-----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, LyfMEadmiOXJwVY9fFEwQD1qDQVFI7/DmCEBm/X+seayCY68dCiH9Uk79xVf87In DuIkNhrTrljMmlBnNGG8dw== /in/edgar/work/0001013698-00-000021/0001013698-00-000021.txt : 20001115 0001013698-00-000021.hdr.sgml : 20001115 ACCESSION NUMBER: 0001013698-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMONS INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0001013698 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 351707115 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29042 FILM NUMBER: 766195 BUSINESS ADDRESS: STREET 1: 4720 KINGSWAY DRIVE CITY: INDIANAPOLIS STATE: IN ZIP: 46205 BUSINESS PHONE: 3172596400 MAIL ADDRESS: STREET 1: 4720 KINGSWAY DRIVE CITY: INDIANAPOLIS STATE: IN ZIP: 46205 10-Q 1 0001.txt THIRD QUARTER 10-Q SYMONS INTERNATIONAL GROUP INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Mark One [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _________ to ____________ Commission File Number: 0-29042 SYMONS INTERNATIONAL GROUP, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1707115 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4720 Kingsway Drive Indianapolis, Indiana 46205 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (317) 259-6300 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 As of November 1, 2000, there were 10,385,399 shares of Registrant's $1.00 par value common stock issued and outstanding. FORM 10-Q INDEX FOR THE QUARTER ENDED SEPTEMBER 30, 2000 Page Number PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Financial Statements: Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999........................... 3 Unaudited Consolidated Statements of Earnings (Loss) for the Three and Nine Months Ended September 30, 2000 and 1999................................. 4 Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 .............. 6 Condensed Notes to Unaudited Consolidated Financial Statements.................................................. 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 13 Item 3 Qualitative and Quantitative Disclosures About Market Risk... 22 PART II OTHER INFORMATION............................................ 22 SIGNATURES ........................................................ 24
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SYMONS INTERNATIONAL GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2000 1999 (Unaudited) ASSETS Investments Available for sale: Fixed maturities, at market $116,838 $166,748 Equity securities, at market 17,392 13,425 Short-term investment, at amortized cost which approximates market 17,747 21,820 Mortgage loans, at cost 1,900 1,990 Other 1,039 945 ----- --- Total Investments 154,916 204,928 Investment in and advances to related parties 689 1,462 Cash and cash equivalents 19,991 3,097 Receivables, net of allowance for doubtful accounts 168,790 86,450 Reinsurance recoverable on paid and unpaid losses, net 161,049 98,258 Prepaid reinsurance premiums 50,172 10,463 Federal income taxes recoverable -- 6,820 Deferred policy acquisition costs 8,291 13,920 Property and equipment, net of accumulated depreciation 18,934 21,936 Intangible assets 42,499 43,221 Other assets 11,287 9,256 ------ ----- TOTAL ASSETS $636,618 $499,811 ======== ======== LIABILITIES Losses and loss adjustment expense reserves $243,521 $214,948 Unearned premiums 99,431 90,008 Reinsurance payables (including payable to affiliate of $2.2 mil in 2000 and $2.1 mil in 1999) 176,923 37,974 Notes payable 3,676 16,929 Interest payable on preferred securities 14,884 4,809 Other 22,688 25,123 ------ ------ TOTAL LIABILITIES 561,123 389,791 ------- ------- Commitments and contingencies: Minority interest: Company obligated mandatorily redeemable preferred stock of trust subsidiary holding solely parent debentures 135,000 135,000 ------- ------- STOCKHOLDERS' DEFICIT Common Stock 38,136 38,136 Additional paid-in capital 5,851 5,851 Unrealized loss on investments (1,910) (4,898) Retained deficit (101,582) (64,069) --------- -------- TOTAL STOCKHOLDERS' DEFICIT (59,505) (24,980) -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $636,618 $499,811 ======== ======== See condensed notes to consolidated financial statements
SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (in thousands, except per share data) Three Months Ended September 30, 2000 1999 ---- ---- Gross premiums written $80,289 $67,685 Less ceded premiums (43,261) (12,431) -------- -------- Net premiums written 37,028 55,254 Change in net unearned premiums 7,984 11,301 ----- ------ Net premiums earned 45,012 66,555 Fee income 3,637 3,104 Net investment income 2,507 3,021 Net realized loss on sale of investments (2,632) (452) ------- ----- Total Revenues 48,524 72,228 Loss and loss adjustment expenses 46,432 66,788 Policy acquisition and general and administrative expenses 22,765 30,273 Interest expense 134 197 Amortization of intangibles 655 631 --- --- Total Expenses 69,986 97,889 ------ ------ Loss before income taxes and minority interest (21,462) (25,661) Benefit for income taxes -- (8,669) -- ------- Net loss before minority interest (21,462) (16,992) Minority interest; net of tax Interest on preferred securities (3,454) (2,101) ------- ------- Net loss $(24,916) $(19,093) ========= Other comprehensive earnings (loss); net of tax Change in unrealized losses on securities 3,415 (1,324) ----- ------- Comprehensive loss $(21,501) $(20,417) ========= ========= Net loss per share - basic $(2.40) $(1.84) ======= ======= Net loss per share - fully diluted $(2.40) $(1.84) ======= ======= Weighted average shares outstanding : Basic 10,385 10,385 ------ ------ Fully diluted 10,385 10,385 ------ ------ See condensed notes to consolidated financial statements
SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (in thousands, except per share data)
Nine Months Ended September 30, 2000 1999 ---- ---- Gross premiums written $355,648 $393,577 Less ceded premiums (250,856) (187,237) --------- --------- Net premiums written 104,792 206,340 Change in net unearned premiums 30,072 (2,538) ------ ------- Net premiums earned 134,864 203,802 Fee income 11,237 10,659 Net investment income 8,003 9,630 Net realized loss on sale of investments (3,948) (1,468) ------- ------- Total Revenues 150,156 222,623 Loss and loss adjustment expenses 123,170 191,332 Policy acquisition and general and administrative expenses 51,655 64,285 Interest expense 360 376 Amortization of intangibles 1,921 1,887 ----- ----- Total Expenses 177,106 257,880 ------- ------- Loss before income taxes and minority interest (26,950) (35,257) Provision (benefit) for income taxes 487 (11,629) --- -------- Net loss before minority interest (27,437) (23,628) Minority interest; net of tax Interest on preferred securities (10,075) (6,252) -------- ------- Net loss $(37,512) $(29,880) --------- Other comprehensive earnings (loss); net of tax Change in unrealized gains (losses) on securities 2,988 (4,182) ----- ------- Comprehensive loss $(34,524) $(34,062) ========= ========= Net loss per share - basic $(3.61) $(2.88) ======= ======= Net loss per share - fully diluted $(3.61) $(2.88) ======= ======= Weighted average shares outstanding : Basic 10,385 10,385 ------ ------ Fully diluted 10,385 10,385 ------ ------ See condensed notes to consolidated financial statements
SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net loss for the period $(37,512) $(29,880) Adjustments to reconcile net earnings to net cash provided from (used in) operations: Depreciation and amortization 6,848 5,435 Deferred income tax benefit -- (4,605) Net realized loss on sale of investments 3,948 1,468 Net changes in operating assets and liabilities: Receivables (82,340) (24,380) Reinsurance recoverable on paid and unpaid losses, net (62,791) (159,544) Prepaid reinsurance premiums (39,709) 1,705 Deferred policy acquisition costs 5,629 3,933 Other assets (3,210) (1,743) Losses and loss adjustment expenses 28,573 129,549 Unearned premiums 9,424 6,655 Reinsurance payables 141,073 59,930 Interest payable on preferred securities 10,075 (3,206) Federal income taxes 6,820 964 Other liabilities (2,437) 13,073 ------- ------ NET CASH USED IN OPERATIONS (15,609) (646) -------- ----- Cash flow provided from (used in) investing activities: Net (purchases) sales of short-term investments 4,073 (6,215) Purchases of fixed maturities (3,787) (138,658) Proceeds from sales, calls and maturities of fixed maturities 54,343 149,131 Purchase of equity securities (20,228) (4,505) Proceeds from sales of equity securities 14,183 3,926 Purchases of property and equipment (1,457) (6,350) Purchases of other investments (20) (63) ---- ---- NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES 47,107 (2,734) ====== ------- Cash flow provided from (used in) financing activities: Payments on notes payable (13,253) (6,155) Loans from (repayments to) related parties (1,351) 1,014 ------- ----- NET CASH USED IN FINANCING ACTIVITIES (14,604) (5,141) -------- ------- Increase (decrease) in cash and cash equivalents 16,894 (8,521) Cash and cash equivalents, beginning of period 3,097 14,800 ----- ------ Cash and cash equivalents, end of period $19,991 $6,279 ======= ====== See condensed notes to consolidated financial statements
