-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sUklzk5x3bbSukACWrV4bxUyuvZqJWBLY5FsNCF4LNUqi/7B/B7ar9nby+6WYW+X Eg+HiIYVqBFiwP74MxZB6A== 0000068480-95-000004.txt : 19950516 0000068480-95-000004.hdr.sgml : 19950516 ACCESSION NUMBER: 0000068480-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTOR CLUB OF AMERICA CENTRAL INDEX KEY: 0000068480 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 220747730 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00671 FILM NUMBER: 95539596 BUSINESS ADDRESS: STREET 1: 484 CENTRAL AVE CITY: NEWARK STATE: NJ ZIP: 07107 BUSINESS PHONE: 2017331234 MAIL ADDRESS: STREET 1: 484 CENTRAL AVENUE CITY: NEWARK STATE: NJ ZIP: 07107 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 Commission File No. March 31, 1995 0-671 MOTOR CLUB OF AMERICA (Exact name of registrant as specified in its charter) New Jersey 22-0747730 (State of Incorporation) (I.R.S. Employer Identification No.) 484 Central Avenue, Newark, New Jersey 07107 (Address of principal executive offices) Zip Code Registrant's telephone number, including area code 201-733-1234 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 . 2,043,004 shares of Common Stock were outstanding as of May 10, 1995. PART I FINANCIAL INFORMATION Item 1. Financial Statements
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 1995 1994 ASSETS Invested assets $41,065,665 $45,555,992 Premiums receivable 4,953,733 5,547,378 Reinsurance recoverable on paid and unpaid losses and loss expenses 20,499,877 20,766,271 Notes and accounts receivable-net 283,654 284,099 Deferred policy acquisition costs 3,933,127 4,166,368 Fixed assets - at cost, less accumulated depreciation 1,226,333 1,182,780 Federal income tax recoverable 22,280 33,280 Prepaid reinsurance premiums 705,710 682,065 Other assets 1,291,841 1,658,244 Total Assets $73,982,220 $79,876,477
LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Losses and loss expenses $41,437,582 $41,665,101 Unearned premiums and membership fees 13,469,439 14,184,030 Note payable to Receiver of MCA Insurance Company in Liquidation - 2,750,000 Note payable to Midlantic Bank, N.A. - 2,750,000 Other liabilities 7,151,794 7,981,161 Total Liabilities 62,058,815 69,330,292 Shareholders' Equity: Common Stock, par value $.50 per share: Authorized - 10,000,000 shares; issued - 2,043,004 shares 1,021,501 1,021,501 Paid in additional capital 1,720,945 1,720,945 Net unrealized losses on debt securities (330,674) (1,268,628) Retained earnings 9,511,633 9,072,367 Total Shareholders' Equity 11,923,405 10,546,185 Total Liabilities and Shareholders' Equity $73,982,220 $79,876,477
(Financial statements should be read in conjunction with the accompanying notes)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 1995 March 31, 1994 Revenues: Insurance premiums (net of premiums ceded totaling $691,554 (1995) and $1,427,961 (1994)) $8,731,538 $7,221,957 Net investment income 700,712 667,736 Realized gains (losses) on sales of investments 4,132 (11) Motor Club membership fees 313,360 356,082 Other revenues 34,535 63,680 Total revenues 9,784,277 8,309,444
Losses and Expenses: Insurance losses and loss expenses incurred (net of reinsurance recoveries totaling $757,742 (1995) and $870,486 (1994)) 4,999,096 3,370,505 Amortization of deferred policy acquisition costs 2,853,630 2,266,102 Other operating expenses 1,393,048 2,017,693 Reversal of prior year's accrual of New Jersey FAIR Act liabilities - (593,684) Motor Club benefits 88,237 115,766 Total losses and expenses 9,334,011 7,176,382 Income before Federal income tax 450,266 1,133,062 Provision for Federal income taxes (11,000) (9,187) Net income $ 439,266 $1,123,875 Per common share: Net income $.22 $.55
(Financial statements should be read in conjunction with the accompanying notes)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 1995 March 31, 1994 Operating activities: Net income $ 439,266 $1,123,875 Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense 75,812 74,405 Loss (gain) on sale of investments (4,132) 11 Amortization (accrual) on bond premium (discount) (8,170) 75,716 Changes in: Deferred policy acquisition costs 233,241 31,135 Premiums receivable 593,645 817,418 Notes and accounts receivable 445 (26,512) Other assets 366,403 82,026 Losses and loss expenses (227,519) 1,046,483) Unearned premiums and membership fees (714,591) (1,111,530) Federal income tax recoverable 11,000 1,413,343 Amount due to MCA Insurance Company in Liquidation (2,750,000) - Other liabilities (829,367) (3,682,471) Reinsurance recoverable on paid and unpaid losses 266,394 346,363 Prepaid reinsurance premiums (23,645) 1,055,420 Net cash used in operating activities ($2,571,218) ($847,284) Investing activities: Investments purchased (11,532,439) (16,987,157) Fixed assets purchased (119,364) - Proceeds from sales of investments 16,973,021 17,834,441 Net cash provided by investing activities 5,321,218 847,284 Financing activities: Repayment to Midlantic Bank, N.A. (2,750,000) - Net cash used in financing activities (2,750,000) - Net (decrease) in cash - - Cash at beginning of period - - Cash at end of period $ - $ -
