-----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, MxTy+OAdbDSz16LveUhOa1l488U6c0KLiJnWDrNKj/LWL3Tc1jahBReqeEn1AUFl 9Hgq5k0QUuMhFyfMSewomw== 0000950152-97-003531.txt : 19970506 0000950152-97-003531.hdr.sgml : 19970506 ACCESSION NUMBER: 0000950152-97-003531 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970505 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCINSURANCE CORP CENTRAL INDEX KEY: 0000276400 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310790882 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08738 FILM NUMBER: 97594896 BUSINESS ADDRESS: STREET 1: 20 E BROAD ST STREET 2: 4TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142282800 MAIL ADDRESS: STREET 1: 20 E. BROAD STREET STREET 2: 4TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 10-Q 1 BANCINSURANCE CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1997 Commission File Number 0-8738 -------------------- ------------------------------------- BANCINSURANCE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-0790882 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 East Broad Street, Columbus, Ohio 43215 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (614) 228-2800 ---------------- None - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Class Outstanding at March 31, 1997 - ------------------------------- ------------------------------- Common stock, without par value 5,775,615 2 BANCINSURANCE CORPORATION AND SUBSIDIARIES INDEX -----
Page No. PART I - FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1997 (unaudited) and December 31, 1996 3 Consolidated Statements of Income for the three months ended March 31, 1997 and 1996 (unaudited) 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) 6 Notes to Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION AND SIGNATURES Item 1. Legal Proceedings 14 Item 2. Changes in Securities Not Applicable Item 3. Default Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements -------------------- BANCINSURANCE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, Assets 1997 1996 - ------ ----------- ------------- (Unaudited) Investments: Held to maturity: Fixed maturities, at amortized cost (fair value $4,287,455 in 1997 and $4,086,856 in 1996) $ 4,244,769 $ 4,004,550 Available for sale: Fixed maturities, at fair value (amortized cost $12,754,552 in 1997 and $11,271,525 in 1996) 12,847,329 11,502,186 Equity securities, at fair value (cost $2,321,267 in 1997 and $2,602,891 in 1996) 2,630,203 3,031,014 Short-term investments, at cost which approximates fair value 5,910,673 5,730,923 Securities purchased under agreements to resell 1,183,965 1,091,630 ----------- ----------- Total investments 26,816,939 25,360,303 ----------- ----------- Cash 603,888 681,286 Premiums receivable 716,346 494,322 Reinsurance receivable 5,438 15,150 Reinsurance recoverable on paid losses - 25,143 Prepaid premium taxes 45,072 - Prepaid commissions 323,505 - Loans to affiliates 334,463 434,463 Furniture, fixtures and leasehold improvements, net 91,738 86,435 Excess of investment over net assets of subsidiaries 753,738 753,738 Prepaid federal income taxes 50,784 29,633 Accrued investment income 341,635 308,646 Other assets 90,349 85,833 ----------- ----------- Total assets $30,173,895 $28,274,952 =========== =========== (Continued)
3 4 BANCINSURANCE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets, Continued
March 31, December 31, Liabilities and Shareholders' Equity 1997 1996 - ------------------------------------ ----------- ----------- (Unaudited) Reserve for unpaid losses and loss adjustment expenses $ 1,413,908 $ 1,359,775 Unearned premiums 2,354,339 745,787 Contract funds on deposit 3,143,026 2,950,108 Reinsurance premiums payable 503,806 503,806 Note payable to bank 5,800,000 5,600,000 Taxes, licenses, and fees payable 99,568 93,566 Deferred federal income taxes 124,914 194,755 Commissions payable 259,573 342,258 Other 243,060 578,080 ------------ ------------ Total liabilities 13,942,194 12,368,135 ------------ ------------ Commitment and contingent liabilities Shareholders' equity: Non-voting preferred stock: Class A Serial Preference shares without par value; authorized 100,000 shares; no shares issued or outstanding - - Class B Serial Preference shares without par value; authorized 98,646 shares; no shares issued or outstanding - - Common stock without par value; authorized 20,000,000 shares; 5,878,277 shares issued 315,567 315,567 Additional paid-in capital 1,409,435 1,433,329 Net unrealized gain on investments, net of tax 265,131 434,797 Retained earnings 14,535,036 14,040,484 ------------ ------------ 16,525,169 16,224,177 Less: Treasury stock, at cost (102,662 common shares at March 31, 1997 and 111,020 at December 31, 1996) (293,468) (317,360) ------------ ------------ Total shareholders' equity 16,231,701 15,906,817 ------------ ------------ Total liabilities and shareholders' equity $ 30,173,895 $ 28,274,952 ============ ============