SYMONS INTERNATIONAL GROUP, INC. CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For The Three and Nine Months Ended September 30, 2000 CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The financial statements included in this report are the consolidated financial statements of Symons International Group, Inc. and its subsidiaries (the "Company"). The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In management's opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. For this reason, the accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes for the year ended December 31, 1999 included in the Company's 1999 Annual Report on Form 10-K. Results for any interim period are not necessarily indicative of results to be expected for the year. 2. Supplemental Cash Flow Information Net cash payments of interest were $737,000 and $13,566,000 for the nine months ended September 30, 2000 and 1999, respectively. Net cash received related to refunded income taxes was $6,739,000 and $12,810,000 for the first nine months of 2000 and 1999, respectively. 3. Notes Payable One of the Company's insurance subsidiaries, IGF Insurance Company ("IGF"), had a revolving bank line of credit (the "IGF Revolver"). During the third quarter 2000 the maximum amount available under the IGF Revolver was $8,000,000. As of September 30, 2000, the outstanding balance was $0 and the credit facility was cancelled. The weighted average interest rate on the IGF Revolver was 8.61% for the nine months ended September 30, 2000 and 6.83% for the nine months ended September 30, 1999. Notes payable also includes a $1,000,000 note due July 1, 2001 on the purchase of North American Crop Underwriters, Inc. ("NACU") at no interest. The balance of notes payable at September 30, 2000 includes three smaller notes (less than $300,000 each) assumed in the acquisition of NACU, which have various due dates from 2002 to 2006 with periodic payments at interest rates ranging from 7% to 9.09%. 4. Preferred Securities The preferred securities represent company-obligated mandatorily redeemable preferred securities of a trust subsidiary (the "Preferred Securities") holding solely parent debentures which have a term of 30 years with semi-annual interest payments commencing February 15, 1998. The Preferred Securities may be redeemed in whole or in part after 10 years. Under the terms of the indenture, the Company is permitted to defer semi-annual interest payments for up to five years. The Company deferred interest payments that were due in February and August 2000. The indenture for the Preferred Securities contains certain restrictive covenants. Some of these covenants are based upon the Company's consolidated coverage ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA"). If the Company's EBITDA falls below 2.5 times consolidated interest expense (including Preferred Security interest) for the most recent four quarters, the following restrictions become effective: o The Company may not incur additional indebtedness or guarantee additional indebtedness. o The Company may not make certain restricted payments including loans or advances to affiliates, stock repurchases and a limitation on the amount of dividends is in force. o The Company may not increase its level of non-investment grade securities defined as equities, mortgage loans, real estate, real estate loans and non-investment grade fixed income securities. These restrictions currently apply. The Company is in compliance with the restrictions and is not in default in its obligations with the regard to the Preferred Securities. 5. Regulatory Affairs As previously reported, Pafco General Insurance Company ("Pafco") has agreed to an order under which the Indiana Department of Insurance ("IDOI") may monitor more closely the ongoing operations of Pafco. Pafco's inability or failure to comply with this order could result in the IDOI requiring further reductions in Pafco's permitted premium writings or in the IDOI instituting future proceedings against Pafco. On October 10, 2000, Pafco informed the Iowa Department of Insurance ("IADOI") of its decision to stop writing new business in Iowa while it reviews and revises its current program in this state. Pafco will continue to service existing policyholders and renew policies in Iowa and provide policy count information on a monthly basis in conformance with IADOI requirements. The financial review of Superior Insurance Company ("Superior") for the year ended December 31, 1999 by the Florida Department of Insurance ("FDOI") is ongoing. As previously reported, the FDOI issued a notice of its intent to issue an order (the "Notice") which principally addresses certain policy and finance fee payments by Superior to Superior Insurance Group, Inc. ("Superior Group"), another subsidiary of the Company, and financial reporting issues, including disclosure of intercompany transactions. Superior filed a petition with the FDOI which requests a formal hearing to review the Notice and a determination that the order contemplated by the Notice not be issued. The hearing is scheduled for December 8, 2000. The order, if issued, may restrict Superior from paying certain billing and policy fees to Superior Group and include a requirement that Superior Group repay to its subsidiary, Superior, billing and policy fees from prior years in an amount of approximately $35.2 million. In such event, there would be no financial impact on the Company's consolidated financial statements. A restriction on the ability of Superior to pay future billing and policy fees to Superior Group may necessitate that the Company take certain actions, which may be subject to regulatory approvals, to reallocate operating revenues and expenses between its subsidiaries. The Company intends to vigorously contest the issuance of any such order. Pafco, IGF and Superior also provide monthly financial information to the departments of insurance in certain states in which they write business, and Pafco and IGF have agreed to obtain prior approval of any new affiliated party transactions. The Company's insurance subsidiaries, their business operations, and their transactions with affiliates, including the Company, are subject to regulation and oversight by the IDOI, the FDOI, the insurance regulators of other states in which the subsidiaries write business, and in the case of IGF, the Federal Crop Insurance Corporation ("FCIC"). Regulation and oversight of insurance companies and their transactions with affiliates is conducted by state insurance regulators and, in the case of IGF, the FCIC, primarily for the protection of policyholders and not for the protection of other creditors or of shareholders. Failure to resolve outstanding issues with the IDOI, the FDOI and other regulators in a manner satisfactory to the Company could result in future regulatory actions or proceedings that may materially and adversely affect the Company. 