Supplemental Disclosures of Cash Flow Information Note - Interest paid was $33,432 in 1995 and $131 in 1994. Federal income tax paid was $0 in 1995 and $30,947 in 1994. Non Cash Investing Activities: Invested assets and shareholders' equity increased by $937,954 and decreased by $623,648 in 1995 and 1994, respectively, as a result of changes in market value pertaining to the Registrant's application of SFAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities. (Financial statements should be read in conjunction with the accompanying notes) MOTOR CLUB OF AMERICA AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Preparation and Presentation The accompanying condensed consolidated financial statements of Motor Club of America (the "Registrant") include its accounts and those of its subsidiary companies and, in the opinion of management, contain all adjustments necessary to present fairly the Registrant's consolidated financial position, results of operations and cash flows. These statements should be read in conjunction with the Summary of Significant Accounting Policies and other notes included in the Notes to Financial Statements in the Registrant's 1994 Annual Report on Form 10-K. 2. Shareholders' Equity Shareholders' equity at March 31, 1995 and December 31, 1994 includes the undistributed GAAP net income of Motor Club of America Insurance Company ("Motor Club") and Preserver Insurance Company ("Preserver") (collectively referred to as the "Insurance Companies"), the net assets of which exceed the consolidated net assets of the Registrant. 3. Per Share Data Per share data are computed based upon the 2,043,004 weighted average number of shares of common stock outstanding for each of the three month periods presented. 4. Federal Income Taxes The Registrant and its subsidiaries file a consolidated Federal income tax return. In the three month periods ended March 31, 1995 and 1994, the provision for Federal income taxes resulted in effective tax rates different from the expected statutory Federal income tax rates, principally as a result of (i) certain deductions, principally the amortization of fresh start benefit allowed for under the Tax Reform Act of 1986; and (ii) utilization of Net Operating Loss ("NOL") carryforwards. The Registrant's NOL carryforward at March 31, 1995 is approximately $9.5 million. 5. Adoption of Recent Accounting Pronouncements In October 1994, the Financial Accounting Standards Board adopted SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. This Statement prescribes new disclosures about derivatives and other financial instruments. The Registrant is required to adopt this Statement for 1995. The additional disclosures will be limited as the Registrant has not used derivatives or derivative securities for purposes of trading or risk management in its investment portfolio or operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview of Business Operations The Registrant provides a broad range of property and casualty insurance related services through the Insurance Companies. The Registrant also operates a motor club through Motor Club of America Enterprises, Inc. ("Enterprises"). The property and casualty insurance subsidiaries form the largest segment of operations, which accounted for 96% of 1995 revenues. The Insurance Companies provide coverage only in the State of New Jersey. The Registrant anticipates continuing its expansion program in small commercial and ancillary coverages written by Preserver in the State of New Jersey as well as through limited new private passenger automobile ("PPA") writings by Motor Club. The Registrant is seeking to improve its financial condition through limited new writings and stringent expense reduction and controls. Earnings Net income for the three months ended March 31, 1995 included $230,000 or $.12 per share for reduced reinsurance costs relating to a decrease in the 1995 rate assessed by the New Jersey Unsatisfied Claim and Judgment Fund ("UCJF"), which pertains to New Jersey Personal Injury Protection claims in excess of Motor Club's retention limit of $75,000. Net