-----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, NEzvRtZClpWs2IHHSHDbNeDdy6XCn0er5+QopFqOoq0vIyzwQw+ChT4hLTWLBIhh t0NCa8V00FqrVPktKXAu6Q== 0000276380-96-000009.txt : 19960426 0000276380-96-000009.hdr.sgml : 19960426 ACCESSION NUMBER: 0000276380-96-000009 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960425 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEIBELS BRUCE GROUP INC CENTRAL INDEX KEY: 0000276380 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 570672136 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-08804 FILM NUMBER: 96550488 BUSINESS ADDRESS: STREET 1: 1501 LADY ST STREET 2: P O BOX 1 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8037482000 MAIL ADDRESS: STREET 1: 1501 LADY ST STREET 2: P O BOX 1 CITY: COLUMBIA STATE: SC ZIP: 29201 10-K405/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 ANNUAL REPORT (Mark one) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-8804 THE SEIBELS BRUCE GROUP, INC. (Exact name of registrant as specified in its charter) South Carolina 57-0672136 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 1501 Lady Street (P.O. Box 1) Columbia, S.C. 29201(2) (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 748-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $1.00 per share (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ------ The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1996: $44,219,721. The number of shares outstanding of the registrant's common stock as of March 1, 1996: 16,772,686. DOCUMENTS INCORPORATED BY REFERENCE None. ACRONYMNS The following acronyms used in the text have the meaning set forth below unless the context requires otherwise: FASB. . . . . . . . . . . Financial Accounting Standards Board GAAP. . . . . . . . . . . Generally Accepted Accounting Principles IBNR. . . . . . . . . . . Incurred-But-Not-Reported KIC . . . . . . . . . . . Kentucky Insurance Company LAE . . . . . . . . . . . Loss Adjustment Expenses MGA . . . . . . . . . . . Managing General Agent NAIC. . . . . . . . . . . National Association of Insurance Commissioners NCCI. . . . . . . . . . . National Council on Compensation Insurance RBC . . . . . . . . . . . Risk Based Capital SAP . . . . . . . . . . . Statutory Accounting Principles SBIG. . . . . . . . . . . The Seibels Bruce Group, Inc. (and the "Company") SBC . . . . . . . . . . . Seibels, Bruce and Company SCIC. . . . . . . . . . . South Carolina Insurance Company WYO . . . . . . . . . . . Write-Your-Own PART 1 Item 1. Business Company Profile The Seibels Bruce Group, Inc. (the "Company") is the parent company of South Carolina Insurance Company and Seibels Bruce and Company and their wholly-owned subsidiaries. Founded in 1869, the Company performs servicing carrier activi- ties for state and federal insurance facilities. MGA services are also per- formed for non-affiliated insurance companies. SCIC consists of a group of multi-line property and casualty insurance companies and associated companies with headquarters in South Carolina and Kentucky. The underwriting activities are primarily conducted in North Carolina, South Carolina, Kentucky, Georgia and Tennessee by offering insurance products through independent insurance agents. Effective in the second quarter of 1995, the Company voluntarily suspended underwriting new and renewal business for which risk was not reinsured to an unaffiliated party. This suspension will continue until both the Company and the regulators are satisfied that its capital level is sufficient to undertake such risk and the regulators approve the resumption of business. Capitalization The Company initiated a recapitalization plan in December 1993. Prior to the plan, operating losses were experienced for several consecutive years as a consequence of unfavorable underwriting experience,wind losses due to Hurricanes Hugo and Andrew and losses developed from environmental and construction defect exposures on the West Coast. Under this plan, the previously outstanding $23 million loan and the accrued interest thereon was purchased from the original holder by new investors. These new investors then exchanged the note for a new note with a principal balance of $10 million, bearing interest at 8.5%, due June 30, 1994 and secured by 100% of the stock of SCIC. The effect of this transaction for 1993 was a reduction of the loss for the year of $9.2 million, net of taxes ($1.23 per share). In accordance with the recapitalization plan, on June 28, 1994, the new note was then cancelled and exchanged for 7,000,000 newly issued shares of the Company's common stock. A note for $400,000, representing accrued interest on the new note, was then executed in favor of the new investors. The result of this exchange, which was completed in the second quarter of 1994 was that $10 million was added to the Company's shareholders' equity. During the first quarter of 1995, the Company received net proceeds from a Rights Offering (the "Offering") in the amount of $5.1 million. Pursuant to the Offering, each stockholder of record received one Right for each five shares of Common Stock held of record at the close of business on December 9, 1994. The Right allowed the stockholders to purchase shares of Common Stock at a price of $2.40 per share. The gross proceeds were generated from 2,217,152 shares being exercised. On the date of receipt of the proceeds, the Company made a capital contribution of $5 million to SCIC, its wholly-owned subsidiary. During the second quarter of 1995, a major investor loaned the Company $2 million. The $2 million was then contributed to SCIC in order to increase its statutory capital. The promissory note and the $400,000 note become due in May, 1996. Additional steps taken to protect statutory capital included a decision in the first quarter to cede all auto liability business written in North Carolina to the Reinsurance Facility, and in the second quarter of 1995, to non-renew all property business and temporarily suspend all new and renewal activity where the Company retained any net underwriting risk. During the fourth quarter of 1995, an investor signed a letter of intent to acquire 6,250,000 of authorized but unissued shares of the Company at a cost of $1.00 per share, the approximate market at the time of reaching agreement with the Company. The $6,250,000 proceeds from the investment were deposited into escrow in January, 1996. A shareholders meeting will be held during the second quarter of 1996 to allow voting rights for the new investor in accordance with South Carolina law, which requires approval for stock ownership above a 20% interest in the Company. Upon such approval and the approval of the South Carolina Department of Insurance to write new business, the funds will be transferred from the escrow account and contributed to the statutory capital of SCIC. In addition, the investor has been granted options to acquire 6,250,000 shares at higher prices over the next five years. Also during the first quarter of 1996, the Company issued 1,635,000 shares of authorized but unissued shares to a different group of investors. The proceeds of this sale of stock will be available to liquidate the notes payable that are due May 1, 1996. In addition, subject to shareholder approval of increasing the number of authorized shares, the Company has issued to this group stock options expiring December 31, 2000 to acquire an additional 1,635,000 shares at the higher of $2.50 per share or book value at the date of exercise. Major Events In the second quarter of 1994, the Company settled a dispute which was in pen- ding arbitration. The settlement agreement resolved all issues arising from the dispute as well as a commutation of the Company's reinsurance obligation. Under the settlement, the Company paid $10.3 million to the other party and such party agreed to pay up to $20 million in direct losses on claims against a subsidiary which the Company had sold to it. Any loss payments in excess of $20 million that are not collected through reinsurance will be shared equally between the parties, and the Company will only share in those payments to the extent of 50% of its insurance company's consolidated statutory surplus above $20 million. At December 31, 1995, such statutory surplus was $10.9 million. This settlement had a negative impact on earnings of $2.9 million during 1994, excluding a realized investment loss of $0.8 million upon the sale of securities in order to generate the cash necessary to make the payment. In the third quarter of 1994, the Company's recorded workers' compensation reserves in the amount of $22.4 million were commuted to the National Council on Compensation Insurance, Inc., resulting in a reduction of incurred losses of approximately $6.1 million. NCCI is the administrator and agent for the various workers' compensation reinsurance pools from which the Company assumed busi- ness. The cash necessary for this commutation was generated through the sale of securities, which resulted in realized investment losses of $1.7 million in the same quarter. Effective in the fourth quarter of 1994, a substantial portion of the Company's servicing carrier business, the South Carolina Reinsurance Facility, became subject to a first time bid and qualification process for designation as a servicing carrier. The bidding was open to all qualified insurers with the successful bidders being awarded a five year servicing contract beginning in October, 1994. The facility separated the business into three blocks with "Block 1" being the largest. The Company was successful in winning the contract for "Block 2," a block approximately 22% smaller than "Block 1," its former book of business under the facility. Although "Block 2" is smaller and will be ser- viced at a lower commission rate, the effect on net income in 1995 and subse- quent years has been mitigated to some extent by ongoing reductions in opera- ting costs and claims adjusting expenses. New management was put in place in mid-1995 and a transitional operating plan was implemented to change the core operations from those of a risk taker to activities which generate fee income. These activities were designed to stabilize the financial condition of the Company. During the last three quarters of 1995, the Company operated profitably. Although there can be no certainty of successful operations, the Company anticipates that continued favorable results will permit the re-entry into risk business during mid-1996. When the Company resumes underwriting insurance risks to be retained, it will be on a more modest volume than in the past, and will generally focus on the personal lines that have less exposure to long periods of time between earning the premiums and seeing the ultimate development of losses. Divestitures In mid 1993, the Company sold Investors National Life Insurance Company, its credit life and credit accident and health subsidiary. Under the sale agree- ment, the Company retained substantial assets and the responsibility for poli- cies in existence at the sales date. The Company has withdrawn from this busi- ness and is currently running off the remaining book of business. In early 1994, the Company sold substantially all of the receivables of Premium Service Corporation, its premium financing subsidiary, and has withdrawn from that business. During the first quarter of 1995, the accounts receivable and other immaterial assets of Forest Lake Travel Service, Inc. were sold. The Company has withdrawn from this business as well. During the first quarter of 1996, the Company entered into a contract to sell Consolidated American Insurance Company, an inactive insurance company subsidiary. The sale will generate a gain of approximately $0.9 million in 1996. All of the sales of subsidiaries or their assets were made at small gains, while the dissolutions resulted in increased liquidity for their respective parent companies. The sales and dissolutions took place because of management's emphasis on restructuring the Company's core operations. In the Company's continuing focus on its primary business, none of these companies were con- sidered to be an integral part of operations. The impact on 1995, 1994 and 1993 was not material and future years' operations are not anticipated to be significantly affected. Fee-generating Activities The Company had provided services to the South Carolina and North Carolina Reinsurance Facilities, two automobile residual market plans, and the Kentucky Fair Plan, a homeowners' residual market. Additionally, the Company is a major participant in the WYO federal flood facility of the National Flood Insurance Program. All servicing functions are performed on a commission basis without any underwriting risk to the Company. Effective in the fourth quarter of 1995, the Company ceased to operate as a servicing carrier for the North Carolina Reinsurance Facility. The auto business previously written in that state and ceded to the Facility continues to be handled in a similar manner but with a change in the Company's compensation. Instead of commission and service income, the Company now receives a reinsurance commission, which is not significant for 1995 and is netted against other operating costs and expenses on the income statement. The impact on overall profitability is not expected to be significant. Ceded premiums written and commission and service income for the facilities in 1995 and 1994 are as follows: 1995 1994 Ceded Commission Ceded Commission Premiums and Service Premiums and Service Income Income ------------------------------------------ (thousands of dollars) South Carolina Reinsurance Facility $64,206 $27,795 $80,073 $39,121 National Flood Insurance Program 28,576 12,270 29,517 10,898 Kentucky Fair Plan 6,741 1,143 5,852 987 North Carolina Reinsurance Facility 3,016 1,470 6,513 2,201
The ceded premium amounts above represent 94.5% and 92.8% of the Company's total consolidated ceded premiums written during 1995 and 1994, respectively. The commission and service income amounts above represent 86.1% and 87.7% of the Company's total commission and service income as stated in the consolidated financial statements for 1995 and 1994, respectively. Each of these profit centers has operated profitably over the last three years. All of the Company's commercial business was underwritten under an MGA agreement with an unaffiliated insurance company. The Company serviced these policies and claims on a commission basis without any underwriting risk. This agreement became effective May 1, 1993. Commission and service income generated under this contract was $6.7 million and 7.1 million during 1995 and 1994, respec- tively, which represents 13.5% and 11.7%, respectively, of the Company's total commission and service income as stated in the consolidated financial state- ments. With the current premium volume and the corresponding expenses, the Company did not make a profit under the current contract. The Company undertook significant cost reductions in the last half of 1995 and plans further cost reductions in 1996 to make this business profitable. Furthermore, an addi- tional MGA agreement was reached with another unaffiliated company for personal lines business, and other similar arrangements are planned for 1996 in order to enhance revenues within the existing cost structure. The Company also assists subagents in providing excess and surplus lines for difficult or unusual risks. This business is placed with nonaffiliated insurers on a commission basis. Under these arrangements, the Company has varying degrees of underwriting and claims authority. Property and Casualty Insurance Underwriting Segments SCIC and its insurance subsidiaries comprise the Company's property and casualty insurance group. Each company conducts a substantially similar multi-line property and casualty business. One or more of the insurance companies is currently licensed to do business in 46 states. The Company's current A.M. Best rating is a group rating of NA-9("Not Assigned - Company Request"). A.M. Best is an independent company which rates insurance companies based on its judgement of factors related to the ability to meet policyholder and other contractual obligations. A low rating would not directly impact the Company's servicing carrier or MGA operations. The Company believes the lack of an assigned rating has no significant impact on any future risk- taking operations as this business can be maintained because of the quality of its agency relationships, and these lines are generally not as sensitive to the rating of the insuring company. In 1994, the voluntarily retained property and casualty business written by the Company was limited to personal lines business written in the states of Georgia, Kentucky, North Carolina, South Carolina and Tennessee. This business included four major lines of insurance:private passenger automobile, homeowners, dwelling fire and watercraft inland marine. However, the lack of underwriting profit potential from the personal property book of business along with the high cost of catastrophe reinsurance has resulted in a decision to withdraw as a personal property carrier in all operating states. The Company began the year long process of non-renewing this business effective during the second quarter of 1995. Claims Operations The Company services and adjusts claims for its retained business, servicing carrier functions and MGA services. Starting in 1994, the Company started reducing its usage of outside adjusters and increased its usage of employee adjustors for handling of claims. This shift has resulted in a significant reduction in allocated LAE, beginning with the 1994 accident year. Through the earlier involvement of the Company's claims personnel in the claim process, the Company has recognized lower overall adjustment expenses. The Company has continued this trend into 1995. The Company, within the context of the weather related catastrophes of years prior to 1993, has developed a comprehensive catastrophe plan designed to maximize customer service in the event of a catastrophe. This plan has been particularly useful with the widespread incidence of flood claims over the last several years. During 1996, the Company will explore creating a new profit center to market its claim expertise to unaffiliated customers for a fee. Management, in conjunction with the Company's independent actuaries, reviews the loss reserves to evaluate their adequacy. Such review is based upon past experience and current circumstances and includes an analysis of reported claims, an estimate of losses for IBNR claims, estimates for LAE, reductions for salvage/subrogation reserves and assumed reinsurance losses. Management believes the reserves are sufficient to prevent prior years' losses from adversely affecting future periods;however, establishing reserves is an estimation process and adverse developments in future years may occur and would be recorded in the year so determined. For information regarding insurance reserves, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Investments and Investment Results The Company's invested assets were distributed as follows at December 31, 1995 and 1994: 1995 1994 Asset Values Percentage Asset Values Percentage (thousands of (thousands of dollars) dollars) ------------------------- ------------------------- U.S. Government and agency obligations $31,416 70.9% $33,915 54.8% States, municipalities, and political subdivisions 993 2.2 1,121 1.8 Corporate bonds 1,168 2.6 2,403 3.9 Mortgage backed (government guaranteed) securities - - 1,498 2.4 Redeemable preferred stocks 4 - 4 - Total fixed maturities 33,581 75.7 38,941 62.9 Short-term investments 10,310 23.3 20,458 33.1 Equity securities 377 0.9 458 0.7 Mortgage loan on real estate - - 1,965 3.2 Other long-term investments 34 0.1 46 0.1 ------- ------ ------- ------ Total invested assets $44,302 100.0% $61,868 100.0% ======= ====== ======= =======
Asset values represent market values at December 31. The Company reorganized the investment portfolio during 1994 to reduce the percentage concentration in longer term maturities and increase the concentration in more liquid securities such as cash and short-term investments. The Company believes that this mix more accurately matches with the Company's liabilities at this time. The following table sets forth the consolidated investment results for the three years ended December 31, 1995: (amounts in thousands) 1995 1994 1993 ------------------------------------- Total investments (1) $ 53,841 $ 90,175 $ 127,361 Net investment income 3,176 5,321 5,455 Average yield 5.90% 5.90% 4.28% Net realized investment gains (losses) $ 164 $ (6,327) $ 1,969 (1) Average of the aggregate invested amounts (market values) at the beginning of the year, as of June 30 and as of the end of the year.
Regulation Insurance companies are subject to supervision and regulation in the jurisdictions in which they transact business, and such supervision and regulation relates to numerous aspects of an insurance company's business and financial condition. The primary purpose of such supervision and regulation is the protection of policyholders. The extent of such regulation varies but generally derives from state statutes which delegate regulatory, supervisory and administrative authority to state insurance departments. Accordingly, the state insurance departments have the authority to establish standards of solvency which must be met and maintained by insurers; license insurers and agents; impose limitations on the nature and amount of investments; regulate premium rates; delineate the provisions which insurers must make for current losses and future liabilities; require the deposit of securities for the benefit of policy- holders; and approve policy forms. State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating the financial condition of insurance companies. Most states have also enacted legislation which regulates insurance holding company systems, including acquisitions, dividends, the terms of surplus notes, the terms of affiliate transactions and other related matters. Three of the Company's insurance subsidiaries are domiciled in the state of South Carolina and are principally regulated by the South Carolina Department of Insurance. KIC is domiciled in Kentucky. The insurance industry has received a considerable amount of publicity because of rising insurance costs, a number of high profile insurance company insolven- cies and a limited exemption from the provisions of federal anti-trust prohibi- tions. Changes in the law are being proposed which would bring the insurance industry under the regulation of the Federal government and eliminate current exemptions from anti-trust prohibitions. It is not possible to predict whether, in what form or in which jurisdictions any of these proposals might be adopted, or the effect, if any, on the Company. The NAIC has developed and recommended for adoption by the state insurance regulatory authorities various model laws and regulations pertaining to, among other things, capital requirements for the insurance industry members. The NAIC has adopted Risk-Based Capital (RBC) requirements for property and casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, asset and liability matching,loss reserve adequacy, and other business factors. The RBC formula will be used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized. Compliance is determined by ratio of the Company's regulatory total adjusted capital to its authorized control level RBC (as defined by the NAIC). Companies which fall below the authorized RBC level may be required to disclose plans to remedy the situation. As of December 31, 1995, three of the four insurance subsidiaries have ratios of total adjusted capital to RBC that are comfortably in excess of the level which would prompt regulatory action. SCIC currently falls below the required RBC level. Insurance companies are required to file detailed annual statements with the state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such regulators at any time In addition, these insurance regulators periodically examine the insurer's financial condition,adherence to statutory accounting principles, and compliance with insurance department rules and regulations. South Carolina insurance laws, rather than federal bankruptcy laws, would apply to the liquidation or reorganization of the insurance companies. Examinations of SCIC, Consolidated American and Catawba as of March 31, 1995 and of Kentucky Insurance Company as of June 30, 1995 are currently in progress. Regulation of Dividends and Other Payments from Insurance Subsidiaries The Company is a legal entity separate and distinct from its subsidiaries. As a holding company, the primary sources of cash needed to meet its obligations, including principal and interest payments with respect to indebtedness, are dividends and other statutorily permitted payments from its subsidiaries and affiliates. South Carolina insurance laws and regulations require a domestic insurer to report any action authorizing distributions to shareholders and material payments from subsidiaries and affiliates at least thirty days prior to distribution or payment except in limited circumstances. Additionally, those laws and regulations provide the Department of Insurance with the right to disapprove and prohibit distributions meeting the definition of an "Extraordi- nary Dividend" under the statutes and regulations. If the ability of the insurance subsidiaries to pay dividends or make other payments to the Company is materially restricted by regulatory requirements, it could affect the Company's ability to service its debt and/or pay dividends. Current restrictions are such that SCIC would not be permitted to pay any dividends in 1996. In addi- tion, no assurance can be given that South Carolina will not adopt statutory provisions more restrictive than those currently in effect. If insurance regulators determine that payment of a dividend or any other payments to an affiliate would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company's policyholders or creditors, the regulators may disapprove, prohibit, or mandate return of such payments that would otherwise be permitted without prior approval. Required Participation in State Residual Market Plans and Insurance Guaranty Funds Most states in which the Company's property and casualty insurance group writes business have collective pools, underwriting associations,reinsurance facilities (the largest being the South and North Carolina Reinsurance Facilities), assigned risk plans or other types of residual market plans ("plans"), by which coverages not normally available in the voluntary market are shared by all companies writing that type of business in that state. Participation is usually based on the ratio of the Company's direct voluntary business to the total industry business of that type in that state. As the Company's share of the voluntary market in a given state changes, tentative participations are assigned for each policy year and are updated as actual data becomes available. The required participation by the Company in all such plans is reflected in the results of the Company as soon as reported by the plans. Estimates are maintained for unreported data. Of particular significance are those plans involving workers' compensation insurance, for which underwriting results have normally been unfavorable. In early 1993, the Company withdrew from the workers' compensation market in all states. During 1994, the Company settled all obligations to the Workers' Compensation National Reinsurance Pool. Most states have enacted insurance guaranty fund laws. Typically, these laws provide that when an insurance company is declared insolvent,the other companies writing the insurance in that jurisdiction are assessed to pay covered claims of the insolvent company. The amount a company is assessed is generally determined by the amount of premiums written in that state, subject to a maximum annual assessment ranging from 1% to 2% of direct written premiums. During 1995, the Company paid $116,000 in such assessments. The Company expects future assessments to remain insignificant for as long as the premiums written by the Company continues to decrease. Competition and Other Factors All of the areas of business in which the Company engages are highly competi- tive. The principal methods of competing are service and pricing. Many com- peting property and casualty companies have available more diversified lines of insurance than the Company's property and casualty insurance group and have substantially greater financial resources. The Company responds to this competitive environment by constantly updating its policy offerings, improving operating procedures and constantly reviewing expenses. In addition, effective October 1, 1994, the Company received a smaller book of business from the South Carolina Reinsurance Facility due to a competitive bidding process. Employees At December 31, 1995, the Company and its subsidiaries employed a total of 268 employees, which includes 4 part-time employees. Management's actions during 1995 reduced the number of employees by 139. Item 2. Properties The Columbia, South Carolina home office, containing approximately 148,000 square feet of occupied space, is owned by the Company and used primarily by its property and casualty insurance operations. Some additional premises are leased by the Company in locations in which they operate. Management believes that these facilities are adequate for the current level of operations. Item 3. Legal Proceedings Due to the nature of their business, certain subsidiaries are parties to various other legal proceedings which are considered routine litigation incidental to the insurance business. Item 4. Submission of Matters to a Vote of Security Holders None/Not Applicable. Executive Officers Name Age Position John C. West 74 Chairman of the Board since September, 1994. Director of the Company since June, 1994. Currently, of counsel with the law firm of Bethea, Jordan and Griffin in Hilton Head Island, SC and professor at the University of South Carolina. Former Governor of South Carolina (1971-75) and former Ambassador to the Kingdom of Saudi Arabia (1977-81). Ernst N. Csiszar 45 President, Chief Executive Officer and Director of the Company since June, 1995. Previously held position of visiting professor at the School of Business, University of South Carolina since 1988. John A. Weitzel 50 Chief Financial Officer of the Company and certain subsidiaries since September, 1995. Director of the Company since October, 1995. Previously Chief Financial Officer of Milwaukee Insurance Group, Inc. from April, 1985 to November, 1994. Steven M. Armato 44 Group Vice President of Seibels, Bruce & Company since December, 1995. Previously held the position of Vice President from April, 1986. Employed by Company since April, 1981. Michael A. Culbertson 47 Group Vice President of Seibels, Bruce & Company since December, 1995. Previously held positions of Senior Vice President of Claims and Vice President of Claims since June, 1995; Officer and Director of certain Company subsidiaries. Employee of the Company in various claims capacities since December, 1974. James J. Owens 48 Group Vice President of Seibels, Bruce & Company since January, 1996. Previously employed with Milwaukee Insurance Group from June, 1980 to December, 1995. Mary M. Gardner 31 Vice President and Controller since July, 1994; Officer and Director of certain Company subsidiaries. From 1989 to 1994, Assistant Controller of Mercury Insurance Group, a group of property and casualty insurance companies. Priscilla C. Brooks 44 Vice President and Corporate Secretary since June, 1995; Officer of certain company subsidiaries. Corporate Secretary since February, 1995. Assistant Corporate Secretary since 1982 Employed with the Company since 1973. PART II Item 5.Market for the Registrant's Common Stock and Related Security Holder Matters (a) Market Information The Company's common stock is quoted and traded on The NASDAQ National Market, trading symbol "SBIG". The following table sets forth the reported high and low closing sales prices for such shares for each quarter during the two fiscal years ended December 31, 1995. High Low 1995 First Quarter $ 3-1/16 $ 7/8 Second Quarter 1-7/16 3/4 Third Quarter 1-1/32 3/4 Fourth Quarter 2-3/16 7/16 1994 First Quarter $ 2-1/16 $ 1-1/4 Second Quarter 2 1-7/16 Third Quarter 3-1/8 1-3/4 Fourth Quarter 3 2-1/4 (b) Holders. As of March 1, 1996, there were approximately 2,589 holders of record of the Company's 16,772,686 outstanding shares of common stock, $1.00 par value. Not included in the outstanding shares is 6,250,000 shares issued without voting rights pending the special shareholders' meeting in the second quarter of 1996. (c) Dividends. There were no dividends on the Company's common stock for 1995, 1994 or 1993. See Note 8 of Notes to Financial Statements included under Item 8 for a description of restrictions on the Company's present and future ability to pay dividends.
