-----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, ZJiv4TXqPG+2wE57B4kAXCO5NS+2D4Z0bmOdAcRbO3klQR8mu191WvmTmAaOGrH2 9XOLdrEw4q/AQPVDIC8I+g== 0000074931-95-000010.txt : 19950508 0000074931-95-000010.hdr.sgml : 19950508 ACCESSION NUMBER: 0000074931-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07801 FILM NUMBER: 95534814 BUSINESS ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 BUSINESS PHONE: 212-332-8080 MAIL ADDRESS: STREET 1: 600 FIFTH AVENUE STREET 2: 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020-2302 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1995 ( ) 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 1-7801 ORION CAPITAL CORPORATION -------------------------- (Exact name of registrant as specified in its charter) Delaware 95-6069054 - --------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 600 Fifth Avenue New York, New York 10020 - 2302 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 332-8080 -------------- 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 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 ---- ---- 14,068,965 shares of Common Stock, $1.00 par value, of the registrant were outstanding on May 4, 1995. Page 1 of 25 Exhibit Index Appears at Page 21 ORION CAPITAL CORPORATION FORM 10-Q INDEX For the Quarter Ended March 31, 1995 Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheet at March 31, 1995 (Unaudited) and December 31, 1994 .................................. 3 - 4 Consolidated Statement of Earnings for the three-months ended March 31, 1995 and 1994 (Unaudited) .............. 5 Consolidated Statement of Stockholders' Equity for the three-months ended March 31, 1995 and 1994 (Unaudited), and for the year ended December 31, 1994 ............... 6 Consolidated Statement of Cash Flows for the three-months ended March 31, 1995 and 1994 (Unaudited) .............. 7 - 8 Notes to Consolidated Financial Statements (Unaudited) ... 9 - 11 Independent Accountants' Review Report ................... 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 13 - 18 PART II. OTHER INFORMATION .................................. 19 Page 2
PART 1. FINANCIAL INFORMATION ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (000s omitted) March 31, 1995 December 31, (Unaudited) 1994 -------------- ------------ Investments: Fixed maturities at amortized cost (market $355,944 - 1995 and $358,915 - 1994) .................................. $ 356,113 $ 367,417 Fixed maturities at market (amortized cost $572,521 - 1995 and $565,880 - 1994) 559,644 530,424 Common stocks at market (cost $113,459 - 1995 and $116,078 - 1994) .............. 143,990 141,919 Non-redeemable preferred stocks at market (cost $147,330 - 1995 and $134,851 - 1994) ....................... 137,604 122,515 Other long-term investments .............. 52,979 52,564 Short-term investments ................... 122,039 104,201 ---------- ---------- Total investments ..................... 1,372,369 1,319,040 Cash ....................................... 2,300 6,201 Accrued investment income .................. 15,766 17,364 Investments in and advances to affiliates .. 114,027 108,510 Accounts and notes receivable .............. 134,792 125,132 Reinsurance recoverables and prepaid reinsurance .............................. 325,016 336,032 Deferred policy acquisition costs .......... 71,383 70,137 Property and equipment ..................... 25,872 25,157 Excess of cost over fair value of net assets acquired .......................... 29,122 29,415 Deferred federal income taxes .............. 28,686 42,008 Other assets ............................... 43,588 33,765 ---------- ---------- Total assets .......................... $2,162,921 $2,112,761 ========== ========== See Notes to Consolidated Financial Statements (Unaudited) Page 3 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY (000s omitted - except for share data) March 31, 1995 December 31, (Unaudited) 1994 -------------- ------------ Liabilities: Policy liabilities - Losses ...................................... $ 955,738 $ 952,531 Loss adjustment expenses .................... 236,772 228,798 Unearned premiums ........................... 257,842 256,855 Policyholders' dividends .................... 13,019 12,651 ---------- ---------- Total policy liabilities .................. 1,463,371 1,450,835 Federal income taxes payable .................. 16,993 14,829 Notes payable ................................. 149,885 152,382 Other liabilities ............................. 130,160 129,627 ---------- ---------- Total liabilities ......................... 1,760,409 1,747,673 ---------- ---------- Contingencies (Note E) Stockholders' equity: Preferred stock, authorized 5,000,000 shares - issued and outstanding - none Common stock, $1 par value; authorized 30,000,000 shares; issued 15,337,650 shares.. 