income for the three months ended March 31, 1994 included $594,000 or $.29 per share for the reversal of FAIRA surtaxes previously accrued in 1992. Excluding these items, net income for the three months ended March 31, 1995 decreased $321,000 or $.16 per share as compared to the same period in 1994, primarily due to loss and loss expense ratios which increased in 1995 as compared to the record low loss and loss expense ratios in 1994. Revenues Insurance Premiums Insurance premiums earned increased $1,510,000 or 21% in the three months ended March 31, 1995 as compared to the same period in 1994, primarily as a result of: (1) the termination in February 1994 of Preserver's 80% quota share reinsurance treaty; and (2) the aforementioned reduction in UCJF costs of $230,000. Direct premium written increased $517,000 or 6% in the first quarter of 1995 as compared to the same period in 1994. Preserver direct premium written increased by $785,000 or 111% in the first quarter of 1995 as compared to 1994; the growth in the Preserver book was offset by a decline in the premiums written by Motor Club of $267,000 or 4%. Motor Club, pursuant to an Order received from the New Jersey Department of Insurance, began to write new personal automobile insurance business in the first quarter of 1995, for the first time since March 1990. New PPA writings in the first quarter totaled $109,000. Despite these new writings, Motor Club has continued to experience PPA attrition which has exceeded both the level of new writings and rate increases allowed by New Jersey insurance law. Net Investment Income Net investment income increased $33,000 or 5% in 1995 as compared to 1994. Average invested assets for the three month period ended March 31, 1995 was $43,246,000 as compared to $45,754,000 for the same period in 1994. The investment portfolio (including short-term investments and excluding realized capital gains) yielded 6.48% for the three months ended March 31, 1995 as compared to 5.84% for the same period in 1994. Despite the decline in invested assets, interest rates have generally increased over the last year, and the Registrant has been able to invest funds at the higher interest rate levels experienced, increasing both portfolio yield and investment income. Losses and Expenses Losses and Loss Expenses Incurred Losses and loss expenses incurred increased $1,629,000 or 48% in the three months ended March 31, 1995 as compared to 1994. The increase in losses incurred is primarily due to the termination of Preserver's 80% quota share reinsurance treaty, described previously. The Insurance Companies' combined loss and loss expense ratio was 57.3% for the three months ended March 31, 1995, as compared to 46.7% for the same period in 1994. The higher loss ratios in the first quarter of 1995 as compared to 1994 are primarily attributable to higher personal automobile loss ratios and a higher level of severe losses in the Preserver book of business. Despite the higher loss ratios on a comparative basis, no significant adverse trends were experienced or identified during the first quarter of 1995, and the loss ratio returned was within historical averages. The Registrant believes that the 1994 first quarter loss ratios were historically low, and the 1995 results are a return to more representative experience which remains profitable. Amortization of Deferred Policy Acquisition Expenses and Other Operating Expenses These expenses decreased $37,000 or 1% in the three months ended March 31, 1995 as compared to 1994. Excluding acquisition related expenses, which increased commensurately with the aforementioned 21% increase in insurance premiums, other operating expenses decreased $595,000 or 22% in the first quarter of 1995 as compared to 1994. This decrease in expenses allowed for a decrease in the expense ratio (on a GAAP basis) to 47.0% for the first quarter of 1995 as compared to 56.5% in 1994. The Registrant is committed to reducing its expense ratio by increasing revenues without increasing overhead expenditures. The Registrant expects to reduce its expenses further by relocating from its existing office building, converting its information systems to a smaller, more contemporary computing platform which will allow for more efficient operations and by re- doubling the efforts made previously to reduce all unnecessary overhead expenditures. Motor Club of America Membership Program Motor Club membership fees written through Enterprises decreased $43,000 or 12% in 1995 as compared to 1994. Motor Club memberships written through AVCO Financial Services ("AVCO") offices nationwide were