Item 6. Selected Financial Data The following selected financial data for each of the five years ended December 31, 1995 is derived from the audited consolidated financial statements of the Company. The selected data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included elsewhere herein. 1995 1994 1993 1992 1991 (thousands of dollars, except per share amounts) --------------------------------------------------- FINANCIAL CONDITION Total investments $ 44,302 $ 61,868 $118,467 $156,934 $180,096 Total assets 224,005 255,935 324,695 461,136 473,235 Long-term debt - - 1,694 24,934 8,853 Shareholders' equity 10,187 650 13,902 14,219 46,669 Per share 0.61 0.04 1.85 1.90 6.23 RESULTS OF OPERATIONS Revenues Insurance Property and casualty premiums $ 10,384 $ 14,718 $ 55,331 $117,172 $124,487 Credit life premiums 890 1,801 3,207 4,247 4,898 Commission and service income 49,572 60,669 41,625 35,943 35,396 Net investment and other interest income 4,330 6,226 7,090 12,960 17,445 Realized gains (losses) on investments 164 (6,327) 1,969 7,040 3,938 Other income 843 2,673 4,697 4,019 5,144 Total revenues $66,183 $ 79,760 $113,919 $181,381 $191,308 Income (loss) before extraordinary item $1,152 $(19,074) $(10,249) $(32,666)$(16,843) Per share 0.07 (1.72) (1.37) (4.36) (2.25) Extraordinary item - gain from extinguishment of debt, net of income taxes - $ - $ 9,235 $ - $ - Per share - - 1.23 - - Net income (loss) $1,152 $(19,074) $(1,014) $(32,666) $(16,843) Per share 0.07 (1.72) (0.14) (4.36) (2.25) Cash dividends $ - $ - $ - $ - $ 2,696 Per share - - - - .36 PROPERTY AND CASUALTY STATUTORY UNDERWRITING RATIOS Losses and loss adjustment expenses to premiums earned 124.4% 227.0% 105.3% 107.1% 93.9% Ratio of net premiums written to ending statutory policyholders' surplus 0.56 N/A* 1.00 5.95 2.30 *1994 ratio results are negative (See Item 7 and Notes to Financial Statements included under Item 8.)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The selected financial data and consolidated financial statements and the related notes thereto should be read in conjunction with the following discussion as they contain important information for evaluation of the Company's financial condition and operating results. OVERVIEW The Company incurred a loss from operations in each of the four years ending December 31, 1994. A recapitalization plan was initiated in 1993. At that time, bank debt was extinguished, resulting in an extraordinary gain, net of income taxes, in the amount of $9.2 million. The note payable of $10.0 million was cancelled in June of 1994 and exchanged for 7 million newly issued shares of the Company's common stock. During the first quarter of 1995, a common stock rights offering was successfully completed, and $5 million of additional capital was raised and contributed to the insurance subsidiary. In addition, the Company entered into a $2 million promissory note in the second quarter of 1995. The proceeds of the note were also contributed to the capital of the insurance subsidiary. The Company has also revised its strategic direction. The new management of the Company generated a transitional operating plan which focuses on the Company's core operations (defined to be fee income producing activities) while reducing the amount of underwriting risk to which the Company has historically been exposed. The Company ceased to underwrite commercial lines of business in 1993, and entered into a General Agency Agreement to market the business for an unaffiliated issuing company. During 1994, the Company elected to commute its workers compensation loss reserves associated with participation in the National Council on Compensation Insurance. In addition, a long standing dispute regarding the 1985 sale of a subsidiary was settled during the year. These two transactions resulted in an increase in earnings of $3.3 million. However, the transactions also generated a cash outflow of $25.4 million and necessitated the unplanned sale of secur- ities at a loss of $2.6 million. The Company also engaged additional actuarial consultants at the conclusion of 1994. Based upon this actuarial input, loss and adjusting expense reserves were increased significantly during the fourth quarter. Largely as a consequence of this reserve strengthening, the Company incurred a net loss of $19.1 million for the 1994 year. The portion of incurred losses and loss adjusting expenses that related to claims occurring in prior years amounted to $17.0 million. Absent this development on prior year reserves and the realized capital losses of $6.3 million, the Company would have been profitable for the 1994 year. The significant reserve strengthening resulted in a statutory deficit for one of the insurance company subsidiaries. The Company suspended underwriting new and renewal personal lines of business in the second quarter of 1995, and does not anticipate resuming such activities until sufficient capital has been raised to support these risks, and strategic plans are in place to underwrite profitably. Certain operations that were not considered to be an integral part of the operations have been sold. These included the credit life and accident and health operations in 1993,the premium financing operations in 1994, and a travel agency in 1995. Each of these operations were sold at a profit. During the first quarter of 1996, the Company agreed to sell Consolidated American Insur- ance Company, an inactive subsidiary. During 1995, the Company replaced its Chief Executive Officer and Chief Financial Officer. The Company achieved its first year of operating profits of the current decade, and significantly reduced the cash outflow from operations. The new management undertook significant cost reductions, including a 35% reduction in work force during 1995. The 1995 profit was largely a result of this expense control and the lack of significant loss reserve development since the 1994 reserve strengthening. RESULTS OF OPERATIONS The net income for 1995 was $1.2 million ($0.07 per share). The income came from the servicing activities of the Company, while the loss from property and casualty underwriting was significantly reduced. Both segments enjoyed reduced operating costs. The net loss for 1994 was $19.1 million ($1.72 per share). The principal factors influencing the loss were the increase in estimated losses and adjusting expenses for claims occurring in prior years of $17.0 million, the settlement of a long standing dispute at an additional cost of $2.9 million, realized losses on security sales of $6.3 million, and were offset in part by commuting outstanding liabilities with the National Council of Compensation Insurance in an amount that was $6.1 million less than the outstanding re- serves. The operating loss for 1993 was $10.2 million ($1.37 per share). An extraordinary gain from the extinguishment of debt in the amount of $9.2 million ($1.23 per share) reduced the net loss for the year to $1.0 million ($.14 per share). Fee-generating Activities Fee-generating activities are predominantly related to acting as a servicing carrier for the South Carolina and North Carolina automobile reinsurance facilities, and for the WYO National Flood Insurance Program. The Company bears no underwriting risk for the business processed and administered as a servicing carrier. The Company began in 1993 to produce business in its MGA capacity for an unaffiliated insurance carrier. The Company receives a commission for produ- cing, underwriting, and servicing such business. In addition, the Company began in 1994 to act as a servicing carrier for the Kentucky Assigned Risk Plan. The following table reflects the major components of commission and service revenue and pre-tax operating profit for 1995, 1994, and 1993: 1995 1994 1993 (thousands of dollars) ------------------------------ Commission and service income Servicing carrier $ 42,678 $ 53,207 $ 35,810 MGA 6,734 7,094 5,092 Other 160 368 723 ----------------------------- Total $ 49,572 $ 60,669 $ 41,625 ============================== Pre-tax operating profit $ 5,641 $ 10,109 $ 4,321 ============================
The change in revenues and pre-tax operating profit in 1995 compared to 1994 is primarily attributable to changes in the South Carolina Reinsurance Facility ("SCRF"). With respect to the Company's servicing carrier activities for the SCRF, the South Carolina legislature passed a joint resolution requiring that servicing carrier contracts, which previously had been awarded based on application, be put out for bid. The Company, through this bid process, was selected as one of three servicing carriers for the facility for a new five year contract period from October 1, 1994 to September 30, 1999. In response to the competitive aspect of this bid, the Company had to reduce its commission rates. While the Company did not retain the ongoing block of business that it was servicing, which was the largest of the three blocks, it was awarded the next largest. The premium volume on the previously held block was $82 million; the volume of the new block amounted to $64.2 million for the 1995 year. This decrease in volume, in combination with lower servicing rates, resulted in $11.3 million less commission earned in 1995 than in 1994. The Company serviced $28.6 million of flood insurance premiums through the WYO program in 1995 ($29.5 million in 1994). It is among the ten largest companies acting in that capacity. Approximately 45% of the Company's volume in this program comes from Florida. Since the Company left Florida's voluntary marketplace in 1993, the percentage of premium volume generated in that state in 1995 and 1994 has been reduced approximately 21% and 14%, respectively, due to competition from other WYO companies. While this premium decrease has not significantly influenced income in 1995, the commission income earned on claims was positively affected in 1995 due to flood claims resulting from Hurricane Opal. Commission income related to claims increased $1.1 million when compared to 1994. The decrease in operating profit of $4.5 million in 1995 over 1994 is due to the decrease in revenues previously mentioned, partially offset by expenses related to servicing the contracts. The increase in operating profit of $5.8 million in 1994 over 1993 is primarily attributable to two factors: 1) a reduction in allocated loss adjustment expenses associated with the South Carolina Reinsur- ance Facility (the "Facility"), and 2) an increase in the component of the Facility fee based upon claim payments, which rose substantially during 1994. Property and Casualty Underwriting In 1993, the Company took actions to significantly reduce premium writings, due in part to the impact of Hurricane Andrew. Voluntary underwriting activities were being conducted only in the five states of South Carolina, North Carolina, Georgia, Kentucky, and Tennessee through the second quarter of 1995. At that time, the Company began the year long process of non-renewing the business, with the exclusion of North and South Carolina automobile liability business which is 100% ceded to the respective reinsurance facilities. The Company's commercial business in the five states, which had been produced for its own risk, is now being produced under an MGA arrangement for the risk of an unaffiliated insur- ance carrier. The Company also withdrew from the workers' compensation market in all states. A.M. Best, the industry's leading rating authority, last assigned the Company a group rating of NA-9 ("Not Assigned-Company Request"). A.M. Best is an independent company which rates insurance companies based on their judgement of factors related to the ability to meet policyholder and other contractual obligations. The rating is not directed toward the protection of investors. A low rating would not directly affect the Company's servicing carrier or MGA operations. The Company believes the lack of a rating does not have a material impact on its personal lines business as this business can be maintained because of the quality of its agency relationships and because these lines are generally not as sensitive to the rating of the insuring company as for commercial line business. Underwriting Results The Company ceased to underwrite commercial lines in 1993 and has withdrawn from retaining any underwriting risk until sufficient capital has been raised to support such risks. The following table presents net premiums earned and loss ratios for the last three years: 1995 1994 1993 --------------- --------------- ---------------- Premiums Loss Premiums Loss Premiums Loss Earned Ratio Earned Ratio Earned Ratio (thousands of dollars) ------------------------------------------------------- Automobile lines $ 6,962 72.4% $12,655 119.3%$ 22,336 71.1% All other lines 3,422 230.2% 2,063 887.4 32,995 128.5 ---------------------------------------------------- Totals $ 10,384 124.4% $14,718 227.0% $55,331 105.3% ====================================================
Several key ratios are used in the industry to measure underwriting results. The pure loss ratio is the ratio of losses incurred to premiums earned. The loss adjustment expense ratio is the ratio of loss adjustment expenses incurred to premiums earned. The sum of these two ratios is called the loss ratio. In 1993, $9.6 million of premiums written were assumed as reinsurance or pool participations, substantially all resulting from various residual market pools. The 1995 and 1994 amounts of $0.5 million and $2.2 million, respectively, were not significant due to withdrawing from the NCCI pool. Of $108.6 million of ceded premiums in 1995 ($131.5 million in 1994 and $145.2 million in 1993), $102.5 million ($122.0 million in 1994 and $120.1 million in 1993) was related to premiums written as fee-generating business. The following is a breakdown of percentages of net premiums written in each of the Company's principal states for 1995, 1994, and 1993: % of Total Net Premiums Written 1995 1994 1993 -------------------------------- California 0.1% 0.4% 0.3% Florida 0.1 2.2 (14.9) Georgia 1.3 1.6 11.0 Kentucky 4.1 1.9 6.4 Louisiana 0.3 0.0 0.4 North Carolina 39.3 53.4 52.8 South Carolina 57.1 38.6 34.0 Tennessee (2.9) 1.6 6.9 Virginia 0.5 0.9 0.9 All other 0.1 (0.6) 2.2 ----------------------------------- Total 100.0% 100.0% 100.0% ===================================
The percentages for Tennessee in 1995 and for all other states in 1994 are negative due to the company's withdrawal from various states during the years presented, resulting in return premium volume. The percentage for Florida in 1993 is negative because the Company withdrew from that state by doing mid-term cancellations of policies in force, resulting in negative premiums written for the year. Reserve deficiencies from prior years adversely affected 1995 by $3.4 million, 1994 by $17.0 million, and 1993 by $10.5 million. Such adverse reserve development is fully discussed following the tabular ten-year period analysis presented later in the reserves section. Results for 1993 were impacted by losses of $4.2 million from the first quarter "Winter Storm of the Century," as well as a $1.0 million reduction due to a rate rollback in the state of North Carolina. Additionally in 1993, the Company began its withdrawal from the workers' compensation market in all states. The workers' compensation business had already been substantially downsized. As a result of participation in the National Workers Compensation Reinsurance Pool, the Company had recorded substantial losses for its allocable share of the business placed in this residual market. The total loss to the Company relative to this residual market was $2.8 million in 1993. During 1994, this residual market generated a profit of $4.9 million, largely due to a favorable impact of $6.1 million upon the commutation of outstanding losses. In 1993, the Company commuted its $43.0 million casualty aggregate excess of loss reinsurance agreement which it had entered into in 1989. The Company reduced its reinsurance recoverable on ceded losses and loss adjustment expenses by $43 million, and received $42.9 million in U.S. Treasury Strips. The commu- tation had no material effect on underwriting results, or on net income. Through various types of reinsurance, the Company reduces its net liability on individual risks. Prior to suspending the underwriting of net retained risk, a significant portion of the Company's covered risks were located in areas that are vulnerable to major windstorms. These risks are mitigated in part by using selective underwriting procedures and purchasing catastrophe property reinsur- ance protection to contain major losses. The Company's decision to non-renew all personal lines of business, excluding the automobile liability fee-generating business, should adequately protect the Company in the event of a catastrophic event. Reserves Loss reserves are estimates at a given point in time of the amount the insurer expects to pay claimants plus investigation and litigation costs, based on facts and circumstances then known. It can be expected that the ultimate liability in each case will differ from such estimates. During the loss settlement period, additional facts regarding individual claims may become known and, consequently, it becomes necessary to refine and adjust the estimates of liability. The liability for losses on direct business is determined using case-basis evaluations and statistical projections. The liabilities determined under these procedures are reduced, for GAAP purposes, by estimated amounts to be received through salvage and subrogation. The resulting liabilities represent the Company's estimate of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effects of changing trends in future claims frequency and/or severity. These estimates are continually reviewed and, as experience develops and new informa- tion becomes known, the liability is adjusted as necessary. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered,an increase in average severity of claims may be caused by a number of factors that vary with the individual type of policy written. Future average severity is projected based on historical trends adjusted for changes in underwriting standards, policy provisions, and general economic trends. These anticipated trends are monitored based on actual developments and are modified as necessary. The Company does not discount its loss and LAE reserves. In 1993, the Company adopted FASB Statement No. 113, which significantly redefines reinsurance accounting rules and provides stringent requirements with respect to risk transfer and recognition of gains. In addition, the Statement requires ceded claims liabilities and ceded unearned premiums be reported as ceded reinsurance assets, rather than as a reduction to the respective liabil- ity. For SAP purposes, the ceded reinsurance reserves are still used to reduce the liability. There were no changes in the recognition of net losses incurred as a result of adopting FASB Statement No. 113. The only effect on the Company's GAAP financial statements was the reflection of the gross liability rather than the net liability for reserves. The Company does not have surplus relief rein- surance arrangements, multiple-year retrospectively-rated reinsurance, or assumption reinsurance transfers. The following table presents, on a GAAP basis, a three-year analysis of losses and LAE, net of ceded reinsurance recoverable, with the net liability reconciled to the gross liability per the balance sheet: 1995 1994 1993 (thousands of dollars) -------------------------------- Liability for losses and LAE at beginning of year: Gross liability per balance sheet $ 166,698 $ 194,682 $ 257,603 Ceded reinsurance recoverable reclassified as an asset (88,731) (76,221) (140,969) ---------------------------- Net liability 77,967 118,461 116,634 ---------------------------- Provision for losses and LAE for claims occurring in the current year 9,546 16,451 47,776 Increase in estimated losses and LAE for claims occurring in prior years 3,375 16,957 10,509 --------------------------- 12,921 33,408 58,285 Losses and LAE payments for claims --------------------------- occurring during: Current year 7,014 10,291 26,499 Prior years 22,843 63,611 29,959 --------------------------- 29,857 73,902 56,458 --------------------------- Liability for losses and LAE at end of year: Net liability 61,031 77,967 118,461 Ceded reinsurance recoverable reclassified as an asset 84,492 88,731 76,221 ----------------------------- Gross liability per balance sheet $145,523 $166,698 $194,682 ============================
As reflected in the preceding table, each year was affected by reserves from prior years having been deficient in those earlier periods. The impact of this adverse development was $3.4 million in 1995, $17.0 million in 1994, and $10.5 million in 1993. Adverse reserve development will be fully discussed following the tabular ten-year period analysis presented later in this section. Reserve deficiencies are caused primarily by the difficulties inherent in estimating the liability for claims on the casualty lines of business, where the full extent of the damages can often be sizable, but not accurately determinable at the date of estimation. This situation is further complicated by the fact that the existence of a claim may not be reported to the Company for a number of years. The difference between the year-end net liability for losses and LAE reported in the accompanying consolidated financial statements in accordance with GAAP and that in accordance with SAP was as follows: December 31, 1995 1994 (thousands of dollars) ----------------------- Net liability on a SAP basis, as filed in annual statement $ 61,812 $ 79,854 Assumed reinsurance liabilities recorded net - (1,147) Estimated salvage and subrogation recoveries recorded on a cash-basis for SAP and on an accrual basis for GAAP (781) (740) ------------------- Net liability on a GAAP basis, at year-end $ 61,031 $ 77,967 Ceded reinsurance recoverable 84,492 88,731 -------------------- Gross liability reported on a GAAP basis, at year-end $145,523 $ 166,698 ====================
The following table reflects the loss and LAE development for 1995 and 1994 on a GAAP basis: Unpaid Losses Re-estimated as Cumulative and LAE of one year later (deficiency) --------------------------------------------- (thousands of dollars) 1995: Gross liability $ 145,523 Less: Reinsurance recoverable 84,492 -------- Net liability $ 61,031 ======== 1994: Gross liability $ 166,698 $ 180,859 $(14,161) Less: Reinsurance recoverable 88,731 99,517 (10,786) -------- --------- --------- Net liability $ 77,967 $ 81,342 $ (3,375) ======== ========= ========
The following analysis reflects loss and LAE development on a SAP basis, net of ceded reinsurance recoverable, for a ten-year period for retained business only: Year Ended December 31, 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ------------------------------------------------------ (millions of dollars) Liability for unpaid losses and LAE (SAP) 169 162 145 129 122 116 112 118 120 80 62 Cumulative liability paid through: One year later 101 94 82 104 78 77 63 30 63 24 Two years later 158 142 150 141 121 116 50 84 82 Three years later 193 194 173 166 145 93 91 101 Four years later 235 211 191 183 115 125 104 Five years later 247 224 203 151 139 136 Six years later 257 233 174 170 149 Seven years later 264 208 191 178 Eight years later 241 223 198 Nine years later 255 230 Ten years later 262 Liability re-estimated as of: One year later 198 181 158 174 135 136 119 129 137 83 Two years later 218 192 197 177 150 147 124 139 140 Three years later 226 229 200 188 156 151 133 149 Four years later 263 233 210 185 159 161 145 Five years later 266 240 204 185 168 173 Six years later 270 235 204 195 182 Seven years later 266 235 213 208 Eight years later 265 243 227 Nine years later 274 256 Ten years later 287 Cumulative (deficiency) (118) (94) (82) (79) (60) (57) (33) (31) (20) (3) ===================================================