See accompanying notes to consolidated financial statements. 4 5 BANCINSURANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1997 1996 ---------- ---------- Income: Premiums written $ 3,725,624 $ 3,603,751 Increase in unearned premiums (1,608,552) (257,432) ----------- ----------- Premiums earned 2,117,072 3,346,319 Premiums ceded - (450,970) ----------- ----------- Net premiums earned 2,117,072 2,895,349 Investment income (net of expenses of $14,897 and $20,177, respectively) 307,407 339,427 Net realized gain on investments 30,693 3,189 Claims administration fees 179,731 132,883 Other income 8,293 116,979 ----------- ----------- Total revenue 2,643,196 3,487,827 ----------- ----------- Losses and operating expenses: Losses and loss adjustment expenses 1,138,943 1,976,889 Reinsurance recoveries - (420,018) Commission expense 300,537 518,670 Other insurance operating expenses 268,494 402,341 General and administrative expenses 256,860 187,960 Interest expense 22,398 108,637 ----------- ----------- Total expenses 1,987,232 2,774,479 ----------- ----------- Income before federal income taxes 655,964 713,348 Federal income tax expense 161,412 171,926 ----------- ----------- Net income $ 494,552 $ 541,422 =========== =========== Net income per common share $ .09 $ .09 =========== =========== Weighted average number of common shares and equivalents outstanding 5,826,441 5,860,264 ----------- -----------
See accompanying notes to consolidated financial statements. 5 6 BANCINSURANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1997 1996 ---------- ----------- Cash flows from operating activities: Net income $ 494,552 $ 541,422 Adjustments to reconcile net income to net cash provided by operating activities: Net realized gain on investments (30,693) (3,189) Net realized loss on disposal of equipment - 601 Depreciation 9,025 15,257 Amortization of bond premium 7,792 2,491 Deferred federal income tax (benefit) expense 17,563 (25,128) Increase in premiums receivable (222,024) (265,565) Decrease in reinsurance receivable 9,712 245,145 Decrease in reinsurance recoverable on paid losses 25,143 166,797 Decrease in prepaid reinsurance premiums - 469,662 (Increase) decrease in premium taxes receivable (45,072) 10,273 Increase in prepaid commissions (323,505) (347,597) Decrease in loans to affiliates 100,000 - (Increase) decrease in prepaid federal income taxes (21,151) 197,053 Increase in accrued investment income (32,989) (52,332) (Increase) decrease in other assets (4,516) 32,676 Increase (decrease) in reserve for unpaid losses and loss adjustment expenses 54,133 (365,255) Increase in unearned premiums 1,608,552 257,431 Increase (decrease) in contract funds on deposit 192,918 (234,119) Increase in reinsurance premiums payable - 108,447 (Increase) decrease in taxes, licenses and fees payable 6,002 (1,261) Decrease in commissions payable (82,685) (30,596) Decrease in other liabilities (335,020) (11,900) ----------- ----------- Net cash provided by operating activities 1,427,737 710,313 ----------- ----------- Cash flows from investing activities: Proceeds from held to maturity: fixed maturities due to redemption or maturity 306,000 301,779 Proceeds from available for sale: fixed maturities sold, redeemed and matured 399,871 146,400 Proceeds from available for sale: equity securities sold 852,024 80,027 Cost of investments purchased: Held to maturity: fixed maturities (842,762) (102,906) Available for sale: fixed maturities (1,889,863) (402,086) Equity securities (243,990) (295,150) Decrease in amount due to stock brokers - (143,038) Net (increase) decrease in short-term investments (179,750) 486,399 Net increase in securities purchased under agreements to resell (92,335) (96,901) Purchase of furniture, fixtures and leasehold improvements (14,328) (4,209) ----------- ----------- Net cash used in investing activities (1,705,133) (29,685) ----------- ----------- (Continued)
6 7 Bancinsurance Corporation AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (Unaudited)
Three Months Ended March 31, 1997 1996 ---------- ---------- Cash flows from financing activities: Proceeds from note payable to bank $ 5,100,000 $ 700,000 Repayments from note payable to bank (4,900,000) (600,000) Proceeds from stock option exercised 29,063 - Acquisition of treasury stock (29,065) (65,437) ----------- ----------- Net cash provided by financing activities 199,998 34,563 ----------- ----------- Net increase (decrease) in cash (77,398) 715,191 ----------- ----------- Cash at December 31 681,286 482,405 ----------- ----------- Cash at March 31 $ 603,888 $ 1,197,596 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 29,386 $ 108,637 Income taxes 165,000 - =========== ===========
See accompanying notes to consolidated financial statements. 7 8 BANCINSURANCE CORPORATION AND SUBSIDIARIES Notes To Consolidated Financial Statements (Unaudited) 1. The Consolidated Balance Sheet as of March 31, 1997, the Consolidated Statements of Income for the three months ended March 31, 1997 and 1996, and the Consolidated Statements of Cash Flows for the three months then ended have been prepared by Bancinsurance Corporation (the "Company") without an audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flow at March 31, 1997 and for all periods presented have been made. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these unaudited Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1996. The results of operations for the period ended March 31, 1997 are not necessarily indicative of the results of operations for the full year. 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 disclosure of contingent 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. 