are estimated to cover the direct costs associated with specific claims as well as an estimate of administrative costs. The process of establishing loss reserves involves significant judgmental factors. The following table shows the development of the unpaid losses and loss adjustment expenses for fiscal years 1988 through 1997. The top line of the table shows the estimated liability for unpaid losses and loss adjustment expenses recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and loss adjustment expenses for losses arising in the current and prior years that are unpaid at the balance sheet date, including the estimated losses that had been incurred but not reported to the Company. The table shows the reestimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known. The redundancies in reserves from fiscal 1988 to the present are due to Crusader's loss reserving practices used in determining its incurred but not reported losses and loss adjustment expenses ("IBNR"). Although redundancies have been reported for all years except 1994, there is no assurance the redundancies will continue and the Company believes a change in the way it computes IBNR is not warranted. Crusader is a relatively small insurance company with 13 years of its own statistical experience. Crusader is constantly changing its product mix and exposures, including the types of businesses insured within its business package program as well as its lines of business. In addition, it is regularly expanding its territories both inside and outside of California and is growing in premium volume. Considering the uncertainties from this changing environment as well as its limited internal data and history, the Company recognizes the difficulties in developing its own unique IBNR statistics; therefore, it incorporates industry standards and averages into its estimates. When Crusader establishes its IBNR reserves, although conservative, it is still well below industry average; and the Company believes that it is properly stated. When subsequent development justifies changes in IBNR, the Company acts accordingly. When evaluating the information in the following table, it should be noted that each amount includes the effects of all changes in amounts of prior periods; therefore, the cumulative redundancy or deficiency represents the aggregate change in the estimates over all prior years. Conditions and trends that have affected development of liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future deficiencies or redundancies based on this table. 4 CRUSADER INSURANCE COMPANY ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
Fiscal Year Ended March 31 ------------------------------------------------------------------------------------------ 1988 1989 1990 1991 1992 1993 l994 ---- ---- ---- ---- ---- ---- ---- Reserve for Unpaid Losses and Loss Adjustment Expenses $16,574,249 $23,511,133 $23,601,435 $22,918,442 $21,249,902 $20,824,039 $21,499,778 Paid Cumulative as of 1 Year Later 6,924,260 6,326,868 6,204,559 6,425,329 6,368,554 8,904,427 7,687,180 2 Years Later 10,927,698 10,726,038 10,357,708 10,946,318 9,583,885 10,824,024 13,453,833 3 Years Later 13,313,849 13,652,062 12,935,827 12,409,499 11,814,445 13,178,262 16,597,366 4 Years Later 14,639,530 15,121,985 13,561,987 12,951,511 12,667,989 14,462,911 19,073,442 5 Years Later 15,163,791 15,316,299 13,768,277 13,357,941 13,093,970 15,821,444 6 Years Later 15,218,575 15,385,519 13,866,654 13,459,123 13,385,215 7 Years Later 15,382,717 15,416,138 13,923,206 13,422,013 8 Years Later 15,381,552 15,450,239 13,797,865 9 Years Later 15,398,385 15,467,116 10 Years Later 15,413,833 Reserves Reestimated as of 1 Year Later 20,893,557 22,315,883 20,990,669 20,153,906 18,562,116 19,599,695 20,912,743 2 Years Later 19,583,939 20,165,458 18,566,956 17,136,498 15,021,149 15,742,478 20,289,699 3 Years Later 17,807,451 18,348,965 15,846,416 14,788,046 13,802,009 15,463,566 21,217,766 4 Years Later 16,729,893 16,385,905 14,631,554 13,961,555 13,620,235 16,174,111 21,843,632 5 Years Later 15,738,815 15,782,294 14,115,281 13,833,745 13,790,786 16,888,885 6 Years Later 15,491,674 15,511,081 14,063,578 13,754,304 13,878,797 7 Years Later 15,419,031 15,471,448 14,063,080 13,529,769 8 Years Later 15,395,735 15,486,955 13,853,735 9 Years Later 15,417,748 15,489,438 10 Years Later 15,414,543 Cumulative Redundancy (Deficiency) $1,159,706 $8,021,695 $9,747,700 $9,388,673 $7,371,105 $3,935,154 $(343,854) ========= ========= ========= ========= ========= ========= ========= Gross Liability for Unpaid Losses and Loss Adjustment Expenses $23,011,868 $26,294,199 Ceded Liability for Unpaid Losses and Loss Adjustment Expenses Net Liability for Unpaid Losses and Loss Adjustment Expenses (2,187,829) (4,794,421) ----------- ----------- $20,824,039 $21,499,778 ========== ========== Gross Liability $22,952,553 $23,232,154 Reestimated Ceded Liability (6,063,668) (1,388,522) ----------- ----------- Reestimated Net Liability Reestimated $16,888,885 $21,843,632 ========== ========== Gross Reserve Redundancy (Deficiency) $59,315 $3,062,045 ====== =========
CRUSADER INSURANCE COMPANY ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
Fiscal Year Ended Fiscal Year Ended March 31 December 31 ----------------- ------------------ 1995 1996 1996 1997 ---- ---- ---- ---- (Nine Months) Reserve for Unpaid Losses and Loss Adjustment Expenses $27,633,304 $32,682,153 $37,111,846 $40,591,248 Paid Cumulative as of 1 Year Later 8,814,611 7,019,175 10,996,896 2 Years Later 13,502,224 15,292,415 3 Years Later 18,911,104 Reserves Reestimated as of 1 Year Later 25,666,251 31,232,388 32,838,369 2 Years Later 24,984,032 28,636,286 3 Years Later 24,575,023 Cumulative Redundancy (Deficiency) $3,058,281 $4,045,867 $4,273,477 ========= ========= ========= Gross Liability for Unpaid Losses and Loss Adjustment Expenses $32,370,752 $37,006,458 $39,740,865 $42,004,851 Ceded Liability for Unpaid Losses and Loss Adjustment Expenses (4,737,448) (4,324,305) (2,629,019) (1,413,603) ---------- ---------- ---------- ---------- Net liability for Unpaid Losses and Loss Adjustment Expenses $27,633,304 $32,682,153 $37,111,846 $40,591,248 Gross Liability Reestimated $27,503,813 $31,490,506 $37,561,432 Ceded Liability (2,928,790) (2,854,220) (4,723,063) ---------- ---------- ---------- Net Liability Restimated $24,575,023 $28,636,286 $32,838,369 ========== ========== ========== Gross Reserve Redundancy (Deficiency) $4,866,939 $5,515,952 $2,179,433
5 The following table presents an analysis of losses and loss adjustment expenses and provides a reconciliation of beginning and ending reserves for losses and loss adjustment expenses net of reinsurance for the fiscal year ended December 31, 1997, for the nine month fiscal year ended December 31, 1996, and the fiscal year ended March 31, 1996. CRUSADER INSURANCE COMPANY RECONCILIATION OF LOSS RESERVES
Fiscal Year Ended --------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Reserve for unpaid losses and loss adjustment expenses at beginning of year - net of reinsurance $37,111,846 $32,682,153 $27,633,304 ---------- ---------- ---------- Incurred losses and loss adjustment expenses Provision for insured events of current year 23,564,325 16,251,499 19,276,602 Increase (decrease) in provision for events of prior years (1) (4,275,759) (1,449,765) (1,967,053) ---------- ---------- ---------- Total losses and loss adjustment expenses 19,288,566 14,801,734 17,309,549 ---------- ---------- ---------- Payments Losses and loss adjustment expenses attributable to insured events of the current year 4,812,268 3,352,866 3,446,088 Losses and loss adjustment expenses attributable to insured events of prior years 10,996,896 7,019,175 8,814,612 ---------- --------- --------- Total payments 15,809,164 10,372,041 12,260,700 ---------- ---------- ---------- Reserve for unpaid losses and loss adjustment expenses at end of year - net of reinsurance $40,591,248 $37,111,846 $32,682,153 ========== ========== ========== Reconciliation of liability for losses and loss adjustment expense reserves to Balance Sheet Reserve for unpaid losses and loss adjustment expenses at end of year - net of reinsurance $40,591,248 $37,111,846 $32,682,153 Reinsurance recoverable on unpaid losses at end of year 1,413,603 2,629,019 4,324,305 ---------- ---------- ---------- Reserve for unpaid losses and loss adjustment expenses at end of year - gross of reinsurance $42,004,851 $39,740,865 $37,006,458 ========== ========== ========== (1) Decreases in incurred losses and loss adjustment expenses related to the indicated prior years reflect favorable loss experience during these years attributable to a number of combined factors which have produced favorable frequency and severity trends in recent years. In addition, actuarial assumptions based on historical trends have proven to be conservative.
6 Net Premium Written to Policyholders' Surplus Ratio - --------------------------------------------------- The following table shows, for the periods indicated, Crusader's statutory ratios of net premiums written to statutory policyholders' surplus. Since each property and casualty insurance company has different capital needs, an "acceptable" ratio of net premium written to policyholders' surplus for one company may be inapplicable to another. While there is no statutory requirement applicable to Crusader which establishes a permissible net premium to surplus ratio, guidelines established by the National Association of Insurance Commissioners provide that such ratio should generally be no greater than 3 to 1.