The preceding table presents the development of balance sheet liabilities on a SAP basis for 1985 through 1994. The top line of the preceding table shows the initial estimated liability on a SAP basis. This liability represents the estimated amount of losses and LAE for claims arising in years that are unpaid at the balance sheet date, including losses that have been incurred but not yet reported. The next portion of the preceding table reflects the cumulative payments made for each of the indicated years as they have developed through time. This table has been adjusted for a modification made to 1994 paid losses on a GAAP basis, not recorded for statutory net losses incurred. On a statutory basis, the modification is a reclassification only and has no effect on income. Additionally, a ceded reinsurance commutation during 1993 for $43 million re- duced the gross asset for reinsurance recoverable on losses and loss adjustment expenses. Since investments were increased $42.9 million, total assets were basically unchanged. Under the gross method of reporting the liability for losses and LAE, the commutation had no effect on liabilities. The 1993 expense for losses and LAE was also unaffected, because the reduction in the asset for reinsurance recoverable served to increase the expense, while the securities received served to decrease the expense. For these same reasons, the re- estimated liability shown on the ten-year development table was also not affected. The 1993 impact on the cumulative liability paid on the ten-year development table, which was reduced by the value of the securities received, was as follows (in millions of dollars): Cumulative Add Back Cumulative Liability Commutation Liability Paid As Reduction Paid As Reported To Paid Adjusted --------------------------------------- 1983: 10 years later 185 17 202 1984: 9 years later 239 24 263 1985: 8 years later 241 28 269 1986: 7 years later 208 31 239 1987: 6 years later 174 35 209 1988: 5 years later 151 40 191 1989: 4 years later 115 43 158 1990: 3 years later 93 43 136 1991: 2 years later 50 43 93 1992: 1 year later 30 43 73
The next portion of the table shows the re-estimated amount of the liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the claims for the year being reported. The "cumulative (deficiency)" represents the aggregate change in the estimates over all subsequent years. The effects on income of the past three years of changes in estimates of the liabilities for losses and LAE on a GAAP basis are shown in the reconciliation table. In evaluating this information, it should be noted each amount includes the effects of all changes in amounts for prior periods. This table does not pre- sent accident or policy year development data, which readers may be more accustomed to analyzing. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accor- dingly, it may not be appropriate to extrapolate future redundancies or defi- ciencies based on this table. After the Company experienced adverse loss reserve development in 1990 and 1991 on its southeastern business, it was determined a significant reserve addition was necessary to bring current and prior year reserves to a level to avoid or minimize recurrence of adverse development. Accordingly, in the fourth quarter of 1991 the Company added $18.4 million to its reserves. The addition was determined through a comprehensive actuarial review of the Company's direct and net business. The adverse loss reserve development in 1992 through 1995 is primarily attributable to business other than the Company's core southeastern business. Business the Company is required to accept through various mandated pools and associations contributed $2.9 million in 1993 ($1.7 million in 1992). This business relates primarily to the National Workers' Compensation Reinsurance Pool. The Company started limiting the burden from this pool by restricting direct workers' compensation premiums beginning in 1990, and in late 1992 made the decision to discontinue writing any new or renewal workers' compensation business. During 1994, liabilities associated with this Pool were commuted, eliminating exposure to further development for the Pool, and producing a $6.1 million reduction in the adverse development for 1994. The majority of the adverse reserve development in 1989 was related to accident years 1982-1985 and the business produced by the former West Coast operation. The Company purchased that operation in 1981. The problem West Coast lines were primarily commercial automobile liability and other liability, including a substantial amount of contractors' and subcontractors' liability coverages. These claims turned out to have greater severity and much longer development periods than the Company had previously experienced. It was not until 1989 that the full extent of the problems started to become clear. The Company added $30 million to its reserves for that business in 1989, and until 1992 had no further adverse development. As of December 31, 1995, the Company has $19.4 million of reserves established for this business. A part of the Company's reserve for losses and LAE is set aside for environmental, pollution and toxic tort claims. These claims relate to business written by the West Coast operation prior to 1986. At December 31, 1993, the reserves on these claims was $23.4 million. On June 7, 1994, the Company settled a dispute relative to approximately 400 of these claims. Any future liability on them is limited to 50% of the loss and reimbursement of the Company's 50% does not begin until the other company pays out subsequent to June 7, 1994 a total of $20 million in losses. The settlement also has policyholder surplus safeguards to the benefit of the Company built in to it. Future obligations, if any, are not likely to become payable for several years. Management has evaluated the estimated ultimate liability of this business and has concluded that the development of this settlement should not have a material impact on the company. Of the remaining environmental, pollution and toxic tort claims, the following activity took place during 1995: Pending, December 31, 1994 89 New claims received 18 Claims settled (22) ---- Pending, December 31, 1995 85 ====
The policies corresponding to these claims were written on a direct basis. The Company has excess of loss reinsurance through 1980 of $100,000, and $500,000 after that date. The claims are reserved as follows at December 31, 1995 ($ in thousands): Case reserves $ 2,229 IBNR reserves 8,675 LAE reserves 3,453 ------- Total $14,357 =======
The above claims involve 11 Superfund sites, 5 asbestos or toxic tort claims, 10 underground storage tanks and 59 miscellaneous clean-up sites. For this direct business there are usually several different insurers participating in the defense and settlement of claims made against the insured. Costs and settlements are pro-rated by either time on the risk or policy limits. In estimating the liability for reported and estimated losses and adjustment expenses related to environmental and construction defect claims, management considers facts currently known along with the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In exposures on both known and unasserted claims, estimates of the liabilities are reviewed and updated continually. The potential development of losses is limited by policy limits. Because only 85 claims remain open as of December 31, 1995, the exposure to significant additional development is less than when the claims were less mature. In addition, the likelihood of new claims being asserted for construction liability is lessened by the expiration of statutes of limitations since the last policy expired over ten years ago. The Company has consistently strived for reserve adequacy. Prior to 1992, thorough actuarial reviews were performed only at year-end. In 1992, an interim review was done. Additionally, the Company refined its estimate of the IBNR component of loss reserves to help ensure the timely recognition of current year losses and the adequacy of the IBNR for prior years' losses. At the end of 1994, the new management engaged an additional consultant to review the adequacy of loss reserves. This review resulted in management recording additional reserve strengthening at December 31, 1994. The 1995 results along with the results of reviews performed by independent actuaries at June 30, 1995 and December 31, 1995 bear out management's belief that the reserves are sufficient to prevent prior years' losses from adversely affecting future periods; however, estab- lishing reserves is an estimation process and adverse developments in future years may occur and would be recorded in the year so determined. Investments and Realized Gains The following table shows net investment income, realized gains, and the amount of the investment portfolio at the end of the year for 1995, 1994, and 1993: 1995 1994 1993 (thousands of dollars) -------------------------- Net investment income $ 3,176 $ 5,321 $ 5,455 Realized gains (losses) 164 (6,327) 1,969 -------------------------- Total investments 44,302 61,868 118,467 ==========================
At December 31, 1995, 23.3% of total investments were committed to short term investments, compared to 33.0% at the end of 1994. Investments in U.S. Government bonds were 93.6% of the fixed maturities at the end of 1995,and 87.1% at the end of 1994. The Company has no "junk bonds" in its portfolio. In May 1993, FASB issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Statement No. 115 classified securities into three categories: held-to-maturity, trading, and available-for-sale. The Company's securities are currently classified as, and will continue to be classified as, available-for-sale. Statement No. 115 requires available-for-sale securities to be reported at estimated market value and the unrealized gains and losses be reported in a separate component of shareholders' equity. The Company adopted Statement No. 115 effective January 1, 1994. Given the negative cash flow from operations, all fixed maturities are con- sidered available-for-sale. Accordingly, they are carried at market value as of December 31, 1995 and 1994. The market values of the fixed maturity invest- ments were $0.4 million above book value at the end of 1995 compared to $2.4 million below book value at the end of 1994. The weighted average yield of the fixed maturity investments was 5.9% for both 1995 and 1994. During 1994, the Company was forced to sell bonds to meet cash requirements while interest rates were rising. This action resulted in significant realized losses. A declining interest rate environment in 1993 resulted in realized gains related to fixed maturity and equity investments. The 1993 gains were taken primarily in the bond portfolio to shorten maturities, maximize liquidity, and increase surplus. Other Operations Investors National Life Insurance Company of South Carolina was formed in 1993 to assume the run-off of the business written through Investors National Life Insurance Company, which, prior to its sale late in 1993, had provided credit life and credit accident and health insurance through banks, savings and loan institutions and automobile dealers. The pre-tax (loss) income of Investors National was $4,000,$(677,000)and $44,000 in 1995, 1994 and 1993, respectively. The loss in 1994 was due primarily to realized investment losses, compared to gains in 1995 and 1993. In February 1994, Policy Finance Company was formed to handle the administration of the assets retained in the sale of Premium Service Corporation. Pre-tax income of PFC was $74,000 in 1995, $538,000 in 1994, and $470,000 in 1993. The Company has no plans to continue its own premium financing activity. Effective January 1, 1995, Forest Lake Travel Service, a subsidiary travel agency, was sold. FLT's pre-tax income was $95,000 in 1994 and $420,000 in 1993. The sale generated an insignificant gain in the first quarter of 1995. All of the above operations were sold because of management's emphasis on restructuring the Company's core business. All of these sales were made at a gain. Future years' operations are not anticipated to be significantly impacted by these sales. Income Taxes The Company uses the liability method in accounting for income taxes. Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provision of the enacted tax laws. The 1995 and 1994 provision for income taxes on operations of insignificant amounts resulted from certain life insurance taxable income and state income taxes that cannot be offset by tax operating losses. In 1993, the Company recognized an income tax benefit from operations of $4.8 million and a $5.6 million income tax expense on the extraordinary gain from debt extinguishment. The net tax expense of $0.8 million includes the tax effect of certain life insurance taxable income and state income tax expense that cannot be offset by tax loss carryovers. The Company has unused tax net operating loss carryforwards and capital loss carryforwards of $97.9 million for income tax purposes. However, due to a "change in ownership" condition that occurred in 1995, the Company's use of the net operating loss carryforwards are subject to limitation in future years to an amount estimated to be in the range of approximately $2.5 million to $3.0 million per year. Based on its recent earning history, the Company has determined that a valuation allowance of $19.9 million should be established against the net deferred tax asset at December 31, 1995. CAPITAL RESOURCES AND LIQUIDITY Liquidity relates to the Company's ability to produce sufficient cash to fulfill contractual obligations, primarily to policyholders. Sources of liquidity include premium collections, service fee income, investment income and sales and maturities of investments. As the Company deliberately downsizes its exposure to underwriting risk, premium collections decline at a much faster pace than the decline in claim payments. Consequently, operations have used net cash in operating activities of $21.7 million in 1995, $44.6 million in 1994, and $43.6 million in 1993. During 1994, cash disbursements included $25.4 million for the non-recurring commutation of NCCI liabilities and a dispute settlement regarding a previously sold subsidi- ary. The 1993 cash used in operating activities would have been $43 million greater than the actual cash used had it not been for a non-recurring commu- tation of reinsurance ceded which produced a cash receipt in the amount of the reinsurance recoverable. Cash flows from financing activities in 1995 includes $5.3 million the Company raised from a stock rights offering and $2.0 million provided by an investor in exchange for a promissory note. The 1994 cash used in operating activities necessitated unplanned liquidation of long term bonds. Because this occurred during a period of declining bond values, the Company incurred $6.3 million of realized losses on the sale of these securities. While operations for 1996 are anticipated to use cash, the amount projected is less than the $16.6 million of cash and temporary investments held at December 31, 1995. Hence, no unplanned sales of securities are anticipated during 1996. There have been no shareholder dividends declared during the last three years, and there is not a likelihood that any will be considered during 1996. Long- term debt outstanding has been reduced to an insignificant amount as a conse- quence of the exchange of debt for common shares during 1994. The volume of premiums that the property and casualty insurance subsidiaries may prudently write is based in part on the amount of statutory net worth as determined in accordance with applicable insurance regulations. The National Association of Insurance Commissioners has adopted risk based capital requirements for property and casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investments and insurance risks such as asset quality, asset and liability matching,loss reserve adequacy, and other business factors. The RBC formula will be used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that are potentially inadequately capitalized. Compliance is determined by ratio of the companies' regulatory total adjusted capital to its authorized control level RBC (as defined by the NAIC). Three insurance subsidiaries of the Company have December 31, 1995 ratios of total adjusted capital to RBC that are comfortably in excess of the level which would prompt regulatory action. One of the Company's insurance subsidiaries fell below the minimum required statutory surplus at December 31,1994. During the first half of 1995, capital contributions of $7.4 million were completed which strengthened the statutory surplus of the subsidiary. As of December 31, 1995, the subsidiary has statu- tory surplus in excess of the minimum required amount, but less than the authorized control level of RBC. This shortfall is being addressed by various means, including a planned capital contribution of over $6 million in the second quarter of 1996. Item 8. Financial Statements and Supplementary Data (continued on following page) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of The Seibels Bruce Group, Inc.: We have audited the accompanying consolidated balance sheets of The Seibels Bruce Group, Inc. (a South Carolina corporation) (the Parent Company) and subsidiaries (collectively the Company ), as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in shareholders equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedules referred to below are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Seibels Bruce Group, Inc. and subsidiaries, as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 2 to the financial statements, effective January 1, 1994, the Company changed its method of accounting for investments in debt securities. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedules I, II, III, IV, V and VI as of December 31, 1995 and for each of the three years in the period ended December 31, 1995 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial state- ments. These schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements, and in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Columbia, South Carolina March 29, 1996 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 1994 (thousands of dollars) ASSETS Investments: Fixed maturities available for sale, at market (cost of $33,171 at 1995 and $41,321 at 1994) $33,581 $38,941 Equity securities available-for-sale, at market (cost of $222 at 1995 and $540 at 1994) 377 458 Short-term investments, including temporary investments of $10,235 ($20,243 at 1994) 10,310 20,458 Mortgage loan on real estate, at estimated realizable value (cost of $2,949 at 1994) - 1,965 Other long-term investments 34 46 Total investments 44,302 61,868 Cash, other than invested cash 6,339 - Accrued investment income 697 809 Premiums and agents' balances receivable, net 7,005 13,028 Reinsurance recoverable on paid losses and loss adjustment expenses 27,423 30,277 Reinsurance recoverable on unpaid losses and loss adjustment expenses 84,492 88,731 Property and equipment, net 5,396 6,270 Prepaid reinsurance premiums - ceded business 43,469 48,483 Deferred policy acquisition cost 293 899 Other assets 4,589 5,570 -------------------- Total assets $ 224,005 $ 255,935 ==================== LIABILITIES Losses and claims: Reported and estimated losses and claims - retained business $ 47,445 $ 63,074 ceded business 74,918 74,141 Adjustment expenses - retained business 13,586 14,893 ceded business 9,574 14,590 Unearned premiums: Property and casualty - retained business 1,900 6,238 ceded business 43,469 48,483 Credit Life 758 1,570 Balances due other insurance companies 12,438 19,119 Notes payable 2,476 439 Other liabilities and deferred items 7,254 12,738 -------------------- Total liabilities $ 213,818 $ 255,285 -------------------- COMMITMENTS AND CONTINGENCIES (Notes 12 and 13) SHAREHOLDERS' EQUITY Special stock, no par value, authorized 5,000,000 shares, none issued or outstanding - - Common stock, $1 par value, authorized 25,000,000 shares, issued and outstanding 16,772,686 shares 14,500,534 shares at 1994) 16,773 14,501 Additional paid-in capital 34,080 30,983 Unrealized gain (loss) on investments 401 (2,615) Accumulated deficit (41,067) (42,219) -------------------- Total shareholders' equity 10,187 650 --------------------- Total liabilities and shareholders' equity $224,005 $255,935 ====================== The accompanying notes are an integral part of these consolidated financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 1995 1994 1993 (thousand of dollars except per share amounts) ---------------------------------------------- Premiums: Property and casualty premiums earned $10,384 $ 14,718 $ 55,331 Credit life premiums earned 890 1,801 3,207 Commission and service income 49,572 60,669 41,625 Net investment income 3,176 5,321 5,455 Other interest income 1,154 905 1,635 Realized (losses) gains on investments 164 (6,327) 1,969 Other income 843 2,673 4,697 --------------------------- Total revenue 66,183 79,760 113,919 --------------------------- Expenses: Property and casualty: Losses and loss adjustment expenses 12,921 33,408 58,285 Policy acquisition costs 3,794 5,538 17,628 Credit life benefits 545 770 1,374 Interest expense 308 321 2,527 Other operating costs and expenses 47,465 58,768 49,116 -------------------------- Total expenses 65,033 98,805 128,930 --------------------------- Income (loss) before income taxes and extraordinary item 1,150 (19,045) (15,011) Provision (benefit) for income taxes (2) 29 ( 4,762) ---------------------------- Income (loss) before extraordinary item 1,152 (19,074) (10,249) Extraordinary item - gain from extinguishment of debt, net of income taxes - - 9,235 --------------------------- Net income (loss) $ 1,152 $ (19,074)$ (1,014) ========================== Per share: Income (loss) before extraordinary item $0.07 $(1.72) $ (1.37) Extraordinary item - - 1.23 ---------------------------- Net income (loss) $0.07 $ (1.72) $ (0.14) ============================ The accompanying notes are an integral part of these consolidated financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Year Ended December 31, 1995 1994 1993 (thousands of dollars) ---------------------------- Common stock outstanding: Beginning of year $ 14,501 $ 7,501 $ 7,501 Stock issued in connection with rights offering 2,217 - - Stock issued to employee benefit plans 20 - - Stock issued as non-employee director compensation 35 - - Stock issued in exchange for cancellation of note payable - 7,000 - ---------------------------- End of year $ 16,773 $ 14,501 $ 7,501 =========================== Additional paid-in capital: Beginning of year $ 30,983 $ 27,983 $ 27,983 Stock issued in connection with rights offering 3,104 - - Stock issued to employee benefit plans (3) - - Stock issued as non-employee director compensation (4) - - Stock issued in exchange for cancellation of note payable - 3,000 - --------------------------- End of year $ 34,080 $ 30,983 $ 27,983 =========================== Unrealized gain (loss) on securities: Beginning of year $ (2,615)$ 1,563 $ 866 Cumulative effect of change in accounting - adoption of FASB 115 - 841 - Change in unrealized gains on securities 3,016 (5,019) 697 ----------------------------- End of year $ 401 $ (2,615) $ 1,563 ============================= Accumulated deficit: Beginning of year $(42,219) $(23,145) $(22,131) Net income (loss) 1,152 (19,074) (1,014) ---------------------------- End of year $(41,067) $(42,219) $(23,145) ============================ Total shareholders' equity $ 10,187 $ 650 $ 13,902 ========================== The accompanying notes are an integral part of these consolidated financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) In Cash And Temporary Cash Investments Year Ended December 31, 1995 1994 1993 (thousands of dollars) ----------------------------- Cash flows from operating activities: Net income (loss) $ 1,152 $(19,074) $ (1,014) Adjustments to reconcile net loss to net -------------------------- cash used in operating activities: Depreciation 925 739 638 Realized (gains) losses on investments (164) 6,327 (1,969) Extraordinary gain from extinguishment of debt, gross of income taxes - - (14,793) Change in assets and liabilities: Accrued investment income 112 278 354 Premium and agents' balances receivable, net 6,023 690 13,292 Premium notes receivable - 11,120 (384) Reinsurance recoverable on losses and loss adjustment expenses 7,093 (8,943) 59,882 Prepaid reinsurance premiums - ceded business 5,014 6,443 6,342 Deferred policy acquisition costs 606 2,943 11,943 Unpaid losses and loss adjustment expenses (21,175) (26,837) (62,921) Unearned