3. On April 2, 1997, Title Research Corporation, a newly formed, wholly-owned subsidiary of Bancinsurance Corporation, purchased substantially all of the net assets of Title Research Agency, an Ohio corporation, for 62,500 shares of Bancinsurance Corporation common stock, with a value of approximately $276,000. The transaction will be accounted for as a purchase and will result in approximately $161,000 of goodwill. Title Research Corporation is engaged in title, appraisal and related services which support documentation needs for first and second mortgage lending requirements. 8 9 BANCINSURANCE CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- OVERVIEW Bancinsurance Corporation (NASDAQ:BCIS) is a specialty property insurance holding company engaged, through its property/casualty insurance subsidiary, Ohio Indemnity Company, in underwriting niche insurance. Among its products are "Ultimate Loss Insurance, " which protects banks and other lenders against risk arising from theft or damage to certain loan collateral where the borrower has failed to secure and maintain adequate insurance coverage. The Company also provides a surety bond program for national administrative firms that perform certain services for non-profit entities and operates a third party administrator specializing in certain workers' compensation programs. The Company's principal sources of revenue are premiums paid by insureds for insurance policies issued by the Company. The premiums written become premiums earned for financial statement purposes as the premium is earned incrementally over the term of each insurance policy and after deducting the amount of premium ceded to reinsurers pursuant to reinsurance treaties or agreements. The Company's principal costs are losses and loss adjustment expenses. The principal factor in determining the level of the Company's profit is the difference between these premiums earned and losses and loss adjustment expenses incurred. Loss and loss adjustment expense reserves are estimates of what an insurer expects to pay on behalf of claimants. The Company is required to maintain reserves for payment of estimated losses and loss adjustment expenses for both reported claims and incurred but not reported ("IBNR") claims. The ultimate liability incurred by the Company may be different from current reserve estimates. Loss and loss adjustment expense reserves for IBNR claims are estimated based on many variables including historical and statistical information, inflation, legal developments, economic conditions, general trends in claim severity and frequency and other factors that could affect the adequacy of loss reserves. The Company reviews case and IBNR reserves monthly and makes appropriate adjustments. SUMMARY RESULTS The following table sets forth period to period changes in selected financial data:
--------------------------------------------- Period to Period Increase (Decrease) Three Months Ended March 31, --------------------------------------------- 1996-97 --------------------------------------------- Premiums written $ 121,873 Net premiums earned (778,277) Net investment income (4,516) Loss and loss adjustment expense, net of reinsurance recoveries (417,928) Operating expense (283,080) Interest expense (79,251) Operating income (57,384) Net income $ (46,870)
9 10 The combined ratio, which is the sum of the loss ratio and expense ratio, is the traditional measure of underwriting experience for insurance companies. The following table reflects the loss, expense and combined ratios of Ohio Indemnity on both a statutory and GAAP basis for the three months ended March 31:
1997 1996 ----------------------- Statutory: Loss ratio 53.8% 53.8% Expense ratio 17.2% 31.9% ------ ----- Combined ratio 71.0% 85.7% ====== ===== GAAP: Loss ratio 53.8% 53.8% Expense ratio 17.2% 22.3% ------ ----- Combined ratio 71.0% 76.1% ====== =====
Investments of Ohio Indemnity's assets are restricted to certain investments permitted by Ohio insurance laws. The Company's overall investment policy is determined by the Company's Board of Directors and is reviewed periodically. The Company principally invests in investment-grade obligations of states, municipalities and political subdivisions because the majority of the interest income from such investments is tax-exempt and such investments have generally resulted in favorable net yields. The Company has the ability and intent to hold its held to maturity fixed income securities to maturity or put date, and as a result carries its held to maturity fixed income securities at amortized cost for GAAP purposes. As the Company's fixed income securities mature, there can be no assurance that the Company will be able to reinvest in securities with comparable yields. RESULTS OF OPERATIONS MARCH 31, 1997 AS COMPARED TO MARCH 31, 1996 Premiums Written; Net Premiums Earned. Premiums written increased from $3,603,751 at March 31, 1996 to $3,725,624 at March 31, 1997, while net premiums earned decreased from $2,895,349 at March 31, 1996 to $2,117,072 at March 31, 1997. Increases in premiums written were primarily associated with the Bonded Service program along with reductions in return premiums associated with the discontinuance of the Automobile Physical