6. Commitments and Contingencies As previously reported, a complaint for a class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 was filed against the Company and certain of its officers and directors in the United States District Court for the Southern District of Indiana. The Company is vigorously defending the claims brought against it. No material developments have occurred since last reported. As previously reported, the California Department of Insurance ("CDOI") has advised the Company that it is reviewing a possible assessment which could total $3,000,000. As the ultimate outcome of this potential assessment is not deemed probable, the Company has not accrued any amount in its consolidated financial statements. Although the assessment has not been formally made by the CDOI at this time, the Company will vigorously defend any potential assessment and believes it will prevail. No material developments have occurred since last reported. As previously reported, IGF, several brokers and a third party carrier are parties to a number of pending legal proceedings relating to agricultural business interruption policies sold during 1998 ("AgPI") which have since been discontinued. Since last reported, all claims by the policyholders in the AgPI lawsuits have been settled by the third party carrier of the policies. Over the objections of IGF, the third party carrier settled some of the AgPI cases for amounts in excess of policy limits. Cross claims remain pending in California state court (King and Fresno counties) between IGF and other defendants in the AgPI cases, and discovery is proceeding. As of September 30, 2000, IGF had paid an aggregate of approximately $28,626,000 to AgPI policyholders. The Company increased its reserves during the third quarter by $3,800,000. The unpaid reserves for AgPI as of September 30, 2000 are $11,074,000. Certain of the settlements made by the third party carrier exceeded established reserves for the particular cases involved. The Company does not believe it will ultimately be responsible for the full amount of the settlement amounts paid by the third party carrier; however, the Company adjusted its reserves during the third quarter of 2000 for a portion of the settlement amounts paid by the third party carrier. Management believes that the reserve is sufficient to meet all future obligations. There can be no assurance that the Company's ultimate liability with respect to the settlements and pending legal proceedings involving the policies will not have a material adverse effect on the Company's results of operations or financial position. As previously reported, there are two class action claims pending in Florida which allege that Superior Guaranty Insurance Company ("Superior Guaranty") improperly charged service or finance fees in violation of Florida law. The plaintiff in one of these actions has obtained certification as a class. The Company believes that it has substantially complied with the premium financing statute and intends to vigorously defend any potential loss. On February 4, 2000 a complaint for class action was filed against Superior in the Circuit Court for Dade County, Florida. The plaintiff alleges that Superior improperly reduced medical benefits payable and improperly calculated interest in violation of Florida law. The Company believes the allegations are without merit and intends to vigorously defend the charges. On September 15, 2000 a complaint for class action was filed against Superior in the Circuit Court for Lee County, Florida. The complaint alleges that Superior inappropriately reduced or denied medical claims in violation of Florida law. The Company believes the case is without merit and intends to vigorously defend the charges brought against it. The Company and its subsidiaries are named as defendants in various other lawsuits relating to their business. Legal actions arise from claims made under insurance policies issued by the Company's subsidiaries. These actions were considered by the Company in establishing its loss reserves. The Company believes that the ultimate disposition of these lawsuits will not materially affect the Company's operations or financial position. 7. Loss Development on Prior Accident Periods During the first three quarters of 2000 the Company experienced favorable development on its year end 1999 loss and loss adjustment expense ("LAE") reserves for other than crop in the amount of $4,526,000. The favorable development primarily related to nonstandard auto. During the third quarter there was no material development on June 30, 2000 reserves. During the same period the Company experienced an unfavorable development on its year end crop insurance loss and LAE reserves in the amount of $5,752,000. This includes $5,200,000 of additional loss and LAE reserves booked through the third quarter of 2000 on the discontinued AgPI line of business. 8. Segment Disclosures The Company has two reportable segments based on products: nonstandard automobile insurance and crop insurance. The accounting policies of the segments are the same as those described in the December 31, 1999 Annual Report on Form 10-K in "Nature of Operating and Significant Accounting Policies." There are no significant intersegment transactions. The Company evaluates performance and allocates resources to the segments based on profit or loss from operations before income taxes. The following is a summary of the Company's segment data and a reconciliation of the segment data to the Consolidated Financial Statements. "Corporate and Other" includes operations not directly related to the reportable business segments and unallocated corporate items (i.e., corporate investment income, interest expense on corporate debt and unallocated overhead expenses). Segment assets are those assets in the Company's operations in each segment. "Corporate and Other" assets are principally cash, short-term investments, related party assets, intangible assets, and property and equipment. The following tables show financial data by segment (in thousands):
Three Months Ended September 30, 2000 1999 NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS Gross premiums written $45,450 $57,416 ======= ======= Net premiums written $28,086 $56,079 ======= ======= Net premiums earned $30,857 $59,238 Fee income 3,356 2,994 Net investment income 2,393 2,961 Net realized loss on sale of investments (2,632) (407) ------- ----- TOTAL REVENUES 33,974 64,786 ------ ------ Losses and loss adjustment expense 25,629 54,899 Policy acquisition and general and administrative expenses 16,251 26,725 ------ ------ TOTAL EXPENSES 41,880 81,624 ------ ------ Loss before income taxes $(7,906) $(16,838) ======== ========= GAAP RATIOS (Nonstandard Automobile Only): Loss and LAE Ratio (1) 83.10% 92.68% Expense ratio, net of billing fees (2) 41.80% 40.06% ------ ------ Combined ratio (3) 124.90% 132.74% ======= ======= CROP INSURANCE OPERATIONS: Gross premiums written $34,447 $10,201 ======= ======= Net premiums written $8,942 $(824) ====== ====== Net premiums earned $14,155 $7,316 Fee income 281 110 Net investment income 91 22 -- -- TOTAL REVENUES 14,527 7,448 ------ ----- Losses and loss adjustment expenses 20,803 11,889 Policy acquisition and general and administrative expenses 5,813 3,244 Interest and amortization of intangibles 299 318 --- --- TOTAL EXPENSES 26,915 15,451 ------ ------ Loss before income taxes $(12,388) $(8,003) ========= ======== (1) Loss and LAE ratio: ratio of loss and LAE incurred during the period, as a percentage of net premium earned. (2) Expense ratio, net of billing fees: ratio of policy acquisition and general and administrative expense less fee income, as a percentage of net premium earned. (3) Combined ratio: sum of the loss and LAE ratio plus the expense ratio net of billing fees.
Nine Months Ended September 30, 2000 1999 NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS Gross premiums written $134,887 $184,659 ======== ======== Net premiums written $77,901 $193,918 ======= ======== Net premiums earned $111,275 $191,472 Fee income 10,921 10,412 Net investment income 7,706 9,421 Net realized loss on sale of investments (3,949) (1,423) ------- ------- TOTAL REVENUES 125,953 209,882 ------- ------- Losses and loss adjustment expense 92,032 167,843 Policy acquisition and general and administrative expenses 51,864 69,929 ------ ------ TOTAL EXPENSES 143,896 237,772 ------- ------- Loss before income taxes $(17,943) $(27,890) ========= ========= GAAP RATIOS (Nonstandard Automobile Only): Loss and LAE Ratio (1) 82.70% 87.66% Expense ratio, net of billing fees (2) 36.80% 31.08% ------ ------ Combined ratio (3) 119.50% 118.74% ======= ======= CROP INSURANCE OPERATIONS: Gross premiums written $219,915 $208,448 ======== ======== Net premiums written $26,891 $12,422 ======= ======= Net premiums earned $23,589 $12,330 Fee income 316 247 Net investment income 177 61 Net realized capital gain 1 -- - -- TOTAL REVENUES 24,083 12,638 ------ ------ Losses and loss adjustment expenses 31,137 23,489 Policy acquisition and general and administrative expenses(4) (2,634) (6,950) Interest and amortization of intangibles 811 735 --- --- TOTAL EXPENSES 29,314 17,274 ------ ------ Loss before income taxes $(5,231) $(4,636) ======== ======== (1) Loss and LAE ratio: ratio of loss and LAE incurred during the period, as a percentage of net premium earned. (2) Expense ratio, net of billing fees: ratio of policy acquisition and general and administrative expense less fee income, as a percentage of net premium earned. (3) Combined ratio: sum of the loss and LAE ratio plus the expense ratio net of billing fees. (4) Negative crop expenses are caused by inclusion of Multiple Peril Crop Insurance ("MPCI") expense reimbursement and underwriting gain.
