-----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, FYRcjv5Z9OiHkrLFMXdOChNkMr1cWrfeGw9EEfkgs53KMdfTZDnVqRWzkUG1+1ms gdtHeDbcn23m3vbsDUND0g== 0000910647-97-000266.txt : 19971124 0000910647-97-000266.hdr.sgml : 19971124 ACCESSION NUMBER: 0000910647-97-000266 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH EAST INSURANCE CO CENTRAL INDEX KEY: 0000352162 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 010278387 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-11184 FILM NUMBER: 97726658 BUSINESS ADDRESS: STREET 1: 482 PAYNE RD CITY: SCARBOROUGH STATE: ME ZIP: 04074 BUSINESS PHONE: 2078832232 MAIL ADDRESS: STREET 1: 482 PAYNE RD CITY: SCARBOROUGH STATE: ME ZIP: 04074 10QSB/A 1 BODY OF THIRD QUARTER 10-QSB/A The following items were the subject of a Form 12b-25 and are included herein: Items 1 and 2 of Part I; Exhibit 27 under Item 6(a) of Part II U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 [ ] 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 1-11184 NORTH EAST INSURANCE COMPANY (Exact name of small business issuer as specified in its charter) Maine 01-0278387 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 482 Payne Road, Scarborough, Maine 04074 (Address of principal executive offices) (207) 883-2232 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 13, 1997, there were 3,046,842 outstanding shares of Common Stock, $1.00 par value, the only authorized class of common stock of the issuer. Transitional Small Business Disclosure Format: Yes [ ] No [X] PART I - FINANCIAL INFORMATION North East Insurance Company and Subsidiaries Item 1. FINANCIAL INFORMATION Consolidated Balance Sheet as of September 30, 1997
1997 ------------ ASSETS Investments: Fixed maturities available for sale, at fair value (amortized cost $12,879,901) $ 13,003,334 Investment property, at cost less accumulated depreciation of $49,041 60,958 Equity securities available for sale, at fair value (cost $154,967) 90,247 Short-term investments 4,246,871 ------------ Total investments 17,401,410 Reinsurance (loss and loss adjustment expense reserves and paid recoverables) 5,197,262 Premium balances receivable 4,540,292 Deferred policy acquisition costs 1,379,233 Prepaid reinsurance premiums (ceded unearned premium) 377,993 Investment income due and accrued 231,890 Property and equipment, net of accumulated depreciation 410,264 Deferred tax asset 2,120,925 Prepaid federal income tax 9,242 Other assets 254,208 ------------ Total Assets $ 31,922,719 ============ LIABILITIES Losses and loss adjustment expenses $ 14,039,011 Unearned premiums 6,388,861 Ceded reinsurance balances payable 534,178 Reserve for unpaid expenses 701,036 Book overdraft 755,089 Other liabilities 29,711 ------------ Total Liabilities 22,447,886 SHAREHOLDERS' EQUITY Common stock $1.00 par value, authorized 6,000,000 shares, issued and outstanding 3,046,842 shares 3,046,842 Additional paid-in capital 6,403,621 Unrealized depreciation of investment 58,716 Accumulated retained earnings (34,346) ------------ Total Shareholders' Equity 9,474,833 ------------ Total Liabilities and Shareholders' Equity $ 31,922,719 ============
The accompanying notes are an integral part of the consolidated financial statements. North East Insurance Company and Subsidiaries Consolidated Statements of Operations for the Nine Months ended September 30,
1997 1996 ----------- ----------- Revenues: Premiums earned $ 8,688,774 $ 8,581,144 Premiums ceded 2,099,809 3,455,500 ----------- ----------- Net premiums earned 6,588,965 5,125,644 Net investment income 569,086 825,866 Realized capital gains 26,051 48,783 ----------- ----------- Total revenues 7,184,102 6,000,293 Expenses: Losses and loss adjustment expenses 5,824,082 5,574,888 Reinsurance recoveries (1,501,979) (2,067,882) ----------- ----------- Net losses and loss adjustment expenses 4,322,103 3,507,006 Underwriting expenses incurred 3,052,900 1,822,264 ----------- ----------- Total expenses 7,375,003 5,329,270 ----------- ----------- Income (loss) before provision for income taxes (190,901) 671,023 Provision for income taxes, net of $241,908 tax benefit from loss carryforward for 1996 (70,531) 13,420 ----------- ----------- Net income (loss) $ (120,370) $ 657,603 =========== =========== Earnings per common share: Net income (loss) $ (0.04) $ 0.22 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. North East Insurance Company and Subsidiaries Consolidated Statements of Operations for the Three Months ended September 30,