15,338 15,338 Capital surplus ............................... 147,772 147,598 Net unrealized investment gains (losses), net of federal income tax benefits of $2,486 - 1995 and $14,146 - 1994 ..................... 10,156 (11,498) Net unrealized foreign exchange translation losses, net of federal income tax benefits of $379 - 1995 and $553 - 1994 ................. (3,639) (3,959) Retained earnings ............................. 257,156 242,908 Treasury stock, at cost (1,265,649 shares - 1995 and 1,296,834 shares - 1994) ........... (21,533) (22,451) Deferred compensation on restricted stock ..... (2,738) (2,848) ---------- ---------- Total stockholders' equity ................ 402,512 365,088 ---------- ---------- Total liabilities and stockholders' equity. $2,162,921 $2,112,761 ========== ========== See Notes to Consolidated Financial Statements (Unaudited) Page 4 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (000s omitted-except for per common share data) Three Months Ended March 31, ---------------------------- 1995 1994 ---- ---- Revenues: Premiums earned ............................. $175,058 $167,095 Net investment income ....................... 23,853 20,768 Realized investment gains ................... 2,560 533 Other income ................................ 326 302 -------- -------- 201,797 188,698 -------- -------- Expenses: Losses incurred ............................. 94,745 96,998 Loss adjustment expenses .................... 27,852 24,771 Amortization of deferred policy acquisition costs ..................................... 45,216 40,043 Other insurance expenses .................... 6,064 4,345 Dividends to policyholders .................. 3,316 3,636 Interest expense ............................ 3,562 3,324 Other expenses .............................. 1,921 1,400 -------- -------- 182,676 174,517 -------- -------- Earnings before equity in earnings of affiliates and federal income taxes .......... 19,121 14,181 Equity in earnings of affiliates .............. 3,095 3,032 -------- -------- Earnings before federal income taxes .......... 22,216 17,213 Federal income taxes .......................... 5,154 3,973 -------- -------- Net earnings ................................ $ 17,062 $ 13,240 ======== ======== Net earnings per common share ............... $ 1.20 $ .91 ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 5 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (000s omitted) Three Months Ended March 31, Year Ended (Unaudited) December 31, ------------------- ------------ 1995 1994 1994 ---- ---- ---- Common stock: Balance ................................ $ 15,338 $ 15,338 $ 15,338 ======== ======== ======== Capital surplus: Balance, beginning of period ........... $147,598 $148,167 $148,167 Issuance of common stock ............... 152 - - Exercise of stock options and issuance (cancellation) of restricted stock ... 22 (106) (569) -------- -------- -------- Balance, end of period ................. $147,772 $148,061 $147,598 ======== ======== ======== Net unrealized investment gains (losses): Balance, beginning of period ........... $(11,498) $ 49,566 $ 49,566 Change in unrealized investment gains (losses), net of taxes ............... 21,654 (28,830) (61,064) -------- -------- -------- Balance, end of period ................. $ 10,156 $ 20,736 $(11,498) ======== ======== ======== Net unrealized foreign exchange translation losses: Balance, beginning of period ........... $ (3,959) $ (3,665) $ (3,665) Change in unrealized foreign exchange translation losses, net of taxes ..... 320 (445) (294) -------- -------- -------- Balance, end of period ................. $ (3,639) $ (4,110) $ (3,959) ======== ======== ======== Retained earnings: Balance, beginning of period ........... $242,908 $198,491 $198,491 Net earnings ........................... 17,062 13,240 55,245 Dividends declared ..................... (2,814) (2,584) (10,828) -------- -------- -------- Balance, end of period ................. $257,156 $209,147 $242,908 ======== ======== ======== Treasury stock: Balance, beginning of period ........... $(22,451) $(12,182) $(12,182) Issuance of common stock ............... 728 - - Exercise of stock options and issuance of restricted stock .................. 190 232 3,476 Acquisition of treasury stock .......... - (984) (13,745) -------- -------- -------- Balance, end of period ................. $(21,533) $(12,934) $(22,451) ======== ======== ======== Deferred compensation on restricted stock: Balance, beginning of period ........... $ (2,848) $ (1,520) $ (1,520) Issuance of restricted stock ........... (168) (6) (2,247) Amortization of deferred compensation on restricted stock ..................... 