Twelve Months Ended ------------------------------------------------------------------------------- December 31 March 31 ---------------------------- --------------------------------------------- 1997 1996 1996 1995 1994 Statutory - ------------------------------------- Net Premiums Written $36,059,086 $36,652,776 $32,915,964 $30,785,970 $27,583,084 Policyholders' Surplus $30,899,761 $25,748,757 $22,721,183 $19,585,839 $17,313,744 Ratio 1.2 to 1 1.4 to 1 1.4 to 1 1.6 to 1 1.6 to 1
Regulation - ---------- The insurance company operation is subject to regulation by the California Department of Insurance ("the insurance department") and by the department of insurance of other states in which Crusader is licensed. The insurance department has broad regulatory, supervisory, and administrative powers. These powers relate primarily to the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature and limitation of insurers' investments; the prior approval of rates, rules and forms; the issuance of securities by insurers; periodic examinations of the affairs of insurers; the annual and other reports required to be filed on the financial condition and results of operations of such insurers or for other purposes; and the establishment of reserves required to be maintained for unearned premiums, losses, and other purposes. The regulations and supervision by the insurance department are designed principally for the benefit of policyholders and not for the insurance company shareholders. The last examination of Crusader by the insurance department covered the three years ended December 31, 1994, and was completed in November of 1995. In December 1993, the National Association of Insurance Commissioners ("NAIC") adopted a Risk-Based Capital ("RBC") Model Law for property and casualty companies. The RBC Model Law is intended to provide standards for calculating a variable regulatory capital requirement related to a company's current operations and its risk exposures (asset risk, underwriting risk, credit risk and off-balance sheet risk). These standards are intended to serve as a diagnostic solvency tool for regulators that establishes uniform capital levels and specific authority levels for regulatory intervention when an insurer falls below minimum capital levels. The RBC Model Law specifies four distinct action levels at which a regulator can intervene with increasing degrees of authority over a domestic insurer if its RBC is equal to or less than 200% of its computed authorized control level RBC. A company's RBC is required to be disclosed in its statutory annual statement. The RBC is not intended to be used as a rating or ranking tool nor is it to be used in premium rate making or approval. At December 31, 1997, Crusader's adjusted capital was well in excess of the required capital levels. California Insurance Guarantee Association In 1969, the California Insurance Guarantee Association ("CIGA") was created pursuant to California law to provide for payment of claims for which insolvent insurers of most casualty lines are liable but which cannot be paid out of such insurers' assets. Crusader is subject to assessment by CIGA for its pro-rata share of such claims (based on premiums written in the particular line in the year preceding the assessment by insurers writing that line of insurance in California). Such assessments are based upon estimates of losses incurred in liquidating an insolvent insurer. In a particular year, Crusader cannot be assessed an amount greater than 1% of its premiums written in the preceding year. California Insurance Code Sections 1063.5 and 1063.14 allow Crusader to recoup assessments by surcharging policyholders.No assessment was made by CIGA for the 1997 calendar year. 7 Holding Company Act - ------------------- Crusader is subject to regulation by the insurance department pursuant to the provisions of the California Insurance Holding Company System Regulatory Act (the "Holding Company Act"). Pursuant to the Holding Company Act, the insurance department may examine the affairs of Crusader at any time. Certain transactions defined to be of an "extraordinary" type may not be effected without the prior approval of the insurance department. Such transactions include, but are not limited to, sales, purchases, exchanges, loans and extensions of credit, and investments made within the immediately preceding 12 months involving one-half of one percent of admitted assets as of the preceding December 31. An extraordinary transaction also includes a dividend which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of 10% of the insurance company's policyholders' surplus as of the preceding December 31 or the insurance company's net income for the preceding calendar year. An insurance company is also required to notify the insurance department of any dividend after declaration, but prior to payment. The Company is in compliance with the Holding Company Act. Rating - ------ Crusader has been rated A- (Excellent) by A.M. Best Company since its initial rating in 1990. Investments ----------- The investments of the Company are made by the Company's Chief Financial Officer under the supervision of an investment committee appointed by the Company's Board of Directors. The Company's investment guidelines are to maintain the Company's cash and invested assets in high-grade investments. The Company's fixed maturity obligations have maturities no greater than eight years and consist of U.S. treasury securities, high-grade industrial and municipal obligations, and certificates of deposit. In addition, all investments in municipal obligations are pre-refunded which are secured by U.S. treasury securities. The Company's investment in equity securities consists of common stock shares of a public utility. The balance of the Company's investments are invested in high-grade, short-term instruments consisting of bank money market accounts, certificates of deposit, and commercial paper. These investments are either FDIC insured or are in an institution with a Moody's rating of P1 and/or Standard & Poor's rating of A1. All of the Company's investments are readily marketable and could be liquidated without any material financial impact. The following table sets forth the composition of the investment portfolio of the Company at the dates indicated:
(Amounts in Thousands) ------------------------------------------------------------------------------------- As of December 31 As of December 31 As of March 31 1997 1996 1996 Amortized Market Amortized Market Amortized Market Type of Security Cost Value Cost Value Cost Value ---------------- ---- ----- ---- ----- ---- ----- Certificates of deposit $ 500 $ 500 $ 798 $ 798 $ 1,111 $ 1,111 U.S. treasury securities 15,480 15,794 22,447 22,613 18,192 18,325 Industrial and miscellaneous Taxable bonds 31,765 32,489 13,106 13,440 10,655 11,015 State and municipal tax-exempt bonds 38,361 39,183 39,634 40,258 38,127 38,437 ------ ------ ------ ------ ------ ------ Total fixed maturity bonds 86,106 87,966 75,985 77,109 68,085 68,888 Short-term cash investments 6,137 6,137 4,862 4,862 3,466 3,466 Equity investments 230 223 - - 995 998 ------ ------ ------ ------ ------ ------ Total investments $92,473 $94,326 $80,847 $81,971 $72,546 $73,352 ====== ====== ====== ====== ====== ======
At December 31, 1997, the Company had a net unrealized gain on all investments of $1,851,659 before income taxes. 8 The maturity dates of the Company's fixed maturity investments at December 31, 1997, and December 31, 1996, were as follows:
(Amounts in Thousands) ---------------------------------------------------------------------- December 31, 1997 December 31, 1996 Amortized Market Amortized Market Fixed maturities due Cost Value Cost Value -------------------- ------------------------------------------------------------ Within 1 year $11,073 $11,109 $ 9,204 $ 9,274 Beyond 1 year but within 5 years 46,082 47,126 46,501 47,052 Beyond 5 years but within 10 years 28,951 29,731 20,280 20,783 ------ ------ ------ ------ Total $86,106 $87,966 $75,985 $77,109 ====== ====== ====== ======
Competition ----------- General - ------- The property and casualty insurance industry is highly competitive on the basis of price and service. It is highly cyclical, characterized by periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity. The profitability of insurers is affected by many factors including rate competition, the frequency of claims and their average cost, natural disasters, state regulations, interest rates, crime rates, general business conditions, and court decisions redefining and expanding the extent of coverage and granting higher compensation awards. One of the challenging and unique features of the property and casualty business is the fact that, since premiums are collected before losses are paid, its products must be priced before its costs are known. Insurance Company and General Agency Operations (Property & Casualty) - --------------------------------------------------------------------- The Company's property and casualty insurance business continues to be very competitive. There are many substantial competitors who have larger resources, operate in more states, and insure coverages in more lines and in higher limits than the Company. The principal method of competition among these competitors is price. While the Company attempts to meet this competition with competitive prices, its emphasis is on service, promotion, and distribution. Insurance Claim Adjusting Operation - ----------------------------------- The insurance claim adjusting operation generates all its business from "in-house production" for a non-affiliated insurance company; thus, competition is not a major factor as long as U.S. Risk produces a quality product at a fair price. Its growth is dependent on the growth of the general agency operation which produces the business. Insurance Premium Financing Operation - ------------------------------------- The insurance premium financing operation finances Crusader policies and, until February 1997, commercial automobile policies written through Unifax for a non-affiliated insurer. Although competition is intense in the premium finance business, the competitive pricing, the quality of its service, and the ease and convenience of financing with AAC has made its growth and profitability possible. Its continued growth is dependent on the growth of Crusader and Unifax. 9 Health and Life Insurance Operations - ------------------------------------ Competition in the health and life insurance business is also intense. Approximately 90% of the Company's present health and life business is from the CIGNA HealthCare medical and dental plan programs. This percentage is approximately the same as the prior year. The Company is continuing its efforts to diversify and offer a wider variety of products to its customers, and it believes that this effort will make it more competitive and should increase future revenues. Employees --------- On February 5, 1998, the Company employed 144 persons at its facility located in Woodland Hills, California. The Company has no collective bargaining agreements and believes its relations with its employees are excellent. Item 2. Properties - ------------------- The Company presently occupies a 46,000 square foot building located at 23251 Mulholland Drive, Woodland Hills, California, under a master lease expiring March 31, 2007. The lease provides for an annual gross rent of $1,025,952. Erwin Cheldin, the Company's president, chairman and principal stockholder, is the owner of the building. On February 22, 1995, the Company signed an extension to the lease with no increase in rent to March 31, 2007. The Company believes that the terms of the lease at inception and at the time the lease extension was signed were at least as favorable to the Company as could have been obtained from non-affiliated third parties. The Company utilizes for its own operations 100% of the space it leases. Item 3. Legal Proceedings - -------------------------- The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings in which it may be named as either plaintiff or defendant. The Company is required to resort to legal proceedings from time-to-time in order to enforce collection of premiums, commissions, or fees for the services rendered to customers or to their agents. These routine items of litigation do not materially affect the Company and are handled on a routine basis by the Company through its general counsel. Likewise, the Company is sometimes named as a cross-defendant in litigation which is principally directed against that insurer who has issued a policy of insurance directly or indirectly through the Company. Incidental actions are sometimes brought by customers or other agents which relate to disputes concerning the issuance or non-issuance of individual policies. These items are also handled on a routine basis by the Company's general counsel, and they do not materially affect the operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None. 10 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------------ The Company's common stock is traded on the NASDAQ National Market System under the symbol "UNAM." The high and low sales prices (by quarter) and dividends paid during the last two comparable twelve month periods are as follows: High Low Dividend Quarter Ended Price Price Declared ------------- ----- ----- -------- March 31, 1996 7 1/8 6 June 30, 1996 7 3/4 6 5/8 $0.07 September 30, 1996 8 3/4 7 1/8 December 31, 1996 11 7 5/8 March 31, 1997 10 7/8 9 5/8 $0.07 June 30, 1997 11 1/4 9 3/4 September 30, 1997 11 3/4 10 3/4 December 31, 1997 14 1/8 11 1/2 As of December 31, 1997, the approximate number of shareholders of record of the Company's common stock was 700. In addition, the Company estimates beneficial owners of the Company's common stock held in the name of nominees to be approximately 1,000. The Company has declared a cash dividend on its common stock annually since June 24, 1991. The Company's intention is to declare annual cash dividends subject to continued profitability and cash requirements. On March 4, 1997, the Company declared its latest annual cash dividend of $0.07 per common share payable on August 15, 1997, to shareholders of record on August 1, 1997. From January 1, 1997, to December 31, 1997, the Company issued an aggregate of 186,751 shares of its common stock upon exercise of employee stock options granted under the Unico American Corporation Employee Incentive Stock Option Plan. These shares were issued to an aggregate of five employees of the Company. Of these shares, an aggregate of 186,284 shares were issued in exchange for an aggregate of 61,964 shares of common stock and an aggregate of 467 shares were issued in exchange for an aggregate of $1,635.81 in cash. These shares were acquired for investment and without a view to the public distribution or resale thereof, and the issuance thereof was exempt from the registration requirements under the Securities Act of 1933, as amended, under Section 4(2) thereof as transactions not involving a public offering. Item 6. Selected Financial Data - --------------------------------
Fiscal Year Ended ---------------------------------------------------------------------------------- December 31 March 31 --------------------------- ----------------------------------------------- 1997 1996 1996 1995 1994 ---- ---- ---- ---- ---- (Nine Months) Total revenues $48,290,721 $34,884,657 $42,468,474 $39,444,223 $32,979,913 Total costs and expenses 37,301,688 27,505,670 34,060,183 34,486,546 27,931,741 ---------- ---------- ---------- ---------- ---------- Income before taxes $10,989,033 $7,378,987 $8,408,291 $4,957,677 $5,048,172 Net income $7,654,362 $5,174,510 $5,947,481 $3,792,179 $3,521,787 Basic earnings per share $1.25 $0.87 $1.00 $0.64 $0.59 Diluted earnings per share $1.20 $0.83 $0.97 $0.63 $0.58 Cash dividends per share $0.07 $0.07 $0.07 $0.07 $0.07 Total assets $112,942,384 $104,451,322 $95,817,377 $87,456,701 $76,999,203 Long term debt $723,066 $730,426 $758,135 $750,824 $1,151,834 Stockholders' equity $45,060,784 $37,355,419 $32,387,158 $26,147,827 $22,843,567
11 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operation ------------ In December 1996, the Company changed its fiscal year end from March 31 to December 31, effective December 31, 1996. As a result of this change, the Company's fiscal year ended December 31, 1996, consisted of nine months. For that reason, management's discussion and analysis includes many comparisons of the Company's fiscal year ended December 31, 1997, which consists of twelve months, to the comparable twelve month period of the prior year. The financial information for the unaudited twelve month period ended December 31, 1996, is included in this discussion for comparisons. Liquidity and Capital Resources: -------------------------------- Due to the nature of the Company's business (insurance and insurance services) and whereas Company growth does not normally require material reinvestments of profits into property or equipment, the cash flow generated from operations usually results in improved liquidity for the Company. Crusader generates a significant amount of cash as a result of its holdings of unearned premium reserves, reserves for loss payments, and its capital and surplus. Crusader's loss and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. Cash and investments (excluding unrealized gains) at December 31, 1997, were $92,530,294 compared to $80,929,348 at December 31, 1996, a 14% increase. Crusader's cash and investments at December 31, 1997, was $88,456,803, or 96% of the total held by the Company compared to $77,833,104 or 96% of the total held by the Company at December 31, 1996. In accordance with Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company is required to classify its investments in debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading securities. Although all of the Company's investments are classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments to maturity. The Company's investments are as follows:
December 31 December 31 March 31 1997 1996 1996 ------------------- ------------------ ------------------ Amount % Amount % Amount % Fixed maturities (at amortized cost) Certificates of deposit $ 500,000 1 $ 798,000 1 $ 1,111,378 1 U.S. treasury securities 15,480,258 18 22,447,391 30 18,191,847 27 Industrial and miscellaneous (taxable) 31,765,034 37 13,105,416 17 10,655,316 16 State and municipal (tax exempt) 38,361,279 44 39,634,159 52 38,126,835 56 ---------- --- ---------- --- ---------- --- Total fixed maturity investments 86,106,571 100 75,984,966 100 68,085,376 100 ---------- === ---------- === ---------- === Short-term cash investments (at cost) Certificates of deposit 225,000 4 125,000 3 25,000 1 Commercial paper 4,750,000 77 2,810,000 58 2,230,000 64 Bank money market accounts 426,775 7 1,144,292 23 1,186,602 34 Short-term U.S. treasury 732,216 12 757,653 15 - - Bank savings accounts 3,504 - 24,800 1 24,430 1 --------- --- --------- --- --------- --- Total short-term cash investments 6,137,495 100 4,861,745 100 3,466,032 100 --------- === --------- === --------- === Equity investments (at cost) 230,460 - 995,237 ---------- ---------- ---------- Total investments $92,474,526 $80,846,711 $72,546,645 ========== ========== ==========
12 The tax exempt interest income earned (net of bond premium and discount amortization) during the fiscal year ended December 31, 1997, was $1,809,043 compared to $1,770,382 in the twelve month period ended December 31, 1996. In the fiscal year ended March 31, 1996, tax exempt interest income earned totaled $1,738,799. The Company's investment policy limits investments in any one company. This limit was raised from $1,000,000 to $1,500,000 in 1997. This limitation excludes bond premiums paid in excess of par value and U.S. Government or U.S. Government guaranteed issues. All of the Company's investments are high-grade investment quality; all state and municipal tax exempt fixed maturity investments are pre-refunded issues, and all certificates of deposit are FDIC insured. AAC has a bank line of credit with a variable rate of interest based on fluctuations in the London Interbank Offered Rate ("LIBOR"). This credit line is only used to provide AAC with the additional funds it requires to finance insurance premiums. AAC has been paying this bank note payable from its internal cash flow as well as from intercompany loans from its parent, Unico. The bank note payable was paid in full on July 3, 1997, resulting in no amounts being outstanding under the bank credit line. Due to decreased utilization, AAC decreased this bank credit line from $4,000,000 to $2,000,000 in September 1997. The maximum and average bank note payable and weighted average interest rate are as follows: Fiscal Year Ended --------------------------------- December 31 December 31 1997 1996 ---- ---- (Nine Months) Maximum bank note payable $750,001 $2,000,001 Average bank note payable $296,576 $1,387,038 Weighted average interest rate 7.3% 7.2% In addition to the AAC line of credit, Unico has a $2,000,000 line of credit with Union Bank. Interest on this line is referenced to LIBOR and is payable monthly. The agreement contains certain covenants including maintenance of certain financial ratios. This credit line expires September 2, 1998, at which time it is expected to be renewed. As of December 31, 1997, no amounts have been borrowed. Although material capital expenditures may also be funded through borrowings, the Company believes that its cash and short-term investments at year end, net of trust restriction of $2,668,472, statutory deposits of $2,725,000, and dividend restriction between Crusader and Unico (as discussed under "Insurance Company Operation - Holding Company Act") plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next twelve months without the necessity of borrowing funds (excluding AAC's credit line discussed above). Dividends paid by Crusader to Unico were $1,500,000 in 1997 and $1,000,000 in 1996. Unico invested $1,000,000 of the 1997 dividend it received from Crusader in a two year U.S. treasury note. Crusader's statutory capital and surplus as of December 31, 1997, was $30,899,761, an increase of $5,151,004 over December 31, 1996. Crusader's statutory capital and surplus as of December 31, 1996, was $25,748,757, an increase of $3,858,981 over December 31, 1995. The Company has initiated a review of all computer programs in order that all computer systems will function properly with respect to dates in the year 2000 and thereafter. Some of the older programs were written using two digits rather than four digits to define a year. As a result, these programs have time-sensitive software which would recognize a date of "00" as 1900 rather than 2000. Failure to correct these programs could cause a system failure or miscalculation and disrupt operations or inhibit the Company's ability to conduct normal business activities. The project to review and correct all programs is in progress and is estimated to be completed by the middle of 1999, prior to any anticipated impact on its operating systems. Portions of this project have been completed and tested as of December 31, 1997. 13 The Company believes that with modification to existing software, the year 2000 issue will not pose significant operational problems for its computer systems. The costs of the project are not expected to have a material adverse effect on the Company's financial position. There are no material commitments for capital expenditures as of the date of this report. Results of Operation: --------------------- General - ------- The Company had net income after taxes of $7,654,362 for the fiscal year ended December 31, 1997, compared to $6,849,327 for the twelve month period ended December 31, 1996, and $5,947,481 for the fiscal year ended March 31, 1996. Total revenue for the fiscal year ended December 31, 1997, was $48,290,721 compared to $45,880,272 for the twelve month period ended December 31, 1996, and $42,468,474 for the fiscal year ended March 31, 1996. For the fiscal year ended December 31, 1997, income before taxes increased by $1,212,956 (12%) and net income increased by $805,035 (12%) compared to the twelve month period ended December 31, 1996. The increase in pre-tax income was primarily due to an increase of $499,418 (8%) in the underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) from Crusader and an increase in investment income of $762,891 (18%) (excluding realized investment gains). For the twelve month period ended December 31, 1996, income before taxes increased by $1,367,786 (16%) and net income increased by $901,846 (15%) compared to the fiscal year ended March 31, 1996. The increase in pre-tax income was primarily due to an increase of $378,236 (7%) in the underwriting profit from Crusader, an increase in investment income of $369,637 (10%) (excluding realized investment gains), a decrease in other operating expenses of $383,821 (12%), and an increase in net commission and fee income of $252,469 (gross commission and fees less commissions to agents/brokers). The effect of inflation on the net income of the Company during the fiscal year ended December 31, 1997, was not significant. The Company derives revenue from various sources as discussed below: Insurance Company Operation - --------------------------- Premium and loss information of Crusader are as follows:
Fiscal Year 12 Months Fiscal Year Ended Ended Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Gross written premium $42,273,990 $41,425,715 $37,631,357 Net written premium $35,586,046 $36,643,457 $33,193,911 Earned premium before reinsurance $42,721,222 $38,667,566 $37,554,830 Earned premium net of reinsurance $36,326,894 $34,280,116 $31,477,427 Losses and loss adjustment expenses $19,288,566 $19,201,095 $17,309,549 Unpaid losses and loss adjustment expenses $42,004,851 $39,740,865 $37,006,458
In the fiscal year ended December 31, 1997, gross written premium increased by $848,275 (2%) compared to the twelve month period ended December 31, 1996. The increase in gross written premium was primarily attributable to an increase in Crusader's Commercial Package business of $1,419,864 (4%) to $40,881,943. This increase was partially offset by a decrease in Crusader's Commercial 14 Property and Other Liability line of business of $571,589 (29%). For the fiscal year ended December 31, 1997, the Commercial Package premium accounted for 97% of the Crusader's total written premium. Premium written in California increased $651,454 (2%) to $33,048,085 while premiums written outside of California increased $196,821 (2%) to $9,225,905 compared to the twelve month period ended December 31, 1996. The slight increase in written premiums was primarily due to increased competition in the California and Pacific Northwest markets. In the twelve month period ended December 31, 1996, gross written premium increased $3,794,358 (10%) compared to the fiscal year ended March 31, 1996. This increase was primarily the result of an increase in Crusader's Commercial Package business of $2,501,146 (7%) and an increase in Commercial Property and Other Liability business of $1,293,212 (193%). For the twelve month period ended December 31, 1996, the Commercial Package premium accounted for 95% of the Crusader's total written premium. Premium written in California increased $2,106,603 (7%) while premium written outside of California increased $1,687,755 (23%). In the fiscal year ended December 31, 1997, Crusader's direct earned premium increased $4,053,656 (10%) and net premium earned increased $2,046,778 (6%) over the twelve month period ended December 31, 1996. For the twelve month period ended December 31, 1996, Crusader's direct earned premium increased $1,112,736 (3%) and net premium earned increased $2,802,689 (9%) over the fiscal year ended March 31, 1996. The percentage of earned ceded premium to gross premium earned was 15% for the fiscal year ended December 31, 1997, 11% for the twelve month period ended December 31, 1996, and 16% for the fiscal year ended March 31, 1996. The combined ratio is the sum of (1) the net ratio of losses and loss adjustment expenses incurred (including a provision for incurred but not reported losses) to net premiums earned (the "loss ratio") and (2) the ratio of policy acquisition and general operating costs to net premiums earned (the "expense ratio"). The following table shows the loss ratios, expense ratios, and combined ratios of Crusader as derived from data prepared in accordance with generally accepted accounting principles. Generally, if the combined ratio is below 100%, an insurance company has an underwriting profit; if it is above 100%, a company has an underwriting loss. Fiscal Year Ended 12 Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Loss ratio 53.1% 56.0% 55.0% Expense ratio 29.1% 26.5% 27.2% ---- ---- ---- Combined ratio 82.2% 82.5% 82.2% ==== ==== ==== The Company's future writings and growth are dependent on market conditions, competition, the Company's ability to introduce new profitable products, and its ability to expand geographically. As of December 31, 1997, Crusader was licensed as an admitted insurance company in the states of California, Arizona, Nevada, Oregon, and Washington and is approved as a non-admitted surplus lines writer in several other states. Crusader's written premium by state is as follows:
Fiscal Year Ended 12 Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) California $33,048,085 $32,396,631 $30,290,028 Washington 4,704,286 5,024,276 4,534,377 Oregon 2,779,691 3,052,379 2,411,704 Arizona 1,346,589 862,352 383,994 Ohio 242,751 - - Nevada 111,077 90,077 11,254 Pennsylvania 41,511 - - ---------- ---------- ---------- Total $42,273,990 $41,425,715 $37,631,357 ========== ========== ==========
15 Daily Automobile Rental Insurance Program - ----------------------------------------- The daily automobile rental insurance program is produced by Bedford. Bedford receives a commission and a claim administration fee from a non-affiliated insurance company based on premium written. Commission and fee income from the daily automobile rental insurance program are as follows:
Fiscal Year Ended 12 Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Daily auto rental program Commission and claim administration fee $757,098 $797,481 $871,841
Revenues during the fiscal year ended December 31, 1997, were $757,098 a decrease of $40,383 (5%) compared to the same period of the prior year. Revenue for the twelve month period ended December 31, 1996, decreased 9% compared to the prior fiscal year. The daily automobile rental insurance program continues to experience decreased commission and fee income due to decreased premium written. This decrease is due to continued price competition. To avoid underwriting losses for the non-affiliated insurance company which Bedford represents, it continues to produce business only at rates which it believes to be adequate. The Company cannot determine how long this "soft market" condition will continue. Commercial and Personal Automobile Insurance Program - ---------------------------------------------------- Unifax produced commercial auto policies in California for a non-affiliated insurer and received a commission from them based on premium written. Unifax also received a policy service fee from the insured. In February 1997, management decided to discontinue writing new policies in the Unifax commercial automobile program and only serviced and renewed existing policies until the book of business was sold to an non-affiliated third party in June 1997. As consideration for the sale of this book of business, Unifax will receive a percentage of the commission earned for a two year period on policies which were in force at the time of sale. NCC renewed and serviced existing commercial and personal automobile policies in California for a non-affiliated insurer until August 31, 1996, when the NCC program was discontinued. NCC received a commission and claim administration fee from the non-affiliated insurance company based on premium written and a policy service fee from the insured. Commercial and personal auto program commission, service fee, and claim administration income are as follows:
Fiscal Year Ended 12 Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Commercial and personal auto program commission, service fee, and claim administration income $82,439 $212,909 $183,519
Revenue for the fiscal year ended December 31, 1997, decreased $130,470 (61%) compared to the twelve month period ended December 31, 1996, due to the discontinuance of the programs. Revenue for the twelve months ended December 31, 1996, increased $29,390 (16%) compared to the fiscal year ended March 31, 1996. 16 Health and Life Insurance Program - --------------------------------- Commission income from the health and life insurance sales of NIB and AIB is as follows:
Fiscal Year Ended 12 Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Commission income $2,083,782 $2,432,208 $2,539,802
NIB and AIB market health and life insurance through non-affiliated insurance companies for individuals and groups. Approximately 90% of the health and life commission income in the fiscal year ended December 31, 1997, was from the CIGNA HealthCare medical and dental plan programs compared to approximately 90% in the same period of the prior year. Revenues for the fiscal year ended December 31, 1997, decreased $348,426 (14%) compared to the twelve month period ended December 31, 1996. Revenues for the twelve month period ended December 31, 1996, decreased $107,594 (4%) compared to the fiscal year ended March 31, 1996. Group health and life insurance programs - ---------------------------------------- The decrease in commission income in the health and life insurance programs is primarily a result of a decrease in sales of small business group accounts due to increased competition in the health insurance field. The rates charged by CIGNA for certain group accounts have not been competitive and have resulted in non-renewal. Regulations on California health care medical providers to small businesses became effective on July 1, 1993 (AB 1672). These regulations now cover small businesses with 2 to 50 employees. These regulations, among other things, created an alliance of health insurance companies called the Health Insurance Plan of California ("HIPC"). There are currently 20 insurance companies in the alliance. The premiums charged by the insurance companies in the alliance were approved by the State of California and are very competitive. To meet this competition, insurance companies marketing programs outside of HIPC were forced to lower their rates to small groups. The impact of these regulations on the Company was and will continue to be lower revenues from reduced sales on its small business group programs. CIGNA revised its rates in July 1996 and July 1997. In July 1996, some rates were increased which resulted in loss of business and others were decreased to retain existing business. In July 1997 all rates were increased which contributed to a further loss of business. Individual medical and dental programs - -------------------------------------- Individual medical programs are not affected by AB 1672, and all of the Company's major insurance carriers provide the Company with individual medical insurance programs. Commission income from the individual medical and dental programs continues to increase due to aggressive marketing and the quality of the Company's customer service. However, the increases in commission income on the individual programs, which generally have lower premiums than group programs, were not enough to offset the loss of commission income from the group programs. New legislation - --------------- The Health Insurance Portability and Accountability Act of 1996 ("HIPPA"), which became effective January 1, 1998, requires that individual health plans accept consumers moving from group plans on a guarantee-issue basis if certain specified criteria is met. Rates charged for individual and group accounts are expected to increase in order to cover the increased costs related to the guarantee-issue policy. Also effective January 1, 1998, is the implementation of Cal COBRA, a new law that pertains to small groups with 2 to 19 eligible employees. Cal COBRA allows departing employees of small firms to continue their health insurance coverage for at least 18 months at a cost of 110% of the rate charged for group members. The Company has not determined the effect on health insurance sales resulting from the implementation of the above new legislation. 17 Workers' Compensation Program - ----------------------------- Unifax produces workers' compensation policies in California and Arizona for a non-affiliated insurer and receives a commission from them based on premium written.