1997 1996 ----------- ----------- Revenues: Premiums earned $ 3,020,178 $ 2,902,387 Premiums ceded 258,997 1,234,411 ----------- ----------- Net premiums earned 2,761,181 1,667,976 Net investment income 187,552 307,606 Realized capital losses (53,261) (21,947) ----------- ----------- Total revenues 2,895,472 1,953,635 Expenses: Losses and loss adjustment expenses 1,829,574 1,898,588 Reinsurance recoveries, net of salvage (521,238) (848,788) ----------- ----------- Net losses and loss adjustment expenses 1,308,336 1,049,800 Underwriting expenses incurred 1,869,979 566,965 ----------- ----------- Total expenses 3,178,315 1,616,765 ----------- ----------- Income (loss) before provision for income taxes (282,843) 336,870 Provision for income taxes, net of $107,979 tax benefit from loss carryforward for 1996 (84,799) 6,737 ----------- ----------- Net income (loss) $ (198,044) $ 330,133 =========== =========== Earnings per common share: Net income (loss) $ (0.07) $ 0.11 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. North East Insurance Company And Subsidiaries Consolidated Statements of Cash Flows for the Nine Months ended September 30,
1997 1996 ----------- ----------- Cash flow from operating activities: Insurance premium received $ 8,153,167 $ 4,626,182 Loss and loss adjustment expenses paid (5,777,905) (5,273,529) Operating expenses paid (4,298,216) (1,657,630) Investment income received 621,547 806,429 ----------- ----------- Net cash used in operating activities (1,301,407) (1,498,548) ----------- ----------- Cash flows from investing activities: Fixed maturities available for sale, sold 3,817,112 5,759,622 Fixed maturities available for sale, purchased (1,850,675) (2,770,473) Proceeds from mortgage note 0 459,139 Proceeds from sale of real estate 0 108,000 Proceeds from issuance of common stock 100,049 16,944 Proceed from the sale of office furniture 17,269 0 Purchase of furniture, fixtures and equipment, net (152,376) (24,012) ----------- ----------- Net cash provided by investing activities 1,931,379 3,549,220 ----------- ----------- Net increase in cash, book overdraft and short-term investments 629,972 2,050,672 Cash, book overdraft and short-term investments at beginning of year 2,861,810 1,722,100 ----------- ----------- Cash, book overdraft and short-term investments at end of period $ 3,491,782 $ 3,772,772 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. North East Insurance Company And Subsidiaries Consolidated Reconciliation of Cash Used In Operating Activities to Net Income for the Nine Months ended September 30,
1997 1996 ------------ ------------ Net income (loss) $ (120,370) $ 657,603 Decrease (increase) in net premium and ceded reinsurance balances (1,568,826) (588,291) Increase in unearned premium reserve 2,843,798 4,088 Decrease in loss and loss adjustment expense reserve (1,166,572) (1,681,782) Decrease (increase) in investment income due and accrued 52,461 (19,437) Decrease (increase) in deferred policy acquisition costs (980,638) 61,853 Decrease (increase) in deferred tax asset (70,531) 0 Decrease in federal income tax payable 0 (6,080) Decrease in expense accruals (467,119) (81,415) Amortization of bond premium, net 56,937 60,339 Depreciation and amortization expense 145,871 143,357 Loss (gain) on investment activities (26,418) 17,231 Loss on sale of real estate 0 13,125 Write down of mortgage note in default 0 (79,139) ------------ ------------ Net cash used in operating activities $ (1,301,407) $ (1,498,548) ============ ============