Three Months Ended September 30, 2000 1999 Loss before income taxes and minority interest: Nonstandard automobile $(7,906) $(16,838) Crop (12,388) (8,003) -------- ------- Segment totals (20,294) (24,841) Corporate and other (1,168) (820) ------- ----- Consolidated totals $(21,462) $(25,661) ========= ========= Nine Months Ended September 30, 2000 1999 Loss before income taxes and minority interest: Nonstandard automobile $(17,943) $(27,890) Crop (5,231) (4,636) ------- ------- Segment totals (23,174) (32,526) Corporate and other (3,776) (2,731) ------- ------- Consolidated totals $(26,950) $(35,257) ========= ========= September 30, December 31, 2000 1999 Segment assets: Nonstandard automobile $229,358 $229,640 Crop 316,725 145,622 Corporate and other 90,535 124,549 ------ ------- Consolidated totals $636,618 $499,811 ======== ========
9. Reclassifications Certain prior period amounts have been reclassified to conform with current year presentation. 10. Earnings Per Share Basic and diluted net loss per share are computed by dividing net loss as reported by the average number of shares outstanding as follows:
Three and Nine Months Ended September 30, (in thousands) 2000 1999 Basic: Weighted-average common shares outstanding 10,385 10,385 Diluted: Weighted-average common shares outstanding 10,385 10,385 Dilutive effect of stock options -- -- Average common shares outstanding assuming dilution 10,385 10,385
The Company had 1,418,333 stock options outstanding as of September 30, 2000. The Company issued 100,000 stock options in the third quarter 2000. The weighted average common shares outstanding on a basic and a fully diluted basis are the same because of the net losses in 2000 and 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF THE COMPANY Symons International Group, Inc. ("Company") owns, directly and indirectly through other subsidiaries, insurance companies which underwrite and market nonstandard private passenger automobile insurance and crop insurance. The Company's principal insurance company subsidiaries are Pafco General Insurance Company ("Pafco"), Superior Insurance Company ("Superior") and IGF Insurance Company ("IGF"). The Company is approximately a 70.0% subsidiary of Goran Capital Inc. ("Goran"). Nonstandard Automobile Insurance Operations Pafco, Superior, Superior Guaranty Insurance Company ("Superior Guaranty") and Superior American Insurance Company ("Superior American") are engaged in the writing of insurance coverage for automobile physical damage and liability policies. Nonstandard insureds are those individuals who are unable to obtain insurance coverage through standard market carriers due to factors such as poor premium payment history, driving experience or violations, particular occupation or type of vehicle. The Company offers several different policies which are directed towards different classes of risk within the nonstandard market. Premium rates for nonstandard risks are higher than for standard risk. Since it can be viewed as a residual market, the size of the nonstandard private passenger automobile insurance market changes with the insurance environment and grows when the standard coverage becomes more restrictive. Nonstandard policies have relatively short policy periods and low limits of liability. Due to the low limits of coverage, the period of time that elapses between the occurrence and settlement of losses under nonstandard policies is shorter than many other types of insurance. Also, since the nonstandard automobile insurance business typically experiences lower rates of retention than standard automobile insurance, the number of new policyholders underwritten by nonstandard automobile insurance carriers each year is substantially greater than the number of new policyholders underwritten by standard carriers. Crop Insurance Operations The two principal components of the Company's crop insurance business are multiple peril crop insurance ("MPCI") and private named peril crop insurance, primarily crop hail insurance. Crop insurance is purchased by farmers to reduce the risk of crop loss from adverse weather and other uncontrollable events. Farms are subject to drought, floods and other natural disasters that can cause widespread crop losses and, in severe cases, force farmers out of business. Historically, one out of every twelve acres planted annually by farmers has not been harvested because of adverse weather or other natural disasters. Because many farmers rely on credit to finance their purchases of such agricultural inputs as seed, fertilizer, machinery and fuel, the loss of a crop to a natural disaster can reduce their ability to repay these loans and to find sources of funding for the following year's operating expenses. The Company generates revenue like other private insurers participating in the MPCI program in two ways. First, it markets, issues and administers policies for which it receives administrative fees; and second, it participates in a profit-sharing arrangement with the federal government. The Company may also pay a portion of the aggregate loss, in respect of the business it writes, if the losses exceed certain levels. The Company writes MPCI and crop hail insurance through approximately 2,800 independent agencies in 46 states. Of the 2,800 licensed agents approximately 1,600 are actively writing business. The Company's underwriting risk is affected by the following factors: (1) the Company has a large exposure of crops planted in the fall and winter (citrus and nursery in Florida, nursery in Texas, wheat in Kansas), (2) the Company's crop revenue coverage ("CRC") risk which is tied to commodity prices is quantified in July, November and December but is incurred throughout the various growing seasons, (3) the preventative planting risk that the Company incurs on its traditional spring crops, and (4) the planting of its spring crops (corn and soybeans in the Midwest), the majority of which occurs prior to the end of May of any given crop year. Also, MPCI policies are continuous and automatically renew each year unless the insured notifies the Company prior to March 15 of each year or in certain circumstances other pre-set dates determined by crop and location. In addition to MPCI, the Company offers stand alone crop hail insurance, which insures growing crops against damage resulting from hailstorms and involves no federal participation. The Company also offers a proprietary product which combines the application and underwriting process for MPCI and hail coverages - HAILPLUS(TM) ("HAILPLUS"). This product tends to produce less volatile loss ratios than the stand alone crop hail product since the combined product generally insures a greater number of acres, thereby spreading the risk of damage over a larger insured area. Approximately 33% of the Company's hail policies are written in combination with MPCI. Although both crop hail and MPCI provide coverage against hail damage, the private crop hail coverages allow farmers to receive payments for hail damage which would not be severe enough to require a payment under an MPCI policy. The Company believes that offering crop hail insurance enables it to sell more policies. In addition to crop hail insurance, the Company also sells insurance against crop damage from other specific named perils. These products cover specific crops and are generally written on terms that are specific to the kind of crop and farming practice involved and the amount of actuarial data available. The crop insurance business is seasonal by geographic region; spring crops in northern and midwestern states, fall crops in southern states such as fruit and nuts, winter crops in coastal states such as California and summer cash crops grown in all states. The Company also insures long term crops such as nurseries. While this seasonality is time specific for each crop, the associated tasks of sales and marketing primarily occur before each respective crop growing season. The customer support, applications and claims processing tasks are time and event driven within the mid to later part of the growing season; many times being finished after the growing season and harvest is completed. The bulk of the loss adjustment activities for the spring and fall crops occur between May and November. These same activities occur for winter crops, such as fruits, in January and February, and for cash crops throughout the year. Throughout the year the Company provides to its customers services such as education, agronomy training, soil sampling, grid mapping for precision farming, insurance advice and loss adjusting. FORWARD LOOKING STATEMENTS AND CERTAIN RISKS All statements, trend analyses, and other information herein contained relative to markets for the Company's products and/or trends in the Company's operations or financial results, as well as other statements including words such as "anticipate," "could," "feel(s)," "believe(s)," "plan," "estimate," "expect," "should," "intend," "will" and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (i) general economic conditions, including prevailing interest rate levels and stock market performance; (ii) factors affecting the Company's crop insurance operations such as weather-related events, final harvest results, commodity price levels, governmental program changes, new product acceptance and commission levels paid to agents; (iii) factors affecting the Company's nonstandard automobile operations such as premium volume and levels of operating expenses as compared to premium volume; and (iv) the factors described in this section and elsewhere in this report. Losses Have Been Reported and May Continue The Company has been reporting losses on a quarterly basis since the third quarter of 1998. Pre-tax losses for the nine months ended September 30, 2000 and September 30, 1999 were $(26,950,000) and $(35,257,000) respectively. Most of these losses are attributed to the auto segment. Although losses have continued, losses from the auto segment have decreased from 1999 largely due to favorable developments in loss ratios. The Company is continuing to seek and implement rate increases and other underwriting actions to further improve profitability. Additionally, the Company's volume of nonstandard auto business appears to be increasing. As the Company increases premium volume, the expense ratio should reduce. Auto segment losses in the third quarter were further impacted by $2,632,000 realized losses due to the repositioning of the investment portfolio. The crop segment reported a pre-tax loss of approximately $(12,388,000) for the third quarter. This loss was a result of unfavorable development of hail and named peril losses, an increase of AgPI reserves, and additional reinsurance costs. Although the Company has taken a number of actions to address the factors that have contributed to these past losses, there can be no assurance that