premiums (10,164) (8,719) (46,071) Balances due other insurance companies (6,681) (8,657) 2,118 Current income taxes payable 42 (571) 784 Funds held by reinsurers - 97 1,557 Outstanding drafts and bank overdraft (3,891) (3,336) (10,338) Other - net (603) 2,892 (3,007) ----------------------------- Total adjustments ( 22,863) (25,534) (42,573) ----------------------------- Net cash used in operating activities ( 21,711) (44,608) (43,587) ----------------------------- Cash flows from investing activities: Proceeds from investments sold 10,804 143,609 63,794 Proceeds from investments matured 2,030 45 11,060 Cost of investments acquired (4,201) (88,041) (93,565) Change in short-term investments - net 140 716 589 Proceeds from mortgage loan receivable collected 1,965 - - Proceeds from property and equipment sold 57 655 667 Purchases of property and equipment (92) (2,418) (42) ----------------------------- Net cash provided by (used in) investing activities 10,703 54,566 (17,497) ------------------------------ Cash flows from financing activities: Stock issued to employee benefit plans 18 - - Proceeds from stock rights offering 5,321 - - Proceeds from (repayment of) notes payable 2,000 (1,934) (219) ----------------------------- Net cash used in financing activities 7,339 (1,934) (219) ----------------------------- Net increase (decrease) in cash and temporary cash investments (3,669) 8,024 (61,303) Cash and temporary cash investments, January 1 20,243 12,219 73,522 ----------------------------- Cash and temporary cash investments, December 31 $ 16,574 $ 20,243 $ 12,219 ============================ Supplemental Cash Flow Information: Interest paid $ 96 $ 210 $ 246 Income taxes paid (received) (44) 600 4 Noncash Investing Activities: Notes payable exchanged for common stock $ - $ 10,000 $ - Notes payable exchanged for accrued interest 37 439 - Extinguishment of debt through cancellation of debt in exchange for new debt - - $ 14,794 The accompanying notes are an integral part of these consolidated financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations, Principles of Consolidation and Presentation The Seibels Bruce Group, Inc. (the "Company") is the parent company of South Carolina Insurance Company ("SCIC") and Seibels Bruce and Company ("SBC"). SCIC and its property and casualty insurance subsidiaries provide servicing carrier activities for several state and federal insurance facilities, and SBC provides MGA services to an unrelated insurance company. Prior to mid 1995, SCIC and its property and casualty subsidiaries also underwrote business for its own account primarily in the auto physical damage, private passenger auto liability and fire and allied lines in the Southeast. For the fiscal years ended December 31, 1994 and 1993, the Company reported significant operating losses and net cash used in operating activities. In addition, the amended regulatory filings by the insurance subsidiaries at December 31, 1994 indicated a consolidated statutory capital and surplus which was substantially below the minimum required by the South Carolina Department of Insurance. During 1995, new management has taken measures to improve the Company's finan= cial condition and results of operations including raising capital through 1) a rights offering completed in January 1995 and 2) borrowing from the major investor (See Note 5). The proceeds from both transactions were contributed to SCIC as statutory surplus. Continued capital transactions that have closed sub- sequent to December 31, 1995 include 1) in January 1996, a group of investors acquired 6,250,000 shares of common stock, subject to certain approvals (see Note 15 and 2) on March 29, 1996, a group of investors purchased 1,635,000 shares of common stock (see Note 15). Additional actions taken by management include insurance suspension of retaining insurance risk on contracts written, effective in the second quarter of 1995. During the fiscal year ended December 31, 1995, the Company reported a reduction in net cash used in operating activities. In addition, the regulatory filings by SCIC at December 31, 1995 indicate that consolidated statutory capital and surplus exceed the statutory minimums. The Company has developed and begun implementation of a business and operating plan which incorporates activities to produce siginificant cost reductions, attract additional capital, and sell Consolidated American Insurance Company (a dormant insurance subsidiary). The plan indicates a continuation of adequate statutory capital and surplus. The accompanying consolidated financial statements have been prepared in con- formity with generally accepted accounting principles (GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain classifications previously presented in the consolidated financial statements for prior periods have been changed to conform to current classi- fications. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of con- tingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, although, in the opinion of man- agement, such differences would not be significant. Cash and Temporary Cash Investments For purposes of the Statements of Cash Flows, the Company considers both cash and temporary cash investments within the caption "Cash and temporary cash investments" to be those highly liquid investments purchased with an initial maturity of three months or less. At December 31, 1994, the Company had book cash overdrafts of $3.9 million, which are classified as "other liabilities" in the accompanying balance sheet. At December 31, 1995, the Compnay had no book cash overdrafts. Fair Value of Financial Instruments The fair value of fixed maturities, equity securities, short-term investments, mortgage loans on real estate, other long-term investments, cash and accrued investment income was $55.0 million and $62.7 million at December 31, 1995 and 1994, respectively. The fair values of cash and short-term investments approximate carrying value because of the short maturity of those instruments. Fixed maturities and equity securities fair values were determined in accordance with methods prescribed by the National Association of Insurance Commissioners, which do not differ materially from nationally quoted market prices. The fair value of certain municipal bonds is assumed to be equal to amortized cost where no market quotations exist. The fair value of mortgage loans on real estate is at net realizable value. Premium and agents' balances receivable are carried at their historical costs which approximate fair value as a result of timely evaluation of recoverability and allowance for uncollectible amounts. The fair value of debt was $2.5 million and $0.4 million at December 31, 1995 and 1994, respectively. The fair value of debt is estimated to be its carrying value based on the current rates offered for debt having the same or similar terms, and remaining maturities. Property and Casualty Premiums Property and casualty premiums are reflected in income when earned as computed on a monthly pro-rata method. Written premiums and earned premiums have been reduced by reinsurance placed with other companies, including substantial amounts related to business produced as a servicing carrier. A reconciliation of direct to net premiums, on both a written and an earned basis is as follows (See Note 12): 1995 1994 1993 (thousands of dollars) --------------------------------------------------------------- Written Earned Written Earned Written Earned --------------------------------------------------------------- Direct $ 114,184 $ 122,912 $ 140,683 $ 146,481 $ 153,073 $ 196,386 Assumed 422 1,232 5,332 2,275 9,572 10,503 Ceded (108,560) (113,760) (131,478) (134,038) (145,216) (151,558) ------------------------------------------------------------------- Net $ 6,046 $ 10,384 $ 14,537 $ 14,718 $ 17,429 $ 55,331 ===================================================================
The amounts of premiums pertaining to catastrophe reinsurance that were ceded from earned premiums during 1995, 1994 and 1993 were $0.8 million, $1.7 million and $4.4 million, respectively. Credit life premiums are reflected in income when earned as computed on a monthly pro-rata method for level term premiums and on a sum-of-the-digits method for decreasing term premiums. Commission and Service Income Commission and service income is predominantly derived from servicing carrier activities. The commission income related to producing and underwriting the business is recognized in the period in which the business is written. Beginning in 1993, a portion of commission income is also derived from business produced by the Company as a Managing General Agent. The Company receives commissions for producing and underwriting the business as well as servicing such business. These revenues are recognized on an accrual basis as earned. Policy Acquisition Costs Policy acquisition costs attributable to property and casualty operations represent that portion of the cost of writing business that varies with and is primarily related to the production of business. Such costs are deferred and charged against income as the premiums are earned. The deferral of policy acquisition costs is subject to the application of recoverability tests to each primary line or source of business based on past and anticipated underwriting results. The deferred policy acquisition costs that are not recoverable from future policy revenues are expensed. The Company has considered anticipated investment income in determining premium deficiency. Property and Casualty Unpaid Loss and Loss Adjustment Expense The liability for property and casualty unpaid losses and loss adjustment expenses includes: (1) An accumulation of formula and case estimates for losses reported prior to the close of the accounting period. (2) Estimates of incurred-but-not-reported losses based upon past experience and current circumstances. (3) Estimates of allocated, as well as unallocated, loss adjustment expense liabilities by applying percentage factors to the unpaid loss reserves, with such factors determined on a by-line basis from past results of paid loss adjustment expenses to paid losses. (4) The deduction of estimated amounts recoverable from salvage and subro- gation. (5) Estimated losses as reported by ceding reinsurers. Management, in conjunction with the Company's consulting actuaries, performs a complete review of the above components of the Company's loss reserves to eval- uate the adequacy of such reserves. Management believes the reserves, which approximate the amount determined by independent actuarial reviews, are sufficient to prevent prior years' losses from adversely affecting future periods; however, establishing reserves is an estimation process and adverse developments in future years may occur and would be recorded in the year so determined. Earnings per Share Income (loss) per share is based on the weighted average number of shares outstanding. Such weighted average outstanding shares are 16,722,107 in 1995 (11,067,565 in 1994 and 7,500,534 in 1993). Outstanding stock options and warrants are common stock equivalents but have no dilutive effect on income (loss) per share. Allowance for Uncollectible Accounts Allowance for uncollectible accounts for agents' balances receivable, other receivables, and premium notes receivable were $70,000, $79,000, and $75,000 at December 31, 1995 and $70,000, $151,000, and $245,000 at December 31, 1994, respectively. There are no significant credit concentrations related to premiums receivable, agents' balances, and premium notes receivable. Property and Equipment Property and equipment are stated at cost and, for financial reporting purposes, depreciated on a straight-line basis over the estimated useful lives of the assets. For income tax purposes, accelerated depreciation methods are used for certain equipment. Other Interest Income and Other Income Other interest income for 1993 includes $1.0 million on an excess of loss reinsurance agreement which was commuted in 1993. Other interest income also includes interest received on reinsurance balances withheld, agents' balances receivable, and balances due from the South Carolina Reinsurance Facility. Other income for 1995 includes a gain from the settlement of a case previously in litigation. Other income for 1994 includes a $0.6 million gain on the sale of a subsidiary. Other income for 1993 includes $0.7 million from the sale of real estate. Recent Accounting Pronouncements On October 23, 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. SFAS No. 123 allows companies to retain the current approach set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," for recognizing stock-based compensation expense in the basic financial statements. However, companies are encouraged to adopt a new accounting method based on the estimated fair value of employee stock options. Companies that do not follow the new fair value based method will be required to provide expanded disclosures in the footnotes. SFAS No. 123 is effective for fiscal years ended December 31, 1996, and the Company intends to provide such information in expanded disclosures in the footnotes. NOTE 2 INVESTMENTS In May 1993, FASB issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Statement No. 115 classifies securities into three categories: held-to-maturity, trading and available-for-sale. The Company's securities are classified as available-for-sale. Statement No. 115 requires available-for-sale securities to be reported at fair value and un- realized gains and losses reported in a separate component of shareholders' equity. The Company adopted Statement No. 115 effective January 1, 1994. (a) Investments in fixed maturities, notes, preferred stocks and common stocks are carried at market at December 31, 1995 and 1994. Short-term invest- ments are carried at cost, which approximates market value. (b) Unrealized gains and losses on marketable equity securities are credited or charged directly to shareholders' equity. Realized gains and losses on investments included in the results of operations are determined using the "identified certificate" cost method. Realized gains (losses) and the change in unrealized gains (losses) on investments are summarized as follows: Fixed Equity Maturities Securities Other Total (thousands of dollars) ---------------------------------------- Realized 1995 $ 240 $ (76) $ - $ 164 1994 (7,019) 930 (238) (6,327) 1993 2,025 1 (57) 1,969 Change in unrealized 1995 $ 2,790 $ 237 $ (11) $ 3,016 1994 (3,222) (1,657) (140) (5,019) 1993 (14) 725 (14) 697
Net amortization of bond discount and premium charged to income for the years ended December 31, 1995, 1994 and 1993 are $3,000, $154,000 and $53,000, respectively. Unrealized gains and losses reflected in equity are as follows: 1995 1994 1993 (thousands of dollars) ------------------------------ Gross unrealized gains $ 577 $ 136 $ 1,716 Gross unrealized losses (176) (2,751) (153) Net unrealized gains (losses) before taxes 401 (2,615) 1,563 --------------------------- Net unrealized gain (loss) $ 401 $(2,615) $ 1,563 ============================
Proceeds from sales of investments in fixed maturities and related realized gains and losses were as follows: 1995 1994 1993 (thousands of dollars) ------------------------------- Proceeds from sales $ 10,556 $ 134,318 $ 63,669 Gross realized gains 267 498 2,039 Gross realized losses (27) (7,517) (14)
Proceeds from sales of investments in equity securities and related realized gains and losses were as follows: 1995 1994 1993 (thousands of dollars) -------------------------------- Proceeds from sales $ 248 $ 9,291 $ 125 Gross realized gains - 1,555 1 Gross realized losses ( 76) (625) -
(c) Investments which exceed 10% of shareholders' equity, excluding investments in U.S. Government and government agencies and authorities, at December 31, 1995, are as follows: Carrying Value (thousands of dollars) Corporate bonds: IBM Credit Corp, 9.675%, Due 07/01/2008 $ 1,168 Short-term investments: Cash Accumulation Trust - National Money Market Fund 6,365 First Union Bank - Repurchase Agreement Fund 3,538 There were no bonds which were non-income producing for the twelve months ended December 31, 1995. Fixed maturity investments with an amortized cost of $21.9 million at December 31, 1995 and 1994 were on deposit with regulatory authorities. (d) The amortized cost and estimated market values of investments in fixed maturities and equity securities by categories of securities are as follows: December 31, 1995 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------------------------------------- (thousands of dollars) U.S. Government and government agencies and authorities $ 31,068 $ 348 $ - $ 31,416 States, municipalities and political subdivisions 931 62 - 993 All other corporate 1,168 - - 1,168 Redeemable preferred stocks 4 - - 4 -------------------------------------------- Total fixed maturities 33,171 410 - 33,581 -------------------------------------------- Non-redeemable preferred stocks 166 - (7) 159 Common stocks 56 167 (5) 218 -------------------------------------------- Total equity securities 222 167 (12) 377 -------------------------------------------- Other long-term investments 198 - (164) 34 -------------------------------------------- Total $ 33,591 $ 577 $ (176) $ 33,992 ===========================================
December 31, 1994 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------------------------------------- (thousands of dollars) U.S. Government and government agencies and authorities $ 36,368 $ 2 $( 2,455) $ 33,915 States, municipalities and political subdivisions 1,093 28 - 1,121 All other corporate 2,358 45 - 2,403 Mortgage-backed (government guaranteed) securities 1,498 - - 1,498 Redeemable preferred stocks 4 - - 4 ------------------------------------------ Total fixed maturities 41,321 75 (2,455) 38,941 ------------------------------------------ Non-redeemable preferred stocks 281 - (66) 215 Common stocks 259 61 (77) 243 ------------------------------------------ Total equity securities 540 61 (143) 458 ------------------------------------------ Other long-term investments 199 - (153) 46 ------------------------------------------ Total $ 42,060 $ 136 $ (2,751) $ 39,445 ===========================================
(e) Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penal- ties. The amortized cost and estimated market value of fixed maturities at December 31, by contractual maturity, are as follows: December 31, 1995 Estimated Amortized Market Cost Value -------------------- (thousands of dollars) Due in one year or less $ 3,098 $ 3,102 Due after one year through five years 16,324 16,436 Due after five years through ten years 12,252 12,520 Due after ten years 1,493 1,519 Redeemable preferred stocks 4 4 ------------------ Total $33,171 $33,581 ==================
(f) Investment income consists of the following: 1995 1994 1993 (thousands of dollars) ----------------------------- Fixed maturities $ 2,023 $ 4,348 $ 4,323 Equity securities 15 266 96 Short-term investments 1,138 626 959 Mortgage loan 23 255 273 Other 42 - - --------------------------- Total investment income 3,241 5,495 5,651 Investment expenses (65) (174) (196) ---------------------------- Net investment income $ 3,176 $ 5,321 $ 5,455 ============================
NOTE 3 PROPERTY AND EQUIPMENT A summary of property and equipment follows: Description Life-years 1995 1994 (thousands of dollars) ---------------------- Land - $ 1,153 $ 1,153 Buildings 10-40 4,323 4,585 Data processing equipment 3- 7 4,218 4,135 Furniture and equipment 3-10 7,387 7,507 ------------------- 17,081 17,380 Accumulated depreciation (11,685) (11,110) -------------------- $ 5,396 $ 6,270 ===================
Depreciation expense charged to operations was $0.9 million in 1995 ($0.7 million in 1994 and $0.6 million in 1993). NOTE 4 DEFERRED POLICY ACQUISITION COSTS Policy acquisition costs incurred and amortized to income on property and casualty business are as follows: 1995 1994 (thousands of dollars) ---------------------- Deferred at beginning of year $ - $ 1,300 Costs incurred and deferred during year: Commissions and brokerage 1,287 2,542 Taxes, licenses and fees 486 544 Other 1,415 1,152 ----------------- Total 3,188 4,238 ----------------- Amortization charged to income during year (3,188) (5,538) ----------------- Deferred at end of year $ - $ - ===================
Deferred policy acquisition costs attributable to the credit life operation were $293,000 at December 31, 1995 and $899,000 at December 31, 1994. These costs represent that portion of the cost of writing business which is deferred and charged against income, through other operating costs and expenses, as premiums are earned. NOTE 5 NOTES PAYABLE Notes payable at December 31, 1995 and 1994, are summarized as follows: 1995 1994 (thousands of dollars) ---------------------- Note payable (Due 5/1/96, interest accrues at a rate equal to NationsBank's Prime Rate (8.5%) plus 2%, compounded daily) $ 2,000 $ - Interest note payable, due 5/1/96, interest at 8.5%, 476 439 --------------------- Notes payable $ 2,476 $ 439 =====================
A major investor of the Company holds both notes. The $2 million note is secured to the extent of outstanding principal by (i) a first lien and security interest on all furniture, fixtures and equipment (current book value of $0.7 million) of SBC, and (ii) an assignment by SCIC, upon the sale of such real property owned by it, of the excess of the net proceeds of that sale over book value of such real property. The lien, security interest and assignment are subject to the prior written approval of the South Carolina Department of Insurance. Principal and accrued interest on the interest note payable is due May 1, 1996 (See Note 15). NOTE 6 INCOME TAXES The Company uses the liability method in accounting for income taxes. Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The Company files a consolidated federal income tax return which includes all companies. A formal tax-sharing agreement has been established by the Company with its subsidiaries. A reconciliation of the differences between income taxes (benefit) on income (loss) before extraordinary items computed at the federal statutory income tax rate and tax expense (benefit) from operations is as follows: 1995 1994 1993 (thousands of dollars) ---------------------------- Federal income tax (benefit), at statutory rates $ 391 $(6,475) $(5,104) Increase (decrease) in taxes due to: Tax exempt interest (22) (92) (49) Dividends received deduction (4) (82) (19) "Fresh start" adjustment for loss reserve discounting for tax purposes - - (251) Limitation of net operating loss carryforward due to change in control 18,007 - - Changes in valuation allowance: - Utilization of net operating loss (329) 6,695 777 - Reduction due to limitation of net operating loss (18,007) - - Other (38) (17) (116) --------------------------- Tax expense (benefit) from operations $ (2) 29 $(4,762) ===========================
The provision (benefit) for income taxes on loss from operations consists entirely of current income taxes. The change in deferred amounts has been offset by the valuation allowance. Deferred tax liabilities and assets at December 31, 1995 and 1994, are comprised of the following: 1995 1994 Tax Effect Tax Effect (thousands of dollars) ------------------------- Deferred tax liabilities: Deferred acquisition costs $ 146 $ 302 Property and equipment 95 99 Net unrealized investment gains 136 - Other - 38 ----------------------- Total deferred tax liabilities 377 439 ----------------------- Deferred tax assets: Net operating loss carryforwards (15,300) (32,062) Insurance reserves (4,115) (4,963) Net unrealized investment losses - (837) Bad debts (449) (718) Other (376) (948) ----------------------- Total deferred tax assets (20,240) (39,528) ----------------------- Valuation allowance 19,863 39,089 ----------------------- Net deferred tax liabilities $ - $ - =======================