278 172 919 -------- -------- -------- Balance, end of period ................. $ (2,738) $ (1,354) $ (2,848) ======== ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 6 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (000s omitted) Three Months Ended March 31, ---------------------------- 1995 1994 ---- ---- Cash flows from operating activities: Premiums collected ........................... $ 170,978 $ 178,488 Net investment income collected .............. 24,526 22,580 Losses and loss adjustment expenses paid ..... (105,957) (103,262) Policy acquisition costs paid ................ (51,027) (48,989) Dividends paid to policyholders .............. (2,948) (4,251) Interest paid ................................ (5,977) (5,753) Federal income tax payments .................. (1,502) (4,001) Other receipts (payments) .................... (1,978) 5,092 --------- --------- Net cash provided by operating activities .. 26,115 39,904 --------- --------- Cash flows from investing activities: Maturities of fixed maturity investments ..... 17,349 49,766 Sales of fixed maturity investments .......... 22,172 43,039 Sales of equity securities ................... 8,560 24,922 Investments in fixed maturities .............. (36,825) (100,827) Investments in equity securities ............. (17,494) (49,025) Net sales (purchases) of short-term investments ................................ (17,814) 7,098 Other payments ............................... (639) (1,049) --------- --------- Net cash used in investing activities ...... (24,691) (26,076) --------- --------- Cash flows from financing activities: Proceeds from exercise of stock options ...... - 120 Repayment of notes payable ................... (2,500) (2,000) Dividends paid to stockholders ............... (2,809) (2,591) Purchases of common stock .................... - (1,244) Other payments ............................... (16) (14) --------- --------- Net cash used in financing activities ...... (5,325) (5,729) --------- --------- Net increase (decrease) in cash ............ (3,901) 8,099 Cash balance, beginning of period ............ 6,201 6,433 --------- --------- Cash balance, end of period .................. $ 2,300 $ 14,532 ========= ========= See Notes to Consolidated Financial Statements (Unaudited) Page 7 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued) (UNAUDITED) (000s omitted) Three Months Ended March 31, ---------------------------- 1995 1994 ---- ---- Reconciliation of net earnings to net cash provided by operating activities: Net earnings .................................. $ 17,062 $ 13,240 -------- -------- Adjustments: Depreciation and amortization ............... 1,266 1,007 Amortization of excess of cost over fair value of net assets acquired .............. 293 293 Deferred federal income taxes ............... 1,488 1,551 Amortization of fixed maturity investments .. 503 402 Non-cash investment income .................. (2,417) (1,423) Equity in earnings of affiliates ............ (3,095) (3,032) Dividends received from affiliates .......... 887 905 Realized investment gains ................... (2,560) (533) Other ....................................... (10) 106 Change in assets and liabilities: Decrease in accrued investment income ....... 1,598 2,072 Increase in accounts and notes receivable ... (9,660) (13,484) Decrease in reinsurance recoverables and prepaid reinsurance ....................... 11,016 29,456 Increase in deferred policy acquisition costs (1,246) (7,998) Decrease (increase) in other assets ......... (9,185) 362 Increase in losses .......................... 3,207 9,309 Increase in loss adjustment expenses ........ 7,974 2,829 Increase in unearned premiums ............... 987 3,079 Increase (decrease) in policyholders' dividends ................................. 368 (615) Increase in other liabilities ............... 7,639 2,378 -------- -------- Total adjustments and changes ............. 9,053 26,664 -------- -------- Net cash provided by operating activities ..... $ 26,115 $ 39,904 ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 8
ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Three Months Ended March 31, 1995 and 1994 Note A - Basis of Financial Statement Presentation The consolidated financial statements and notes thereto are prepared in accordance with generally accepted accounting principles for property and casualty insurance companies. The consolidated financial statements include Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries (collectively the "Company"). The Company's investments in unconsolidated affiliates are accounted for using the equity method. All material intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the Company's results of operations, financial position and cash flows for all periods presented. Although these consolidated financial statements are unaudited, they have been reviewed by the Company's independent accountants, Deloitte & Touche LLP, for conformity with accounting requirements for interim financial reporting. Their report on such review is included herein. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 annual report on Form 10-K. Note B - Investment in Affiliates The Company owns slightly less than fifty percent of the common stock of Guaranty National Corporation ("Guaranty National"), and approximately twenty percent of Intercargo Corporation ("Intercargo"), both publicly-held companies. The Company records its share of Intercargo's operating results in the subsequent quarter, after Intercargo has reported its financial results. Summarized financial information of the Company's affiliates for the three months ended March 31, 1995 and 1994 is as follows: Three Months Ended March 31, ------------------ 1995 1994 ---- ---- (000s omitted) Revenues: Premiums earned ................................. $ 99,459 $ 75,331 Realized investment gains ....................... 569 1,145 Investment and other income ..................... 8,041 5,865 -------- -------- 108,069 82,341 -------- -------- Expenses: Insurance expenses .............................. 96,938 73,618 Interest and other .............................. 1,360 858 -------- -------- 98,298 74,476 -------- -------- Earnings before federal income taxes .............. 9,771 7,865 Federal income taxes .............................. 2,349 1,795 -------- -------- Net earnings ...................................... $ 7,422 $ 6,070 ======== ======== The Company's proportionate share ................. $ 3,095 $ 3,032 ======== ======== Page 9 The Company's investments in and advances to affiliates were as follows: March 31, December 31, 1995 1994 --------- ------------ (000s omitted) Book value ................................ $114,027 $108,510 Market value .............................. 123,736 138,786 Guaranty National shares held ............. 6,004 6,004 - Book value of shares held ............. $ 78,252 $ 72,564 - Market value of shares held ........... 93,059 110,320 Intercargo shares held .................... 1,526 1,526 - Book value of shares held ............. $ 18,579 $ 18,750 - Market value of shares held ........... 14,120 12,593 Note C - Reinsurance In the normal course of business, the Company's insurance subsidiaries reinsure certain risks, generally on an excess-of-loss or pro rata basis, with other companies to limit exposure to losses. Reinsurance does not discharge the primary liability of the original insurer. The table below summarizes certain reinsurance information: Three Months Ended March 31, ---------------------------- 1995 1994 ---- ---- (000s omitted) Direct premiums written .................. $175,155 $165,819 Reinsurance assumed ...................... 30,569 29,980 -------- -------- Gross premiums written ................... 205,724 195,799 Reinsurance ceded ........................ (29,632) (7,652) -------- -------- Net premiums written ..................... $176,092 $188,147 ======== ======== Direct premiums earned ................... $173,320 $160,170 Reinsurance assumed ...................... 31,416 32,549 -------- -------- Gross premiums earned .................... 204,736 192,719 Reinsurance ceded ........................ (29,678) (25,624) -------- -------- Net premiums earned ...................... $175,058 $167,095 ======== ======== Loss and loss adjustment expenses incurred recoverable from reinsurers ............ $ 11,013 $ 12,798 ======== ======== Note D - Earnings Per Common Share Primary earnings per common share are computed using the weighted average common and dilutive common equivalent shares outstanding for the three months ended March 31, 1995 and 1994. The weighted average common and equivalent shares amounted to 14,183,000 and 14,487,000 shares for the quarters ended March 31, 1995 and 1994, respectively. Fully-diluted earnings per share is not presented as dilution is less than three percent for both periods. Page 10 Note E - Contingencies Orion and its subsidiaries are routinely engaged in litigation incidental to their businesses. Management believes that there are no significant legal proceedings pending against the Company or its subsidiaries which, net of reserves established therefor, are likely to result in judgments for amounts that are material to the financial condition, liquidity or results of operations of Orion and its consolidated subsidiaries, taken as a whole. (See also Notes H and I to the 1994 consolidated financial statements). Page 11 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors Orion Capital Corporation New York, New York We have reviewed the accompanying consolidated balance sheet of Orion Capital Corporation and subsidiaries (the "Company") as of March 31, 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the three-month periods ended March 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Orion Capital Corporation and subsidiaries as of December 31, 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended; and in our report dated February 24, 1995, we expressed an unqualified opinion on those consolidated financial statements. The consolidated statements of earnings and cash flows for the year ended December 31, 1994 are not presented herein. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1994 and related consolidated statement of stockholders' equity for the year then ended is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP Hartford, Connecticut April 26, 1995 Page 12 ORION CAPITAL CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1995 and 1994 RESULTS OF OPERATIONS Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries (collectively the "Company") operate principally in the property and casualty insurance business which is reported as three segments - Regional Operations, Reinsurance/Special Programs and Guaranty National Companies. Regional Operations provides workers compensation insurance products through EBI Companies and Nations' Care. Reinsurance/Special Programs includes (i) DPIC Companies ("DPIC"), which markets professional liability insurance, (ii) Connecticut Specialty Insurance Group ("Connecticut Specialty"), which writes specialty insurance programs, (iii) SecurityRe Companies ("SecurityRe"), a reinsurer and (iv) a 20.0% interest in Intercargo Corporation ("Intercargo") which underwrites insurance coverages for international trade. The third segment consists of the Company's interest in Guaranty National Corporation, which specializes in nonstandard commercial and personal automobile insurance. The miscellaneous income and expenses (primarily interest, general and administrative expenses and other consolidating elimination entries) of the parent company are reported as a fourth segment. Earnings (loss) by segment before federal income taxes are summarized as follows for the quarterly periods ended March 31, 1995 and 1994: Three Months Ended March 31, ------------------ 1995 1994 ---- ---- (000s omitted) Regional Operations ............................... $14,483 $ 8,260 Reinsurance/Special Programs ...................... 9,219 9,175 Guaranty National Corporation ..................... 2,876 3,032 ------- ------- 26,578 20,467 Other ............................................. (4,362) (3,254) ------- ------- Total ........................................... $22,216 $17,213 ======= ======= Page 13 The following table sets forth certain ratios of insurance operating expenses to premiums earned for the Company. Three Months Ended March 31, ------------------ 1995 1994 ---- ---- Loss and loss adjustment expenses ................. 70.0% 72.9% Policy acquisition costs and other insurance expenses ........................................ 29.3 26.5 ----- ----- Total before policyholders' dividends ......... 99.3 99.4 Policyholders' dividends .......................... 1.9 2.2 ----- ----- Total after policyholders' dividends .......... 101.2% 101.6% ===== ===== REVENUES Premiums written and premiums earned - ------------------------------------ Net premiums written decreased 6.4% ($12,055,000) to $176,092,000 in the first quarter of 1995 from $188,147,000 in the first quarter of 1994. The decline is attributable to a one-time premium refund amounting to $13,704,000 included in 1994's first quarter relating to the cancellation of a reinsurance contract covering a portion of DPIC's business. The results by segment are as follows: - Regional Operations' premiums written increased 4.0% ($3,014,000) from $75,780,000 in the first quarter of 1994 to $78,794,000 in the first quarter of 1995. Premiums written increased in new territories where the Company believes it will benefit from its service oriented approach. The increase was partially offset by the impact of legislative reforms in certain states which have led to lower premium rates and a reduction in losses and commission expenses, resulting in higher profit margins. The increase in this segment was also offset by the transition at Nations' Care toward high-deductible and fee-based workers compensation products. - Reinsurance/Special Programs' premiums written during the first quarter of 1995 decreased 13.4% ($15,069,000) from $112,367,000 in the first quarter of 1994 to $97,298,000 in the 1995 first quarter. Premiums written by DPIC for professional liability insurance, the largest special program, decreased 24.0% ($12,048,000) to $38,087,000 in 1995's first quarter from $50,135,000 for the first quarter of 1994. Premiums written in 1994 included the premium refund of $13,704,000 discussed above, associated with the discontinuation of a reinsurance contract in order to retain more of DPIC's profitable business. Premium volume for Connecticut Specialty decreased 14.9% ($7,069,000) to $40,389,000 in the first quarter of 1995 from $47,458,000 in the 1994 period. The decrease is largely