operating losses will not continue. Recent and Further Regulatory Actions May Affect the Company's Future Operations The Company's insurance subsidiaries, their business operations, and their transactions with affiliates, including the Company, are subject to regulation and oversight by the Indiana Department of Insurance ("IDOI"), the Florida Department of Insurance ("FDOI"), the insurance regulators of other states in which the insurance subsidiaries write business and, in the case of IGF, the Federal Crop Insurance Corporation ("FCIC"). Moreover, the insurance subsidiaries' losses, adverse trends and uncertainties discussed in this report have been and continue to be matters of concern to the domiciliary and other insurance regulators of the Company's insurance subsidiaries and have resulted in enhanced scrutiny and regulatory actions by several regulators. The Company relies on payment of management fees from the regulated insurance subsidiaries to support its cash flow needs, and continued payment of those fees is subject to regulatory oversight. As previously reported, the FDOI issued a notice of its intent to issue an order (the "Notice") which principally addresses certain policy and finance fee payments by Superior to Superior Insurance Group, Inc. ("Superior Group"), another subsidiary of the Company, and financial reporting issues, including disclosure of intercompany transactions. Superior has filed a petition with the FDOI which requests a formal hearing to review the Notice and a determination that the order contemplated by the Notice not be issued. The hearing is scheduled for December 8, 2000. The Company intends to vigorously contest the issuance of any such order; however, there can be no assurance that an order, if issued, will not have a material adverse effect on the Company's results of operations or financial position. The primary purpose of insurance regulation is the protection of policyholders rather than stockholders. Failure to resolve issues with the IDOI, the FDOI, the FCIC, and with other regulators, in a manner satisfactory to the regulators could impair the Company's ability to execute its business strategies or result in future regulatory actions or proceedings that otherwise may adversely affect the Company's operations. The Company is Subject to a Number of Pending Legal Proceedings As previously reported and discussed elsewhere in this report, the Company is involved in a number of pending legal proceedings. Most of these proceedings remain in the early stages. Although the Company believes that many of the allegations are without merit and intends to vigorously defend the claims brought against it, there can be no assurance that such proceedings will not have a materially adverse effect on the Company's operations. The Terms of the Trust Preferred Securities May Restrict the Company's Ability to Act The Company has issued company obligated mandatorily redeemable preferred securities ("Preferred Securities") of $135 million aggregate principal amount through a wholly owned trust subsidiary. The Preferred Securities have a term of 30 years with annual interest of 9.5% paid semi-annually. The obligations of the Preferred Securities are funded from the Company's nonstandard automobile management company and dividend capacity from the crop insurance business. The Company deferred interest payments that were due February and August 2000 and may continue to defer such payments for up to five years as permitted by the indenture for the Preferred Securities. Although there is no present default under the indenture which would accelerate the payment of the Preferred Securities, the indenture contains a number of convenants which may restrict the Company's ability to act in the future. These covenants include restrictions on the Company's ability to: incur or guarantee additional debt; make payments to affiliates; repurchase its common stock; pay dividends on common stock; and make certain investments other than investment grade fixed income securities. There can be no assurance that compliance with these restrictions and other provisions of the indenture for the Preferred Securities will not adversely affect the cash flows of the Company. The Terms of the Strategic Alliance Agreement May Adversely Impact the Operations of IGF As previously reported, on February 28, 1998 the Company, IGF and IGF Holdings, Inc. entered into a Strategic Alliance Agreement ("SAA") with Continental Casualty Company ("CNA") under which the Company assumed the multiple peril and crop hail insurance operations of CNA. The SAA provides for continuous reinsurance by CNA of a portion of the multiple peril and crop hail business written by the Company. The SAA also includes a put mechanism whereby IGF may be required to purchase all of such business from CNA and terminate the ongoing reinsurance relationship at a purchase price based upon a multiple of historical income from the reinsured business. The put mechanism becomes exercisable on January 1, 2001. The Company is currently in discussions with CNA regarding possible alternatives to the put mechanism. There can be no assurance that CNA will not exercise the put mechanism; and in the event CNA exercised the put mechanism, IGF would not have sufficient funds to meet its obligation to CNA. New Statutory Accounting Standards As previously reported, the NAIC has recommended certain changes in statutory accounting practices to become effective January 1, 2001. These recommendations are intended to provide greater consistency for statutory reporting entities and to expand current guidance in certain areas. The IDOI and FDOI are expected to adopt substantially all of the proposed amendments. The Company has completed a preliminary analysis of the effect on the statutory surplus of its insurance subsidiaries of such proposed changes. The consolidated statutory surplus of insurance subsidiaries as of September 30, 2000 is $43,503,000. Based on this analysis, management believes that there will be no significant impact to the surplus of Superior as a result of implementing the proposed changes in accounting standards. The impact to Pafco and IGF is expected to be a material reduction in statutory surplus of approximately $5,600,000 and $3,500,000, respectively. Management is currently evaluating the ongoing surplus requirements of Pafco and IGF. The Company is exploring alternatives for infusion of capital to these subsidiaries. Some of the alternatives being considered may require prior regulatory approval, and there can be no assurance that such regulatory approval would be obtained. IGF May Experience Increased Interest Costs As of September 30, 2000, IGF had a revolving bank line of credit ("the IGF Revolver"), which had an outstanding balance of $0 and which is now cancelled. The Company is in the process of obtaining a replacement line. Historically, this credit facility was used to better enable IGF to meet the seasonal liquidity needs of the crop business. The weighted average interest rate on the IGF Revolver was 8.61% and 6.83% with interest expense totaling $239,000 and $312,000 for the nine months ended September 30, 2000 and 1999 respectively. IGF has reported a loss of $4,469,000 through the third quarter and as such, may experience increased interest costs associated with negotiating a replacement credit line. Management is working to replace the line and expects to have a credit facility in place prior to the end of 2000. However, there can be no assurance the Company will obtain a replacement credit line or that management will not have to seek alternative financing at higher interest costs. REVIEW OF CONSOLIDATED OPERATIONS Net Loss For the three and nine months ended September 30, 2000, the Company recorded a net loss of $(24,916,000) and $(37,512,000), or $(2.40) and $(3.61) per share (basic and diluted). This is an increase from the net loss for the three and nine months ended September 30, 1999 of $(5,823,000) and $(7,632,000), or $(0.56) and $(0.73) per share (basic and diluted). Losses before taxes and interest on Preferred Securities for the nonstandard automobile segment showed a loss of $(7,906,000) and $(17,943,000) for the three and nine months ended September 30, 2000 compared to losses of $(16,838,000) and $(27,890,000) for the three and nine months ended September 30, 1999. Reduced losses in the auto segment for 2000 are primarily due to an improvement in the loss ratio and a reduction in fixed expenses. Losses before taxes and interest on Preferred Securities for the three and nine months ended September 30, 2000 in the crop segment showed a loss of $(12,388,000) and $(5,231,000) which compares to losses of $(8,003,000) and $(4,636,000) for the same periods in 1999. The increase in losses were primarily due to unfavorable development in AgPI reserves, higher hail and named peril loss ratios, as well as an increase in reinsurance costs. Losses before taxes and interest on Preferred Securities for the corporate segment were $(1,168,000) and $(3,776,000) for the three and nine months ended September 30, 2000 and $(820,000) and $(2,731,000) for the same period in 1999. These losses consist primarily of amortization of intangibles and general and administrative expenses. The losses increased primarily due to an increase in general and administrative expenses at the holding company level. Gross Premiums Written Gross premiums written for the nonstandard automobile segment decreased 20.8% and 27.0% for the three and nine months ended September 30, 2000 compared to the three and nine months ended September 30, 1999. The primary reasons for this decline in volume are the downsizing by the Company of its nonstandard automobile business in certain competitive markets, rate increases and other underwriting initiatives intended to increase profitability. Gross premiums written for the crop segment increased 237.7% and 5.5% for the three and nine months ended September 30, 2000 compared to the same periods in 1999. Due to timing, prior year figures for the third quarter were based on estimates. Due to the seasonality of the crop business, most of the crop hail premiums are processed by the end of the third quarter. Third quarter 2000 premiums were booked on actual results and were higher than expected. Crop premiums (expressed in thousands) for the three and nine months ended September 30, are as follows:
Three Months Ended September 30, Nine Months Ended September 30, 2000 1999 2000 1999 Catastrophic imputed $2,500 $(3,275) $27,000 $27,507 MPCI 18,681 (4,254) 162,420 148,985 Crop hail and named perils 15,766 14,455 57,495 59,367 AgPI (1) 0 0 0 96 - - - -- 36,947 6,926 $246,915 235,955 Less: Catastrophic imputed (2,500) 3,275 (27,000) (27,507) ------- ----- -------- -------- $34,447 $10,201 $219,915 $208,448 ======= ======= ======== ======== (1) Discontinued product sold in 1998.