The Company has determined, based on its recent earnings history, that a valuation allowance of $19.9 million should be established against the deferred tax asset at December 31, 1995. The Company's valuation allowance decreased by $19.2 million during 1995 due to utilization of net operating loss, reduction due to limitation of net operating loss and due to unrealized investment gains. The Company has unused tax net operating loss carryforwards and capital loss carryforwards of $97.9 million for income tax purposes. However, due to a "change in ownership" condition that occurred in 1995, the Company's use of the net operating loss carryforwards are subject to limitation in future years to an amount estimated to be in the range of approximately $2.5 million to $3.0 million per year. If not utilized against taxable income in future years, the tax carryforwards will expire as follows: Year of Expiration Net Operating Loss Capital Loss thousands of dollars) ------------------------------------- 1999 $ - $ 5,002 2000 - 825 2004 15,971 - 2006 20,411 - 2007 31,931 - 2009 19,342 - 2010 4,480 - ----------------------- $ 92,135 $5,827 =======================
NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE A part of the Company's reserve for losses and LAE is set aside for environ- mental, pollution and toxic tort claims. The majority of these claims relate to business written by the West Coast operation prior to 1986. On June 7, 1994, the Company settled a dispute relative to approximately 400 of these claims, and any future liability on them is limited to 50% of the loss. Reimbursement of the Company's 50% does not begin until the other company pays out a post June 7, 1994 total of $20 million. The settlement also has policyholder surplus safeguards inuring to the benefit of the Company built in to it. Future obligations, if any, are not likely to become payable for several years. Management has evaluated the estimated ultimate liability of this business and has concluded that the future development of the losses subject to this settlement should not have a material impact on the Company. The policies corresponding to the remaining claims were written on a direct basis. The Company has 100% excess of loss reinsurance through 1980 of $100,000, and $500,000 after that date. At December 31, 1995, the claims are reserved as follows (thousands of dollars): Case reserves $ 2,229 IBNR reserves 8,675 LAE reserves 3,453 -------- Total $14,357 ========
The above claims involve 11 Superfund sites, 5 asbestos or toxic tort claims, 10 underground storage tanks and 59 miscellaneous clean-up sites. In estimating the liability for reported and estimated losses and adjustment expenses related to environmental and construction defect claims, management considers facts currently known along with the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated continually. The potential development of losses is limited by policy limits. For this direct business there are usually several different insurers partici- pating in the defense and settlement of claims made against the insured. Costs and settlements are pro-rated by either time on the risk or policy limits. For the direct retained and assumed reinsurance without LAE claim limits, the Company is only one of a group of insurers. Each member of the group partici- pates in the handling and monitoring of the claim and the group selects one attorney to defend the case. Legal fees are prorated among the group based on each member's number of years of coverage. For assumed reinsurance with LAE limits, claims represent upper level excess policies assumed from the London market. As such, the primary insurers handle claim settlements and the Company pays its portion of the claim and LAE, up to its retention amounts, based on the settlement amounts determined by the primary insurers. Because only 85 claims remain open as of December 31, 1995, the exposure to significant additional development is less than when the claims were less mature. In addition, the likelihood of new claims being asserted for construction liability is lessened by the expiration of statutes of limitations since the last policy expired over ten years ago. Losses are recognized as incurred and as estimated by the procedure previously described. Losses and LAE incurred have been reduced by recoveries made and to be made from reinsurers, which also includes substantial amounts related to business produced as a servicing carrier, as follows: 1995 1994 1993 (thousands of dollars) ---------------------------- Losses incurred $150,339 $145,930 $147,307 Loss adjustment expenses 5,379 19,429 15,954 --------------------------- $155,718 $ 165,359 $163,261 ===========================
The following table summarizes net property and casualty losses and LAE incurred: 1995 1994 1993 (thousands of dollars) ----------------------------- Estimated losses and LAE incurred $ 168,639 $202,053 $221,546 Estimated reinsurance loss recoveries on incurred losses (155,718) (165,359) (163,261) NCCI commutation (1) - (6,138) - American Star commutation (2) - 2,852 - ----------------------------- $ 12,921 $ 33,408 $ 58,285 ==============================
(1) Until March 31, 1994, the Company participated in the National Workers' Compensation Reinsurance Pool ("NCCI"), which is a national reinsurance fund for policies allocated to insurers under various states' workers' compensation assigned risk laws for companies that cannot otherwise obtain coverage. On September 30, 1994, the Company satisfied its obligation with respect to all outstanding and future claims associated with the Company's participation for a cash payment of $16.2 million. The redundancy in the losses and claim reserves, as a result of its settlement, of $6.1 million reduced 1994 loss and LAE incurred. (2) In June, 1994, the Company made a cash payment in the amount of $10.3 million for a settlement of pending arbitration relating to indemnification of American Star for certain loss and LAE reserves. Recorded reserves amounted to $7.4 million before the settlement. This transaction increased loss and LAE incurred by $2.9 million. Activity in the liability for unpaid losses and LAE is summarized as follows: 1995 1994 1993 (thousands of dollars) ----------------------------- Liability for losses and LAE at beginning of year: Gross liability per balance sheet $ 166,698 $ 194,682 $ 257,603 Ceded reinsurance recoverable (88,731) (76,221) (140,969) ------------------------------- Net liability 77,967 118,461 116,634 ------------------------------- Provision for losses and LAE for claims occurring in the current year 9,546 16,451 47,776 Increase in estimated losses and LAE for claims occurring in prior years 3,375 16,957 10,509 ------------------------------- 12,921 33,408 58,285 Losses and LAE payments for claims occurring during: Current year 7,014 10,291 26,499 Prior years 22,843 63,611 29,959 29,857 73,902 56,458 Liability for losses and LAE at end of year: Net liability 61,031 77,967 118,461 Ceded reinsurance recoverable 84,492 88,731 76,221 ------------------------------ Gross liability per balance sheet $ 145,523 $ 166,698 $ 194,682 ===============================
Changes in estimates for the claims incurred in prior years increased the provision for losses and LAE (net reinsurance recoveries) by $3.4 million in 1995, $17.0 million in 1994, and $10.5 million in 1993. In each year, the principal cause for the changes in estimates related to environmental and construction defect claims incurred during 1982 through 1985. Both the severity of the claims and the number of late reported claims were much greater than originally estimated. During 1994, an additional amount was added to the estimates of losses for workers compensation claims incurred in 1993 and prior, principally in Florida. Also in 1994, the increase in estimated losses was offset partially by a settlement of all outstanding claims through the National Workers' Compensation Pool at $6.1 million less than the estimates at the beginning of that year. During 1993, the increase in estimated losses included $2.9 million of upward revisions in the estimated losses for business the Company was required to accept through various mandated pools and associations. NOTE 8 DIVIDEND RESTRICTIONS The ability of SBIG to declare and pay cash dividends, as well as to pay any debt service, is dependent upon the ability of SCIC to declare and pay dividends to SBIG. SCIC is regulated as to its payment of dividends by the South Carolina Insurance Holding Company Regulatory Act (the "Act"). The Act provides that, without prior approval of the South Carolina Insurance Commissioner, dividends within any twelve-month period may not exceed the greater of (i) 10% of SCIC's surplus as regards policyholders as of December 31 of the prior year or (ii) SCIC's statutory net income, not including realized gains, for the prior calendar year. Notwithstanding the foregoing, SCIC may not pay any dividend without the prior approval of the Insurance Commissioner of the State of South Carolina. NOTE 9 STATUTORY REPORTING The Company's insurance subsidiaries' assets, liabilities and results of oper- ations have been reported on the basis of GAAP, which varies from statutory accounting practices ("SAP") prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP, are that under SAP: (i) certain assets that are not admitted assets are eliminated from the balance sheet; (ii) acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policies under GAAP; (iii) no provision is made for deferred income taxes; (iv) the timing of establishing certain reserves is different than under GAAP; and (v) valuation allowances are established against investments. Each of the Company's insurance subsidiaries must file with applicable state insurance regulatory authorities an "Annual Statement" which reports, among other items, net income (loss) and shareholders' equity (called "surplus as regards policy- holders" in property and casualty reporting). A reconciliation between GAAP net income (loss) and statutory net income (loss) ofthe property and casualty insurance subsidiaries is as follows: Year Ended December 31, 1995 1994 1993 (thousands of dollars) ------------------------------ GAAP income (loss) before extraordinary item $ 1,152 $ (19,074)$ (10,249) Increase (decrease) due to: Deferred policy acquisition costs 606 2,943 11,942 Salvage/subrogation recoverable and reserves (41) 1,225 677 Deferred reinsurance benefits - (155) (1,324) Timing difference on contingency accrual - - 2,424 Parent Company GAAP-only items and other non-statutory subsidiaries 1,820 181 1,377 Mortgage loan loss recognition (987) - - Intercompany dividends - 2,500 - Intercompany dividend offset by increase in statutory surplus (13,202) - - Adjustments to premium and loss reserves (255) (1,833) - Other 99 606 (154) --------------------------- Statutory net income (loss)-(1994 as amended) (10,808) (13,607) 4,693 Allocation of SBC expenses (1,574) - - --------------------------- Statutory net income (loss)-(1995 as adjusted) $(12,382) $ (13,607) $ 4,693 ===========================
The 1995 statutory net loss includes the dividend of one of SCIC's subsidiaries to its parent company. The $13.2 million loss is directly offset by an increase in statutory surplus for the change in the unrealized gain from the investment in the company. Additionally, the 1995 reported statutory net loss does not include an error in allocation of expenses of $1.6 million between SCIC and SBC. While this error has no effect on GAAP results, SCIC's net statutory loss is understated by this amount, and statutory surplus is overstated by this amount. A reconciliation between GAAP shareholders' equity and statutory capital and surplus is as follows: Year Ended December 31, 1995 1994 1993 (thousands of dollars) ------------------------------- GAAP shareholders' equity $ 10,187 $ 650 $ 13,902 Increase (decrease) due to: Deferred policy acquisition costs (293) (899) (3,842) Parent company capital less than contribution to statutory surplus 2,400 - 10,000 Non-statutory companies' shareholders' equity 1,436 - - Adjustments to premiums and loss reserves (554) (1874) - Other (2,301) 508 (2,708) ------------------------------ Statutory surplus (1994 as amended) 10,875 (1,615) 17,352 Allocation of SBC expenses (1,574) - - ------------------------------- Statutory surplus (1995 as adjusted) $ 9,301 $(1,615) $ 17,352 ===============================
Net income and shareholders' equity of the credit life insurance subsidiary as determined in accordance with statutory accounting practices are as follows: Year Ended December 31, 1995 1994 1993 (thousands of dollars) ---------------------------------- Net income $ 276 $ 750 $ 467 Shareholders' equity ("surplus as regards policyholders") $ 4,334 $ 4,036 $ 6,311
NOTE 10 BENEFIT PLANS (a) The Seibels Bruce & Company Employees' Profit Sharing and Savings Plan contains both profit-sharing and 401(k) plan elements. The profit-sharing element of the plan covers all full-time employees. There were no contributions to this element of the plan during the last three years. The profit-sharing account currently holds 214,587 shares of SBIG stock. Under the 401(k) element of the plan, employees may elect to have a portion of their salary withheld on a pre-tax basis for investment in the plan, subject to limitations imposed by IRS regulations. From January 1, 1993 through June 30, 1994, the employer matched 25% of the employee contributions, limited to a maximum of 1.5% of the employee's eligible compensation. From July 1, 1994 through June 30, 1995, the employer resumed matching 50% of the employee con- tributions, limited to a maximum of 3% of the employee's eligible compensation. The employer discontinued matching effective July 1, 1995. The employer matched portion is invested in accordance with the investment options selected by the participant. The employer contribution to the plan on behalf of participating employees was $87,000 in 1995 ($270,000 in 1994 and $82,000 in 1993). (b) The Company currently has three plans under which SBIG stock options, incentive stock and restricted stock may be granted to employees of the Company, non-employee directors of the Company, consultants and active independent agents representing the Company. All three plans and grants made under the plans are subject to shareholder approval at the 1996 annual shareholders' meeting. The 1996 Stock Option Plan (the "1996 Plan") for Employees supersedes the 1987 Stock Option Plan (the "1987 Plan") and became effective November 1, 1995, subject to shareholder approval. The 1996 Plan reserves 5 million shares of Company stock which may be issued as stock options, incentive stock and re- stricted stock to employees and consultants to the Company. The following table shows stock option activity under the 1987 and 1996 plans for the three years ended December 31, 1995. There were no grants of incentive stock or restricted stock under the 1996 Plan during 1995. The activity with a "*" denoted indicates grants under the 1996 plan pending shareholder approval. 1995 1994 1993 Shares under options outstanding at beginning of year 51,150 64,175 150,950 Granted under 1987 Plan 300,000 - - Granted under 1996 Plan* 555,000 - - Exercised during year (20,000) - - Canceled or expired during year (24,975) (13,025) (86,775) ------------------------------ Shares under options outstanding at end of year 861,175 51,150 64,175 ------------------------------ Shares exercisable, end of year 561,175 51,150 64,175 ==============================
The range of option prices for options outstanding and exercisable at the end of 1995 is $0.8125 - $11.25. All grants made under the Plans have exercise prices no lower than the market price at the date of grant. At December 31, 1995, 4,118,825 shares of the Company's stock have been reserved for future grant, pending shareholder approval at the annual meeting in 1996. The 1995 Stock Option Plan for Non-employee Directors became effective June 15, 1995, subject to shareholder approval at the 1996 annual shareholders' meeting. Under the plan, all non-employee directors will be automatically granted 5,000 options to purchase SBIG stock on an annual basis every June 15th. The exercise price will be the market value on the date of grant. On June 15, 1995, 35,000 options were granted at an exercise price of $0.875 which will become exercisable upon shareholder approval. The 1995 Stock Option Plan for Independent Agents became effective December 21, 1995, subject to shareholder approval at the 1996 annual shareholders' meeting. There was no activity under this plan during 1995. (c) The Company and its subsidiaries currently provide certain health care and life insurance benefits for retired employees. The projected future cost of providing postretirement benefits, such as health care and life insurance, is being recognized as an expense as employees render service. The cumulative effect accruing said expenses versus expensing the benefits when paid is being recorded as a charge against income on a prospective basis as part of the future annual benefit cost. The postretirement benefit expense was approximately $79,000 in 1995, $91,000 in 1994, and $91,000 in 1993. The following table presents the reconciliation of the funded status at December 31, 1995 and 1994: 1995 1994 (thousands of dollars) ------------------------ Accumulated postretirement benefit obligation: Active employees $ (71) $ (58) Current retirees (522) (540) ------ ------ Total (593) (598) Fair value of assets - - ------ ------ Accumulated postretirement benefit obligation in excess of fair value of assets (593) (598) Unrecognized transition obligation 593 628 Unrecognized net loss (gain) (102) (116) ------ ------- Accrued postretirement benefit cost $ (102) $ (86) ====== =======
Net periodic postretirement benefit cost includes the following components for 1995 and 1994: 1995 1994 (thousands of dollars) ---------------------- Service cost $ 4 $ 4 Interest cost 43 52 Amortization of transition obligation 35 35 Amortization of net gains (3) - ----- ----- Net periodic postretirement benefit $ 79 $ 91 ===== =====
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was 9% for 1995; 12% for 1994 and 1993 and is assumed to decrease to a 5.5% ultimate trend (7% in 1994 and 1993) with a duration to ultimate trend of 6 years (9 years in 1994 and 1993). The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $11,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for 1995 and 7.5% at December 31, 1994 and 1993. NOTE 11 COMPANY'S OPERATIONS IN DIFFERENT BUSINESS SEGMENTS The Company's business has changed significantly in recent years. Operating losses were experienced for several consecutive years as a consequence of un- favorable underwriting experience. In particular, the wind losses of Hurricanes Hugo in 1989 and Andrew in 1992, as well as loss reserve development from en- vironmental and construction defect exposures on the West Coast depleted the capital base of the Company and hindered its ability to write and retain business. The Company ceased to underwrite commercial lines of insurance in the second quarter of 1993, then voluntarily suspended underwriting personal lines of insurance in the second quarter of 1995. New management was put in place in mid-1995, and a transitional operating plan was generated to change the core operations from those of a risk taker to acti- vities which generate fee income. These activities were designed to stabilize the financial condition of the Company. During the last three quarters of 1995, the Company operated profitably. Although there can be no certainty of successful operations, the Company anticipates that continued favorable results will permit the re-entry into risk business during mid-1996. When the Company resumes underwriting insurance risks to be retained, it will be on a more modest volume than in the past, and will generally focus on the personal lines that have less exposure to long periods of time between earning the premiums and determining the ultimate development of losses. The Company acts as a servicing carrier for certain state and federal insurance facilities on a commission basis. The Company is also engaged in the under- writing of property and casualty insurance through its subsidiary property and casualty insurance group. Effective January 1, 1995, Forest Lake Travel Service (FLT), a subsidiary travel agency, was sold. FLT's pre-tax income was $95,000 in 1994 and $420,000 in 1993. In the third quarter of 1993, Investors National Life Insurance Company, the Company's credit life and credit accident and health insurance subsidiary, transferred all of its assets, other than bonds pledged to various state insurance departments, and all of its liabilities to Investors National Life Insurance Company of South Carolina. Immediately following, all of the out- standing stock of Investors National Life Insurance Company was sold. The runoff of the business was assumed by Investors National Life Insurance Company of South Carolina. The pretax income (loss) of Investors National Life Insur- ance Company of South Carolina was $4,000, $(677,000) and $44,000 in 1995, 1994 and 1993, respectively. Premium Service Corporation of Columbia ("PSC") provides insurance premium fin- ancing services through independent agents. Pretax income of Premium Service was $470,000 in 1993. In February, 1994, substantially all of the assets of PSC were sold, and a new company, Policy Finance Company, ("PFC") was formed to handle the administration of the assets retained. The pre-tax income of PFC was $74,000 in 1995 and $538,000 in 1994. The Company has no plans to continue its own premium financing activity. The following sets forth certain information with respect to the Company's operations in different business segments: Year Ended December 31, 1995 1994 1993 (thousands of dollars) Revenue: Property and casualty insurance segments $ 10,384 $ 14,718 $ 55,331 Commission and service activities segment 49,572 60,669 41,625 Net investment income and other interest income 4,038 5,690 6,578 Realized gains (losses) on investments 150 (5,793) 1,965 --------------------------- Total for property and casualty insurance segments 64,144 75,284 105,499 Other business segments 2,039 4,476 8,420 ---------------------------- Total revenue $ 66,183 $ 79,760 $113,919 ===========================
Year Ended December 31, 1995 1994 1993 (thousands of dollars) Operating profit (loss): Property and casualty insurance segments $(6,719) $(27,840) $(24,424) Commission and service activities segment 5,641 10,109 4,321 Net investment income 4,038 5,690 6,578 Realized gains (losses) on investments 150 (5,793) 1,965 --------------------------- Subtotal 3,110 (17,834) (11,560) Other business segments (47) 141 1,863 ---------------------------- Operating income (loss) 3,063 (17,693) (9,697) General corporate expenses, net of miscellaneous income and expense (1,605) (1,031) (2,787) Interest expense (308) (321) (2,527) ----------------------------- Consolidated income (loss) before income taxes $ 1,150 $(19,045) $(15,011) ============================
Operating income (loss) represents revenue less related operating expenses. Net investment income is that related to, but not individually identifiable with, the various property and casualty insurance underwriting and commission and service activities business segments. Identifiable assets by business segment or combined segments represent assets directly identified with those operations and an allocable share of jointly used assets. December 31, 1995 1994 1993 (thousands of dollars) Identifiable Assets Property and casualty insurance underwriting segment, including related investment activity $ 82,493 $ 117,761 $ 182,067 Commission and service activities segment 134,598 127,628 115,006 Other business segments 5,697 8,449 26,250 General corporate assets 1,217 2,097 1,372 ------------------------------ Total assets $ 224,005 $ 255,935 $ 324,695 ==============================