attributable to the cancellation in 1994 of a personal injury protection program in Florida and a physical damage program in Texas, where the Company had unfavorable loss experience, offset in part by increased premiums written in the truck liability program and the introduction of an additional marine program. The percentage of treaty and facultative reinsurance premiums assumed to total net premiums written for Reinsurance/Special Programs increased to 19.3% in the first quarter of 1995 from 13.1% in the first quarter of 1994. Page 14 Premiums earned increased 4.8% ($7,963,000) to $175,058,000 in the first quarter of 1995 compared to $167,095,000 in the first quarter of 1994. The reinsurance contract cancelled by DPIC did not have a significant impact on earned premiums for this comparison. Net investment income - --------------------- Pre-tax net investment income increased $3,085,000 to $23,853,000 for the first quarter of 1995 from $20,768,000 for the first quarter of 1994. The pre-tax yields on the average investment portfolio were 7.1% for the first quarter of 1995 and 6.6% for the first quarter of 1994 and the after-tax yields were 5.5% and 5.1%, respectively. The increase in net investment income reflects earnings from limited partnership investments of $2,175,000 for the first quarter of 1995 as compared to $1,158,000 for the 1994 period, as well as a higher investment base and a rise in market interest rates. Fixed maturity investments which the Company has both the positive intent and the ability to hold to maturity are recorded at amortized cost. Investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies or liquidity needs are classified as available-for-sale and are carried at market value, with unrealized gains and losses reported in a separate component of stockholders' equity. The carrying value of fixed maturity and short term investments amounted to $1,037,796,000 and $1,002,042,000 at March 31, 1995 and December 31, 1994, respectively, or approximately 75.5% and 75.6% of the Company's cash and investments. The Company's investment philosophy is to achieve a superior rate of return after taxes and maintain a high degree of safety and liquidity. The Company invests primarily in investment grade securities and strives to enhance the average return of its portfolio through limited investment in a diversified group of non-investment grade fixed maturity securities or securities that are not rated. The risk of loss due to default is generally considered greater for non-investment grade securities than for investment grade securities because the former, among other things, are often subordinated to other indebtedness of the issuer and are often issued by highly leveraged companies. At March 31, 1995 and December 31, 1994, the Company's investments in non-investment grade and unrated fixed maturity securities were carried at $129,211,000 and $119,853,000 with market values of $128,762,000 and $119,277,000, respectively. These investments represented a total of 9.4% and 9.0% of cash and investments and 6.0% and 5.7% of total assets at March 31, 1995 and December 31, 1994, respectively. Page 15 Realized investment gains - ------------------------- Net realized investment gains increased $2,027,000 to $2,560,000 in the first quarter of 1995 from $533,000 in the first quarter of 1994. Realized investment gains in the first quarters of 1995 and 1994 are net of $500,000 and $794,000, respectively, of provisions for losses on securities deemed to be other than temporarily impaired. Realized gains (losses) vary from period to period, depending on market conditions relative to the Company's investment holdings, the timing of investment sales generating gains and losses, the occurrence of events which give rise to other than temporary impairment of investments, and other factors. EXPENSES AND OTHER Operating ratios - ---------------- The ratio of loss and loss adjustment expenses to premiums earned (the "loss ratio") was 70.0% in the 1995 first quarter compared to 72.9% in the same period of 1994. The decrease in the loss ratio from the first quarter of 1994 to the first quarter of the current year was attributable to lower loss ratios in the Regional Operations segment. Adverse development of prior years' losses amounted to $4,344,000 in the first quarter of 1995, compared with $5,084,000 in the 1994 period. Management believes that the Company's reserves for loss and loss adjustment expenses make reasonable and sufficient provision for the ultimate cost of all losses on claims incurred. The loss ratio for the Regional Operations segment was 63.0% in the 1995 first quarter and 69.6% in the 1994 first quarter, reflecting continued success of the Company's service oriented approach for workers compensation insurance, and an increase in high-deductible policies written by Nations' Care. The