WASHINGTON, D.C. 20549
FORM 10-QSB
--X- Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
---- Transition Report Pursuant to Section 13 or 15(d)
---- of the Securities Exchange Act of 1934
For Quarter Ending March 31, 2000
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Commission File Number 333-24739
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STONEVILLE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
MISSISSIPPI 72-1341156
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
633 NORTH STATE STREET, SUITE 200, JACKSON, MISSISSIPPI 39202-7817
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(Address of principal executive offices) (Zip Code)
(601) 352-7817
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, address and fiscal year, if changed since last report)
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
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503,384 Common Shares were outstanding as of April 28, 2000 for financial
statement purposes.
Transitional Small Business Disclosure format
YES NO
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STONEVILLE INSURANCE COMPANY
Unaudited Quarterly Financial Statements
Page
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Changes in Shareholders' Equity 5
Three Months Ended March 31, 2000
Consolidated Statements of Cash Flows 6
Three Months Ended March 31, 2000 and 1999
Notes To Consolidated Financial Statements 7
Management's Discussion and Analysis 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
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Assets
Investments:
Securities available-for-sale at fair value - amortized
cost of $960,773 (2000) and $967,000 (1999) $948,818 $961,939
Short-term investments, at cost which approximates market 351,692 351,692
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Total Investments 1,300,510 1,313,631
Cash and Cash Equivalents 1,163,944 1,062,290
Premiums receivable 448,451 622,228
Accounts receivable 369,939 309,081
Refundable income taxes 211,063 211,063
Reinsurance recoverable 573,754 573,676
Equipment, net of accumulated depreciation of
$86,000 (2000) and $59,000 (1999) 180,478 183,807
Deferred tax assets 70,793 62,849
Intangible assets, net of accumulated amortization of
$37,500 (2000) and $30,000 (1999) 162,500 170,000
Other 54,709 29,621
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Total Assets $4,536,141 $4,538,246
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Liabilities
Reserve for losses and loss adjustment expenses $1,350,978 $1,258,463
Unearned premium 766,437 846,982
Funds advanced under reinsurance contracts 318,393 443,015
Accounts payable and accrued liabilities 321,694 197,755
Capital lease obligations 6,400 6,953
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Total Liabilities 2,763,902 2,753,168
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Shareholders' Equity
Common stock ($1 par value; 10,000,000 shares authorized;
503,384 shares issued and outstanding) 503,384 503,384
Retained earnings 1,276,146 1,284,625
Accumulated other comprehensive income -
Unrealized gains on securities available for sale,
net of income taxes (benefit) of $(4,662) (2000) and $(2,000) (1999) (7,291) (2,931)
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Total Shareholders' Equity 1,772,239 1,785,078
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Total Liabilities and Shareholders' Equity $4,536,141 $4,538,246
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See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999
2000 1999
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Revenues
Net premiums earned (less ceded amount of
approximately $262,000 (2000) and $54,706 (1999) $492,171 $305,537
Investment income 26,204 25,407
Administrative and management fees 439,342 300,197
Other 1,662
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Total Revenues 957,717 632,803
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Expenses
Loss and loss adjustment expenses 408,132 222,769
Policy acquisition fees 39,903 24,123
Program administration fees 66,303 43,022
Regulatory fees 29,661 17,238
General expenses 427,620 346,621
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Total Expenses 971,619 653,773
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Income before Income Taxes (13,902) (20,970)
Provision (benefit) for income taxes (5,423) (8,179)
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Net Loss (8,479) (12,791)
Other Comprehensive Income, net of income tax effect -
Unrealized loss on investments in securities (4,360) (6,372)
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Comprehensive Loss $ (12,839) $ (19,163)
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Net Loss Per Share ($0.02) ($0.03)
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See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
For Periods Indicated
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders'
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Shares Amount Earnings Income Equity
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Balance at December 31, 1998 503,384 $503,384 $1,388,334 $23,335 $1,915,053
Net income (loss) (103,709) (103,709)
Net increase in unrealized appreciation of
securities available for sale (26,266) (26,266)
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Balance at December 31, 1999 503,384 503,384 1,284,625 (2,931) 1,785,078
Net income (loss) (8,479) (8,479)
Net increase in unrealized appreciation of
securities available for sale (4,360) (4,360)
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Balance at March 31, 2000 503,384 $503,384 $1,276,146 ($7,291) $1,772,239
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See accompanying notes to financial statements.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
2000 1999
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Cash Flows From Operating Activities
Premiums collected $491,484 $412,626
Other income 358,056 130,701
Losses and loss adjustment expenses paid (145,270) (214,538)
General insurance and administrative expenses paid (621,458) (318,551)
Investment income received 27,638 18,928
Interest paid (346) (203)
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Net Cash Provided by Operating Activities 110,104 28,963
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Cash Flows From Investing Activities
Proceeds from sales and maturities of securities available-for-sale 468
Purchase of intangible asset (150,000)
Capital expenditures (8,365) (3,487)
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Net Cash Provided by Investing Activities (7,897) (93,487)
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Cash Flows From Financing Activities
Principal payments under capital lease obligations (553) (132)
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Net Cash Used in Financing Activities (553) (132)
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Net Increase (Decrease) in Cash and
Cash Equivalents 101,654 (164,656)
Cash and Cash Equivalents at Beginning of Period 1,062,290 1,222,322
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Cash and Cash Equivalents at End of Period $1,163,944 $1,057,666
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See accompanying notes to financial statements.