In 1995, depreciation and amortization charges for the various property and casualty insurance underwriting and commission and service activities segments, combined, were $0.9 million ($0.8 million in 1994 and $0.4 million in 1993). These amounts exclude policy acquisition costs of $3.2 million in 1995, ($5.5 million in 1994 and $17.6 million in 1993). Costs of additions to property and equipment for the property and casualty insurance underwriting and commission and service activities segments, combined, amounted to $0.1 million, $2.4 million and $41,000 in 1995, 1994 and 1993, respectively. The majority of the additions in 1994 were due to purchases made to begin the conversion to bring the Company's data processing in-house. NOTE 12 REINSURANCE (a) The Company's property and casualty insurance subsidiaries are involved in several types of reinsurance arrangements. Ceding reinsurance programs include quota share, pro-rata surplus and excess of loss. In its servicing carrier operations, premiums are ceded entirely to the applicable state's reinsurance facility. (b) Reinsurance contracts do not relieve the Company of its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geo- graphic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvency. Rein- suring companies are obligated for the following amounts for unearned premiums, unpaid losses and LAE, and paid losses and LAE: 1995 1994 (thousands of dollars) Unearned premiums $ 43,469 $ 48,483 Unpaid losses and LAE $ 84,492 $ 88,731 Paid losses and LAE $ 27,423 $ 30,277
Reinsurance recoverable on paid and unpaid losses and LAE and prepaid rein- surance at December 31, 1995, reflecting the five largest balances with rein- surers, were: Reinsurance Prepaid Reinsurer Recoverable Reinsurance (thousands of dollars) South Carolina Reinsurance Facility $ 70,026 $ 20,608 National Flood Program 25,178 18,989 North Carolina Reinsurance Facility 7,711 1,436 Swiss Reinsurance Corp. 5,682 327 Kentucky Insurance Placement Facility 1,437 2,109 All Others 1,881 - ---------------------- Total $111,915 $ 43,469 =====================
The Company believes these balances from the various facilities are fully collectible due to the governmental agency's ability to assess member companies for deficiencies. The remaining recoverables due from nonaffiliated reinsurance companies have also been deemed fully collectible by the Company. With respect to credit concentrations, most of the Company's business activity is with agents and policyholders located within the five operating states. The primary reinsurance recoverables are from the state and federal servicing carrier activities. There are otherwise no material credit concentrations related to premiums receivable, agents' balances, and premium notes receivable. NOTE 13 COMMITMENTS AND CONTINGENCIES (a) A contingent liability exists with respect to reinsurance placed with other companies. (See Note 12.) (b) Due to the nature of their business, certain subsidiaries are parties to various other legal proceedings, which are considered routine litigation inci- dental to the insurance business. (c) The 1994 results include a settlement of a dispute which was in pending arbitration. The settlement agreement resolved all issues arising from an indemnification dispute as well as a commutation of the Company's associated reinsurance obligation. Under the settlement, the Company paid $10.3 million to the other party and such party agrees to pay up to $20 million in direct losses on all subsequent subject claims. Any loss payments in excess of $20 million will be shared equally between the parties net of any reinsurance collections. The Company will only share in those payments to the extent of 50% of its in- surance company's consolidated statutory surplus above $20 million, exclusive of direct contributions to capital. At December 31, 1995, the other party reported payments of $2.7 million and additional liabilities of $18.4 million, net of reinsurance. The Company has evaluated the estimated ultimate liability of this business and has concluded that the development of this settlement should not have a material impact on the Company. NOTE 14 RELATED PARTY TRANSACTIONS A non-employee Director of the Company is also a member of the Board of Directors of Policy Management Systems Corporation ("PMSC"), which provides data processing services to the Company. The term of this contract expires June 30, 1996. The Company paid data processing charges of $1.8 million in 1995 ($3.4 million in 1994 and $6.1 million in 1993). The amount payable to PMSC at year-end was $112,000 at 1995 and $203,000 at 1994. Another non-employee Director of the Company was an employee of Prudential Securities, Inc. ("PSI") through mid-1995. From 1994 through mid 1995, PSI acted as investment manager for the Company and for its retirement plan. The amount of fees paid directly to PSI during 1995 was not material, but the amount earned by PSI on trading activity by the Company cannot readily be determined. The Director is no longer an employee of PSI, and PSI's services have since been terminated. NOTE 15 SUBSEQUENT EVENTS During the first quarter of 1996, the Company issued 6,250,000 shares of auth- orized but unissued shares to several related investors. The proceeds of the sale were deposited into escrow pending shareholder approval of the transaction and the approval of the South Carolina Department of Insurance to write new risk-taking business. In addition, shareholders are being asked to approve the voting of the stock since South Carolina law requires such approval for interest in excess of 20% of the voting rights. In conjunction with the sale of common stock, the Company also has issued stock options to acquire an additional 3,125,000 shares at the higher of $1.50 per share or book value at December 31, 1998 and 3,125,000 shares at the higher of $2.00 or book value at December 31, 2000. During the first quarter of 1996, the Company entered into a contract to sell Consolidated American Insurance Company, an inactive insurance company subsid- iary. The sale will generate a gain of approximately $0.9 million in 1996. Also during the first quarter of 1996, the Company issued 1,635,000 shares of authorized but unissued shares to a different group of investors. The proceeds of this stock sale will be available to liquidate the notes payable that are due May 1, 1996 (See Note 5). In addition, subject to shareholder approval of increasing the number of authorized shares, the Company has issued to this group stock options expiring December 31, 2000 to acquire an additional 1,635,000 shares at the higher of $2.50 per share or book value at the date of exercise. SUPPLEMENTARY DATA QUARTERLY FINANCIAL INFORMATION (unaudited) (Thousands of dollars, except per share amounts) The following is a summary of unaudited quarterly information for the years ended December 31, 1995 and 1994: 1995 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Property and casualty premiums earned $3,307 $ 2,206 $ 2,997 $ 1,874 Credit life premiums 194 221 197 278 Commission and service income 13,023 12,529 12,484 11,536 Net investment income and other interest income 1,174 1,177 1,137 842 Realized gains (losses) on investments 65 (29) - 128 Net income (loss) $(2,009) $ 250 $ 1,284 $ 1,627 Per share $(0.13) $ 0.01 $ 0.08 $ 0.11
Property and casualty premiums earned continue to decrease as a result of the Company suspending writing of retained "risk" business. However, losses incurred on this business have stabilized due to the adequacy of reserves. The net loss in the first quarter is due to management setting aside additional reserves for future development. The negative effect on net income due to this runoff business in the remaining quarters has been insignificant. Additionally, while the Company's commission and service income has decreased due to lower commission rates and volume, ongoing cost reductions have mitigated the effect to net income. 1994 Property and casualty premiums earned $ 5,228 $ 3,186 $ 3,488 $ 2,816 Credit life premiums 556 466 830 (51) Commission and service income 15,875 16,630 16,512 11,652 Net investment income and other interest income 1,757 1,862 1,960 647 Realized gains (losses) on investments 1,842 (612) (3,405) (4,152) Net income (loss) $ 219 $ 561 $ 3,271 $(23,125) Per share $ 0.03 $ 0.07 $ 0.23 $ (1.59)
The third quarter was affected by a $6.1 million reserve redundancy in connection with a commutation and $3.4 million in realized investment losses. The fourth quarter results include a reserve strengthening charge of $9.0 million in loss and loss adjustment expense reserves in addition to already recorded fourth quarter incurred losses and LAE of $10.4 million, a $2 million decrease, compared to prior quarters, in commission and service income and $4.1 million in realized investment losses. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Inapplicable. PART III Item 10. Directors, Executive Officers, Promoters, and Control Persons of the Registrant The following information is set forth with respect to the Directors: Principal Occupations during the Past Five Years Year First and Certain Other Elected Name and Age Directorships Director - -------------- ---------------------------------------------- ---------- The following information is set forth with respect to those incumbent Directors whose terms of office will expire at the annual meeting of shareholders to be held in 1996: Ernst N. Csiszar President, Chief Executive Officer and Director 1995 (45) of the Company since June, 1995. Previously held position of visiting professor at the School of Business, University of South Carolina since 1988. William B. Danzell President of Danzell Investment Management, Ltd. 1995 (42) of Hilton Head Island, South Carolina. From 1983 to 1995, Senior Vice President of Prudential Securities in Hilton Head Island. Claude E. McCain Chairman of H.C. McCain Agency, Inc., President 1995 (71) of McCain Realty, Inc. and President of Insurance Finance Company, Inc. Formerly, a member of the State Insurance Commission for 15 years, 10 of which he served as Chairman. Kenneth W. Pavia General partner of Balboa Investments, Chairman of 1995 (53) FHI,Inc,a securities holding company and Fiduciary Leasco, Inc. John P. Seibels Investor, Columbia, SC since March, 1963, Director 1969 (54) of the Company and certain Company subsidiaries. Director of Policy Management Systems Corporation. John A. Weitzel Chief Financial Officer of the Company and certain 1995 (50) Company subsidiaries since September, 1995. Chief Financial Officer of Milwaukee Insurance Group, Inc. from April, 1985 to November 1994. The following information is set forth with respect to those incumbent Directors whose terms of office will expire at the annual meeting of shareholders to be held in 1997: George R.P. Walker Owner and operator of Middlefield Farm (Hanover 1969 (63) horse farm), Blythewood, SC, for more than the past five years. Director of certain Company subsidiaries. John C. West Chairman of the Board. Of counsel with the law firm 1994 (73) of Bethea, Jordan and Griffin in Hilton Head Island, SC and professor at the University of South Carolina. Director of the Alliance International, Global, New Europe and Environment Funds, and on the Advisory Board for Donaldson, Lufkin & Jenrette, Inc. Former Governor of South Carolina (1971-75) and former Ambassador to the Kingdom of Saudi Arabia (1977-81). The following information is set forth with respect to those incumbent Directors whose terms of office will expire at the annual meeting of shareholders to be held in 1998: Albert H. Cox, Jr. Chief Economist of Feltman & Company, an Atlanta- 1994 (63) based investment banking firm. From 1985 to 1993, held various executive positions, including Board member and Senior Economic Advisor, with BIL Management, Inc., a subsidiary of the Bank in Liechtenstein. Prior to 1985, held a number of positions with Merrill Lynch & Company. Item 11. Executive Compensation Director's Compensation In 1995, the Company paid quarterly to each Director who was not a full-time employee of the Company (a "Non- Employee Director") a retainer fee of $175 per month plus $656.25 for each meeting of the Board at which the Director was present, a fee of $175 for each meeting of a Board Committee which he attended on the same day in the same general location as a Board meeting or by telephone, and a fee of $262.50 for attending a Committee meeting otherwise. In addition, at its meeting on June 15, 1995, the Board authorized the issuance of 5,000 shares of Common Stock to each person who was a Non-Employee Director on that date. Compensation of Executive Officers The following table sets forth, for the years ended December 31, 1995, 1994 and 1993, the cash compensation paid by the Company and its subsidiaries, as well as certain other compensation paid or accrued for those years, to each of the executive officers of the Company and such subsidiaries whose compensation was in excess of $100,000 (the "Executive Group"), in all capacities in which they serve.
SUMMARY COMPENSATION TABLE Restricted Securities Other Annual Stock Underlying All Other Name and Salary Bonus Compensation Awards Options Compensation Principal Position Year ($) ($) ($) ($) (#) ($) - ---------------------------- -------- ----------- -------- ------------- ----------- ----------- -------------- John C. West 1995(1) 141,785 0 15,625(2) 0 280,000 0 Chairman of the Board 1994 0 0 0 0 0 0 Ernst N. Csiszar, President 1995(1) 119,154 0 0 0 300,000 0 and Chief Executive Officer John A. Weitzel 1995(1) 33,231(2) 0 0 0 100,000 174 Chief Financial Officer - ---------------------------- -------- ----------- -------- ------------- --------- ----------- -------------- Former Officers Sterling E. Beale 1995 0 0 0 0 0 347,968(4) Chairman of the Board and 1994 147,813 2,438 0 0 0 359,206(4) Chief Executive Officer 1993 182,483 0 0 0 0 2,765 W. Thomas Reichard, III 1995 0 0 0 0 0 0 President 1994 102,476 1,813 0 0 0 252,279(5) 1993 135,659 0 0 0 0 2,199 - ---------------------------- (1) Gov. West was appointed an officer of the Company for the first time in 1994; Messrs. Csiszar and Weitzel were appointed officers of the Company for the first time in 1995. (2) The amount shown represents the dollar value of the difference between the price paid by Gov. West for shares upon the exercise of stock options and the fair market value at the date of exercise. (3) Mr. Weitzel was employed by the Company effective September 30, 1995. The salary amount stated is for the three-month period from the date of employment through December 31, 1995. Prior to the date of employment, Mr. Weitzel was a consultant to the Company during 1995. With respect to his consulting services, the Company paid Mr. Weitzel consulting fees in the amount of $114,000 during 1995. (4) The amounts shown for 1995 and 1994 for Mr. Beale include payments of $193,748 and $355,500, respectively, pursuant to a certain Retirement Agreement and $150,938 of salary for 1994 which was actually paid in 1995. (5) The amount shown for 1994 for Mr. Reichard includes payments aggregating $249,502 pursuant to a certain Separation Agreement and Mutual Release.
Option Grants During the year ended December 31, 1995, the Company granted 300,000 stock options to members of the Executive Group pursuant to the Company's 1987 Stock Option Plan. In addition, the Board of Directors approved the grant of 400,000 stock options to members of the Executive Group pursuant to the 1996 Plan, subject to shareholder approval of that plan. The following table sets forth the grants during the year ended December 31, 1995. Option Grants During the Year Ended December 31, 1995
Potential Realizable value at assumed rates of stock price appreciation for option terms ($) Number of Securities % of Total Underlying Options Exercise Options Granted to Price Expiration 0% 5% 10% Name Granted (#) Employees ($/SH) Date (2) (3) (3) - ------------------- ------------ ------------ --------- ----------- ------- --------- ---------- Ernst N. Csiszar 100,000(1) 13% 1.6250 12/21/00 0 44,895 99,208 Chief Executive 100,000(1) 13% 2.5000 12/21/00 0 (42,605) 11,708 Officer 100,000 13% 06/13/00 24,175 53,420 John C. West 100,000(1) 13% 1.6250 12/21/00 0 44,895 99,208 100,000(1) 13% 2.5000 12/21/00 0 (42,605) 11,708 100,000 13% 0.8750 06/13/00 0 24,175 53,420 John A. Weitzel 100,000 13% 0.8125 09/30/00 0 22,428 49,604 - -------------------------------------- (1) These grants were authorized by the Board of Directors during 1995 under the 1996 Plan, subject to shareholder approval of the 1996 Plan. (2) All grants were made with an exercise price per share at or above the closing market price per share on the date of grant. (3) Assumed for illustrative purposes only.
Option Exercises and Year-End Holdings During the year ended December 31, 1995, members of the Executive Group exercised a total of 20,000 stock options. The following table sets forth certain information with respect to option excercises during the year ended December 31, 1995, and unexercised stock options held by the Executive Group as of December 31, 1995.
Aggregated Option Exercises During the Year Ended December 31, 1995 and 1995 Year-End Option Values Number of Securities Value of Unexercised Shares Underlying Unexercised Options In-The-Money Options at Acquired On Value at Year-End Year-End ($) Exercisable/ Name Exercise ($) Realized ($) (#)Exercisable/Unexercisable Unexercisable - ------------------------- -------------- -------------- ------------------------------- --------------------------- Ernst N. Csiszar 0 N/A 200,000/100,000(2) 62,500 Chief Executive Officer John C. West 20,000 15,625(1) 180,000/100,000(3) 50,000 John A. Weitzel 0 N/A 100,000/0 68,750 - ---------------------- (1) The amount shown represents the dollar value of the difference between the purchase price paid by Gov. West for the shares upon exercise of the stock options and the fair market value of the shares at the date of purchase. (2) The amounts shown for Mr. Csiszar include 200,000 option grants authorized by the Board of Directors during 1995 under the 1996 Plan, subject to shareholder approval of the 1996 Plan. (3) The amounts shown for Gov. West include 200,000 option grants authorized by the Board of Director's during 1995 under the 1996 Plan, subject to shareholder approval of the 1996 Plan.
Employment Agreements The Company has entered into employment agreements (each, an "Agreement") under which Ernst N. Csiszar will serve as President and Chief Executive Officer, John C. West will serves as Chairman and John A. Weitzel will serve as Senior Vice President and Chief Financial Officer (each an "Employee"), of the Company for a term of one (1) year. The terms of each Agreement are substantially identical (except as detailed below). The following is a summary of the terms of the Agreements. Effective Dates of Employment. The one-year terms of Messrs. Csiszar and West began on January 1, 1995. Mr. Weitzel's one-year term began on September 30, 1995. Salary. As payment for services rendered by the Employee under the Agreement, the Company shall pay Messrs. Csiszar and Weitzel $12,000, and Gov. West $7,200, per month during the term of the Agreement. The Employee shall not receive additional compensation for service on the Board of Directors of the Company or any committee thereof. Bonus. Messrs. Csiszar and West shall receive a bonus based on the operating earnings of the Company for the calendar year 1996 of up to 150% of base salary. Stock Options. Messrs. Csiszar and West will receive, effective December 21, 1995, options to purchase 200,000 shares of the Company's stock. The option for 100,000 shares vested on December 21, 1995, and shall be valid for a period of five (5) years from the date of issue and shall expire on December 20, 2000. The exercise price for these 100,000 shares shall be the closing price of the Company's stock on December 21, 1995. The remaining 100,000 shares shall vest on the earlier of (1) Employee's termination of employment with the company, or (2) December 31, 1996. The Options shall be valid for a period of five (5) years from the date of vesting and the exercise price for these Options shall be $2.50 per share. These Options are awarded under the terms and provisions of the 1996 Plan and are subject to the provisions thereof. Mr. Weitzel has received effective September 30, 1995, options to purchase 100,000 shares of the Company's stock. The options vested on September 30, 1995, and shall be valid for a period of five (5) years from the date of issue and shall expire on September 29, 2000. The exercise price for these 100,000 shares shall be the closing price of the Company's stock on September 30, 1995. Relocation Expenses. Mr. Weitzel will be reimbursed by the Company for the reasonable costs incurred in relocating from Wisconsin to South Carolina, including real estate commissions and closing costs paid in the sale of his residence; these costs are not to exceed $35,000. In addition, the Company will reimburse Mr. Weitzel for up to 6 months of temporary living costs -- apartment rental and round-trip flight to Wisconsin every 2 weeks -- until his permanent relocation. Covenant Not to Compete. The Employee agrees that for a period of one year after the date of termination of his employment for any reason except a termination without cause, the Employee shall not solicit any customers or prospective customers in any state in which the Company (including its subsidiaries) engages in business, with whom the Employee became acquainted or gained knowledge of during the course of his employment, and the Employee shall not engage in any business which is in any way competitive with the business of the Company. The Employee further agrees never to disclose any information deemed proprietary by the Company, including but not limited to, customer lists and trade secrets, regardless of the Employee's employment status. Termination. Each party shall have the right to terminate the Agreement at any time during the year upon thirty (30) days written notice to the other party. The Company may terminate the Agreement at any time with cause or upon thirty (30) days written notice without cause; provided, that if the Company terminates the Agreement without cause the Company will pay the Employee within ten (10) days after termination, one year's base salary as severance pay. In the event that during the term of the Agreement, there is a sale of all or substantially all of the Company's assets or all or substantially all of the Company's stock and the new owners express their desire for a change in management or reassign the Employee to a job with the Company with lesser duties or responsibilities, then the Employee has the right to give written notice of his intent to terminate the Agreement and shall receive the remaining balance or amount due under the Agreement as severance. Report of the Board of Directors on Executive Compensation The primary elements of the Company's executive compensation program have historically consisted of a base salary, a bonus opportunity and stock options. Base salaries are determined, and have at times been increased, by evaluating the responsibilities of the position held and the experience of the executive officer. Overall compensation is based on the Compensation Committee's assessment of prevailing market compensation levels. The foregoing has been provided by the Company's Compensation Committee. John P. Seibels (Chairman) George R.P. Walker, Jr. Claude E. McCain Albert H. Cox, Jr. Compensation Committee Interlocks and Insider Participation in Compensation Decisions None of the members of the Compensation Committee is or was formerly an officer or employee of the Company or any of its subsidiaries. Stock Performance Chart The following chart compares the yearly percentage change in the cumulative total shareholder return on the Company's Common Stock during the five years through December 1995 with the cumulative total return on the NASDAQ Stock Market (US Companies) Index and the NASDAQ Fire, Marine and Casualty Insurance Stock Index. [Chart Omitted]
Comparison of Five Year-Cumulative Total Returns Performance Graph for The Seibels Bruce Group Inc. 12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 -------- -------- -------- -------- --------- --------- The Seibels Bruce Group, Inc. 100.0 136.3 46.5 62.0 62.0 37.2 NASDAQ Stock Market (US Companies) 100.0 160.6 186.9 214.5 209.7 296.3 NASDAQ Stocks (SIC 6330-6339 US Companies Fire, Marine and Casualty Insurance) 100.0 142.7 192.3 198.0 190.7 267.4
Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of March 30, 1996, information regarding ownership of the Company's Common Stock by the directors of the Company, each executive officer named in the Summary Compenstion Table that appears under "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS," all directors and such executive officers as a group and each person known to the Company to be the beneficial owner of 5% or more of the Common Stock.