first quarter 1995 and 1994 loss ratios for Reinsurance/Special Programs amounted to 75.2% for both years. The ratio of deferred policy acquisition costs and other insurance expenses to premiums earned (the "expense ratio") was 29.3% in the first three months of 1995 as compared to 26.5% in 1994. The increase in the expense ratio in 1995 is attributable to a number of factors including opening offices in new territories, a change in the mix of business toward policies with lower premiums and losses relative to policyholder servicing expenses and general inflationary increases in fixed operating expenses. The ratio of policyholders' dividends to premiums earned (the "dividend ratio") was 1.9% in 1995 and 2.2% in 1994. The combined ratio was 101.2% in the first quarter of 1995 and 101.6% for the same period of 1994. Page 16 Interest expense - ---------------- Interest expense increased to $3,562,000 in the first quarter of 1995 versus $3,324,000 in 1994. The increase of 7.2% reflects higher interest rates in 1995 as compared to 1994, offset in part by lower average debt outstanding. Equity in earnings of affiliates - -------------------------------- Equity in earnings of affiliates includes the Company's portion of earnings from Guaranty National and Intercargo. Earnings of $219,000 were recorded from the Intercargo investment in the first quarter of 1995. The Company's portion of Guaranty National's net earnings was $2,876,000 for the first quarter of 1995 and $3,032,000 for the first quarter of 1994, based on Guaranty National's earnings of $5,768,000 and $6,070,000 for the respective periods. Guaranty National's gross premiums written increased to $94,578,000 for the first three months of 1995 from $88,470,000 for the 1994 period. Guaranty National's overall combined ratio was 97.7% in both the first quarters of 1995 and 1994. Federal income taxes - -------------------- Federal income taxes on pre-tax operating results and the related effective tax rates amounted to $5,154,000 (23.2%) and $3,973,000 (23.1%) in the first quarters of 1995 and 1994, respectively. The Company's effective tax rate is less than the statutory tax rate of 35% primarily because of income derived from tax-advantaged securities. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities decreased by $13,789,000 from $39,904,000 in 1994 to $26,115,000 in 1995. Cash flow for 1995 included a disbursement of $7,800,000 under a retrospectively rated program written by DPIC. In 1994 operating cash flow included a $10,223,000 receipt from DPIC's discontinuation of a reinsurance contract. Excluding these one-time items, first quarter cash flow increased approximately $4,200,000 from 1994 to 1995. Cash used in investment activities decreased to $24,691,000 in 1995 from $26,076,000 in 1994. Cash is used in investment activities primarily for purchases of investments, which are funded by maturities and sales of investments, as well as by the net cash from positive operating cash flows after payments made to fund financing activities. Cash used in financing activities was $5,325,000 and $5,729,000 for the first quarters of 1995 and 1994, respectively, reflecting dividend payments and scheduled debt repayments in both years, and in 1994, payments related to the Company's stock repurchase program. The Company increased its quarterly dividend rate by 11.1% in the third quarter of 1994. Page 17 Orion's uses of cash consist of debt service, dividends to stockholders and overhead expenses. These cash uses are funded from existing available cash, financing transactions and receipt of dividends, reimbursement of overhead expenses and amounts in lieu of federal income taxes from Orion's insurance subsidiaries. Payments of dividends by Orion's insurance subsidiaries must comply with insurance regulatory limitations concerning stockholder dividends and capital adequacy. State insurance regulators have broad discretionary authority with respect to limitations on the payment of dividends by insurance companies. Limitations under current regulations are well in excess of Orion's cash requirements. Orion's insurance subsidiaries maintain liquidity in their investment portfolios substantially in excess of that required to pay claims and expenses. The insurance subsidiaries held cash and short-term investments of $113,816,000 and $96,572,000 at March 31, 1995 and December 31, 1994, respectively. Orion's insurance subsidiaries had consolidated policyholders' surplus of $463,217,000 at March 31, 1995 and $458,676,000 at December 31, 1994, and statutory operating leverage ratios of trailing twelve months net premiums written to policyholders' surplus of 1.5:1 at March 31, 1995 and 1.6:1 at December 31, 1994. At March 31, 1995 the Company had $40,000,000 outstanding under a bank loan arrangement (the "Loan Agreement"), including a $35,000,000 term