Net Premiums Written MPCI premiums are considered to be 100% ceded to the federal government for accounting purposes and therefore no net written premiums result from MPCI business. Quota share cession rates for other lines of insurance for the nine months ended September 30 are as follows: 2000 1999 Nonstandard automobile 27.6% 0% Crop hail 52.4% 69.4% Named peril 10.0% 50.0% To address the writing ratio and other statutory surplus concerns, the Company ceded a portion of its automobile business effective January 1, 2000. The reinsurer has an A.M. Best rating of A++. Based on its 1999 results, IGF has decided to retain more risk on the crop hail and named peril lines of business resulting in a decrease in the quota share cession rates. Fee Income Fee income increased 17.2% and 5.4% for the three and nine months ended September 30, 2000 as compared to the same periods of 1999 due to the increases in policy fees charged. Also, higher premiums were written in the fourth quarter 1999 and first quarter 2000 on which billing and other fees on this business are still being realized. Net Investment Income Net investment income decreased 17.0% and 16.9% for the three and nine months ended September 30, 2000 as compared to the corresponding periods of the prior year. The current year decrease was due to a reduction in the size of the investment portfolio and lower yields on the remaining investments. Loss and Loss Adjustment Expense The loss and LAE ratio for the Company's nonstandard auto segment for the three and nine months ended September 30, 2000 was 83.1% and 82.7% of net premiums earned as compared to 92.7% and 87.7% for the corresponding periods in 1999. This improvement is due to premium rate increases and favorable development on prior reserve estimates. The loss and LAE ratio for the Company's crop insurance segment for the three and nine months ended September 30, 2000, was 147.0% and 132.0% of net premiums earned. The loss and LAE ratio for 2000 includes unfavorable development on prior year loss and LAE reserves of $5,752,000. This includes $5,200,000 of additional loss and LAE reserves booked through the third quarter 2000 on the AgPI line of business written by the Company in 1998. Policy Acquisition and General and Administrative Expenses Policy acquisition and general and administrative expenses were $22,765,000 and $51,655,000 or 28.4% and 14.5% of gross premiums written for the three and nine months ended September 30, 2000 compared to $30,273,000 and $64,285,000 or 44.7% and 16.3% of gross premiums written in the corresponding periods of 1999. Overall expenses in the first nine months of 2000 versus the first nine months of 1999 decreased by $12,630,000. Nonstandard auto expenses were $51,864,000 and $69,929,000 for the nine months ended September 30, 2000 and September 30, 1999, respectively. The decrease in expenses of $18,065,000 is primarily attributable to the ceding commission earned through a quota share agreement effective January 1, 2000, a decrease in other expenses due to the decrease in written premiums, and a decrease in salary expense. Crop expenses increased $4,316,000 from September 30, 1999 to September 30, 2000. Crop segment expenses include agent commissions, stop loss reinsurance costs and operating expenses which are offset by MPCI expense reimbursements and MPCI underwriting gain. The increase in crop expenses are attributable to an increase in reinsurance costs. Prior year figures also include higher MPCI gains due to estimated above average yields through the third quarter of 1999. The underwriting gain is an estimate until later in the year when crops are harvested and losses are known. The estimated year to date gain ratio in 2000, as well as for 1999, was 13.6% on gross premium. Provision (Benefit) for Income Taxes At September 30, 2000 the Company's net tax assets are fully offset by a 100% valuation allowance of approximately $32,009,000. The tax benefit accruing for the first nine months of 2000 which has been offset by an increase in the allowance is approximately $8,875,000. This resulted in no tax benefit being reflected for the nine months ended September 30, 2000. REVIEW OF CONSOLIDATED FINANCIAL CONDITION Investments Total investments as of September 30, 2000 and December 31, 1999 were $154,916,000 and $204,928,000, respectively. The decrease of $50,012,000 is a result of the sale of fixed maturities to fund operating losses. Composition of investments is comparable between these periods. The Company's market risk exposure has not materially changed since prior year end. Cash and Cash Equivalents Total cash and cash equivalent balances as of September 30, 2000 and December 31, 1999 were $19,991,000 and $3,097,000, respectively. This increase is attributable to the seasonality of cash flow related to the crop segment. Investments in and Advances to Related Parties Investments in and advances to related parties decreased from $1,462,000 at December 31, 1999, to $689,000 at September 30, 2000. The balance at September 30, 2000 is made up primarily of an investment in nonredeemable, nonvoting preferred stock of Granite Insurance Company and loans and relocation advances to Company officers. Accounts Receivable Receivables as of September 30, 2000 and December 31, 1999 were $168,790,000 and $86,450,000, respectively. However, the Company believes that the balance is more comparable to the September 30, 1999 balance of $144,940,000. The crop portion of the receivable balance as of September 30, 2000 and 1999 was $112,711,000 and $86,824,000. This 29.8% increase is due to a portion of the reinsurance balances being applied to the accounts receivable balance in 1999. Nonstandard auto receivable balances as of September 30, 2000 and 1999 were $55,901,000 and $62,053,000, respectively. The decrease in receivables is, in part, due to a decline in written premium. Reinsurance Recoverables and Prepaid Reinsurance Premiums Reinsurance recoverables were $161,049,000 and $98,258,000 as of September 30, 2000 and December 31, 1999, respectively. However the reinsurance recoverable balance is more effectively compared to the September 30, 1999 balance of $231,184,000. This is primarily due to the cyclical nature of the crop business. Of the total reinsurance recoverable balance, as of September 30, 2000 and 1999, $127,400,000 and $217,532,000, respectively pertain to crop business. The decrease in crop is due to a decrease in the MPCI ceded loss reserves as well as a decrease in the MPCI underwriting gain receivable. The nonstandard auto recoverables were $26,984,000 and $1,910,000 for the periods ending September 30, 2000 and 1999, respectively. The nonstandard auto increase is attributable to a quota share treaty agreement effective January 1, 2000. Prepaid reinsurance premiums were $50,172,000 and $10,463,000 as of September 30, 2000 and December 31, 1999, respectively. This prepaid balance is more effectively compared to the September 30, 1999 balance of $29,466,000. Prepaid reinsurance premiums on nonstandard auto totaled $19,756,000 and $0 as of September 30, 2000 and 1999, respectively. The increase in nonstandard auto is attributable to a quota share agreement that was effective January 1, 2000. Deferred Policy Acquisition Costs Deferred policy acquisition costs ("DAC") as of September 30, 2000 and December 31, 1999, were $8,291,000 and $13,920,000 respectively. DAC is more comparable to the prior year, September 30, 1999 balance of $12,399,000. The change in DAC is largely attributed to the nonstandard auto segment. Balances at September 30, 2000 and 1999 were $7,617,000 and $12,068,000, respectively. The decrease relates to decreases in premiums written and unearned premium reserves. The decrease is also due, in part, to a quota share agreement effective January, 1, 2000. In the last quarter of 1999 the Company changed its method of calculating the auto deferred policy costs by including investment income in the computation. Federal Income Taxes Federal income taxes recoverable were $0 and $6,820,000 at September 30, 2000 and December 31, 1999, respectively. The Company has recorded an allowance reserve of 100% on $32,009,000 of its federal income tax recoverables as of September 30, 2000. The 1999 balance consists of amounts recoverable from the 1997 tax year due to tax losses generated in 