Amount and Nature of Beneficial Percent of Class Excluding (Including) Name of Beneficial Owner (and address, Ownership(1) Issuance of the Powers Shares(2) with respect to non-directors or officer) - ------------------------------------------ ------------------------------- --------------------------------------- William M. Barilka 140,000(3) * Ernst N. Csiszar 300,000(4) 1.60% (1.20%) Albert H. Cox, Jr. 11,600(3) * William B. Danzell 0 0 Claude E. McCain 10,064(3) * Kenneth W. Pavia 0 0 John P. Seibels 606,908(3,5) 3.30% (2.46%) George R.P. Walker, Jr. 506,858(3,6) 2.75% (2.06%) John C. West 312,000(7) 1.67% (1.25%) John A. Weitzel 100,000(4) * All directors and officers as a group 1,987,430(8) 10.40% (7.84%) - ------------------------------------------ -------------------------------- ---------------------------------------- Alissa Group 8,152,200(9) 44.29% (33.06%) P.O. Box 192 Alkhobar, Saudi Arabia The Powers 6,614,206(10) 1.98% (26.8(2)%) P.O. Box 6525 Florence, SC 29502 Avent Group 1,635,000(11) 6.63% (13.61%) P.O. Box 3886 Florence, SC 29506 - ------------------------ * Less than 1% 1 Includes shares underlying options authorized for issuance by the Board of Directors, subject to shareholder approval. 2 Assuming no exercise of the 6,250,000 Powers Options or the 1,635,000 Avent Options. 3 Non-employee director. Includes 5,000 shares underlying options authorized for issuance under the 1995 Directors Plan, subject to shareholder approval of the plan. 4 Includes shares underlying options authorized for issuance under the 1996 Plan, subject to shareholder approval of that plan (with respect to Mr. Csiszar and Gov. West), and 100,000 shares underlying options granted under the Compnay's 1987 Stock Option Plan. 5 Excludes 9,012 shares held in the names of members of Mr. Seibels' immediate family as to which he has neither sole nor shared voting or dispositive power and as to which he disclaims beneficial ownership. 6 Excludes 45,557 shares held in the names of members of Mr. Walker's immediate family as to which he has neither sole nor shared voting or dispositive power and as to which he disclaims beneficial ownership. 7 Includes 280,000 shares underlying options authorized for issuance under the 1996 Plan, subject to shareholder approval of that plan. 8 Includes 705,000 shares underlying unexercised options and 1,282,430 shares issued and outstanding (representing 6.97% of the Company's issued and outstanding shares). 9 Based on information contained in Statement on Form 4 February, 1996: includes 6,200 shares to which Mr. Alissa has sole voting power, and 4,057,000 and 4,089,000, including shares to which he has shared voting power shares beneficially owned (shared voting and dispositive power) by Abdullatif Ali Alissa Est. (the "Establishment"), Financial Investors Limited ("FIL") and General Investors Limited ("GIL"). Mr. Alissa has informed the Company that he is the President of the Establishment; that FIL is wholly owned by the Establishment; and that GIL is wholly owned by Mr. Alissa. 10 Includes the 6,250,000 Powers Shares and 364,206 shares owned by the Powers as of January 30, 1996. Does not include the shares underlying the Powers Options. If the shares underlying the Powers Options were included as beneficially owned by the Powers, the Powers would beneficially own 12,864,206 shares, representing 41.62% of the class. 11 Excludes 1,635,000 shares underlying the Avent Options. If these shares were included as beneficially owned by the Avent Group, the Avent Group would beneficially own 3,270,000 shares, representing 16.32% of the class (assuming no issuance of the Powers Shares) or 12.44% of the class (assuming issuance of the Powers Shares, but excluding share underlying the Powers Options.) Item 13. Certain Relationships and Related Transactions A non-employee Director of the Company is also a member of the Board of Directors of Policy Management Systems Corporation ("PMSC"), which provides data processing services to the Company. The term of this contract expires June 30, 1996. The Company paid data processing charges of $1.8 million in 1995. The amount payable to PMSC at year-end was $112,000 for 1995. Another non-employee Director of the Company was an employee of Prudential Securities, Inc. ("PSI") through mid-1995. From 1994 through mid 1995, PSI acted as investment manager for the Company and for its retirement plan. The amount of fees paid directly to PSI during 1995 was not material, but the amount earned by PSI on trading activity by the Company cannot readily be determined. The Director is no longer an employee of PSI, and PSI's services have since been terminated. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) and (2) - List of Financial Statements and Financial Statement Schedules The following consolidated financial statements of The Seibels Bruce Group, Inc. and subsidiaries are included in Item 8: Report of Independent Public Accountants - Arthur Andersen LLP Consolidated balance sheets - December 31, 1995 and December 31, 1994. Consolidated statements of operations - Years ended December 31, 1995; December 31, 1994; and December 31, 1993. Consolidated statements of changes in shareholders' equity - Years ended December 31, 1995; December 31, 1994; and December 31, 1993. Consolidated statements of cash flows - Years ended December 31, 1995; December 31, 1994; and December 31, 1993. The notes to the consolidated financial statements included in Item 8 pertain both to the consolidated financial statements listed above and the condensed financial information of the registrant included in Schedule III under Item 14. The following financial statement schedules are included in Item 14(d): Schedule I - Summary of Investments Other than Investments in Related Parties Schedule II - Condensed Financial Information of Registrant Schedule III - Supplementary Insurance Information Schedule IV - Reinsurance Schedule V - Valuation and Qualifying Accounts Schedule VI - Supplemental Information Concerning Property/Casualty Insurance Operations All other schedules to the consolidated financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted. (a) (3) List of Exhibits (3) Articles and By-Laws: Articles of Incorporation of the Registrant, as amended, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (3)(1)-1, for the year ended December 31, 1989. By-Laws of the Registrant, as amended February 25, 1992, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (3)(1)-1, for the year ended December 31, 1991. (10) Material Contracts: *Employment Agreement, dated October 1, 1994, by and between The Seibels Bruce Group, Inc. and John C. West, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(4)-1, for the year ended December 31, 1995. *Addendum to Employment Agreement, dated July 12, 1995, by and between The Seibels Bruce Group, Inc. and John C. West, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(4)-2, for the year ended December 31, 1995. *Employment Agreement, dated June 14, 1995, by and between The Seibels Bruce Group, Inc. and Ernst N. Csiszar, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(4)-3, for the year ended December 31, 1995. *Employment Agreement, dated September 30, 1995, by and between The Seibels Bruce Group, Inc. and John A. Weitzel, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(4)-4, for the year ended December 31, 1995. Separation Agreement and Mutual Release, dated October 14, 1994, by and between The Seibels Bruce Group, Inc. and W. Thomas Reichard, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(3)-1, for the year ended December 31, 1994. Amended and Restated Employment Agreement, dated October 14, 1994, by and between The Seibels Bruce Group, Inc. and Sterling E. Beale, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(3)-2, for the year ended December 31, 1994. Retirement Agreement, dated October 14, 1994, by and between The Seibels Bruce Group, Inc. and Sterling E. Beale, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(3)-3, for the year ended December 31, 1994. The Third Amended and Restated Promissory Note, dated as of December 22, 1993, by and between The Seibels Bruce Group, Inc., Abdullatif Ali Alissa Est. and Saad A. Alissa, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-1, for the year ended December 31, 1993. Stock Purchase Agreement between registrant, Abdullatif Ali Alissa Est. and Saad A. Alissa, dated December 22, 1993, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (2)(1)-1, for the year ended December 31, 1993. Custody Agreement, dated as of December 16, 1993, by and between The Seibels Bruce Group, Inc., its subsidiaries and The Prudential Bank and Trust Company, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-2, for the year ended December 31, 1993. Consulting Agreement, dated as of December 30, 1993, by and between The Seibels Bruce Group, Inc., its subsidiaries and Albert H. Cox, Jr, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-3, for the year ended December 31, 1993. Investment Management Client Agreement, dated as of December 16, 1993, by and between The Seibels Bruce Group, Inc. and Prudential Securities Incorporated, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-4, for the year ended December 31, 1993. Stock Purchase Agreement, dated as of July 30, 1993, by and between National Teachers Life Insurance Company and South Carolina Insurance Company, incor- porated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-5, for the year ended December 31, 1993. Asset Purchase Agreement, dated as of July, 1993, by and between Premium Service Corporation, Seibels, Bruce and Company and Norwest Financial Resources, Inc., incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-6, for the year ended December 31, 1993. First Amendment to Asset Purchase Agreement, dated as of December 22, 1993, by and between Premium Service Corporation, Seibels, Bruce and Company and Norwest Financial Resources, Inc., incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-7, for the year ended December 31, 1993. Second Amendment to Asset Purchase Agreement, dated as of February, 1994, by and between Premium Service Corporation, Seibels, Bruce and Company and Norwest Financial Resources, Inc., incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-8, for the year ended December 31, 1993. Third Amendment to Asset Purchase Agreement, dated as of February 15, 1994, by and between Premium Service Corporation, Seibels, Bruce and Company and Norwest Financial Resources, Inc., incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-9, for the year ended December 31, 1993. Agency Agreement, dated as of June 3, 1993, by and between American Reliable Insurance Company, Seibels, Bruce and Company and Agency Specialty of Kentucky, Inc., incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(10)-10, for the year ended December 31, 1993. The Seibels Bruce Group, Inc., Common Stock Warrant, dated as of February 4, 1993, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(9)-3, for the year ended December 31, 1992. Agency Agreement, dated as of February 26, 1993, by and between Generali - U.S. Branch and Seibels, Bruce & Company, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(9)-8, for the year ended December 31, 1992. Agreement for Data Processing Services dated as of October 1, 1981, by and between Policy Management Systems Corporation and Seibels, Bruce & Company, as amended September 1, 1990, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(7)-6, for the year ended December 31, 1990. Agreement between Registrant and Jack S. Hupp, dated December 30, 1991, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(5)-2, for the year ended December 31, 1991. Amended and Restated Executive Compensation Agreement between Registrant and Jack S. Hupp, dated December 30, 1991, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(5)-3, for the year ended December 31, 1991. The Seibels, Bruce & Company Employees' Profit Sharing and Savings Plan, dated as of June 30, 1992, as amended January 4, 1993, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(9)-9, for the year ended December 31, 1992. The Seibels Bruce Group, Inc., Stock Option Plan, dated May 20, 1987, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(4)-3, for the year ended December 31, 1987. Amendment No. 1, dated February 25, 1992, to The Seibels Bruce Group, Inc., 1987 Stock Option Plan, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(5)-4, for the year ended December 31, 1991. Minutes of the Compensation Committee of The Seibels Bruce Group, Inc., adopting an Incentive Compensation Program, as of January 19, 1987, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(8)-6, for the year ended December 31, 1986. Deferred Compensation Agreement between the Registrant and Sterling E. Beale, dated March 8, 1983. Amended February 18, 1987, incorporated herein by reference to the Annual Report of Form 10-K, Exhibit (10)(4)-4, for the year ended December 31, 1987. *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K, pursuant to Item 14(c). (22) Subsidiaries of the Registrant (24) Consent of Independent Public Accountants (29) Information from reports furnished to state insurance regulatory authorities. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the last quarter of the period covered by this report. (c) and (d) Exhibits and Financial Statement Schedules The applicable exhibits and financial statement schedules are included immediately after the signature pages. For purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-70057, 2-83595, 33-34973, 33-43618, 33-43601, and 2-48782, as amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for in- demnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 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. The Seibels Bruce Group, Inc. (Registrant) Date March 25, 1996 By /s/ John C. West -------------- ---------------------- John C. West Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date March 25, 1996 By /s/ John C. West -------------- ---------------------------------- John C. West Chairman of the Board and Director Date March 25, 1996 By /s/ Ernst N. Csiszar -------------- ---------------------------------- Ernst N. Csiszar President and Director Date March 25, 1996 By /s/ John A. Weitzel -------------- ------------------------------- John A Weitzel. Chief Financial Officer and Director Date March 25, 1996 By -------------- ------------------------------- William M. Barilka Director Date March 25, 1996 By -------------- -------------------------------- Albert H. Cox, Jr. Director Date March 25, 1996 By -------------- --------------------------------- Kenneth W. Pavia Director Date March 25, 1996 By /s/ John P. Seibels -------------- ---------------------------------- John P. Seibels Director Date March 25, 1996 By /s/ George R.P. Walker, Jr. -------------- ---------------------------------- George R.P. Walker, Jr. Director Date March 25, 1996 By -------------- ----------------------------------- William B. Danzell Director Date March 25, 1996 By /s/ Claude E McCain -------------- ----------------------------------- Claude E. McCain Director Date March 25, 1996 By /s/ Mary M. Gardner -------------- ------------------------------------ Mary M. Gardner Controller (Principal Accounting Officer)
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 1995 Market Balance Sheet Type of Investment Cost Value Value ------------------------------------------- (thousands of dollars) Fixed maturities* Bonds and Notes: U. S. Government and government agencies and authorities $ 31,068 $ 31,416 $ 31,416 States, municipalities and political subdivisions 931 993 993 All other corporate 1,168 1,168 1,168 Redeemable preferred stocks: Public utilities 4 4 4 -------- -------- ------- Total fixed maturities 33,171 33,581 33,581 -------- -------- ------- Equity securities Common stocks: Public utilities 10 29 29 Industrial, miscellaneous and all other 1 1 1 Banks, trusts and insurance companies 45 188 188 Nonredeemable preferred stocks: Public utilities 166 159 159 -------- -------- -------- Total equity securities 222 377 377 -------- -------- -------- Other long-term investments 198 34 34 Short-term investments 10,310 10,310 10,310 -------- --------- -------- Total investments $ 43,901 $ 44,302 $ 44,302 ======== ========= ======== *These fixed maturities are classified as fixed maturities held for sale and are valued at market.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY) BALANCE SHEETS December 31, 1995 1994 ASSETS (thousands of dollars) Cash $ 37 $ 8 Investment in subsidiary companies* 12,967 6,071 Income tax recoverable from subsidiaries 82 - -------- -------- Total assets $ 13,086 $ 6,079 ======== ======== LIABILITIES Notes payable $ 2,476 $ 439 Income taxes payable to subsidiaries ** - 4,779 Other liabilities, including $170,550 payable to affiliate ($233,577 at 1994)* 423 211 -------- -------- Total liabilities $ 2,899 $ 5,429 -------- --------- SHAREHOLDERS' EQUITY Special stock, no par value authorized 5,000,000 shares, none issued and outstanding - - Common stock, $1 par value, authorized 25,000,000 shares, issued and outstanding 16,772,686 shares (14,500,534 shares at 1994) 16,773 14,501 Additional paid-in capital 34,080 30,983 Unrealized (loss) gain on investments owned by subsidiaries 401 (2,615) Accumulated deficit (41,067) (42,219) -------- -------- Total shareholders' equity $ 10,187 $ 650 -------- ------- Total liabilities and shareholders' equity $ 13,086 $ 6,079 ======== ======== * Eliminated in consolidation. ** On March 31, 1995, the intercompany payable as of December 31, 1994 was forgiven by Seibels, Bruce and Company's board of directors. The accompanying notes are an integral part of these financial statements..
SCHEDULE II (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY) STATEMENTS OF INCOME/LOSS Year Ended December 31, 1995 1994 1993 (thousands of dollars) Income: Other income $ 650 - - ------- -------- -------- Total revenue 650 - - Expenses: Interest 199 111 2,280 Other 851 111 121 -------- --------- --------- Total expenses 1,050 222 2,401 -------- --------- --------- Loss before income taxes, equity in undistributed loss of subsidiary, and extraordinary item (400) (222) (2,401) Tax Benefit (18) (41) (1,025) -------- --------- -------- Loss before equity in undistributed loss of subsidiary and extraordinary item (382) (181) (1,376) Equity in undistributed income (loss) of subsidiary companies* 1,534 (18,893) (8,873) -------- --------- --------- Income (loss) before extraordinary item 1,152 (19,074) (10,249) Extraordinary item - gain from extinguishment of debt, net of income taxes - - 9,235 --------- --------- --------- Net income (loss) $1,152 $(19,074) $ (1,014) ========= ========= ========== Per share: Income (loss) before extraordinary item $ 0.07 $ (1.72) $ (1.37) Extraordinary item - - 1.23 ------- -------- -------- Net income (loss) $ 0.07 $ (1.72) $ (0.14) ======= ======== ======== * Eliminated in consolidation. The accompanying notes are an integral part of these financial statements.
SCHEDULE II (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Year Ended December 31, 1995 1994 1993 (thousands of dollars) Common stock outstanding: Beginning of year $ 14,501 $ 7,501 $ 7,501 Stock issued in connection with rights offering 2,217 - - Stock issued to employee benefit plans 20 - - Stock issued as non-employee director compensation 35 - - Stock issued in exchange for cancellation of note payable - 7,000 - ------- ------- ------- End of year $ 16,773 $ 14,501 $ 7,501 ======= ======= ======= Additional paid-in capital: Beginning of year $ 30,983 $ 27,983 $ 27,983 Stock issued in connection with rights offering 3,104 - - Stock issued to employee benefit plans (3) - - Stock issued as non-employee director compensation (4) - - Stock issued in exchange for cancellation of note payable - 3,000 - -------- -------- -------- End of year $ 34,080 $ 30,983 $ 27,983 ======== ======== ======== Unrealized gain (loss) on securities: Beginning of year $ (2,615) $ 1,563 $ 866 Cumulative effect of change in accounting-adoption of FASB 115 - 841 - Change in unrealized gains on securities 3,016 (5,019) 697 -------- --------- -------- End of year $ 401 $ (2,615) $ 1,563 ======== ========= ========= Accumulated deficit: Beginning of year $(42,219) $(23,145) $(22,131) Net income (loss) 1,152 (19,074) (1,014) -------- -------- --------- End of year $(41,067) $(42,219) $(23,145) ======== ======== ========= Total shareholders' equity $ 10,187 $ 650 $ 13,902 ======== ======== ========= The accompanying notes are an integral part of these financial statements.
SCHEDULE II (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY) STATEMENTS OF CASH FLOWS Increase (Decrease) In Cash Year Ended December 31, 1995 1994 1993 Cash flows from operating activities: Net income (loss) $ 1,152 $(19,074) $ (1,014) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in undistributed income (loss) of subsidiary company (1,534) 18,893 8,873 Gain from extinguishment of debt - - (13,000) Changes in assets and liabilities: Income taxes payable to subsidiaries (41) (41) 4,533 Other Net 513 223 402 ------- -------- -------- Total adjustments (1,062) 19,075 1,013 Net cash provided by (used in) operating activities 90 1 (1) ------- ------- -------- Cash flows from investing activities: Contribution of capital to subsidiary (7,400) - - Cash flows from financing activities: Proceeds from stock rights offering 5,321 - - Proceeds from stock issued under employee benefit plans 18 - - Proceeds from notes payable 2,000 - - Dividends paid - - - ------- ------- -------- Net cash used in financing activities 7,339 - - ------- ------- -------- Net increase (decrease) in cash 29 1 (1) Cash, January 1 8 7 8 ------- ------- -------- Cash, December 31 $ 37 $ 8 $ 7 Supplemental Cash Flow Information: Income taxes recovered from a subsidiary $(27) - - Noncash financing activities: Notes payable exchanged for common stock $ - $10,000 $ - Notes payable exchanged for accrued interest 37 439 - Extinguishment of debt through cancellation of debt in exchange for new note, net $ - $ - $14,794 Issuance of common stock as non-employee director compensation $ 31 - - The accompanying notes are an integral part of these financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (thousands of dollars) Column A Column B Column C Column D Column E Column F Column G Column H Future policy Deferred benefits, Other policy Net investment Benefits, policy losses, claims claims and income (1) claims, losses acquisition and loss Unearned benefits Premium and other and settlement costs expenses premiums payable revenue interest income expenses ----------- ---------- --------- --------- --------- --------------- -------------- Segment Year ended December 31, 1995 Property and casualty insurance $ - $ 145,523 $45,369 $ - $ 10,384 $ 699 $ 12,921 Credit life insurance 293 199 758 - 890 291 545 Commission and service activities - - - - - 3,340 - Other - - - - - - - ------------------------------------------------------------------------------------- Total $ 293 $ 145,722 $46,127 $ - $ 11,274 $ 4,330 $ 13,466 ===================================================================================== Year ended December 31, 1994 Property and casualty insurance $ - $ 166,698 $ 54,721 - $ 14,718 $ 2,027 $ 33,408 Credit life insurance 899 206 1,570 - 1,801 506 770 Commission and service activities - - - - - 3,663 - Other - - - - - 30 - --------------------------------------------------------------------------------------- Total $ 899 $ 166,904 $ 56,291 $ - $ 16,519 $ 6,226 $ 34,178 ====================================================================================== Year ended December 31, 1993 Property and casualty insurance $1,300 $ 194,682 $ 62,053 - $ 55,331 $ 4,907 $ 58,285 Credit life insurance 2,542 313 3,664 - 3,207 483 1,374 Commission and service activities - - - - - 1,671 - Other - - - - - 29 - ---------------------------------------------------------------------------------------- Total $3,842 $ 194,995 $ 65,717 $ - $ 58,538 $ 7,090 $ 59,659 ========================================================================================
COLUMN I COLUMN J COLUMN K Amortization Other Premiums of deferred operating Written policy acquisition expenses costs ------------------------------------------ Segment Year ended December 31, 1995 Property and casualty insurance $ 3,188 $ 1,680 $ 6,046 Credit life insurance (655) 92 Commission and Service activitites - 45,693 Other - - ------------------------- Total $ 2,533 $47,465 ========================= Year ended December 31, 1994 Property and casualty insurance $ 5,538 $ 9,385 $14,537 Credit life insurance (1,855) 3,503 Commission and service activities - 45,236 Other - 1,988 ------------------------- Total $ 3,683 $60,112 ======================== Year ended December 31, 1993 Property and casualty insurance $17,628 $ 6,047 $17,429 Credit life insurance (258) 2,762 Commission and service activities - 37,705 Other - 2,861 ------------------------- Total $17,370 $49,375 ========================= (1) Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates. Results would change if different methods were applied.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES SCHEDULE IV - REINSURANCE (thousands of dollars) COL. A COL. B COL. C COL. D COL. E COL. F Ceded to Assumed Percentage Gross other from other Net of amount Amount * companies* companies amount assumed to net ----------------------------------------------------------------------- Year Ended December 31, 1995 Credit life insurance in force $ 16,717 $ - $ - $ 16,717 - % ======================================================== Premiums: Property/casualty insurance $ 122,912 $ 113,760 $ 1,232 $10,384 11.9% Credit life insurance 737 (4) - 741 - % Accident/health insurance 147 (2) - 149 - % --------------------------------------------------------- $ 123,796 $ 113,754 $ 1,232 $11,274 ========================================================= Year Ended December 31, 1994 Credit life insurance in force $ 39,897 $ - $ - $ 39,897 - % ========================================================= Premiums: Property/casualty insurance $ 146,481 $ 134,038 $ 2,275 $ 14,718 15.5% Credit life insurance 967 - - 967 - % Accident/health insurance 832 (1) - 833 - % ----------------------------------------------------------- $ 148,280 $ 134,037 $ 2,275 $ 16,518 =========================================================== Year Ended December 31, 1993 Credit life insurance in force $ 92,318 $ - $ - $ 92,318 - % ======================================================== Premiums: Property/casualty insurance $ 196,386 $ 151,558 $ 10,503 $ 55,331 17.1% Credit life insurance 2,181 88 - 2,094 - % Accident/health insurance 1,154 40 - 1,113 - % --------------------------------------------------------- $ 199,721 $ 151,686 $ 10,503 $ 58,538 ========================================================= * Includes amounts written as designated carrier for two state sponsored automobile facilities, a homeowners' residual market and the WYO National Flood Insurance Program.
THE SEIBELS BRUCE GROUP, INC. SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS (thousands of dollars) Balance at beginning Balance at Description of year Additions(1) Deductions end of year ------------------------------------------------ Year ended December 31, 1995 Allowance for uncollectible: Agents' balances receivable $ 70 $ - $ - $ 70 Other receivables $ 151 $ 79 $ 151 $ 79 Premium notes receivable $ 245 $ - $ 170 $ 75 Year ended December 31, 1994 Allowance for uncollectible: Agents' balances receivable $ 187 $ 48 $ 165 $ 70 Other receivables $ 151 $ 64 $ 64 $ 151 Premium notes receivable $ 418 $ 211 $ 383 $ 246 Year ended December 31, 1993 Allowance for uncollectible: Agents' balances receivable $ 443 $ 143 $ 399 $ 187 Other receivables $ 103 $ 66 $ 18 $ 151 Premium notes receivable $ 435 $ 196 $ 213 $ 418 (1) Additions to the allowance accounts include only the increase in the allowance charged to bad debt expense and do not include some expenses charged directly to bad debt expense, such as write-offs of uncollectible direct billings.
THE SEIBELS BRUCE GROUP, INC. SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS (thousands of dollars) Column A Column B Column C Column D Column E Column F Column G Column H Column I Claims and Claims Reserves for Adjustment Expenses Affiliation Deferred Unpaid Claims Discount, Net Investment Incurred Related to Amortization With Policy and Claim if any, Income (1) (2) of Deferred Registrant Acquisition Adjustment Deducted in Unearned Earned and other Current Prior Policy Acquisition Costs Expenses Column C* Premiums Premiums Interest Income Year Years Costs - ------------------------------------------------------------------------------------------------------------------------------- Company and consolidated subsidiaries Year ended December 31, 1995 $ - $145,523 $ 45,369 $ 10,384 $ 4,039 $ 9,546 $ 3,375 $ 3,188 ============================================================================================================= Year ended December 31, 1994 $ - $166,698 $ 54,721 $ 14,718 $ 5,690 $ 16,451 $ 16,957 $ 5,538 ============================================================================================================= Year ended December 31, 1993 $ 1,300 $194,682 $ 62,053 $ 55,331 $ 6,578 $ 47,776 $ 10,509 $17,628 =============================================================================================================
COLUMN J COLUMN K Paid Claims Premiums and Claim Written Adjustment Expenses --------------------------------------- Affilition with Registrant Company and consolidated subsidiaries Year ended December 31, 1995 $ 29,857 $ 6,046 =================================== Year ended December 31, 1994 $ 73,902 $14,537 =================================== Year ended December 31, 1993 $ 56,458 $17,429 ================================== * The Company does not discount loss and LAE reserves.