Stoneville Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
Quarters Ended March 31, 2000 and 1999 (Unaudited)
1. Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with the
instructions to Form 10Q and do not include all of the information and note disclosures required by
generally accepted accounting principles and must be read in conjunction with the 1999 annual
statement. The accompanying financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards, but in the opinion of
management, the accompanying interim unaudited financial statements contain all adjustments
necessary to summarize fairly the statement of financial position and results of operations of the
Company for the interim periods.
2. Consolidation of Subsidiaries
In January, 1999, the Company formed Stoneville Service Company, Inc., a Mississippi corporation
owned entirely by Stoneville Insurance Company. Stoneville Service Company, Inc. provides claims
and risk control services primarily to Arkansas groups that are self-funded for workers'
compensation purposes.
In May, 1999, the Company acquired all of the outstanding stock of American Colonial Insurance
Company, an Arkansas property and casualty insurance company. Immediately after the
acquisition, the name was changed to Stoneville Insurance Company of Arkansas. The Company
has begun to write small premium workers' compensation insurance in Arkansas and will reinsure
other workers' compensation carriers on a limited risk basis. The Company also plans to provide
claims administration and program management services for these insurance programs through its
Arkansas subsidiary.
The accompanying financial statements present the Company and its subsidiaries, Stoneville
Service Company, Inc. and Stoneville Insurance Company of Arkansas, on a consolidated basis.
All material inter-company profits, transactions and balances have been eliminated.
3. Operations of the Company
The Company was formed to become the successor to the Delta Agricultural and Industrial Trust,
a Mississippi self-funded workers compensation trust. The Company entered the workers
compensation market in the first quarter of 1998 as a reinsurer and began direct writing of workers'
compensation insurance in the fourth quarter of 1998. In July, 1998, the Company began providing
claims and risk control services as well as program management services to the insurance
programs being reinsured by the Company. In January, 1999, the Company began providing
claims and risk control services to Arkansas self-funded workers' compensation groups through its
newly formed subsidiary, Stoneville Service Company, Inc.
The Company also began duplicating its Mississippi workers' compensation programs in Arkansas
through Stoneville Insurance Company of Arkansas in the third quarter of 1999.
4. Assets Pledged
All of the $948,818 in securities available-for-sale and approximately $500,000 in cash is pledged
collateral for letters of credit issued to an insurance carrier that the Company reinsures on a quota
share basis. A claim may be made against the letter of credit if the ceding insurer is unable to pay
claims from premiums collected by it.
5. Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses ("LAE") is based upon case reserve reports
received from ceding insurance companies and the company's own estimates. Loss and LAE
reserves also include estimates of incurred but not reported losses based on past experience
modified for current trends and estimates of expenses for investigating and settling claims. It is the
company's policy not to discount such reserves. Management believes that the reserve for loss
and LAE as of March 31, 2000 is adequate to cover ultimate gross cost of losses and LAE incurred
through March 31, 2000. The reserve is based on estimates of losses and LAE incurred and,
therefore, the amount ultimately paid may be more or less than such estimates.
6. Earnings (Loss) Per Share
Earnings (loss) per common share is based on net income or (loss) and the weighted average
number of shares outstanding during each interim period. The number of shares used in computing
earnings per share is 503,384 for the quarter ended March 31, 2000 and 1999.
Total shareholders’ equity decreased by $12,839 or .7% from $1,785,078 at December 31, 1999 to $1,772,239 at March 31, 2000. This decrease was caused by a net loss from operations of $8,479 for the first three months of 2000 and an increase in unrealized loss on securities available-for-sale of $4,360.