The accompanying notes are an integral part of the consolidated financial statements. North East Insurance Company and Subsidiaries Notes to Consolidated Financial Statements September 30, 1997 1. The condensed financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures which are made are adequate to make the information presented not misleading, particularly when read in conjunction with the financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-KSB. In Management's opinion, the attached interim financial statements reflect all adjustments which are necessary for a fair statement of the results for the periods presented. 2. In June 1996 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 125 ("Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities") which provides standards whereby an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, de-recognizes financial assets when control has been surrendered, and de-recognizes liabilities when extinguished. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The effect of adopting the provisions of FAS No. 125 did not have a material effect on the Company's consolidated results of operations or financial position. In March 1997 the FASB issued FAS No. 128 ("Earnings Per Share") which provides for a "basic" earnings per share computation based upon the weighted-average shares outstanding. The new standard requires a dual presentation of basic and diluted earnings per share. The effect of adopting the provisions of FAS No. 128 did not have a material effect on the Company's per share earnings. In March 1997 the FASB also issued FAS No. 129 ("Disclosures of Information About Capital Structure"). The effect of adopting the provision of FAS No. 129 did not result in significant disclosure due in part to the simplified nature of the Company's capital structure. 3. North East Insurance Company owns 100% of American Colonial Insurance Company and North Atlantic Underwriters, Inc. whose results are consolidated herein. 4. Earnings per share are computed using the weighted average method. North East Insurance Company and Subsidiaries Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations During the third quarter, management determined that the combined effect of two recently renegotiated programs was resulting in significantly greater than expected expense levels. Meetings between management and its principal reinsurer resulted in a modification to the quota share program reducing the per occurrence deductible from $1,000 to $100, and a significant rate reduction to its first excess of loss treaty. These adjustments were intended to more accurately reflect the parties' expectations in the earlier design of the two programs, and to provide a more appropriate matching of reinsurance loss and expense recoveries to the Company's direct experience. The cumulative effect of these changes is included in the results of operation for both the nine months and the quarter ended September 30, 1997. The changes do not have a material effect on net income for the first two quarters of 1997. Nine Months Ended September 30, 1997 - ------------------------------------ Net premiums written amounted to $9,432,763 for the nine months ended September 30, 1997, compared with $5,129,732 for the nine months ended September 30, 1996. Net premiums earned for the nine months ended September 30, 1997 and 1996 amounted to $6,588,965 and $5,125,644, respectively. The increase in net premiums written reflects the decision to cancel the 35% quota share treaty effective January 1, 1997 on a runoff basis, decreased cost of our first excess of loss reinsurance treaty, and an overall increase in our direct premiums written of approximately 9.7%. Loss and loss adjustment expenses represented 65.6% and 68.4% of net premium earned for the nine months ended September 30, 1997 and 1996, respectively. Underwriting expenses incurred represented 32.4% and 35.5% of net premiums written for the nine months ended September 30, 1997 and 1996, respectively. The combined ratio was 98.0% and 103.9% for the nine months ended September 30, 1997 and 1996, respectively. Total return from investment activities amounted to $595,137 for the nine months ended September 30, 1997 compared with $874,649 for the nine months ended September 30, 1996. The return on invested assets, based on amortized cost, net of allocated expenses was 4.9% for the nine months ended September 30, 1997, compared with 6.1% for the nine months ended September 30, 1996. Net loss for the nine months ended September 30, 1997 amounted to $120,370 or $0.04 per share, compared with net income of $657,603 or $0.22 per share for the