EXHIBIT 22 SUBSIDIARIES OF REGISTRANT The following is a listing of all subsidiaries of The Seibels Bruce Group, Inc. as of December 31, 1995: State or Other Jurisdiction Subsidiary of Incorporation ------------------------------------ --------------------------- Seibels, Bruce & Company South Carolina South Carolina Insurance Company South Carolina Consolidated American Insurance Company South Carolina Catawba Insurance Company South Carolina Kentucky Insurance Company Kentucky Agency Specialty of Kentucky, Inc. Kentucky Agency Specialty, Inc. South Carolina Investors National Life Insurance Company of S.C. South Carolina Policy Finance Company South Carolina FLT Plus, Inc. South Carolina Seibels Bruce Service Corporation South Carolina The financial statements of these subsidiaries are included in the Registrant's consolidated financial statements. EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated March 29, 1996, with respect to the consolidated financial statements and schedules of The Seibels Bruce Group, Inc., included in this Annual Report (Form 10-K/A-1) for the year ended December 31, 1995 into the Company's previously filed Registration Statements (File S-8 Nos. 2-70057, 2-83595, 33-34973, 33-43618, 33-43601, and 2-48782). ARTHUR ANDERSEN LLP Columbia, South Carolina April 23, 1996 EXHIBIT 29 (29) Information from reports furnished to state insurance regulatory authorities. The attached exhibit includes the Company's Schedule P as prepared for its 1995 Consolidated Annual Statement which will be provided to state regulatory authorities. The schedules have been prepared on a statutory basis. (Schedule P as filed with the Securities and Exchange Commission has been omitted from this copy. They are available upon request by writing the address shown on Page 1.) EXHIBIT (10)(4)-1 EMPLOYMENT AGREEMENT This Agreement is between the Seibels Bruce Group, Inc. the Company and John C. West the Employee, and sets forth the terms of the Employee's employment with the Company as follows: 1. Acceptance of Employment. The Employee hereby accepts employment with the Company as Chairman of the Board of The Seibels Bruce Group, Inc., and member of the office of Chief Executive, effective as of October 1, 1994, and agrees to perform such duties and to exercise such responsibility and authority as may be assigned by the Board of Directors of the Company. The Employee shall devote sufficient business time, attention and energies to the business of and the best interests of the Company. 2. Term: The Company hereby employs the Employee for a term of fourteen 14 months, October 1, 1994 through December 31, 1995 subject to the conditions set forth below. However, each party shall have the right to terminate this Agreement at any time during the term upon thirty 30 days written notice to the other party. 3. Termination: The Company may terminate this Agreement at any time with cause or upon thirty 30 days written without cause; provided, that if the Company terminates the Agreement without cause during the term of the Agreement, then the Company will pay the Employee within ten 10 days after termination the remaining balance due on his contract as severance pay. For purposes of this section, a termination without cause shall mean a termination which occurs for any reason other than the following: a voluntary resignation or retirement by the Employer or notice of his intent to terminate his employment; b willful misconduct, intentional misappropriation or dishonesty in connection with the performance of his duties, or other actions detri- mental to the best interest of the Company; c conviction of the Employee for a felony or a misdemeanor which, in the opinion of the Board of Director, adversely affects the Employee's ability to serve the Company; or d death of the Employee. 4. Termination as a Result of Change in Ownership: In the event that during the term of this Agreement, there is a sale of all or substantially all of the Company's assets or all or substantially all of the Company's stock and the new owners express their desire for change in management or reassign Employee to a job with the Company with lesser duties or responsi- bilities, then the Employee has the right to give written notice of his intent to terminate the Agreement under this provision and shall receive the remaining balance or amount due under this contract as severance. 5 Salary: As payment for services rendered by the Employee under this Agreement, the Company shall pay the Employee $9,600 per month for each month of the contract period. The Employee is entitled to back pay for the period October 1, 1994 through May 31, 1995. Seventy percent 70% of the compensation to be paid for services previously rendered during this period shall be in the form of common stock of The Seibels Bruce Group, Inc. and 30% shall be paid in cash. For purposes of determining the price per share of stock for the October May pay periods, the closing price of the Company's stock on June 13, 1995 shall be used. For the period of June 1, 1995 through December 31, 1995 the Employee shall receive 60% of his monthly compensation in the form of common stock of The Seibels Bruce Group, Inc. and 40% of his monthly compensation $3,840.00 in cash. The valuation of the stock for determining the number of shares to be granted to Employee under this Agreement shall be the average of the closing prices for the month for which compensation is to be paid. However, the minimum number of shares that must be granted under this provision shall be 6000 per month and the maximum number that can be granted shall not exceed 7000 per month. The cash portion of the compensation shall remain fixed at $3,840.00 per month. The compensation paid to the Employee under this Agreement shall be in addition to any compensation Employee may be receiving as a member of the Board of Directors of The Seibels Bruce Group, Inc. and any committee thereof. 6. Stock Options: The Employee will receive, effective June 13, 1995, options to purchase 100,000 shares of the Company's stock. The options shall vest on June 13, 1995, and shall be valid for a period of five (5) years from the date of issue and shall expire on June 13, 2000. The exercise price shall be the closing price of the Company's stock on June 13, 1995. Employee acknowledges that any stock purchased by him in the exercise of said options, has certain restrictions of which the Employee is aware. 7. Employee Handbook and Benefits: The Employee shall not be entitled to any benefits referenced in the Company's Employee Handbook and employee benefit plans, except as specifically modified in this Agreement. The Employee shall also be subject to the terms and conditions of employment as set forth in the Employee Handbook which may be revised unilaterally by the Company from time to time, except as specifically modified in this Agreement. 8. Entire Agreement: This Agreement contains the entire understanding between the parties and supersedes any prior written or oral agreements between them. This Agreement shall not be modified or waived except by written instrument signed by the parties. 9. Notice: Any notice required to be given under this Agreement shall be deemed given and sufficient if it is in writing and sent by registered and certified mail to his or its residence or principal business address as follows: a If to Employee Mr. John C. West P. O. Drawer 13 Hilton Head Island, South Carolina 29938 b If to Company The Seibels Bruce Group, Inc. P. O. Box One Columbia, South Carolina 29202 10. Covenant Not to Compete: In exchange for the consideration offered by the Company elsewhere in this Agreement, the Employee agrees that for a period of one year after the date of termination of his employment for any reason except a termination without cause, the Employee shall not solicit any customers or prospective customers in any state in which the Company including its subsidiaries engages in business, with whom the employee became acquainted with or gained knowledge of during the course of his employment, and the Employee shall not engage in or become associated with, directly or indirectly, any business or other activity either as stockholder, partner, investor other than in a publicly held corporation in which he is not an officer, director or employee, sole proprietor, agent, employee or consultant, which is in any way competitive with the business of the Company, it being intended by the parties that for the agreed period the Employee will perform no act which may confer benefit on an enterprise competing with the Company. In the event of a breach of this provision, the Company shall be entitled to an injunction, restraining the Employee from the violation of these restrictions. The foregoing remedy shall not deprive the Company of any action, right, or remedy otherwise available to it. In the event of invalidity of any portion of this provision under South Carolina law, the remaining terms shall be conformed and enforced to their fullest extent. 11. Nondisclosure of Proprietary Information: The Employee further agrees never to disclose any information deemed proprietary by the Company, including but not limited to, customer lists and trade secrets, regardless of the Employee's employment status. 12. Severability: In the event that any part of this Agreement shall be declared unenforceable or invalid, the remaining parts shall continue to be valid and enforceable. 13. Binding Effect: This Agreement shall insure to the benefit of and be binding upon the parties and their respective executors, administrators, personal representatives, heirs, assigns and successors in interest. 14. Choice of Law. This agreement is being executed and delivered and is intended to be performed in South Carolina and shall be governed and enforced in accordance with the laws of South Carolina. 15. Full Knowledge: Both parties have read the foregoing Agreement in its entirety and voluntarily agree to each of its terms with full knowledge thereof. EMPLOYEE COMPANY /s/ John C. West /s/ George R. P Walker, Jr. - ------------------------ ---------------------------------- John C. West The Seibels Bruce Group, Inc. 22 June 1995 22 June 1995 - ------------------------ ---------------------------------- Date Date EXHIBIT (10)(4)-2 ADDENDUM TO EMPLOYMENT AGREEMENT This Addendum is entered into this 12th day of July, 1995 by and between John C. West the Employee and The Seibels Bruce Group, Inc. the Company. WHEREAS the Company and the Employee entered into an Employment Agreement dated June 22, 1995. WHEREAS paragraph 5 of the Employment Agreement provided for compensation to the Employee in the amount of $9,600.00 per month to be paid in the form of cash and stock of the Company. WHEREAS the parties wish to change this paragraph. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties do hereby agree as follows: 1 That the $9,600.00 per month that the Employee is receiving under the Agreement, be paid entirely in cash. 2 That all other provisions of the Employment Agreement remain in full force and effect. Columbia, South Carolina The Seibels Bruce Group, Inc. By /s/ George R. P. Walker, Jr. --------------------------------------- Its Vice Chairman By /s/ John C. West ---------------------------------------- John C. West, Employee EXHIBIT (10)(4)-3 EMPLOYMENT AGREEMENT This Agreement is between the Seibels Bruce Group, Inc. the Company and Ernst N. Csiszar the Employee and sets forth the terms of the Employee's employment with the Company as follows: 1 Acceptance of Employment. The Employee hereby accepts employment with the Company as President of The Seibels Bruce Group, Inc., effective June 14, 1995, and agrees to perform such duties and to exercise such responsibility and authority as may be assigned by the Board of Directors of the Company. The Employee shall be paid for previous services rendered to the Company for the period May 1, 1995 through June 13, 1995, at the same salary level set forth in this Agreement. The Employee shall devote sufficient business time, attention and energies to the business of and the best interests of the Company. 2 Term: The Company hereby employs the Employee for the period June 14, 1995 through December 31, 1995 subject to the conditions set forth below. Each party shall have the right to terminate this Agreement at any time during the term upon thirty 30 days written notice to the other party. 3 Termination: The Company may terminate this Agreement at any time with cause or upon thirty 30 days written notice without cause; provided, that if the Company terminates the Agreement without cause during the term of the Agreement, then the Company will pay the Employee within ten 10 days after termination the remaining balance due on his contract as severance pay. For purposes of this section, a termination without cause shall mean a termination which occurs for any reason other than the following: a voluntary resignation or retirement by the Employee or notice of his intent to terminate his employment; b willful misconduct, intentional misappropriation or dishonesty in connection with the performance of his duties, or other actions detrimental to the best interest of the Company; c conviction of the Employee for a felony or a misdemeanor which, in the opinion of the Board of Directors, adversely affects the Employee's ability to serve the Company; or d death of the Employee. 4 Termination as a Result of Change in Ownership: In the event that during the term of this Agreement, there is a sale of all or substantially all of the Company's assets or all or substantially all of the Company's stock and the new owners express their desire for a change in management or reassign Employee to a job with the Company with lesser duties or respon- sibilities, then the Employee has the right to give written notice of his intent to terminate the Agreement under this provision and shall receive the remaining balance or amount due under this contract as severance. 5 Salary: As payment for services rendered by the Employee under this Agreement, the Company shall pay the Employee $12,000.00 per month during the term of this contract. Said salary shall be in addition to any compensation Employee may receive as a member of the Board of Directors of the Company or any committee thereof. 6 Stock Options: The Employee will receive, effective June 13, 1995, options to purchase 100,000 shares of the Company's stock. The options shall vest on June 13, 1995, and shall be valid for a period of five 5 years from the date of issue and shall expire on June 12, 2000. The exercise price shall be the closing price of the Company's stock on June 13, 1995. Employee acknowledges that any stock purchased by him in the exercise of said options, has certain restrictions of which the Employee is aware. 7 Employee Handbook and Benefits: The Employee shall not be entitled to any benefits referenced in the Company's Employee Handbook and employee benefit plans, except as specifically modified in this Agreement. The Employee shall also be subject to the terms and conditions of employment as set forth in the Employee Handbook which may be revised unilaterally by the Company from time to time, except as specifically modified in this Agreement. 8 Entire Agreement: This Agreement contains the entire understanding between the parties and supersedes any prior written or oral agreements between them. This Agreement shall not be modified or waived except by written instrument signed by the parties. 9 Notice: Any notice required to be given under this Agreement shall be deemed given and sufficient if it is in writing and sent by registered and certified mail to his or its residence or principal business address as follows: a If to Employee: Mr. Ernst N. Csiszar 201 Holliday Road Columbia, South Carolina 29223 b If to Company: The Seibels Bruce Group, Inc. P. O. Box One Columbia, South Carolina 29202 10 Covenant Not to Compete: In exchange for the consideration offered by the Company elsewhere in this Agreement, the Employee agrees that for a period of one year after the date of termination of his employment for any reason except a termination without cause, the Employee shall not solicit any customers or prospective customers in any state in which the Company including its subsidiaries engages in business, with whom the employee became acquainted with or gained knowledge of during the course of his employment, and the Employee shall not engage in or become associated with, directly or indirectly, any business or other activity either as stockholder, partner, investor other than in a publicly held corporation in which he is not an officer, director or employee, sole proprietor, agent, employee or consultant, which is in any way competitive with the business of the Company, it being intended by the parties that for the agreed period the Employee will perform no act which may confer benefit on an enterprise competing with the Company. In the event of a breach of this provision, the Company shall be entitled to an injunction, restraining the Employee from the violation of these restrictions. The foregoing remedy shall not deprive the Company of any action, right, or remedy otherwise available to it. In the event of invalidity of any portion of this provision under South Carolina law, the remaining terms shall be conformed and endorsed to their fullest extent. 11 Nondisclosure of Proprietary Information: The Employee further agrees never to disclose any information deemed proprietary by the Company, including but not limited to, customer lists and trade secrets, regardless of the Employee's employment status. 12 Severability: In the event that any part of this Agreement shall be declared unenforceable or invalid, the remaining parts shall continue to be valid and enforceable. 13 Binding Effect: This Agreement shall inure to the benefit of and be binding upon the parties and their respective executors, administrators, personal representatives, heirs, assigns and successors in interest. 14 Choice of Law: This Agreement is being executed and delivered and is intended to be performed in South Carolina and shall be governed and enforced in accordance with the laws of South Carolina. 15 Full Knowledge: Both parties have read the foregoing Agreement in its entirety and voluntarily agree to each of its terms with full knowledge thereof. EMPLOYEE COMPANY /s/ Ernst N. Csiszar /s/ George R. P. Walker ____________________________ ____________________________________ Ernst N. Csiszar The Seibels Bruce Group, Inc. June 22 / 95 22 June 1995 - ---------------------------- ----------------------------------- Date Date EXHIBIT (10)(4)-4 EMPLOYMENT AGREEMENT This Agreement is between The Seibels Bruce Group, Inc. (the "Company") and John A. Weitzel (the "Employee), and sets forth the terms of the Employee's employment with the Company as follows: 1. Acceptance of Employment: The Employee hereby accepts employment with the Company as Senior Vice President and Chief Financial Officer of The Seibels Bruce Group, Inc., effective September 30, 1995, and agrees to perform such duties and to exercise such responsibility and authority as may be assigned by the Board of Directors of the Company. The Employee shall devote sufficient business time, attention and energies to the business of and the best interests of the Company. 2. Term: The Company hereby employs the Employee for a term of one (1) year beginning September 30, 1995, through September 29, 1996, renewable for one year terms thereafter, and subject to the conditions set forth below. Each party shall have the right to terminate this Agreement at any time during the term upon thirty (30) days written notice to the other party. 3. Termination: The Company may terminate this Agreement at any time with cause or upon thirty (30) days written notice without cause; provided, that if the Company terminates the Agreement without cause within two (2) years of September 30, 1995, then the Company will pay the Employee within ten (10) days after termination, one year's salary as severance pay. For purposes of this section, a termination without causeshall mean a termination which occurs for any reason other than the following: a) voluntary resignation or retirement by the Employee or notice of his intent to terminate his employment; b) willful misconduct, intentional misappropriation or dishonesty in connection with the performance of his duties, or other actions detrimental to the best interest of the Company; c) conviction of the Employee for a felony or a misdemeanor which, in the opinion of the Board of Directors, adversely affects the Employee's ability to serve the Company; or d) death of the Employee when it does not occur while traveling by common carrier on behalf of the Company. 4. Termination as a Result of Change in Ownership: In the event that during the original term of this Agreement, there is a sale of all or substantially all of the Company's assets or all or substantially all of the Company's stock and the new owners express their desire for a change in management or reassign Employee to a job with the Company with lesser duties or responsibilities, then the Employee has the right to give written notice of his intent to terminate the Agreement under this provision and shall receive the remaining balance or amount due under this contract as severance. 5. Relocation Costs: The Company shall reimburse the Employee for the reasonable costs incurred in relocating, including the real estate commission and closing costs paid in connection with the sale of Employee's residence. Said costs not to exceed $35,000.00 The Company shall also reimburse Employee for up to six (6) months temporary living costs (apartment rental and round-trip flight to Wisconsin every two (2) weeks), until he is able to permanently relocate. 6. Salary: As payment for services rendered by the Employee under this Agreement, the Company shall pay the Employee $12,000.00 per month during the term of this contract. Employee shall not receive additional compensation for service on the Board of Directors of the Company or any committee thereof. 7. Stock Options: The Employee will receive, effective September 30, 1995, options to purchase 100,000 shares of the Company's stock. The options shall vest on September 30, 1995, and shall be valid for a period of five (5) years from the date of issue and shall expire on September 29, 2000. The exercise price shall be the closing price of the Company's stock on September 30, 1995. Employee acknowledges that any stock purchased by him in the exercise of said options, has certain restrictions of which the Employee is aware. 8. Employee Handbook and Benefits: The Employee shall be entitled to the standard benefits referenced in the Company's Employee Handbook, including major medical, retirement and employee benefit plans, except as specifically modified in this Agreement. The Employee shall also be subject to the terms and conditions of employment as set forth in the Employee Handbook which may be revised unilaterally by the Company from time to time, except as specifically modified in this Agreement. 9. Entire Agreement: This Agreement contains the entire understanding between the parties and supersedes any prior written or oral agreements between them. This Agreement shall not be modified or waived except by written instrument signed by the parties. 10. Notice: Any notice required to be given under this Agreement shall be deemed given and sufficient if it is in writing and sent by registered and certified mail to his or its residence or principal business address as follows: (a) If to Employee: Mr. John A. Weitzel The Seibels Bruce Group, Inc. Post Office Box One Columbia, South Carolina 29202 Fax #: 803-748-2839 (b) If to Company: The Seibels Bruce Group, Inc. P.O. Box One Columbia, South Carolina 29202 Fax #: 803-748-2839 With a copy to: John C. West, Jr., Esquire P.O. Box 661 Camden, South Carolina 29020 Fax #: 803-432-0550 11. Covenant Not to Compete: In exchange for the consideration offered by the Company elsewhere in this Agreement, the Employee agrees that for a period of one year after the date of termination of his employment for any reason except a termination without cause, the Employee shall not solicit any customers or prospective customers in any state in which the Company (including its subsidiaries) engages in business, with whom the employee became acquainted with or gained knowledge of during the course of his employment, and the Employee shall not engage in or become associated with, directly or indirectly, any business or other activity either as stockholder, partner, investor (other than in a publicly held corporation in which he is not an officer, director or employee), sole proprietor, agent, employee or consultant, which is in any way competitive with the business of the Company, it being intended by the parties that for the agreed period the Employee will perform no act which may confer benefit on an enterprise competing with the Company. In the event of a breach of this provision, the Company shall be entitled to an injunction, restraining the Employee from the violation of these restrictions. The foregoing remedy shall not deprive the Company of any action, right, or remedy otherwise available to it. In the event of invalidity of any portion of this provision under South Carolina law, the remaining terms shall be conformed and enforced to their fullest extent. 12. Nondisclosure of Proprietary Information: The Employee further agrees never to disclose any information deemed proprietary by the Company, including but not limited to, customer lists and trade secrets, regardless of the Employee's employment status. 13. Severability: In the event that any part of this Agreement shall be declared unenforceable or invalid, the remaining parts shall continue to be valid and enforceable. 14. Binding Effect: This Agreement shall inure to the benefit of and be binding upon the parties and their respective executors, administrators, personal representatives, heirs, assigns and successors in interest. 15. Choice of Law: This Agreement is being executed and delivered and is intended to be performed in South Carolina and shall be governed and enforced in accordance with the laws of South Carolina. 16. Full Knowledge: Both parties have read the foregoing Agreement in its entirety and voluntarily agree to each of its terms with full knowledge thereof. EMPLOYEE: COMPANY: /s/ John A. Weitzel Ernst. N. Csiszar ___________________________________ ___________________________________ JOHN A. WEITZEL THE SEIBELS BRUCE GROUP, INC. September 28, 1995 September 28, 1995 ___________________________________ ___________________________________ DATE DATE EX-27 2
7 YEAR DEC-31-1995 DEC-31-1995 33,581,000 33,581,000 33,581,000 377,000 0 0 44,302,000 6,339,000 27,423,000 293,000 224,005,000 61,031,000 2,658,000 0 0 2,476,000 0 0 16,773,000 (6,586,000) 224,005,000 11,274,000 4,330,000 164,000 50,415,000 13,466,000 3,794,000 47,773,000 1,150,000 (2,000) 1,152,000 0 0 0 1,152,000 0.07 0.07 77,967,000 9,546,000 3,375,000 7,014,000 22,843,000 61,031,000 3,375,000
-----END PRIVACY-ENHANCED MESSAGE-----