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Commission income $298,006 $81,775 $15,192
Commission income for the fiscal year ended December 31, 1997, increased $216,231 (264%) compared to the twelve month period ended December 31, 1996. The increase was primarily the result of increased sales of workers' compensation insurance and incentive bonus commissions earned as a result of the increased sales. Association Operation - --------------------- Membership and fee income from the Association program of AAQHC is as follows:
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Membership and fee income $336,968 $326,491 $277,754
Membership and fee income in the fiscal year ended December 31, 1997, increased $10,477 (3%) compared to the twelve month period ended December 31, 1996. Membership income increased $48,737 (18%) in the twelve months ended December 31, 1996, compared to the fiscal year ended March 31, 1996. These increases are attributable to an increase in individual and family members in the Association which offset the decrease in group memberships. Premium Finance Program - ----------------------- Premium finance charges and late fees earned from financing policies are as follows:
Fiscal Year Twelve Months Fiscal Year Ended Ended Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Premium finance charges and late fees earned $1,191,503 $1,191,796 $1,279,850 New loans 8,615 9,256 10,212
American Acceptance Corporation, the Company's insurance premium finance subsidiary, provides premium financing to Crusader, and until February 1997 a non-affiliated insurer on commercial auto policies produced by Unifax. In February 1997, the commercial auto program with the non-affiliated insurer was discontinued. The growth of this program is dependent and directly related to the growth of Crusader's written premium and AAC's ability to market its competitive rates and service to finance those policies. AAC finances policies primarily in California. Premium finance charges and late fees earned on loans decreased $293 in the fiscal year ended December 31, 1997, compared to the twelve month period ended December 31, 1996. For the twelve months ended December 31, 1996, premium finance charges and late fees earned on loans decreased $88,054 (7%) compared to the fiscal year ended March 31, 1996. The number of AAC loans decreased primarily as a result of fewer Crusader policies being financed in California. 18 Service Fee Income - ------------------ Unifax sells and services insurance policies for Crusader. The service fee charged to the policyholder by Unifax is recognized as income in the consolidated financial statements. The commissions paid by Crusader to Unifax are eliminated as intercompany transactions and are not reflected in commission income or commission expense. Service fee income from Unifax is as follows:
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Service fee income $2,182,074 $2,105,851 $1,891,405 Policies written 19,305 18,359 16,881
Service fee income is primarily related to the number of policies written by Unifax. Investment Income - ----------------- Investment income consists of interest, dividends, and net realized investment gains as follows:
Fiscal Year Twelve Months Fiscal Year Ended Ended Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Interest and dividend income Insurance company operations $4,855,580 $4,073,066 $3,708,891 Other operations 140,681 160,304 154,842 --------- --------- --------- Total interest and dividend income 4,996,261 4,233,370 3,863,733 Net realized investment gains 25,093 210,033 55,743 --------- --------- --------- Total investment income $5,021,354 $4,443,403 $3,919,476 ========= ========= =========
Investment interest and dividends earned (excluding net realized gains) increased $762,891 (18%) in the fiscal year ended December 31, 1997, compared to the twelve month period ended December 31, 1996. This increase was primarily due to an increase in invested assets (at amortized value) of $11,627,815 (14%) at December 31, 1997, compared to December 31, 1996, and to the mix of taxable and tax exempt securities in the portfolio. The Company's investments at December 31, 1997 are comprised of $38,361,279 (41%) of tax exempt investments compared to $39,634,159 (49%) of tax exempt investments at December 31, 1996. For the twelve month period ended December 31, 1996, investment interest and dividends earned (excluding net realized gains) increased $369,637 (10%) compared to the fiscal year ended March 31, 1996. This increase was primarily due to an increase in invested assets (at amortized value) of $8,300,066 (11%) at December 31, 1996, compared to March 31, 1996. The Company's investments at December 31, 1996, were comprised of $39,634,159 (49% of total investments) tax exempt investments and $38,126,835 (53% of total investments) of tax exempt investments at March 31, 1996. Additional information regarding investments and investment income is described in the "Management Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." 19 Operating Expenses - ----------------- Policy Acquisition Costs consist of commissions, premium taxes, inspection fees, and certain other underwriting costs which are related to and vary with the production of Crusader insurance policies. These costs include both Crusader expenses and allocated expenses of other Unico subsidiaries. On certain reinsurance treaties, Crusader receives a ceding commission from its reinsurer which represents a reimbursement of the acquisition costs related to the premium ceded. Policy acquisition costs, net of ceding commission, are deferred and amortized as the related premiums are earned. Policy acquisition costs, net of ceding commission, are as follows:
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Commission income $10,562,191 $9,102,302 $8,569,395 Ratio to earned premium 29% 27% 27%
Salaries and Employee Benefits decreased $5,707 for the fiscal year ended December 31, 1997, compared to the twelve month period ended December 31, 1996. Salaries and employee benefits increased $78,677 (2%) in the twelve month period ended December 31, 1996, compared to the fiscal year ended March 31, 1996.
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Salaries and employee benefits $3,757,959 $3,763,666 $3,684,989
Commissions to Agents/Brokers (not including commissions on Crusader policies which are reflected in policy acquisition costs) are generally related to gross commission income. Commissions to agents and brokers decreased $217,776 (17%) for the fiscal year ended December 31, 1997, compared to the twelve month period ended December 31, 1996. This decrease was primarily related to the 14% decrease in health and life insurance commission income. During the twelve month period ended December 31, 1996, commission expense decreased $75,297 (6%) compared to fiscal year ended March 31, 1996. This decrease was also primarily due to a 4% decrease in health and life insurance commissions.
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Commission to agents/brokers $1,035,599 $1,253,375 $1,328,672
Other Operating Expenses generally do not change significantly with changes in production. This is true for both increases and decreases in production. Other operating expenses decreased $126,384 (5%) during the fiscal year ended December 31, 1997, compared to the twelve month period ended December 31, 1996. The decrease was primarily due to a decrease in interest expense of $101,425 as a result of the reduction in the Company's bank note payable. 20 Other operating expenses decreased $383,821 (12%) during the twelve month period ended December 31, 1996, compared to the fiscal year ended March 31, 1996. This decrease was primarily due to a decrease in interest expense of $166,893 as a result of the reduction in the Company's bank note payable.
Fiscal Year Ended Twelve Months Ended Fiscal Year Ended December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Unaudited) Other operating expenses $2,657,373 $2,783,757 $3,167,578
Forward Looking Statements - -------------------------- Certain statements contained herein that are not historical facts are forward looking. These statements involve risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties could cause actual results to differ materially from these forward looking statements. Factors which could cause actual results to differ materially include those described under Item 1 - Business - "Competition," premium rate adequacy relating to competition or regulation, actual versus estimated claim experience, regulatory changes or developments, unforeseen calamities, general market conditions, the Company's ability to introduce new profitable products, and the Company's ability to expand geographically. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. - --------------------------------------------------------------------- Not applicable 21 Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number ------ Independent Auditors' Reports 23-24 Consolidated Balance Sheets as of December 31, 1997, and December 31, 1996 25 Consolidated Statements of Operations for the fiscal year ended December 31, 26 1997, twelve months ended December 31, 1996 (unaudited), nine months ended December 31 1996, and the fiscal year ended March 31, 1996 Consolidated Statements of Changes in Stockholders' Equity for the fiscal year ended 27 December 31, 1997, and the nine months ended December 31, 1996, and the fiscal year ended March 31, 1996 Consolidated Statements of Cash Flows for the fiscal year ended December 31, 28 1997, the nine months ended December 31, 1996, and the fiscal year ended March 31, 1996 Notes to Consolidated Financial Statements 29
22 INDEPENDENT AUDITOR'S REPORT The Board of Directors Unico American Corporation We have audited the accompanying consolidated balance sheet of Unico American Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unico American Corporation and subsidiaries as of December 31, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California March 20, 1998 23 INDEPENDENT AUDITORS' REPORT Board of Directors Unico American Corporation We have audited the accompanying consolidated balance sheets of Unico American Corporation and its subsidiaries as of December 31, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the nine months ended December 31, 1996 and the year ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unico American Corporation and its subsidiaries as of December 31, 1996, and the consolidated results of operations and cash flows for the nine months ended December 31, 1996 and the year ended March 31, 1996 in conformity with generally accepted accounting principles. GETZ, KRYCLER & JAKUBOVITS Sherman Oaks, California March 20, 1997 24 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 December 31 1997 1996 ASSETS ---- ---- ------ Investments Available for sale: Fixed maturities, at market value (amortized cost: December 31, 1997 $86,106,571; December 31, 1996 $75,984,966) $87,965,590 $77,109,214 Equity securities at market ( cost: December 31, 1997, $230,460; December 31, 1996 $0) 223,100 - Short-term investments, at cost 6,137,495 4,861,745 ---------- ---------- Total Investments 94,326,185 81,970,959 Cash 55,768 82,637 Accrued investment income 1,807,364 1,443,551 Premiums and notes receivable, net 7,404,606 8,898,839 Reinsurance recoverable: Paid losses and loss adjustment expenses 56,379 452,943 Unpaid losses and loss adjustment expenses 1,413,603 2,629,019 Prepaid reinsurance premiums 945,563 1,647,806 Deferred policy acquisition costs 4,886,684 4,953,085 Property and equipment (net of accumulated depreciation) 203,709 229,972 Deferred income taxes 1,005,865 1,503,655 Other assets 836,658 638,856 ----------- ----------- Total Assets $112,942,384 $104,451,322 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ LIABILITIES - ----------- Unpaid losses and loss adjustment expenses $42,004,851 $39,740,865 Unearned premiums 21,673,009 22,120,241 Advance premiums 1,368,114 1,358,671 Funds held as security for performance 723,066 730,426 Accrued expenses and other liabilities 2,095,567 2,395,699 Income taxes payable 16,993 - Note payable - bank - 750,001 ---------- ---------- Total Liabilities $67,881,600 $67,095,903 ---------- ---------- STOCKHOLDERS' EQUITY - --------------------- Common stock, no par - authorized 10,000,000 shares, issued and outstanding shares 6,153,706 at December 31, 1997 and 6,028,781 at December 31, 1996 $2,838,058 $2,836,422 Net unrealized investment gains 1,222,095 742,004 Retained earnings 41,000,631 33,776,993 ---------- ---------- Total Stockholders' Equity $45,060,784 $37,355,419 ---------- ---------- Total Liabilities and Stockholders' Equity $112,942,384 $104,451,322 =========== ===========
See accompanying notes to consolidated financial statements. 25 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Fiscal Year Months Ended Ended Fiscal Year Ended ---------------------------------- December 31 December 31 December 31 March 31 ----------- -------- 1997 1996 1996 1996 ---- ---- ---- ---- (Unaudited) (Nine Months) REVENUES - -------- Insurance Company Revenues Premium earned $42,721,222 $38,667,566 $29,373,374 $37,554,830 Premium ceded 6,394,328 4,387,450 3,307,085 6,077,403 ----------- ----------- ----------- ----------- Net premium earned 36,326,894 34,280,116 26,066,289 31,477,427 Net investment income 4,855,580 4,073,066 3,115,110 3,708,891 Net realized investment gains 25,093 210,033 190,491 55,743 Other income 428 215 185 803 ---------- ---------- ---------- ---------- Total Insurance Company Revenues 41,207,995 38,563,430 29,372,075 35,242,864 Other Revenues from Insurance Operations Gross commissions and fees 5,740,589 5,956,941 4,488,601 5,779,769 Investment income 140,681 160,304 117,774 154,842 Finance charges and late fees earned 1,191,503 1,191,796 898,171 1,279,850 Other income 9,953 7,801 8,036 11,149 ---------- ---------- ---------- ---------- Total Revenues 48,290,721 45,880,272 34,884,657 42,468,474 ---------- ---------- ---------- ---------- EXPENSES - -------- Losses & loss adjustment expenses 19,288,566 19,201,095 14,801,734 17,309,549 Policy acquisition costs 10,562,191 9,102,302 6,887,173 8,569,395 Salaries and employee benefits 3,757,959 3,763,666 2,850,985 3,684,989 Commissions to agents/brokers 1,035,599 1,253,375 946,791 1,328,672 Other operating expenses 2,657,373 2,783,757 2,018,987 3,167,578 ---------- ---------- ---------- ---------- Total Expenses 37,301,688 36,104,195 27,505,670 34,060,183 ---------- ---------- ---------- ---------- Income Before Taxes 10,989,033 9,776,077 7,378,987 8,408,291 Income Tax Provision 3,334,671 2,926,750 2,204,477 2,460,810 --------- --------- --------- --------- Net Income $7,654,362 $6,849,327 $5,174,510 $5,947,481 ========= ========= ========= ========= PER SHARE DATA: Basic Shares Outstanding 6,132,096 5,967,667 5,970,977 5,957,670 Basic Earnings Per Share $1.25 $1.15 $0.87 $1.00 Diluted Shares Outstanding 6,401,359 6,240,855 6,250,930 6,150,250 Diluted Earnings Per Share $1.20 $1.10 $0.83 $0.97
