-----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, dSOt8aiHfVrJVdsVLCYkLBAQSWjnMVjD9WhYUnZ4ZA8c3tQMhARTmG54RWNrQC7A YNxGGEtCHQ+ft0nLVYkgZw== 0000068480-95-000006.txt : 19950814 0000068480-95-000006.hdr.sgml : 19950814 ACCESSION NUMBER: 0000068480-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 95562004 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. June 30, 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 August 10, 1995. 1 of 14
PART I FINANCIAL INFORMATION Item 1. Financial Statements MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1995 1994 ASSETS Cash and invested assets $43,116,649 $45,555,992 Premiums receivable 5,069,228 5,547,378 Reinsurance recoverable on paid and unpaid losses and loss expenses 19,431,629 20,766,271 Notes and accounts receivable - net 238,659 284,099 Deferred policy acquisition costs 3,977,199 4,166,368 Fixed assets - at cost, less accumulated depreciation 1,170,206 1,182,780 Federal income tax recoverable 29,650 33,280 Prepaid reinsurance premiums 603,623 682,065 Other assets 1,260,174 1,658,244 Total Assets $74,897,017 $79,876,477
LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Losses and loss expenses $40,055,988 $41,665,101 Unearned premiums and membership fees 13,488,332 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 7,681,143 7,981,161 Total Liabilities 61,225,463 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 gains (losses) on debt securities 778,862 (1,268,628) Retained earnings 10,150,246 9,072,367 Total Shareholders' Equity 13,671,554 10,546,185 Total Liabilities and Shareholders' Equity $74,897,017 $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 Six Months Ended For the Three Months Ended June 30, 1995 June 30,1994 June 30,1995 June 30,1994 Revenues: Insurance premiums (net of premiums ceded totaling $1,643,927, $4,236,341, $952,373 and $2,808,380) $17,517,584 $14,322,321 $8,786,046 $7,100,364 Net investment income 1,368,696 1,334,715 667,984 666,979 Realized gains on sales of investments 4,132 31,706 - 31,717 Motor Club membership fees 630,787 712,884 317,427 356,802 Other revenues 66,754 126,120 32,219 62,440 Total revenues 19,587,953 16,527,746 9,803,676 8,218,302
Losses and Expenses: Insurance losses and loss expenses incurred (net of reinsurance recoveries totaling $869,173, $2,037,910, $3,403,509 and $1,167,424) 10,014,725 7,217,685 5,015,629 3,847,180 Amortization of deferred policy acquisition costs 5,437,549 4,065,621 2,583,919 1,799,519 Other operating expenses 2,867,354 4,082,770 1,474,306 2,065,077 Reversal of prior year's accrual of New Jersey FAIR Act liabilities - (1,187,367) - (593,683) Motor Club benefits 168,448 180,623 80,211 64,857 Total losses and expenses 18,488,076 14,359,332 9,154,065 7,182,950 Income before Federal income tax 1,099,877 2,168,414 649,611 1,035,352 Provision (benefit) for Federal income taxes 22,000 - 11,000 (9,187) Net income $ 1,077,877 $ 2,168,414 $ 638,611 $1,044,539 Per common share: Net income $.53 $1.06 $.31 $.51
(Financial statements should be read in conjuction with the accompanying notes)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 1995 June 30, 1994 Operating activities: Net income $ 1,077,877 $ 2,168,414 Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense 148,558 154,083 Gain on sale of investments (4,132) (31,706) Amortization on bond premium - net 9,168 135,566 Changes in: Deferred policy acquisition costs 189,169 (194,403) Premiums receivable 478,150 624,351 Notes and accounts receivable 45,440 268,937 Other assets 398,070 35,192 Losses and loss expenses (1,609,113) (2,149,816) Unearned premiums and membership fees (695,698) (1,760,674) Federal income tax recoverable 3,630 1,380,876 Amount due to MCA Insurance Company in Liquidation (2,750,000) - Other liabilities (300,018) (6,132,829) Reinsurance recoverable on paid and unpaid losses 1,334,642 750,734 Prepaid reinsurance premiums 78,442 2,370,987 Net cash used in operating activities ($1,595,815) ($2,380,288) Investing activities: Investments purchased (22,592,266) (29,425,608) Fixed assets purchased (135,983) (35,255) Proceeds from sales of investments 27,330,177 32,441,141 Net cash provided by investing activities 4,601,928 2,980,278 Financing activities: Repayment to Midlantic Bank, N.A. (2,750,000) - Net cash used in financing activities (2,750,000) - Net increase in cash 256,113 599,990 Cash at beginning of period - - Cash at end of period $ 256,113 $ 599,990
Supplemental Disclosures of Cash Flow Information Note - Interest paid was $33,432 in 1995 and $6 in 1994. Federal income tax paid was $18,370 in 1995 and $54,227 in 1994. Non Cash Investing Activities: Invested assets and shareholders' equity increased by $2,047,490 and decreased by $267,420 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 June 30, 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 the six and three month periods presented. 4. Federal Income Taxes The Registrant and its subsidiaries file a consolidated Federal income tax return. In the six and three month periods ended June 30, 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 adjustments, principally those enacted under the Tax Reform Act of 1986; and (ii) utilization of Net Operating Loss ("NOL") carryforwards. The Registrant's NOL carryforward at June 30, 1995 is approximately $8.9 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 new private passenger automobile ("PPA") writings by Motor Club. The Registrant expects to continue to improve its financial condition through limited new writings and stringent expense reduction and controls. Earnings Six Months Net income for the six months ended June 30, 1995 included $477,000 or $.23 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 six months ended June 30, 1994 included $1,187,000 or $.58 per share for the reversal