loan and $5,000,000 under a $30,000,000 line of credit. These borrowings are unsecured and bear interest at or below prime. At March 31, 1995, the Company had available $25,000,000 in unused commitments under the line of credit. The terms of the Loan Agreement and Orion's Indenture for its 9 1/8% Senior Notes limit the amount of additional borrowings, prepayments on existing indebtedness, liens and guaranties by the Company. Management does not believe that any of these limitations unduly restricts the Company's operations or limits Orion's ability to pay dividends on its stock. At March 31, 1995, the Company was in compliance with the terms of its debt agreements. Management believes that the Company continues to have substantial sources of capital and liquidity from the capital markets and bank borrowings. In August 1994, a shelf registration statement relating to the offering of up to $100 million of the Company's debt and/or equity securities was declared effective by the Securities and Exchange Commission ("SEC"). The shelf registration provides for securities to be issued from time to time, with specified terms of an issue of securities set forth in a prospectus supplement at the time of issuance. The proceeds from the sale of securities may be used for general corporate purposes, including working capital, investment in subsidiaries, the repayment of existing bank debt, the repurchase of shares of common stock, or for such other purpose as may be specified in a prospectus supplement. Page 18 Item 5. - -------- None. Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ (a) Exhibits Exhibit 11: Computation of Earnings Per Common Share. Exhibit 15: Deloitte & Touche Letter re unaudited interim financial information. Exhibit 27: Financial Data Schedule. (b) Reports on Form 8-K. None. Page 19 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. ORION CAPITAL CORPORATION Date: May 5, 1995 By: /s/ Alan R. Gruber --------------------------------- Chairman of the Board and Chief Executive Officer Date: May 5, 1995 By: /s/ Daniel L. Barry ----------------------------------- Vice President, Controller and Principal Accounting Officer Page 20 EXHIBIT INDEX Page No. Exhibit 11: Computation of Earnings 22 Per Common Share Exhibit 15: Deloitte & Touche Letter 23 re unaudited interim financial information Exhibit 27: Financial Data Schedule 24 Page 21 EX-11 2 EXHIBIT 11 ORION CAPITAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED) (000s omitted-except for per common share data) Three Months Ended March 31, ---------------------------- 1995 1994 ---- ---- Computation of weighted average number of common and equivalent shares outstanding: PRIMARY - Weighted average number of shares outstanding ............................. 14,066 14,354 Dilutive effect of stock options .......... 117 133 ------- ------- Weighted average number of common and equivalent shares ....................... 14,183 14,487 ======= ======= Net earnings attributable to common stockholders ............................ $17,062 $13,240 ======= ======= Net earnings per common share ............. $ 1.20 $ .91 ======= ======= FULLY DILUTED - Weighted average number of shares outstanding ............................. 14,066 14,354 Dilutive effect of stock options .......... 117 133 ------- ------- Weighted average number of common and equivalent shares ....................... 14,183 14,487 ======= ======= Net earnings attributable to common stockholders ............................ $17,062 $13,240 ======= ======= Net earnings per common share ............. $ 1.20 $ .91 ======= ======= Page 22 EX-15 3 EXHIBIT 15 April 26, 1995 Orion Capital Corporation 600 Fifth Avenue New York, New York We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Orion Capital Corporation and subsidiaries for the periods ended March 31, 1995 and 1994, as indicated in our report dated April 26, 1995; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, is incorporated by reference in Registration Statements No. 2-65348 on Form S-8 and S-16 relating to the Orion Capital Corporation 1976 and 1979 Stock Option Plans, No. 2-80636 on Form S-8 relating to the Orion Capital Corporation 1982 Long-Term Performance Incentive Plan, No. 2-63344 on Form S-8 relating to the Orion Capital Corporation Employees' Stock Savings and Retirement Plan and No. 33-53759 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Hartford, Connecticut Page 23 EX-27 4
7 THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1995 JAN-1-1995 MAR-31-1995 559,644 356,113 355,944 281,594 1,850 0 1,372,369 2,300 293,354 71,383 2,162,921 1,192,510 257,842 0 13,019 149,885 163,110 0 0 239,402 2,162,921 175,058 23,853 2,560 326 122,597 45,216 9,380 22,216 5,154 17,062 0 0 0 17,062 1.20 1.20 891,542 118,253 4,344 14,202 91,755 908,182 4,344
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