1999. Fixed Assets Property and equipment, net of accumulated depreciation, decreased $3,002,000 over year end 1999. This change is primarily due to disposals and depreciation. Intangible Assets The balance in the intangible assets decreased from year end 1999 due to amortization expense. Intangible assets include goodwill from the acquisition of Superior, acquisition of the minority interest in Superior Insurance Group Management, Inc., the acquisition of North American Crop Underwriters, Inc. ("NACU"), and Preferred Security issuance costs. Loss and Loss Adjustment Expense Reserves Total loss and LAE reserves increased from $214,948,000 as of December 31, 1999 to $243,521,000 as of September 30, 2000. The total increase in loss and LAE reserves is approximately $28,573,000. Nonstandard auto reserves declined $25,280,000 for the first nine months of 2000 and $6,045,000 during the third quarter. This decrease is consistent with the declining volume in nonstandard auto business and favorable development of loss ratios. Reserves for crop insurance increased $58,096,000 for the first nine months of 2000 due to seasonality of the crop business and an increase in AgPI reserves of $5,200,000. The remaining change in reserve is attributable to the corporate segment. Unearned Premium The unearned premium reserve increased by $9,423,000 from December 31, 1999 to September 30, 2000. Gross unearned premium was $99,431,000 and $90,008,000 as of September 30, 2000 and December 31, 1999, respectively. However, this unearned premium balance is more effectively compared to the September 30, 1999 balance of $117,319,000. The unearned premium decreased by $17,888,000 from September 30, 1999 to September 30, 2000. Nonstandard auto unearned premium decreased during this period by $20,544,000. This decrease is due to a nonstandard auto quota share reinsurance agreement effective January 1, 2000, as well as a decrease in written premium volume. In contrast, crop increased in unearned premium by $2,070,000 for the same period. Crop unearned premium increased due to the Company retaining more hail and named peril premium in 2000 than in 1999. Reinsurance Payables Reinsurance payables increased by $138,949,000 from December 31, 1999 to September 30, 2000. Crop payables increased from year end by $98,712,000 through September 30, 2000 due to the cyclical nature of the crop business. Nonstandard auto increased by $42,600,000 from December 1999 due to a quota share agreement effective January 1, 2000. Notes Payable Notes payable includes the IGF Revolver which on September 30, 2000 and December 31, 1999 had outstanding balances of $0 and $15,000,000, respectively, which is now terminated. This change in the balance is due to the fact that IGF had available cash on September 30, 2000 in excess of operating needs as a result of increased collections. The weighted average interest rate on the IGF Revolver was 8.61% for the nine months ended September 30, 2000 and 6.83% for the nine months ended September 30, 1999. Notes payable also include a $1,000,000 note due July 1, 2001 on the purchase of NACU which bears no interest. The balance of notes payable at September 30, 2000 consists of three smaller notes (less than $300,000 each) assumed in the acquisition of NACU which have various due dates from 2002 to 2006 with periodic payments at interest rates ranging from 7% to 9.09%. Stockholders' Deficit Stockholders' deficit has increased $34,525,000 from December 31, 1999. This increase is primarily the result of the net loss of $37,512,000 for the nine months ended September 30, 2000 slightly offset by a reduction in unrealized losses on investments. LIQUIDITY AND CAPITAL RESOURCES The Company's nonstandard automobile insurance subsidiaries' primary source of funds are premiums, investment income and proceeds from the maturity or sale of invested assets. Such funds are used principally for the payment of claims, payment of claims settlement costs, operating expenses (primarily management fees), commissions to independent agents, dividends and the purchase of investments. There is variability to cash outflows because of uncertainties regarding settlement dates for liabilities for unpaid losses. Accordingly, the Company maintains investment programs intended to provide adequate funds to pay claims. During 2000, the Company has continued to liquidate some investments to pay claims. The Company historically has tried to maintain duration averages of 3.5 years. However, the losses in 1999 and 2000 have caused the Company to shorten the duration averages. The Company may incur a cost of selling longer bonds to pay claims. Claim payments tend to lag premium receipts. Due to losses, the Company has experienced a reduction in its investment portfolio but to date has not experienced any problems meeting its obligations for claims payments. Cash flows in the Company's crop insurance subsidiary (which is primarily MPCI business) differ from cash flows from certain more traditional lines. The Company pays insured losses to farmers as they are incurred during the growing season, with the full amount of such payments being reimbursed to the Company by the federal government within three business days. MPCI premiums are not received from farmers until covered crops are harvested. Collected premiums are required to be paid in full to the FCIC by the Company. Uncollected premiums, if not paid by a specified date during the crop year, accrue interest at 15%. As a result of the cash flow patterns of the crop insurance industry, IGF historically has relied upon the IGF Revolver to meet seasonal needs for liquidity. As this line is no longer in effect, management is seeking a replacement credit facility and expects a new line to be in place by the end of 2000. If management is unable to obtain a replacement line of credit, then other sources of financing would be pursued to meet operational cash requirements. The Company itself relies primarily on the payment of management fees from its insurance subsidiaries as a source of cash flow. As discussed elsewhere in this filing, the ability of the insurance subsidiaries to pay fees may be limited by regulatory action. The Company deferred the semi-annual Preferred Securities interest payments in February and August 2000. The trust indenture for the Preferred Securities contains certain restrictive covenants. Certain of these covenants are based upon the Company's consolidated coverage ratio of earnings before interest, taxes, depreciation and amortization (EBITDA). If the Company's EBITDA falls below 2.5 times consolidated interest expense (including Preferred Security interest) for the most recent four quarters, the following restrictions become effective: o The Company may not incur additional indebtedness or guarantee additional indebtedness. o The Company may not make certain restricted payments including loans or advances to affiliates, stock repurchases and a limitation on the amount of dividends is in force. o The Company may not increase its level of non-investment grade securities defined as equities, mortgage loans, real estate, real estate loans and non-investment grade fixed income securities. These restrictions currently apply as the Company's consolidated coverage ratio was (4.06) as of September 30, 2000, and will continue to apply until the Company's consolidated coverage ratio exceeds the amount set forth in the indenture. The Company's consolidated total assets of $636,618,000 at September 30, 2000 increased $136,807,000 from the balance at December 31, 1999. The primary reason for this increase was an increase in receivable balances and prepaid reinsurance premiums which are impacted by the cyclical nature of the crop hail business. As of September 30, 2000, the Company had $37,738,000 of cash, cash equivalents and short-term investments available to meet short-term operating cash needs. This was an increase of $12,821,000 from the December 31, 1999 balance. The Company's portfolio of fixed maturities reduced to $116,838,000 at September 30, 2000 from $166,748,000 at December 31, 1999 as a result of the sale of fixed maturities to fund operating losses. Net cash used in operating activities at September 30, 2000 aggregated $15,609,000 compared to $646,000 for the comparable period in 1999. This decrease in net cash of $14,963,000 results from a negative change in operating assets and liabilities. Net cash provided from investing activities of $47,107,000 for the nine months ended September 30, 2000 compares to cash used in investing activities of $2,734,000 for the comparable period in 1999. Such increase was due primarily to the sale of fixed maturities. Overall, operating cash flow for the Company and its insurance subsidiaries combined with the availability of short term investments and the liquidation of certain fixed maturity investments continues to be adequate to meet policyholders needs for claims and other needs. The Company believes these cash flows will continue to be adequate through the next year. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Information related to Qualitative and Quantitative Disclosures about Market Risk was included under Item 1. Business in the December 31, 1999 Form 10-K. No material changes have occurred in market risk since this information was disclosed in the December 31, 1999 Form 10-K. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as indicated in the following paragraphs there have been no material developments in any of the pending legal proceedings reported by the Company in its December 31, 1999 Form 10-K. On October 4, 2000, the plaintiff in a case filed on November 26, 1996 in the Circuit Court for Lee County entitled Raed Awad v. Superior Guaranty Insurance Company, et. al., Case No. 96-9151 CA LG obtained certification as a class. The plaintiffs allege that the defendant charged premium finance service charges in violation of Florida law. Discovery is proceeding in the action. Superior Guaranty believes the allegations of wrongdoing are without merit. As previously reported, IGF, several brokers and a third party carrier are parties to a number of pending legal proceedings relating to agricultural business interruption policies sold during 1998 ("AgPI") which have since been discontinued. See Note 6 "Commitments and Contingencies" in the consolidated financial statements. Since last reported, all claims by the policyholders in the AgPI lawsuits have been settled by the third party carrier of the policies. Over the objections of IGF, the third party carrier settled some of the AgPI cases for amounts in excess of policy limits. Cross claims remain pending in California state court (King and Fresno counties) between IGF and other defendants in the AgPI cases, and discovery is proceeding. As of September 30, 2000, IGF had paid an aggregate of approximately $28,626,000 to AgPI policyholders. The Company increased its reserves during the third quarter by $3,800,000. The unpaid reserves for AgPI as of September 30, 2000 are $11,074,000. Certain of the settlements made by the third party carrier exceeded established reserves for the particular cases involved. The Company does not believe it will ultimately be responsible for the full amount of the settlement amounts paid by the third party carrier; however, the Company adjusted its reserves during the third quarter of 2000 for a portion of the settlement amounts paid by the third party carrier. Management believes that the reserve is sufficient to meet all future obligations. There can be no assurance that the Company's ultimate liability with respect to the settlements and pending legal proceedings involving the policies will not have a material adverse effect on the Company's results of operations or financial position. Superior is a defendant in a case filed February 4, 2000 in the Circuit Court for Dade County, Florida entitled Medical Re-Hab Center v. Superior Insurance Company. The case purports to be brought on behalf of a class consisting of (i) healthcare providers that rendered treatment to Superior insureds and claimants of Superior insureds and (ii) such insureds and claimants. The plaintiff alleges that Superior reduced medical benefits payable and improperly calculated interest in violation of Florida law. The Company believes the claim is without merit and intends to vigorously defend the charges brought against it. On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the "Notice") which principally addresses certain policy and finance fee payments by Superior to Superior Insurance Group, Inc. ("Superior Group"), another subsidiary of the Company, and financial reporting issues, including disclosure of intercompany transactions. Superior has filed a petition with the FDOI which requests a formal hearing to review the Notice and a determination that the order contemplated by the Notice not be issued. The hearing is scheduled for December 8, 2000. The order, if issued, may restrict Superior from paying certain billing and policy fees to Superior Group and include a requirement that Superior Group repay to its subsidiary, Superior, billing and policy fees from prior years in an amount of approximately $35.2 million. In such event, there would be no financial impact on the Company's consolidated financial statements. A restriction on the ability of Superior to pay future billing and policy fees to Superior Group may necessitate that the Company take certain actions, which may be subject to regulatory approvals, to reallocate operating revenues and expenses between its subsidiaries. The Company intends to vigorously contest the issuance of any such order; however, there can be no assurance that an order, if issued, will not have a material adverse effect on the Company's results of operations or financial position. Superior is a defendant in a case filed September 15, 2000 in the Circuit Court for Lee County, Florida entitled Charles L. Fulton, D.C. v. Superior Insurance Company, Case No. 00-7546 CA LG. The case purports to be brought on behalf of a class consisting of healthcare providers that rendered treatment to and obtained a valid assignment of benefits from Superior. The plaintiff alleges that Superior reduced or denied claims for medical expenses payable to the plaintiff without first obtaining a written report in violation of Florida law. The plaintiff also alleges that Superior inappropriately reduced the amount of benefits payable to the plaintiff in breach of Superior's contractual obligations to the plaintiff. Superior believes the allegations of wrongdoing in violation of law are without merit and intends to vigorously defend the claims brought against it. The Company's insurance subsidiaries are parties to other litigation arising in the ordinary course of business. The Company believes that the ultimate resolution of these lawsuits will not have a material adverse effect on its financial condition or results of operations. The Company, through its claims reserves, reserves for both the amount of estimated damages attributable to these lawsuits and the estimated costs of litigation. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On October 25, 2000 the Nasdaq Listing and Hearing Review Council affirmed the decision of the Nasdaq Listing Qualifications Panel to delist the Company's securities from the Nasdaq National Market. The stock is now trading on the OTC Bulletin Board under the symbol SIGC.OB. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 Financial Data Schedule. Submitted in electronic format only. (b) 8-K Reports: The Company filed an 8-K on July 11, 2000 reporting under Item 5 that Nasdaq has determined to delist the Company's securities. The Company filed an 8-K on October 25, 2000 reporting under Item 4 the appointment of BDO Seidman LLP as the Company's independent accountants as of January 20, 2000. 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. Dated: By Douglas H. Symons Chief Executive Officer Dated: By: Earl R. Fonville Vice President and Chief Financial Officer EX-27 2 0002.txt FDS --
7 Quarterly Report for Symons International Group, Inc. 0001013698 Symons International Group, Inc. 1 U.S. Dollars 9-mos DEC-31-2000 JAN-01-2000 SEP-30-2000 1 116,838,000 0 0 17,392,000 1,900,000 0 154,916,000 19,991,000 161,049,000 8,291,000 636,618,000 243,521,000 99,431,000 0 0 3,676,000 135,000,000 0 38,136,000 (97,641,000) 636,618,000 134,864,000 8,003,000 (3,948,000) 11,237,000 123,170,000 5,629,000 48,307,000 (26,950,000) 487,000 (27,437,000) 0 0 0 (37,512,000) (3.61) (3.61) 214,948,000 121,942,000 1,227,000 71,069,000 81,816,000 243,521,000 1,227,000
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