discontinued effective December 31, 1994, causing the decrease. Motor Club membership fees written through AVCO offices accounted for 16% of all membership fees written by Enterprises in 1994. Financial Condition, Liquidity and Capital Resources The Registrant's book value at March 31, 1995 is $5.84 per share, as compared to $5.16 per share at December 31, 1994. The increase in book value is due to the earnings described previously, plus an increase in market value of $938,000 or $.46 per share in fixed maturity investments accounted for as available-for-sale securities under SFAS No. 115. This increase in market value was caused by the rapid decline in interest rates in the first quarter of 1995. The Registrant anticipates that the strengthening of its financial condition will continue via the application of stringent expense controls and limited new writings in selected lines of business. During this period, the Insurance Companies' ability to control their reinsurance costs while maintaining the present quality of the reinsurance program will be a key factor in the Registrant's ability to attain this objective. The Insurance Companies' need for liquidity arises primarily from the obligation to pay claims. The primary sources of liquidity are premiums received, collections from reinsurers and proceeds from investments. Reserving assumptions and payment patterns of the Insurance Companies did not materially change from the prior year and there were no unusually large retained losses resulting from claim activity. Unpaid losses are not discounted. Operating and Investing Activities The Insurance Companies' operations and cash flow are relatively stable in light of the limited amount of new business they are writing. Cash from operations declined in the first three months of 1995 and 1994, the result of: 1) in 1995, the payment of the Note due the MCAIC Receiver, who is now paid in full; 2) the Insurance Companies' payment of annual insurance premium taxes, licenses, fees and other assessments, which are historically paid in the first quarter of the year; and 3) in the first quarter of 1994, Motor Club's $2,275,000 payment to the New Jersey Market Transition Facility. In 1994, this negative cash flow was offset by positive cash flow from reinsurance recoveries from the UCJF and the receipt of Federal income taxes recoverable at December 31, 1993. These events also contributed to the reduction in total assets as of March 31, 1995 compared to December 31, 1994. No unusual or nonrecurring operating expenditures have been incurred over this period. Additionally, the payout ratio of losses has not fluctuated substantially over this period. The Registrant has maintained an investing philosophy during 1995 consistent with past practices and described in detail in its 1994 Annual Report on Form 10-K. Investment mix and portfolio duration as of March 31, 1995 have remained stable as compared to December 31, 1994. For the three months ended March 31, 1995 and 1994, the investment portfolio (including short-term investments and excluding realized capital gains) yielded 6.48% and 5.84%, respectively. Management anticipates maintaining this approach to investing for the foreseeable future. Financing Activities The Registrant paid no dividend on its common stock in 1995 or 1994. The Registrant has no material outstanding capital commitments which would require additional financing. In the first quarter of 1995, the Registrant repaid Midlantic Bank, N.A. the $2,750,000 Term Loan it had taken in December 1994. This Term Loan is now paid in full. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits None b) Reports on Form 8-K None 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. MOTOR CLUB OF AMERICA /s/Stephen A. Gilbert By: Stephen A. Gilbert Executive Vice President /s/Patrick J. Haveron By: Patrick J. Haveron Vice President - Chief Financial Officer and Chief Accounting Officer Dated: May 12, 1995 EX-27 2
7 These schedules contain summary financial information extracted from Motor Club of America's Consolidated Balance Sheet for the period ending March 31, 1995 and the Consolidated Statements of Income for the three months then ended and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1995 MAR-31-1995 40,210,419 0 0 0 855,246 0 41,065,665 0 0 3,933,127 73,982,220 41,437,582 13,469,439 0 0 0 1,021,501 0 0 10,901,904 73,982,220 8,731,538 700,712 4,132 347,895 4,999,096 2,853,630 1,393,048 450,266 11,000 439,266 0 0 0 439,266 .22 .22 41,665,101 5,465,918 290,920 1,075,287 4,909,070 41,437,582 290,920
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