Damage program. Premiums earned decreased due to the change in unearned premiums associated with the run-off of the automobile program in addition to reductions in unearned premium associated with an Ultimate Loss Insurance canceled policy. Premiums written for Ultimate Loss Insurance decreased from $1,365,177 in the first quarter of 1996 to $1,109,805 in the first quarter of 1997. Net premiums earned from Ultimate Loss Insurance decreased from $1,666,229 in the first quarter of 1996 to $1,273,596 in the first quarter of 1997. Premiums written and net premiums earned decreased as the result of reductions in the number of loans made by existing policy holders. Additionally, net premiums earned decreased as a result of reductions in unearned premium associated with a canceled policy. Premiums written for the Bonded Service program increased from $2,290,579 in the first quarter of 1996 to $2,589,245 in the first quarter of 1997, while net premiums earned from the Bonded Service program increased from $706,247 in the first quarter of 1996 to $806,476 in the first quarter of 1997. The increases in premiums written and net premiums earned on the Bonded Service program were primarily attributable to marginal increases in premium rates. Automobile Physical Damage Insurance accounted for $53,346 of premium cancellations, and $502,343 of net premiums earned for the first quarter in 1996. There were no premiums written or net premiums earned during the first quarter of 1997. On July 28, 1995, Ohio Indemnity Company entered into an agreement with the California Department of Insurance to discontinue sales and renewals of private passenger personal lines in automobile physical damage insurance in California. Net Investment Income. Net investment income decreased 1.3% from $342,616 in the first quarter of 1996 to $338,100 in the first quarter of 1997 as a result of a shortened maturities on the bond portfolio and the sale of income producing preferred stocks. 10 11 Claims Administration. Claims administration income generated by BCIS Services, Inc. ("BCIS Services"), a wholly-owned subsidiary of the Company, accounted for $132,883 of the revenues for the first quarter of 1996 and $177,447 in the first quarter of 1997. BCIS Services commenced business operations in California during 1993. Other Income. Other income decreased from $116,979 in the first quarter of 1996 to $8,293 in the first quarter of 1997. The decrease in other income was primarily due to earnings in the first quarter of 1996 of $13,963 attributed to fee income earned and $87,605 attributed to recognition of favorable results from a closed year of operations of the Bonded Service program. The Company expects other income to vary from year to year depending on claims experience of the Bonded Service program. Losses and Loss Adjustment Expenses, Net of Reinsurance Recoveries. Losses and loss adjustment expenses totaled $1,138,943, or 53.8% of net premiums earned during the first quarter of 1997 versus $1,556,871, or 53.8% of net premiums earned during the first quarter of 1996. Losses and loss adjustment expenses, as a percentage of net premiums earned, remained constant for the same period because net premiums earned decreased at approximately the same percentage rate as the percentage rate decrease in losses and loss adjustment expenses. The absolute decrease in losses and loss adjustment expenses was primarily attributable to initial claims from the Automobile Physical Damage Insurance business written in the first quarter of 1996 which totalled $395,685 compared with $14,349 of net recoveries during the first quarter of 1997. This decrease of 104.0% was due to the discontinuance of the Automobile Physical Damage Program. The losses and loss adjustment expenses for Ultimate Loss Insurance decreased 3.0% to $914,572 in the first quarter of 1997 from $942,427 in the first quarter of 1996 due to decreases in loss and loss adjustment expense payments. Losses and loss adjustment expenses for the Bonded Service program increased from $103,455 in 1996 to $135,263 in 1997 primarily due to deficiency development on prior year reserves. Operating Expense. Operating expense consists of commission expense, other insurance operating expense, amortization of deferred policy acquisition costs and general and administrative expenses. Operating expense decreased 25.5% from $1,108,971 in the first quarter of 1996 to $825,891 in the first quarter of 1997. The decrease in operating expense was primarily attributable to a 42.1% decrease in non-deferred commission expense primarily associated with an Ultimate Loss Insurance customer and the discontinuance of the automobile program. Other insurance operating expense decreased as a result of reductions in legal, auditing and equipment rental expenses. Interest Expense. Interest expense decreased 79.4% from $108,637 in the first quarter of 1996 to $22,398 in the first quarter of 1997. The decrease was due to lower borrowing levels on the Company's revolving credit line and decreases in the prime rate. Federal Income Taxes. Federal income taxes decreased from $171,926 in the first quarter of 1996 to $161,412 in the first quarter of 1997 due to increases in taxable income primarily resulting from higher nondeductible unearned premiums and lower tax