Total assets decreased minimally by $2,105 or .05% at March 31, 2000 compared to December 31, 1999. Cash and investments increased a total of $88,533 during the three months ended March 31, 2000 as a result of the receipt of funds related to the assumption by the Company of certain insurance obligations of another Mississippi property and casualty company which surrendered its charter during the first quarter of 2000.Total liabilities increased by $10,734 or .4% at March 31, 2000 compared to December 31, 1999. This increase was due primarily to an increase in accounts payable and other accrued liabilities of $123, 939 related to the Company’s assumption of certain insurance liabilities of another Mississippi property and casualty carrier which surrendered its license in the first quarter of 2000. This was offset by a decrease of $80,545 in unearned premiums and a reduction of $124, 622 in funds advanced under certain reinsurance contracts. Reserve for losses and loss adjustment expenses increase by $92,515 as a result of the Company’s continuing analysis of the adequacy of insurance loss reserves.
Results of Operations - First Quarter, 2000 Compared to first Quarter, 1999The Company experienced a net loss of $8,479 during the first quarter of 2000 compared to net loss of $12,791 during the first quarter of 1999. This loss is due primarily to losses in the Company’s Arkansas claims administration subsidiary which began operations in early 1999. Stoneville Service Company provides claims services to third party self-funded workers’ compensation programs. The Company has recently acquired and continues to acquire additional customers which will significantly improve the net operating income of the Company. It is anticipated that this subsidiary will begin generating an operating profit during the second quarter of 2000.
As a result of increased workers’ compensation premium written and assumed, earned premium during the first quarter of 1999 was $492,171 compared to $305,537 in 1998. Losses and loss adjustment expenses were $408,132 during the first quarter of 2000 compared to $222,769 in the same period in 1999. Other expenses directly associated with the Company’s insurance programs totaled $135,867 during the first quarter of 2000 compared to $84,383 in the first quarter of 1999. The increase in expenses directly related to insurance programs was due to increased business written in 2000.
The Company continues to concentrate on increasing administrative and claims servicing revenues. Revenue in the administrative and management service areas increase by $139,145 for the quarter ended March 31, 2000 compared to the same period in 1999. Investment income of the Company increased slightly from $25,407 in the first quarter of 1999 to $26,204 in the first quarter of 2000. This was expected due to the consistency of the amount of funds available for investment during the periods.General expenses increased $80,999 during the first quarter of 2000 compared to the same period in 1999. This increase is a result of the Company’s efforts to improve its ability to handle an increased volume of administrative services and to legal fees associated with the Company’s assumption of certain insurance obligations of another Mississippi property and casualty insurance company which surrendered its license in early 2000. The Company believes that significant additional administrative fee revenue will be generated as a result of this assumption
The Company recorded an income tax benefit for the quarter ended March 31, 2000 in the amount of $4,360 compared to a tax benefit for the same quarter in 1999 of $6,372.
Due to the fact that workers’ compensation claims are paid over a long period of time, it is anticipated that cash flows from premiums collected will be sufficient to pay any insurance claims that arise during the remainder of 2000 and in the foreseeable future.
As a workers’ compensation insurance carrier licensed in the State of Mississippi, the Company is subject to certain minimum capital and surplus requirements. In order to stay in compliance with these minimum requirements, the Company will be required to generate operating profits in 2000 or raise additional capital from other sources. The Company anticipates that its increased customer base will generate sufficient operating profits in 2000 to satisfy regulatory capital and surplus requirements. However, if such operating results are not attained, the Company will have to seek other sources of capital to allow it to maintain an adequate capital structure. The Company is not assured that such capital alternatives will be available if and when they are needed.
PART II: OTHER INFORMATION Item 6 Exhibits and Report on Form 8-K (a) Ehibits Exhibit 27; Financial data schedule (b) A report on Form 8-K was filed January 28, 1999 and amended on February 25, 1999 reporting the appointment of Deloitte & Touche to act as the Company's independent accountants.
STONEVILLE INSURANCE COMPANY
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MISSISSIPPI PHYSICIANS INSURANCE
STONEVILLE INSURANCE COMPANY
COMPANY
By: /s/ Harry E. Vickery
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Harry E. Vickery, President
DATE: May 15, 2000
By: /s/ Richard L. Eaton
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Richard L. Eaton, Chief Financial
Officer (Principal FinancialOfficer
and Principal Accounting Officer