of FAIRA surtaxes accrued in 1992. Excluding these items, net income for the six months ended June 30, 1995 decreased $380,000 or $.19 per share as compared to the same period in 1994, primarily due to a higher combined ratio, the result of loss and loss expense ratios which increased in 1995 as compared to the record low loss and loss expense ratios in 1994, offset by lower expense ratios. Three Months Net income for the three months ended June 30, 1995 included $246,000 or $.12 per share for reduced reinsurance costs relating to a decrease in the 1995 rate assessed by the UCJF. Net income for the three months ended June 30, 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 June 30, 1995 decreased $59,000 or $.03 per share as compared to the same period in 1994, primarily due to decreases in Motor Club membership fees, other revenues and realized gains from the sale of investments, offset by a lower combined ratio from the Registrant's insurance operations as a result of reduced expenses and expense ratio. Revenues Insurance Premiums Insurance premiums earned increased $3,195,000 or 22% in the six months ended June 30, 1995 and $1,686,000 or 24% in the three months ended June 30, 1995, as compared to the same periods in 1994, primarily as a result of: (1) the termination in February 1994 of Preserver's 80% quota share reinsurance treaty; (2) the aforementioned reduction in UCJF costs of $477,000 and $246,000, respectively; and (3) increases in new business written in 1995. Motor Club began to write new personal automobile insurance business in the first quarter of 1995, for the first time since March 1990. New PPA direct premium written in the first six months of 1995 totaled $1,095,000, of which $986,000 was written in the second quarter of 1995. Motor Club's inforce business has now begun to increase, with new writings exceeding PPA attrition. In the six months ended June 30, 1995, as compared to the same period in 1994, direct premium written increased $1,797,000 or 11%; Preserver's increased by $1,440,000 or 71%, while Motor Club's increased by $357,000 or 3%. In the second quarter of 1995 as compared to the same period in 1994, direct premium written increased $1,280,000 or 15%; Preserver's increased by $655,000 or 49%, while Motor Club's increased by $625,000 or 9%. Net Investment Income Net investment income increased $34,000 or 3% in 1995 as compared to 1994. Average invested assets for the six month period ended June 30, 1995 was $43,601,000 as compared to $44,689,000 for the same period in 1994. The investment portfolio (including short-term investments and excluding realized capital gains) yielded 6.28% for the six months ended June 30, 1995 as compared to 5.97% 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 $2,797,000 or 39% in the six months ended June 30, 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 ratios were 57.2% and 57.1% for the six and three months ended June 30, 1995, as compared to 50.4% and 54.2% for the same periods in 1994. The higher loss ratios in 1995 as compared to 1994 are primarily attributable to higher personal automobile loss ratios. Despite the higher loss ratios on a comparative basis, no significant adverse trends were experienced or identified during the six months or second quarter of 1995, and the loss ratios returned were within recent experience. The Registrant believes that the 1994 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 increased $157,000 or 2% in the six months ended June 30, 1995 as compared to 1994. Excluding acquisition related expenses, which increased commensurately with the aforementioned 22% increase in insurance premiums, other operating expenses decreased $1,044,000 or 20% in the six months ended June 30, 1995 as compared to 1994. This decrease in expenses allowed for a decrease in the expense ratio to 45.8% for the six months ended June 30, 1995 as compared to 54.2% 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 $82,000 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. 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 June 30, 1995 is $6.69 per share, as compared to $5.84 per share at March 31, 1995 and $5.16 per share at December 31, 1994. The increase in book value is due to the earnings described previously, plus an increase of $2,047,000 or $1.00 per share in the market value of 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 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. On July 1, 1995, the Insurance Companies obtained new catastrophe reinsurance coverage in the amount of $24.5 million in excess of $500,000 with only a modest increase in premium. This new coverage is a substantial increase over the expiring coverage of $9.5 million in excess of $1.5 million. 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 six 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 June 30, 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 June 30, 1995 have remained stable as compared to December 31, 1994. 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. 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: August 11, 1995 EX-27 2
7 These schedules contain summary financial information extracted from Motor Club of America's Consolidated Balance Sheets for the period ending June 30, 1995 and the Consolidated Statements of Operations for the six months then ended and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1995 JUN-30-1995 42,029,219 0 0 0 831,317 0 42,860,536 256,113 0 3,977,199 74,897,017 40,055,988 13,488,332 0 0 0 1,021,501 0 0 12,650,053 74,897,017 17,517,584 1,368,696 4,132 697,541 10,014,725 5,437,549 2,867,354 1,099,877 22,000 1,077,877 0 0 0 1,077,877 .53 .53 41,665,101 12,210,635 (1,326,737) 3,425,433 9,067,578 40,055,988 (1,326,737)
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