See accompanying notes to consolidated financial statements. 26 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, THE NINE MONTHS ENDED DECEMBER 31, 1996 AND THE FISCAL YEAR ENDED MARCH 31, 1996
Common Shares Unrealized ------------------------- Investment Issued and Gains & Retained Outstanding Amount (Losses) Earnings Total ----------- ------ ------- -------- ----- Balance - March 31, 1995 5,957,645 $2,834,801 $(177,098) $23,490,124 $26,147,827 Shares canceled or adjusted 93 - - - - Cash dividend paid ($0.07 per share) - - - (417,035) (417,035) Change in market value of investments, net of deferred income tax - - 708,885 - 708,885 Net income - - - 5,947,481 5,947,481 --------- --------- -------- ---------- ---------- Balance - March 31, 1996 5,957,738 2,834,801 531,787 29,020,570 32,387,158 Net shares issued for exercise of stock options 71,043 1,621 - - 1,621 Cash dividend paid ($0.07 per share) - - - (418,087) (418,087) Change in market value of investments, net of deferred income tax - - 210,217 - 210,217 Net income - - - 5,174,510 5,174,510 --------- --------- ------- ---------- ---------- Balance - December 31, 1996 6,028,781 2,836,422 742,004 33,776,993 37,355,419 Net shares issued for exercise of stock options 124,787 1,636 - - 1,636 Shares canceled or adjusted 138 - - - - Cash dividend paid ($0.07 per share) - - - (430,724) (430,724) Change in market value of investments, net of deferred income tax - - 480,091 - 480,091 Net income - - - 7,654,362 7,654,362 --------- --------- --------- ---------- ----------- Balance - December 31, 1997 6,153,706 $2,838,058 $1,222,095 $41,000,631 $45,060,784 ========= ========= ========= ========== ==========
See accompanying notes to consolidated financial statements. 27 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended -------------------------------------------- December 31 March 31 ---------------------------- 1997 1996 1996 ---- ---- ---- (Nine Months) Cash flows from operating activities: Net income $7,654,362 $5,174,510 $5,947,481 Adjustments to reconcile net income to net cash from operations Depreciation & amortization 104,029 83,488 142,306 Bond amortization, net 579,228 431,502 577,481 Net realized (gain) on sale of securities (25,093) (190,491) (55,743) Changes in assets and liabilities Premium, notes & investment income receivable 1,130,420 (940,098) 27,833 Reinsurance recoverable 1,611,980 1,454,711 256,948 Prepaid reinsurance premiums 702,243 (284,182) 1,420,808 Deferred policy acquisitions costs 66,401 (619,377) (219,772) Other assets (197,802) 232,479 (477,399) Reserve for unpaid losses & loss adjustment expenses 2,263,986 2,734,407 4,635,706 Unearned premium reserve (447,232) 2,473,739 76,527 Funds held as security & advanced premiums 2,083 (257,666) (56,438) Accrued expenses & other liabilities (300,129) 63,301 157,839 Income taxes current/deferred 267,463 (185,648) (496,174) ---------- ---------- ---------- Net Cash Provided from Operations 13,411,939 10,170,675 11,937,403 ---------- ---------- ---------- Investing Activities Purchase of fixed maturity investments (19,934,951) (12,981,849) (21,591,676) Proceeds from maturity of fixed maturity investments 8,198,000 4,628,378 13,643,268 Proceeds from sale of fixed maturity investments 996,856 - - Purchase of equity securities - cost (1,019,500) (2,253,112) (1,593,401) Proceeds from sale of equity securities 814,132 3,438,841 646,714 Net increase in short-term investments (1,236,490) (1,373,335) (83,731) Additions to property & equipment (77,766) (34,841) (85,428) ---------- --------- --------- Net Cash (Used) by Investing Activities (12,259,719) (8,575,918) (9,064,254) ---------- --------- --------- Financing Activities Proceeds from issuance of common stock 1,636 1,621 - Repayment of note payable - bank (750,001) (1,250,000) (1,975,000) Repayment of note payable - related party - - (500,000) Dividends paid to shareholders (430,724) (418,087) (417,035) --------- --------- --------- Net Cash (Used) by Financing Activities (1,179,089) (1,666,466) (2,892,035) --------- --------- --------- Net (decrease) in cash (26,869) (71,709) (18,886) Cash at beginning of period 82,637 154,346 173,232 ------ ------- ------- Cash at End of Period $55,768 $82,637 $154,346 ====== ====== ======= Supplemental cash flow information Cash paid during the period for: Interest $21,950 $76,312 $290,268 Income taxes $2,970,000 $2,515,000 $2,967,000
See accompanying notes to consolidated financial statements. 28 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Nature of Business - ------------------ Unico American Corporation is an insurance holding company. Unico American Corporation and its subsidiaries, all of which are wholly owned (the "Company"), provides primarily in California, property, casualty, health and life insurance, and related premium financing. Change of Fiscal Year - --------------------- On December 16, 1996, the Board of Directors approved a change in the Company's fiscal year end from March 31 to December 31 effective December 31, 1996. As a result of the change, the Company's Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the fiscal year ended December 31, 1996, covers nine months. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Basis of Presentation - --------------------- The consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP). As described in Note 16, the Company's insurance subsidiary also files financial statements with regulatory agencies prepared on a statutory basis of accounting which differs from generally accepted accounting principles. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While every effort is made to ensure the integrity of such estimates, actual results could differ from those estimates. Investments - ----------- All of the Company's fixed maturity investments are classified as available-for sale and are stated at market value. Although classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments to maturity. Short-term investments are carried at cost, which approximates market value. Investments in equity securities are carried at market value. The unrealized gains or losses from fixed maturities and equity securities are reported as a separate component of stockholders' equity, net of any deferred tax effect. When a decline in value of a fixed maturity or equity security is considered other than temporary, a loss is recognized in the consolidated statements of operations. Realized gains and losses are included in the consolidated statements of operations based on the specific identification method. The Company had net unrealized investment gains of $1,222,095 as of December 31, 1997, and net unrealized investment gains of $742,004 as of December 31, 1996. Property and Equipment - ---------------------- Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using accelerated depreciation methods over the estimated useful lives of the related assets. 29 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) - --------------------------------------------------------------- Fair Value of Financial Instruments - ----------------------------------- The Company has used the following methods and assumptions in estimating its fair value disclosures: Investment Securities - Fair values for fixed maturity securities are obtained from a national quotation service. The fair values for equity securities are based on quoted market prices. Cash and Short-Term Investments - The carrying amounts reported in the balance sheet for these instruments approximate their fair values. Premiums and Notes Receivable - The carrying amounts reported in the balance sheet for these instruments approximate the fair values. Note Payable - Bank - The carrying amounts reported in the balance sheet for the bank note payable approximates the fair value due to the variable rate nature of the line of credit. Income Taxes - ------------ The provision for federal income taxes is computed on the basis of income as reported for financial reporting purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Income tax expense provisions increase or decrease in the same period in which a change in tax rates is enacted. Earnings Per Share - ------------------ Basic earnings per share excludes the impact of common share equivalents and is based upon the weighted average common shares outstanding. Diluted earnings per share utilizes the average market price per share when applying the treasury stock method in determining common share equivalents. Outstanding stock options are treated as common share equivalents for purposes of computing diluted earnings per share and represent the difference between basic and diluted weighted average shares outstanding. Revenue Recognition - ------------------- a. General Agency Operations ----------------------------- Commissions and service fees due the Company are recognized as income on the effective date of the insurance policies. b. Insurance Company Operations -------------------------------- Premiums are earned on a pro-rata basis over the terms of the policies. Premiums applicable to the unexpired terms of policies in force are recorded as unearned premiums. The Company earns a commission on policies that are ceded to its reinsurers. This commission is considered earned on a pro-rata basis over the terms of the policies. c. Insurance Premium Financing Operations ------------------------------------------ Premium finance interest is charged to policyholders who choose to finance insurance premiums. Interest is charged at rates that vary with the amount of premium financed. Premium finance interest is recognized using a method which approximates the interest (actuarial) method. 30 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) - --------------------------------------------------------------- Losses and Loss Adjustment Expenses - ----------------------------------- The process of establishing loss reserves involves significant judgmental factors. The reserves for unpaid losses and loss adjustment expenses are based on estimates of ultimate claim cost, including claims incurred but not reported. These estimates are reviewed regularly; and as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in results of operations in the period in which they become known. Management believes that the aggregate reserves for losses and loss adjustment expenses are reasonable and adequate to cover the cost of claims, both reported and unreported. Restricted Funds - ---------------- Restricted funds are as follows: Fiscal Year Ended December 31 ------------------------------ 1997 1996 ---- ---- Restricted Funds: Premium trust funds (1) $2,668,472 $2,642,932 Assigned to state agencies (2) 2,725,000 725,000 --------- ---------- Total restricted funds $5,393,472 $3,367,932 ========= ========= (1) As required by law, the Company segregates from its operating accounts the premiums collected from insurers which are payable to insurance companies into separate trust accounts. These amounts are included in cash and short-term investments. (2) Included in fixed maturity investments are statutory deposits assigned to and held by the California State Treasurer and the Insurance Commissioner of the state of Nevada. These deposits are required for writing certain lines of business in California and for admission in states other than California. Deferred Policy Acquisition Costs - --------------------------------- Policy acquisition costs consist of direct and indirect costs associated with the production of insurance policies such as commissions, premium taxes, and certain other underwriting expenses which vary with and are primarily related to the production of the insurance policy. Policy acquisition costs are deferred and amortized as the related premiums are earned and are limited to their estimated realizable value based on the related unearned premiums plus investment income less anticipated losses and loss adjustment expenses. Ceding commission applicable to the unexpired terms of policies in force are recorded as unearned ceding commission which is included in deferred policy acquisition costs. Reinsurance - ----------- The Company cedes reinsurance to provide for greater diversification of business, to allow management to control exposure to potential losses arising from large risks by reinsuring certain levels of risk in various areas of exposure, to reduce the loss that may arise from catastrophes, and to provide additional capacity for growth. Prepaid reinsurance premiums and reinsurance receivables are reported as assets and represent ceded unearned premiums and reinsurance recoverable on both paid and unpaid losses, respectively. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. Reclassifications - ----------------- Certain reclassifications have been made to prior year balances to conform to the current year presentation. 31 UNICO AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) - -------------------------------------------------------------- Recently Issued Accounting Standards - ------------------------------------ In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share." SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share excludes the impact of common share equivalents and is based upon the weighted average common shares outstanding. Diluted earnings per share utilizes the average market price per share when applying the treasury stock method in determining common share equivalents. The Company adopted the provisions of SFAS No. 128 in the December 31, 1997, financial statements, including the earnings per share for all prior periods. Outstanding stock options are treated as common share equivalents for purposes of computing diluted earnings per share and represent the difference between basic and diluted weighted average shares outstanding. Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income," and Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information," were issued in June 1997 and are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for the reporting and display of comprehensive income, which includes net income and changes in equity except those resulting from investments by, or distributions to stockholders. SFAS No. 131 establishes standards for disclosures related to business operating segments. The Company is currently evaluating the impact that these statements will have on the consolidated financial statements. NOTE 2 - ADVANCE PREMIUMS - ------------------------- Unico subsidiaries selling auto, health, life, and dental insurance policies require payments of premium prior to the effective date of coverage. To conform with the above requirement, invoices are sent out as early as two months prior to the effective date of the policy and payments are received prior to the policy effective date. Insurance premiums received by these subsidiaries for coverage effective after the balance sheet date are recorded as advance premiums. NOTE 3 - INVESTMENTS - --------------------- A summary of net investments and related income is as follows: Investment Income ----------------- Investment income is summarized as follows:
Fiscal Year Ended ---------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Fixed maturities $4,694,838 $3,041,485 $3,587,856 Equity securities 48,960 46,144 5,886 Short-term investments 253,053 145,855 264,956 --------- --------- --------- Total investment income 4,996,851 3,233,484 3,858,698 Less investment expenses 590 600 (5,035) --------- --------- --------- Net investment income $4,996,261 $3,232,884 $3,863,733 ========= ========= =========
32 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (continued) - -------------------------------- Net realized investment gains and (losses) are summarized as follows:
Fiscal Year Ended ---------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Gross realized gains: Fixed maturities $ - $ - $ 7,193 Equity securities 25,093 196,413 48,550 Gross realized (losses): Equity securities - ( 5,922) - ------ ------- ------ Net realized investment gains $25,093 $190,491 $55,743 ====== ======= =======
A summary of the unrealized appreciation (depreciation) on investments carried at market and the applicable deferred federal income taxes is shown below:
Fiscal Year Ended --------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Gross unrealized appreciation: Fixed maturities $1,878,723 $1,183,881 $954,381 Equity securities - - 2,838 Gross unrealized (depreciation): Fixed maturities (19,704) (59,633) (151,480) Equity securities (7,360) - - ----- ------ ------- Net unrealized appreciation (depreciation) on investments 1,851,659 1,124,248 805,739 Deferred federal income taxes (629,564) (382,244) (273,952) ------- ------- ------- Net unrealized appreciation (depreciation), net of deferred income taxes $1,222,095 $742,004 $531,787 ========= ======= =======
The amortized cost and estimated market value of fixed maturity investments at December 31, 1997, by contractual maturity are as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Estimated Amortized Market Cost Value ---- ----- Due in one year or less $11,073,532 $ 11,108,518 Due after one year through five years 46,081,678 47,126,488 Due after five years through ten years 28,951,361 29,730,584 ---------- ---------- Total fixed maturities $86,106,571 $87,965,590 ========== ========== 33 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (continued) - ------------------------------- The amortized cost and estimated market values of investments in fixed maturities by categories are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value December 31, 1997 ---- ----- ------ ----- - ----------------- Available for sale Fixed maturities Certificates of deposit $ 500,000 $ - $ - $ 500,000 U.S. treasury securities 15,480,258 313,491 224 15,793,525 State and municipal tax exempt bonds 38,361,279 822,093 - 39,183,372 Industrial and miscellaneous taxable bonds 31,765,034 743,139 19,480 32,488,693 ---------- --------- ------ ---------- Total fixed maturities $86,106,571 $1,878,723 $19,704 $87,965,590 ========== ========= ====== ========== December 31, 1996 - ------------------ Available for sale Fixed maturities Certificates of deposit $ 798,000 $ - $ - $ 798,000 U.S. treasury securities 22,447,391 185,410 19,699 22,613,102 State and municipal tax exempt bonds 39,634,159 657,634 33,652 40,258,141 Industrial and miscellaneous taxable bonds 13,105,416 340,837 6,282 13,439,971 ---------- --------- ------ ---------- Total fixed maturities $75,984,966 $1,183,881 $59,633 $77,109,214 ========== ========= ====== ==========
Short-term investments have an initial maturity of one year or less and consist of the following: Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Certificates of deposit $ 225,000 $ 125,000 Commercial paper 4,750,000 2,810,000 Commercial bank money market accounts 426,775 1,144,292 Short-term U.S. treasury note 732,216 757,653 Savings account 3,504 24,800 --------- --------- Total short-term investments $6,137,495 $4,861,745 ========= ========= NOTE 4 - PROPERTY AND EQUIPMENT (NET OF ACCUMULATED DEPRECIATION) - ----------------------------------------------------------------- Property and equipment consist of the following:
Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Furniture, fixtures, computer, office, and transportation equipment $2,204,554 $2,449,581 Accumulated Depreciation 2,000,845 2,219,609 --------- --------- Net property and equipment $ 203,709 $ 229,972 ======= =======
34 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - PREMIUMS AND NOTES RECEIVABLE, NET - ------------------------------------------- Premiums and notes receivable are substantially secured by unearned premiums and funds held as security for performance. Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Premiums receivable $2,525,588 $3,171,706 Premium finance notes receivable 4,902,269 5,751,709 --------- --------- Total premiums and notes receivable 7,427,857 8,923,415 Less allowance for doubtful accounts 23,251 24,576 --------- --------- Net premiums and notes receivable $7,404,606 $8,898,839 ========= ========= Bad debt expense for the fiscal year ended December 31, 1997, and the nine month fiscal year ended December 31, 1996, was $28,903 and $22,387, respectively. Premium finance notes receivable represent the balance due to the Company's premium finance subsidiary from policyholders who elect to finance their premiums over the policy term. These notes are net of unearned finance charges. NOTE 6 - DEFERRED POLICY ACQUISITION COSTS - ------------------------------------------ Deferred policy acquisition costs, net of ceding commission, consist of commissions, premium taxes, inspection fees, and certain other underwriting costs which are related to and vary with the production of Crusader Insurance Company policies. These costs are incurred by Crusader and include allocated expenses of other Unico subsidiaries. Policy acquisition costs are deferred and amortized as the related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, including investment income.
Fiscal Year Ended ------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Deferred policy acquisition costs at beginning of year $4,953,085 $4,333,708 $4,113,936 Policy acquisition costs incurred during year 10,495,790 7,506,550 8,789,167 Policy acquisition costs amortized during year (10,562,191) (6,887,173) (8,569,395) ---------- --------- --------- Deferred policy acquisition costs at end of year $4,886,684 $4,953,085 $4,333,708 ========= ========= =========
NOTE 7 - CLAIMS AND LITIGATION - ------------------------------ The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings as either plaintiff or defendant. The Company is required to resort to legal proceedings from time-to-time in order to enforce collection of premiums, commissions, or fees for the services rendered to customers or to their agents. These routine items of litigation do not materially affect the Company and are handled on a routine basis by the Company through its general counsel. Likewise, the Company is sometimes named as a cross-defendant in litigation which is principally directed against that insurer who has issued a policy of insurance directly or indirectly through the Company. Incidental actions are sometimes brought by customers or other agents which relate to disputes concerning the issuance or non-issuance of individual policies. These items are also handled on a routine basis by the Company's general counsel, and they do not materially affect the operations of the Company. Management is confident that the ultimate outcome of pending litigation should not have an adverse effect on the Company's consolidated operation or financial position. 35 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES - --------------------------------------------------- The following table sets forth a reconciliation of the liabilities for losses and loss adjustment expenses for the periods shown:
Fiscal Year Ended ------------------------------------------------ December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Reserve for unpaid losses and loss adjustment expenses at beginning of year - net of reinsurance $37,111,846 $32,682,153 $27,633,304 ---------- ---------- ---------- Incurred losses and loss adjustment expenses Provision for insured events of current year 23,564,325 16,251,499 19,276,602 Increase (decrease) in provision for events of prior years (1) (4,275,759) (1,449,765) (1,967,053) --------- --------- --------- Total losses and loss adjustment expenses 19,288,566 14,801,734 17,309,549 ---------- ---------- ---------- Payments Losses and loss adjustment expenses attributable to insured events of the current year 4,812,268 3,352,866 3,446,088 Losses and loss adjustment expenses attributable to insured events of prior years 10,996,896 7,019,175 8,814,612 ---------- ---------- ---------- Total payments 15,809,164 10,372,041 12,260,700 ---------- ---------- ---------- Reserve for unpaid losses and loss adjustment expenses at end of year - net of reinsurance $40,591,248 $37,111,846 $32,682,153 ========== ========== ========== Reconciliation of liability for losses and loss adjustment expense reserves to Balance Sheet Reserve for unpaid losses and loss adjustment expenses at end of year - net of reinsurance $40,591,248 $37,111,846 $32,682,153 Reinsurance recoverable on unpaid losses at end of year 1,413,603 2,629,019 4,324,305 ---------- ---------- ---------- Reserve for unpaid losses and loss adjustment expenses at end of year - gross of reinsurance $42,004,851 $39,740,865 $37,006,458 ========== ========== ==========
(1) Decreases in incurred losses and loss adjustment expenses related to the indicated prior years reflect favorable loss experience during these years attributable to a number of combined factors which have produced favorable frequency and severity trends in recent years. In addition, actuarial assumptions based on historical trends have proven to be conservative. NOTE 9 - FUNDS HELD AS SECURITY FOR PERFORMANCE - ----------------------------------------------- Funds held as security for performance represent funds received from the Company's daily automobile rental program which guarantee the contractual obligations of its customers. 36 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - ACCRUED EXPENSES AND OTHER LIABILITIES - ------------------------------------------------ Accrued expenses and other liabilities consist of the following:
Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Premium payable $ 525,839 $ 708,733 Unearned claim adjusting income 300,000 300,000 Profit sharing contributions 395,000 375,000 Accrued contingent interest expense (See Note 14) 300,000 300,000 Accrued salaries 406,117 404,350 Other 168,611 307,616 --------- --------- Total accrued expenses and other liabilities $2,095,567 $2,395,699 ========= =========