nine months ended September 30, 1996. Shareholders' equity at September 30, 1997 amounted to $9,474,833 or $3.11 per share compared with $9,324,961 or $3.11 per share at December 31, 1996. The change in market value of the Company's fixed maturities available for sale resulted in an increase to surplus of $175,152 or $0.06 per share for the nine months ended September 30, 1997. Three Months Ended September 30, 1997 - ------------------------------------- Net premiums written amounted to $3,230,472 for the three months ended September 30, 1997 compared with $1,732,070 for the three months ended September 30, 1996. Net premiums earned for the three months ended September 30, 1997 and 1996 amounted to $2,761,181 and $1,667,976, respectively. These changes reflect cancellation of the share quota treaty and an increase in direct premiums written, as described above. Loss and loss adjustment expenses represented 47.4% and 62.9% of net premium earned for the three months ended September 30, 1997 and 1996, respectively. Underwriting expenses incurred amounted to 57.9% and 32.7% for the three months ended September 30, 1997 and 1996, respectively. The combined ratio for the three months ended September 30, 1997 and 1996 amounted to 105.3% and 95.6%, respectively. The changes in these ratio components for 1997 versus 1996 reflect largely offsetting adjustments due to the reinsurance program modifications discussed above, together with favorable loss experiences in 1996. Net loss for the three months ended September 30, 1997 amounted to $198,044 or $0.07 per share compared with net income of $330,133 or $0.11 per share for the three months ended September 30, 1996. Shareholders' equity at September 30, 1997 amounted to $9,474,833 or $3.11 per share, compared with $9,441,144 or $3.10 per share at June 30, 1997. Liquidity and Capital Resources - ------------------------------- Cash used in operating activities amounted to $1,301,407 for the nine months ended September 30, 1997 compared with $1,498,548 for the nine months ended September 30, 1996. The decrease in cash used in operating activities is the result of the cancellation of the quota share reinsurance arrangement on a runoff basis effective January 1, 1997. Cash provided by investing activities amounted to $1,931,379 for the nine months ended September 30, 1997 compared with cash provided of $3,549,220 for the nine months ended September 30, 1996. During 1996, securities were sold to fund the payment of amounts due under the quota share reinsurance treaty; that treaty was canceled as of January 1, 1997 on a runoff basis, and was subsequently commuted as of September 30, 1997. The fair value of the Company's fixed maturities available for sale was $123,433 more than the amortized cost at September 30, 1997 compared with $52,717 less than amortized cost at December 31, 1996. The Company maintains short term investments to provide a cash resource should the demands from operations exceed incoming cash flow. Short term investments amounted to $4,246,871 at September 30, 1997 compared with $2,868,875 at December 31, 1996. The Company believes that this level is sufficient to meet any unanticipated cash demands. PART II - OTHER INFORMATION Item 6. a) Exhibits pursuant to Item 601 of Regulation S-B 27 Financial Data Schedule b) Reports on Form 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH EAST INSURANCE COMPANY Date: November 21, 1997 By /s/ Robert G. Schatz Robert G. Schatz, President and Chief Executive Officer Date: November 21, 1997 By /s/ Graham S. Payne Graham S. Payne, Treasurer and Chief Financial Officer North East Insurance Company and Subsidiaries Form 10-QSB Exhibit Index
Exhibit Number Description Page ------- ------------------------ ---- 27 Financial Data Schedules 15
EX-27 2 ARTICLE 7 FDS FOR THIRD QUARTER
7 0000352162 NORTH EAST INSURANCE COMPANY 1 9-MOS DEC-31-1997 JAN-01-1996 SEP-30-1997 13,003,334 0 0 90,247 0 60,958 17,401,410 3,491,782 5,197,262 1,379,233 31,922,719 14,039,011 6,388,861 0 0 0 0 0 3,046,842 6,369,275 31,922,719 6,588,965 569,086 26,051 0 4,322,103 3,052,900 0 (190,901) (70,531) (120,370) 0 0 0 (120,370) (0.04) (0.04) 0 0 0 0 0 0 0
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