exempt interest deductions. Statutory Combined Ratios. The change in the statutory combined ratio from 85.7% at March 31, 1996 to 71.0% at March 31, 1997 was attributable to decreases of other insurance operating expenses and lower loss and loss adjustment expense experience. LIQUIDITY AND CAPITAL RESOURCES The Company is an insurance holding company whose principal asset is the stock of Ohio Indemnity. The Company is, and will continue to be, dependent on dividends from Ohio Indemnity to meet its liquidity requirements, including debt service obligations. The Company has a $10 million credit facility to fund working capital requirements. Based on statutory limitations, the maximum amount of dividends that the Company would be able to receive in 1997 from Ohio Indemnity, absent regulatory consent, is $2,890,887. 11 12 Ohio Indemnity derives its funds principally from net premiums written, reinsurance recoveries, investment income and contributions of capital from the Company. The principal use of these funds is for payment of losses and loss adjustment expenses, commissions, operating expenses and income taxes. Net cash provided by operating activities equalled $1,427,737 and $701,313 for the quarter ended March 31, 1997 and 1996, respectively. Net cash provided by financing activities was $199,998 for the quarter ended March 31, 1997 and $34,563 for the quarter ended March 31, 1996. Net cash used in investing activities of the Company was $(1,705,133) and $(29,685) for the quarter ended March 31, 1997 and 1996, respectively. BCIS Services derives funds principally from claims administration fees which are sufficient to meet its operating obligations. The Company maintains a level of cash and liquid short-term investments which it believes will be adequate to meet anticipated payment obligations without being required to liquidate intermediate-term and long-term investments through the next twelve months. Due to the nature of the risks the Company insures, losses and loss adjustment expenses emanating from its policies are characterized by relatively short settlement periods and quick development of ultimate losses compared to claims emanating from other types of insurance products. Therefore, the Company believes that it can estimate its cash needs to meet its loss and expense payment obligations through the next twelve months. The Company's investments at March 31, 1997 consisted primarily of investment-grade fixed income securities. Cash and short-term investments at March 31, 1997 amounted to $7,698,526, or 28.1% of total cash and invested assets. The fair values of the Company's held to maturity fixed income securities are subject to market fluctuations but are carried on the balance sheet at amortized cost because the Company has the ability and intent to hold fixed income securities to maturity or put date. Available for sale fixed income securities are reported at fair value with unrealized gains or losses, net of applicable deferred taxes, reflected in shareholders' equity. The Company earned net investment income of $342,616 and $338,100 for the quarter ended March 31, 1996 and 1997, respectively. The Company's total shareholders' equity increased from $12,532,217 at March 31, 1995 to $14,179,119 at March 31, 1996 to $16,231,701 at March 31, 1997, representing a 29.5% increase over the three-year period. The increase in total shareholders' equity has strengthened the Company's capital position. All material capital commitments and financial obligations of the Company are reflected in the Company's financial statements, except the Company's risk on surety bonds and state mandated performance bonds, written in connection with the Bonded Service program. The financial statements include reserves for losses on such programs for any claims filed and for an estimate of incurred but not reported losses. Such loses were $331,500 and $458,436 at March 31 1997 and December 31, 1996, respectively. Under applicable insurance statutes and regulations, Ohio Indemnity is required to maintain prescribed amounts of capital and surplus as well as statutory deposits with the appropriate insurance authorities. Ohio Indemnity is in compliance with all applicable statutory capital and surplus requirements. Ohio Indemnity's investments consist only of permitted investments under Ohio insurance laws. FACTORS TO CONSIDER FORWARD LOOKING The Company expects to continue expanding its direct sale force, which should allow the Company to increase its market penetration. These activities will be directed toward selected market niches where management believes the Company will be able to provide customers with additional services. TRENDS Management does not know of any trends, events or uncertainties that will have, or that are reasonably likely to have, a material effect on the Company's liquidity, capital resources or results of operations. 