NOTE 11 - NOTE PAYABLE - BANK - ----------------------------- American Acceptance Corporation ("AAC"), the Company's premium finance subsidiary, has a line of credit with Union Bank which can be used only to fund its premium finance operation. At the Company's request, this line of credit was decreased from $4,000,000 to $2,000,000 in September 1997. Interest on the note is referenced to the London Interbank Offered Rate ("LIBOR"). The note amount is collateralized by the assets of AAC and is guaranteed by the Company. The loan agreement contains certain covenants including restrictions on certain transactions between AAC and the Company and the maintenance of certain financial ratios. The note was paid in full on July 3, 1997. The credit line matures September 2, 1998, and is expected to be renewed. Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Note payable - bank $ - $750,001 ======= ======= Maximum bank note payable $750,001 $2,000,001 Average bank note payable $296,576 $1,387,038 Weighted average interest rate 7.3% 7.2% In addition to the AAC line of credit, Unico has a $2,000,000 line of credit with Union Bank. Interest on this line is referenced to LIBOR and is payable monthly. The agreement contains certain covenants including maintenance of certain financial ratios. This credit line expires September 2, 1998, at which time it is expected to be renewed. As of December 31, 1997, no amounts have been borrowed. 37 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - LEASE COMMITMENT - -------------------------- The Company presently occupies a 46,000 square foot building located at 23251 Mulholland Drive, Woodland Hills, California, under a master lease expiring March 31, 2007. The total rent expense under this lease agreement was $1,025,952 for the fiscal year ended December 31, 1997, $769,464 for the nine month period ended December 31, 1996, and $1,025,952 for the fiscal year ended March 31, 1996. The lease provides for the following minimum annual rental commitments: Fiscal Year Ending ------------------ December 31, 1998 $1,025,952 December 31, 1999 $1,025,952 December 31, 2000 $1,025,952 December 31, 2001 $1,025,952 December 31, 2002 $1,025,952 December 31, 2003 (through March 31, 2007) $4,360,296 --------- Total minimum payments $9,490,056 Erwin Cheldin, the Company's president, chairman, and principal stockholder, is the owner of the building. On February 22, 1995, the Company signed an extension to the lease with no increase in rent to March 31, 2007. The Company believes that the terms of the lease at inception and at the time the lease extension was signed were at least as favorable to the Company as could have been obtained from unaffiliated third parties. The Company utilizes for its own operations 100% of the space it leases. NOTE 13 - REINSURANCE - --------------------- A reinsurance transaction occurs when an insurance company transfers (cedes) a portion of its exposure on business written by it to a reinsurer which assumes that risk for a premium (ceded premium). Reinsurance does not legally discharge the company from primary liability under its policies; and if the reinsurer fails to meet the obligations, the company must nonetheless pay its policy obligations. The Company continually monitors and evaluates the liquidity and financial strength of its reinsurers to determine their ability to fulfill obligations assumed under the reinsurance contracts. Crusader has reinsurance agreements with National Reinsurance Corporation and NAC Reinsurance Corporation, both California admitted reinsurers. National Reinsurance Corporation was acquired by General Reinsurance Corporation in 1996. Crusader also has additional catastrophe reinsurance from various other reinsurance companies of which 77% of the participating reinsurers are admitted in California. These reinsurance agreements help protect Crusader against liabilities in excess of certain retentions, including major or catastrophic losses which may occur from any one or more of the property and/or casualty risks which Crusader insures. Crusader's retention increased from $150,000 to $250,000 per risk on July 1, 1997. This retention is subject to a maximum dollar amount and to catastrophe and clash covers. The catastrophe and clash covers (subject to a maximum occurrence and annual aggregate amount) help protect the Company from one loss occurrence affecting multiple policies. The premium ceded to the reinsurers for the catastrophe and clash covers and for all exposures over $500,000 is a fixed percentage of the premium charged by Crusader. On exposures up to $500,000, the reinsurer charges a provisional rate which is subject to adjustment and is based on the amount of losses ceded, limited by a maximum percentage that can be charged by the reinsurer. On most of the premium that Crusader cedes to the reinsurer, the reinsurer pays a commission to Crusader, which includes a reimbursement of the cost of acquiring the portion of the premium that is ceded. Crusader does not currently assume any reinsurance from other insurance companies. The Company intends to continue obtaining reinsurance although the availability and cost may vary from time to time. 38 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - REINSURANCE (continued) - -------------------------------- The effect of reinsurance on premiums written, premiums earned, and incurred losses is as follows:
Fiscal Years Ended -------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Premiums written: Direct business $42,273,990 $31,847,113 $37,631,357 Reinsurance assumed - - - Reinsurance ceded $(6,687,944) $(3,701,766) $(4,437,446) Premiums earned: Direct business $42,721,222 $29,373,374 $37,554,830 Reinsurance assumed - - - Reinsurance ceded $(6,394,328) $(3,307,085) $(6,077,403) Incurred losses and loss adjustment expenses: Direct $26,415,825 $16,777,799 $18,936,455 Assumed - - - Ceded $(7,127,262) $(1,976,065) $(1,626,906)
NOTE 14 - CONTINGENCIES - ----------------------- The Company's federal income tax returns for the fiscal years ended March 31, 1990, through March 31, 1994, were examined by the Internal Revenue Service. The primary issue of the examination was the loss reserve deductions for the fiscal years under audit. Any changes in the these deductions resulting from the examination would be a temporary difference. Since any tax increase from this temporary difference should be offset by a tax decrease in subsequent years, no tax liability has been accrued. The issue is currently under appeal. Management estimated and accrued $300,000 of interest expense in the fiscal year ended March 31, 1995, related to this temporary difference. No change was made to this accrual as of December 31, 1997. NOTE 15 - PROFIT SHARING PLAN - ----------------------------- During the fiscal year ended March 31, 1986, the Company adopted the Unico American Corporation Profit Sharing Plan. Employees who are at least 21 years of age and have been employed by the Company for at least two years are participants in the Plan. Pursuant to the terms of the Plan, the Company annually contributes to the account of each participant an amount equal to a percentage of the participant's eligible compensation as determined by the Board of Directors. Participants are entitled to receive benefits under the plan upon the later of the following: the date 60 days after the end of the plan year in which the participant's retirement occurs or one year and 60 days after the end of the plan year following the participant's termination with the Company. However the participant's interest must be distributed in its entirety no later than April 1 of the calendar year following the calendar year in which the participant attains age 70 1/2 or otherwise in accordance with the Treasury Regulations promulgated under the Internal Revenue Code of 1954 as amended. Contributions to the plan were as follows: Fiscal year ended December 31, 1997 $545,906 Fiscal year ended December 31, 1996 (nine months) $364,226 Fiscal year ended March 31, 1996 $484,715 39 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - STATUTORY CAPITAL AND SURPLUS - --------------------------------------- Crusader is required to file an annual statement with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities ("statutory"). Statutory accounting practices differ in certain respects from generally accepted accounting principles. The more significant of these differences for statutory accounting are (a) premium income is taken into earnings over the periods covered by the policies, whereas the related acquisition and commission costs are expensed when incurred; (b) all bonds are recorded at amortized cost, regardless of trading activity; (c) non-admitted assets are charged directly against surplus; (d) loss reserves and unearned premium reserves are stated net of reinsurance; and (e) federal income taxes are recorded when payable. Additionally, the cash flow presentation is not consistent with generally accepted accounting principles and a reconciliation from net income to funds provided by operations is not presented. Crusader Insurance Company statutory capital and surplus is as follows: As of December 31, 1997 $30,899,761 As of December 31, 1996 $25,748,757 Crusader Insurance Company statutory net income is as follows: Fiscal year ended December 31, 1997 $6,658,352 Fiscal year ended December 31, 1996 (nine months) $3,526,515 Fiscal year ended March 31, 1996 $4,639,537 The Company believes that Crusader's statutory capital and surplus was sufficient to support the insurance premiums written based on guidelines established by the NAIC. Crusader is restricted in the amount of dividends it may pay to its parent in any twelve (12) month period without prior approval of the California Department of Insurance. Presently, without prior approval, Crusader may pay a dividend in any twelve (12) month period to its parent equal to the greater of (a) 10% of Crusader's statutory policyholders' surplus or (b) Crusader's statutory net income for the preceding calendar year. The maximum dividend which may be made without prior approval as of December 31, 1997, is $6,658,352. After taking into account the dividends paid by Crusader to its parent in 1997 of $1,500,000, the remaining dividend which may be made without prior approval as of December 31, 1997, is $5,158,352. NOTE 17 - INCENTIVE STOCK OPTION PLAN - ------------------------------------- The Company under its 1985 stock option plan provides for the grant of "incentive stock options" to officers and key employees. The options and prices set forth below have been adjusted, where applicable, for all subsequent stock splits, reverse stock splits, and stock dividends. All options were granted at fair market value. As of December 31, 1997, of the 373,948 options outstanding, 275,046 options were currently exercisable. There are no additional options available for future grant under the 1985 plan. The changes in the number of common shares under option are summarized as follows: Options Exercise Price ------- -------------- Outstanding at March 31, 1995 680,000 $3.4375 to $4.375 Options granted - Options exercised - Options terminated - -------- Outstanding at March 31, 1996 680,000 $3.4375 to $4.375 Options granted - Options exercised (114,651) $3.4375 to $3.85 Options terminated (4,650) $3.50 ------- Outstanding at December 31, 1996 560,699 $3.4375 to $4.375 Options granted - Options exercised (186,751) $3.4375 to $3.50 Options terminated - ------- Outstanding at December 31, 1997 373,948 $3.4375 to $4.375 ======= 40 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - TAXES ON INCOME - ------------------------- The provision for taxes on income consists of the following:
Fiscal Year Ended --------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Current provision: Federal $2,900,181 $2,133,283 $2,574,766 State 184,020 159,364 164,931 --------- --------- --------- Total federal and state 3,084,201 2,292,647 2,739,697 Deferred 250,470 (88,170) (278,887) --------- --------- --------- Provision for taxes $3,334,671 $2,204,477 $2,460,810 ========= ========= =========
The income tax provision reflected in the consolidated statements of operations is less than the expected federal income tax on income as shown in the table below.
Fiscal Year Ended -------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Computed tax expense at 34% $3,736,270 $2,508,855 $2,858,819 Tax effect of: Tax exempt income (522,813) (393,009) (502,513) Dividend exclusion (9,905) (9,335) (1,191) Other (54,971) (56,354) (49,847) State income tax expense 186,090 154,320 155,542 --------- --------- --------- Tax per financial statement $3,334,671 $2,204,477 $2,460,810 ========= ========= =========
The components of the net federal income tax asset included in the financial statements as required by the assets and liability method are as follows:
Fiscal Year Ended December 31 ----------------------------- 1997 1996 ---- ---- Deferred tax assets: Discount on loss reserves $1,900,368 $2,121,793 Unearned premiums 1,285,242 1,335,620 Other 118,668 121,284 --------- --------- Total deferred tax assets $3,304,278 $3,578,697 --------- --------- Deferred tax liabilities: Deferred acquisition costs $1,661,474 $1,684,049 Discount on salvage & subrogation 7,376 8,749 Unrealized gain on investments 629,563 382,244 --------- --------- Total deferred tax liabilities $2,298,413 $2,075,042 --------- --------- Net deferred tax assets $1,005,865 $1,503,655 ========= =========
Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. As a California insurance company, Crusader is obligated to pay a premium tax on gross premiums written in the states of Arizona, California, Nevada, Oregon, and Washington. The premium tax is in lieu of state franchise taxes; thus, the above provision for state taxes does not include the premium tax. 41 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - EARNINGS PER SHARE - ---------------------------- A reconciliation of the numerator and denominator used in the basic and diluted earnings per share calculation is presented below:
Twelve Fiscal Year Months Fiscal Year Fiscal Year Ended Ended Ended Ended December 31 December 31 December 31 March 31 1997 1996 1996 1996 ---- ---- ---- ---- (Unaudited) (Nine Months) Basic Earnings Per Share - ------------------------ Net income numerator $7,654,362 $6,849,327 $5,174,510 $5,947,481 ========= ========= ========= ========= Weighted average shares outstanding denominator 6,132,096 5,967,667 5,970,977 5,957,670 ========= ========= ========= ========= Per share amount $1.25 $1.15 $0.87 $1.00 Diluted Earnings Per Share - -------------------------- Net income numerator $7,654,362 $6,849,327 $5,174,510 $5,947,481 ========= ========= ========= ========= Weighted average shares outstanding 6,132,096 5,967,667 5,970,977 5,957,670 Effect of diluted securities 269,263 273,188 279,953 192,580 --------- --------- --------- --------- Diluted shares outstanding denominator 6,401,359 6,240,855 6,250,930 6,150,250 ========= ========= ========= ========= Per share amount $1.20 $1.10 $0.83 $0.97
NOTE 20 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ------------------------------------------------------ Summarized unaudited quarterly financial data for each of the calendar years 1997 and 1996 is set forth below:
Comparable Period by Quarter Ended ---------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Calendar Year 1997 ------------------ Total revenues $12,043,649 $12,100,854 $12,166,012 $11,980,206 Income before taxes 2,496,230 2,729,840 2,812,198 2,950,765 Net income 1,765,154 1,884,584 1,950,806 2,053,818 Earnings per share: Basic $0.29 $0.31 $0.32 $0.33 Diluted $0.28 $0.30 $0.30 $0.32 Calendar Year 1996 ------------------ Total revenues $10,995,615 $11,338,697 $11,784,899 $11,761,061 Income before taxes 2,397,090 2,394,096 2,517,121 2,467,770 Net income 1,674,817 1,674,094 1,748,741 1,751,675 Earnings per share: Basic $0.28 $0.28 $0.29 $0.29 Diluted $0.27 $0.27 $0.28 $0.28
42 Item 9. Changes in and Disagreements with Accountants - ------------------------------------------------------ on Accounting and Financial Disclosure -------------------------------------- Change in accountants was previously reported. PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ Information in response to Item 10 is incorporated by reference from the Company's definitive proxy statement to be used in connection with the Company's Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K. Item 11. Executive Compensation - -------------------------------- Information in response to Item 11 is incorporated by reference from the Company's definitive proxy statement to be used in connection with the Company's Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ Information in response to Item 12 is incorporated by reference from the Company's definitive proxy statement to be used in connection with the Company's Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- Information in response to Item 13 is incorporated by reference from the Company's definitive proxy statement to be used in connection with the Company's Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K. 43 PART IV ------- Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ------------------------------------------------------------------------ (a) Financial Statements and Schedules Filed as a Part of this Report: 1. Financial statements: The consolidated financial statements for the fiscal year ended December 31, 1997, are contained herein as listed in the index to consolidated financial statements on page 22. 2. Financial schedules: Index to Consolidated Financial Statements ------------------------------------------ Independent Auditors' Report on Financial Statement Schedules Schedule I - Summary of Investments Other than Investments in Related Parties Schedule II - Condensed Financial Information of Registrant Schedule III - Supplemental Insurance Information Schedule IV - Reinsurance Schedule VI - Supplemental Information Concerning Property/Casualty Insurance Operations Schedules other than those listed above are omitted, since they are not applicable, not required, or the information required to be set forth is included in the consolidated financial statements or notes. 3. Exhibits: 3.1 Articles of Incorporation of Registrant, as amended. (Incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1984). 3.2 By-Laws of Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1991). 10.1 Unico American Corporation Profit Sharing Plan & Trust. (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1985). (*) 10.2 Unico American Corporation Employee Incentive Stock Option Plan (1985). (Incorporated herein by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1985). (*) 10.3 Amendment to Unico American Corporation Incentive Stock Option Plan (1985). (Incorporated herein by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987). (*) 10.4 The Lease dated July 31, 1986, between Unico American Corporation and Cheldin Management Company. (Incorporated herein by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987). 10.5 The Lease Amendment #1 dated February 22, 1995, between Unico American Corporation and Cheldin Management amending the lease dated July 31, 1986. (Incorporated herein by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995). 21 Subsidiaries of Registrant. (Incorporated herein by reference to Exhibit 22 to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1984). 27 Financial Data Schedule (*) Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K: On Form 8-K dated August 27, 1997, with date of earliest event reported being August 25, 1997, Registrant reported under Item 4, a change in Registrant's Certifying Accountant. Item 4 of the Form 8-K was amended by Form 8-K/A dated August 29, 1997. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 23, 1998 UNICO AMERICAN CORPORATION By: /s/ ERWIN CHELDIN Erwin Cheldin Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ ERWIN CHELDIN Chairman of the Board, March 23, 1998 ----------------- Erwin Cheldin President and Chief Executive Officer, (Principal Executive Officer) /s/ LESTER A. AARON Treasurer, Chief Financial March 23, 1998 ------------------- Lester A. Aaron Officer and Director (Principal Accounting and Principal Financial Officer) /s/ CARY L. CHELDIN Executive Vice President March 23, 1998 ------------------- Cary L. Cheldin and Director /s/ GEORGE C. GILPATRICK Vice President, Secretary March 23, 1998 ------------------------ George C. Gilpatrick and Director /s/ ROGER H. PLATTEN Vice President and Director March 23, 1998 -------------------- Roger H. Platten
45 INDEPENDENT AUDITOR'S REPORT The Board of Directors Unico American Corporation Under date of March 20, 1998, we reported on the consolidated balance sheet of Unico American Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1997, as contained in the annual report on the Form 10-K for the year 1997. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed under Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audit. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Los Angeles, California March 20, 1998 46 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES Board of Directors Unico American Corporation Under date of March 20, 1997, we reported on the consolidated balance sheets of Unico American Corporation and subsidiaries as of December 31, 1996, and March 31, 1996 and the related consolidated statement of operations, shareholders' equity and cash flows for the nine months ended December 31, 1996 and the year ended March 31, 1996, as contained in the annual report of Form 10-K for the nine months ended December 31, 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed under Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. GETZ, KRYCLER & JAKUBOVITS Sherman Oaks, California March 20, 1997 47 SCHEDULE I UNICO AMERICAN CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1997
Column A Column B Column C Column D - -------- -------- -------- -------- Amount at which shown in the Type of Investment Cost Value Balance Sheet - ------------------ ---- ----- ------------- Fixed maturities: U.S. treasury securities $15,480,258 $15,793,525 $15,793,525 State and municipal tax exempt bonds 38,361,279 39,183,372 39,183,372 Industrial and miscellaneous bonds 31,765,034 32,488,693 32,488,693 Certificates of deposit 500,000 500,000 500,000 ----------- ---------- ---------- Total fixed maturities 86,106,571 87,965,590 87,965,590 Equity securities 230,460 223,100 223,100 Short-term investments 6,137,495 6,137,495 6,137,495 ---------- ---------- ---------- Total investments $92,474,526 $94,326,185 $94,326,185 ========== ========== ==========
48 SCHEDULE II UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS - PARENT COMPANY ONLY
Fiscal Year Ended ------------------------------- December 31 December 31 1997 1996 ---- ---- ASSETS ------ Short-term investments $ 1,200,000 $ - Cash 19,939 29,325 Accrued investment income 5,343 - Investments in subsidiaries 51,736,149 44,167,914 Property and equipment (net of accumulated depreciation) 203,709 229,972 Other assets 105,604 103,251 ---------- ---------- Total Assets $53,270,744 $44,530,462 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ LIABILITIES - ----------- Accrued expenses and other liabilities $1,089,713 $1,114,647 Payables to subsidiaries (net of receivables) 7,103,254 6,060,396 Income taxes payable 16,993 - --------- --------- Total Liabilities $8,209,960 $7,175,043 --------- --------- STOCKHOLDERS' EQUITY - -------------------- Common stock $ 2,838,058 $ 2,836,422 Net unrealized investment gains 1,222,095 742,004 Retained earnings 41,000,631 33,776,993 ---------- ---------- Total Stockholders' Equity $45,060,784 $37,355,419 ---------- ---------- Total Liabilities and Stockholders' Equity $53,270,744 $44,530,462 ========== ==========
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes. 49 SCHEDULE II (continued) UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS - PARENT COMPANY ONLY
Twelve Fiscal Year Months Fiscal Year Ended Ended Ended ---------------------------- December 31 December 31 December 31 March 31 1997 1996 1996 1996 ---- ---- ---- ---- (Unaudited) (Nine Months) REVENUES - -------- General and administrative expenses allocated to subsidiaries $5,036,332 $4,977,656 $3,870,364 $5,237,708 Net investment income 150,292 92,846 82,569 12,422 Other income 9,401 12,130 7,414 12,138 --------- --------- --------- --------- Total Revenue 5,196,025 5,082,632 3,960,347 5,262,268 EXPENSES - -------- General and administrative expenses 5,109,898 5,033,280 3,937,137 5,246,708 --------- --------- --------- --------- Income before equity in net income of subsidiaries 86,127 49,352 23,210 15,560 Equity in net income of subsidiaries 7,568,235 6,799,975 5,151,300 5,931,921 --------- --------- --------- --------- Net Income $7,654,362 $6,849,327 $5,174,510 $5,947,481 ========= ========= ========= =========
The Company and its subsidiaries file a consolidated federal income tax return. Unico received cash dividends from Crusader of $1,500,000 in the fiscal year ended December 31, 1997, $500,000 in the nine month fiscal year ended December 31, 1996, and $1,500,000 in the fiscal year ended March 31, 1996. The condensed financial statements should be read in conjunction with the consolidated financial statements and notes. 50 SCHEDULE II (continued) UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
Fiscal Year Ended -------------------------------------------------- December 31 December 31 March 31 1997 1996 1996 ---- ---- ---- (Nine Months) Cash flows from operating activities: Net income $7,654,362 $5,174,510 $5,947,481 Adjustments to reconcile net income to net cash from operations Undistributed equity in net (income) of subsidiaries (7,568,235) (5,151,300) (5,931,921) Depreciation and amortization 104,029 83,488 142,306 Accrued expenses and other liabilities (7,941) 4,608 112,016 Accrued investment income (5,343) (2,500) - Other assets (2,353) (21,390) (1,621) ------- ------ ------- Net cash provided from operations 174,519 87,416 268,261 ------- ------ ------- Cash flows from investing activities Increase in short-term investments (1,200,000) - - Purchase of property and equipment (77,766) (34,841) (85,428) ---------- ------ ------ Net cash (used) by investing activities (1,277,766) (34,841) (85,428) --------- ------ ------ Cash flows from financing activities Proceeds from issuance of common stock 1,636 1,621 - Dividends paid to stockholders (430,724) (418,087) (417,035) Repayment of note payable - - (500,000) Net change in payables and receivables from subsidiaries 1,522,949 340,068 724,698 --------- ------- ------- Net cash (used) by financing activities 1,093,861 (76,398) (192,337) --------- ------ ------- Net increase (decrease) in cash (9,386) (23,823) (9,504) Cash at beginning of year 29,325 53,148 62,652 ------ ------ ------ Cash at end of year $19,939 $29,325 $53,148 ====== ====== ======
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes. 51 SCHEDULE III UNICO AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION
Future Benefits, Deferred Benefits, Claims, Policy Losses, Net Losses and Acquisition and Loss Unearned Premium Investment Settlement Cost Expenses Premiums Revenue Income Expenses ----------------------------------------------------------------------------------------------- Fiscal Year Ended December 31, 1997 Property & Casualty $4,886,684 $42,004,851 $21,673,009 $36,326,894 $4,855,580 $19,288,566 Fiscal Year Ended December 31, 1996 (Nine Months) Property & Casualty $4,953,085 $39,740,865 $22,120,241 $26,066,289 $3,115,110 $14,801,734 Fiscal Year Ended March 31, 1996 Property & Casualty $4,333,708 $37,006,458 $19,646,502 $31,477,427 $3,708,891 $17,309,549 Amortization of Deferred Policy Other Acquisition Operating Premium Cost Costs Written ----------------------------------------------- Fiscal Year Ended December 31, 1997 Property & Casualty $10,562,191 $1,855,589 $35,586,046 Fiscal Year Ended December 31, 1996 (Nine Months) Property & Casualty $6,887,173 $1,653,077 $28,145,347 Fiscal Year Ended March 31, 1996 Property & Casualty $8,569,395 $2,419,635 $33,193,911
52 SCHEDULE IV UNICO AMERICAN CORPORATION AND SUBSIDIARIES REINSURANCE
Ceded to Assumed Percentage of Gross Other from Other Net Amount Assumed Amount Companies Companies Amount to Net ------------------------------------------------------------------------------------------------- Fiscal Year Ended December 31, 1997 Property & Casualty $42,721,222 $6,394,328 - $36,326,894 - Fiscal Year Ended December 31, 1996 (Nine Months) Property & Casualty $29,373,374 $3,307,085 - $26,066,289 - Fiscal Year Ended March 31, 1996 Property & Casualty $37,554,830 $6,077,403 - $31,477,427 -
53 SCHEDULE VI UNICO AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS
Claims and Reserves for Claim Unpaid Discount Adjustment Deferred Claims if Any, Expenses Incurred Affiliation Policy and Claim Deducted Net Related to with Acquisition Adjustment in Unearned Earned Investment (1) Current Year Registrant Costs Expenses Column C Premiums Premiums Income (2) Prior Year (A) (B) (C) (D) (E) (F) (G) (H) ------------------------------------------------------------------------------------------------------------------------ Company & Consolidated Subsidiaries Fiscal Year Ended December 31, 1997 $4,886,684 $42,004,851 - $21,673,009 $36,326,894 $4,855,580 $23,564,325 (1) $(4,275,759)(2) December 31,1996 $4,953,085 $39,740,865 - $22,120,241 $26,066,289 $3,115,110 $16,251,499 (1) (Nine Months) $(1,449,765)(2) March 31,1996 $4,333,708 $37,006,458 - $19,646,502 $31,477,427 $3,708,891 $19,276,602 (1) $(1,967,053)(2) Amortization of Deferred Paid Claims Affiliation Policy and Claim with Acquisition Adjustment Premiums Registrant Costs Expenses Written (A) (I) (J) (K) ----------------------------------------------------------------- Company & Consolidated Subsidiaries Fiscal Year Ended December 31, 1997 $10,562,191 $15,809,164 $35,586,046 December 31,1996 $6,887,173 $10,372,041 $28,145,347 (Nine Months) March 31,1996 $8,569,395 $12,260,700 $33,193,911
54 EX-27 2 FDS --
7 1 Year Dec-31-1997 Jan-01-1997 Dec-31-1997 94,103,085 0 0 223,100 0 0 94,326,185 55,768 56,379 4,886,684 112,942,384 42,004,851 21,673,009 2,091,180 0 0 0 0 2,838,058 42,222,726 112,942,384 36,326,894 4,996,261 25,093 6,942,473 19,288,566 10,562,191 7,450,931 10,989,033 3,334,671 7,654,362 0 0 0 7,654,362 1.25 1.20 37,111,846 23,564,325 (4,275,759) 4,812,268 10,996,896 40,591,248 4,273,477
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