12 13 The Company's results of operations have varied from quarter to quarter principally because of fluctuations in underwriting results. The Company's experience indicates that more loans for automobile purchases are financed during summer months due to seasonal consumer buying habits. SAFEHARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this Form 10-Q includes forward-looking statements that involve risks and uncertainties, including, but not limited to, quarterly fluctuations in results, the management of growth, and other risks detailed from time to time in the Company's Securities and Exchange Commission filing. Actual results may differ materially from management expectations. INFLATION Although the cumulative effects of inflation on premium growth cannot be fully determined, increases in the retail price of automobiles have generally resulted in increased amounts being financed which constitutes one of the bases for determining premiums on Ultimate Loss Insurance. Despite relatively low inflation during the first quarter of 1997, the Company has experienced no material adverse consequences with respect to its growth in premiums. INSURANCE REGULATORY MATTERS On August 9, 1994, the Ohio Department of Insurance issued its triennial examination report on Ohio Indemnity as of December 31, 1993. The examiners reported that the financial statements set forth in the report reflected the financial condition of Ohio Indemnity. Management is not aware of any recommendations by regulatory authorities which would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or results of operations. The NAIC has developed a risk-based capital measurement formula to be applied to all property/casualty insurance companies. This formula calculates a minimum required statutory net worth, based on the underwriting, investment, credit, loss reserve and other business risks inherent in an individual company's operations. Under the current formula, any insurance company which does not meet threshold risk-based capital measurement standards could be forced to reduce the scope of its operations and ultimately could become subject to statutory receivership proceedings. Based on the Company's analysis, it appears that the Company's total adjusted capital is in excess of all required action levels and that no corrective action will be necessary. The Risk Based Capital provisions have been enacted into the Ohio Revised Code. RESERVES The amount of incurred losses and loss adjustment expenses is dependent upon a number of factors, including claims frequency and severity, and the nature and types of losses incurred and the number of policies written. These factors may fluctuate from year to year, and do not necessarily bear any relationship to the amount of premiums written or earned. As claims are incurred, provisions are made for unpaid losses and loss adjustment expenses by accumulating case reserve estimates for claims reported prior to the close of the accounting period and by estimating IBNR claims based upon past experience modified for current trends. Notwithstanding the variability inherent in such estimates, management believes that the provisions made for unpaid losses and loss adjustment expenses are adequate to meet claims obligations of the Company. Such estimates are reviewed monthly by management and annually by an independent consulting actuary and, as adjustments thereto become necessary, such adjustments are reflected in the Company's results of operations. The Company's independent consulting actuary has opined that loss and loss adjustment expense reserve levels, as of December 31, 1996, were reasonable. 13 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- The Company is routinely a party to litigation incidental to its business, as well as to other nonmaterial litigation. Management believes that no individual item of litigation, or group of similar items of litigation, including the matters referred to below, is likely to result in judgments that will have a material adverse effect on the financial condition of the Company. On November 2, 1994, the James L. Miniter Agency, Inc. (the "Agent") filed a lawsuit against Ohio Indemnity in the Suffolk County Superior Court, Massachusetts, alleging essentially that Ohio Indemnity had breached its contractual obligations to the Agency policyholder. On December 2, 1994, Ohio Indemnity removed the case to the United States District Court for the District of Massachusetts. On June 7, 1996, a summary judgement was granted in favor of Ohio Indemnity, however, an appeal of the judgement has been filed by the Agent. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- Item 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- No reports on form 8-K were filed by the Company during the quarter ended March 31, 1997. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BANCINSURANCE CORPORATION ------------------------- (Company) Date: May 2, 1997 By: Si Sokol ---------------------- ----------------------------------- Si Sokol President and Chairman of Board of Directors (Principal Executive Officer) Date: May 2, 1997 By: Sally Cress ---------------------- ----------------------------------- Sally Cress Treasurer and Secretary (Principal Financial and Accounting Officer) 15 EX-27 2 EXHIBIT 27
7 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 12,847,329 4,244,769 4,287,455 2,630,203 0 0 26,816,939 603,888 0 0 30,173,895 1,413,908 2,354,339 0 0 5,800,000 315,567 0 0 15,916,134 30,173,895 2,117,072 307,407 30,693 188,024 1,138,943 825,891 22,398 655,964 161,412 494,552 0 0 0 494,552 .09 .09 1,345,000 931,594 207,349 233,716 842,227 1,408,000 0
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