-----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, PYPWux8QKxQAJqo7QIqkOMRG9/Wb0lUzcsaeZVvwOIcHHLKA5czuTOGXQ4H8QjP1 GeZo/EMHKgCOujG6hxU29Q== 0000780118-98-000009.txt : 19981118 0000780118-98-000009.hdr.sgml : 19981118 ACCESSION NUMBER: 0000780118-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMWEST INSURANCE GROUP INC CENTRAL INDEX KEY: 0000780118 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 952672141 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09580 FILM NUMBER: 98749554 BUSINESS ADDRESS: STREET 1: 5230 LAS VIRGENES RD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188712000 MAIL ADDRESS: STREET 1: 5230 LAS VIRGENES RD CITY: CALABASAS STATE: CA ZIP: 91302 10-Q 1 FORM 10-Q QUARTERLY FILING FOR AIG SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR ( ) 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: 1-9580 AMWEST INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 95-2672141 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5230 Las Virgenes Road Calabasas, California 91302 (Address of principal executive offic (Zip Code) Registrant's telephone number, including area code: (818) 871-2000 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 . As of November 11, 1998, 3,916,539 shares of common stock, $.01 par value, were outstanding. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES INDEX Part I. FINANCIAL INFORMATION: Item 1 Consolidated Statements of Operations for the three months and nine months ended September 30, 1998 and 1997 3 Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows for the three months and nine months ended September 30, 1998 and 1997 6 Notes to Interim Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. OTHER INFORMATION: Item 1 Legal Proceedings 14 Item 2 Changes in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information 14 Item 6 Exhibits and Reports on Form 8-K 14 PART I - FINANCIAL INFORMATION Item 1 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Underwriting revenues: Premiums written ........................ $ 34,687 $ 30,083 $ 99,073 $ 79,868 Premiums ceded .......................... (13,013) (2,640) (18,150) (5,738) -------- -------- -------- -------- Net premiums written ............... 21,674 27,443 80,923 74,130 Change in unearned premiums Direct ............................. (2,778) (4,439) (7,750) (7,124) Ceded .............................. 6,737 732 6,832 (43) -------- -------- -------- -------- Net premiums earned ................ 25,633 23,736 80,005 66,963 -------- -------- -------- -------- Underwriting expenses: Losses and loss adjustment expenses ...... 12,090 11,280 35,338 27,297 Reinsurance recoveries ................... (2,139) (1,051) (5,291) (2,018) -------- -------- -------- -------- Net losses and loss adjustment expenses 9,951 10,229 30,047 25,279 Policy acquisition costs ................. 12,072 11,593 39,254 32,561 General operating costs .................. 3,824 3,244 10,539 9,416 -------- -------- -------- -------- Total underwriting expenses ........... 25,847 25,066 79,840 67,256 -------- -------- -------- -------- Underwriting income (loss) ......... (214) (1,330) 165 (293) Interest expense ............................. (475) (585) (1,386) (1,464) Net investment income ........................ 1,733 1,594 4,870 4,880 Net realized gains ........................... 1,901 1,044 3,786 2,029 -------- -------- -------- -------- Income before income taxes ............... 2,945 723 7,435 5,152 Provision (benefit) for income taxes: Current .................................... 1,691 311 2,687 713 Deferred ................................... (844) (273) (381) 655 -------- -------- -------- -------- Total provision for income taxes ......... 847 38 2,306 1,368 -------- -------- -------- -------- Net income ......................... $ 2,098 $ 685 $ 5,129 $ 3,784 ======== ======== ======== ======== Earnings per common share: Basic .................................... $ 0.54 $ 0.18 $ 1.33 $ 1.02 Diluted .................................. $ 0.53 $ 0.18 $ 1.30 $ 1.01
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS
September 30, December 31, 1998 1997 -------------- ------------ (unaudited) Investments: Fixedmaturities, available-for-sale (amortized cost of $101,504 and $96,516 at September 30, 1998 and December 31, 1997, respectively) ............................................................. $ 104,123 $ 98,746 Common equity securities, available-for-sale (cost of $8,847 and $6,856 at September 30, 1998 and December 31, 1997, respectively) ............................................................. 10,726 10,297 Preferred equity securities, available-for-sale (cost of $3,575 and $2,664 at September 30, 1998 and December 31, 1997, respectively) ............................................................. 3,440 2,894 Other invested assets (cost of $5,778 and $5,816 at September 30, 1998 and December 31, 1997, respectively) ................................. 6,132 6,455 Short-term investments ......................................................... 2,212 2,281 --------- --------- Total investments .............................................................. 126,633 120,673 Cash and cash equivalents ...................................................... 11,861 3,807 Accrued investment income ...................................................... 1,561 1,366 Agents balances and premiums receivable (less allowance for doubtful accounts of$967 at September 30, 1998 and $467 at December 31, 1997) ............................................. 18,838 12,511 Reinsurance recoverable: Paid loss and loss adjustment expenses .................................... 4,299 2,524 Unpaid loss and loss adjustment expenses .................................. 6,380 6,185 Ceded unearned premiums ........................................................ 8,871 2,039 Deferred policy acquisition costs .............................................. 19,354 21,299 Furniture, equipment and improvements, net ..................................... 5,741 5,355 Income taxes recoverable ....................................................... (932) 1,581 Other assets ................................................................... 13,177 13,179 --------- --------- Total assets .......................................................... $ 215,783 $ 190,519 ========= =========
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31, 1998 1997 ------------- ------------ (unaudited) Liabilities: Unpaid losses and loss adjustment expenses .................. $ 40,719 $ 39,523 Unearned premiums ........................................... 50,842 42,013 Funds held .................................................. 32,325 23,116 Bank indebtedness ........................................... 14,500 14,500 Amounts due to reinsurers ................................... 4,282 455 Deferred Federal income taxes ............................... 2,925 3,925 Other liabilities ........................................... 9,327 9,808 -------- -------- Total liabilities ....................................... 154,920 133,340 Stockholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; issued and outstanding: none ......... -- -- Common stock, $.01 par value, 10,000,000 shares authorized, issued and outstanding: 3,915,340 at September 30, 1998 and 3,798,141 at December 31, 1997 ... 39 34 Additional paid-in capital .................................. 24,549 18,209 Net unrealized appreciation of investments carried at market, net of income taxes ..................................... 3,113 4,316 Retained earnings ........................................... 33,162 34,620 -------- -------- Total stockholders' equity .............................. 60,863 57,179 -------- -------- Total liabilities and stockholders' equity ..... $215,783 $190,519 ======== ========
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Cash flows from operating activities: Net income ......................................... $ 2,098 $ 685 $ 5,129 $ 3,784 Adjustments to reconcile net income to cash provided by operating activities: Change in agents' balances and premiums receivable and unearned premiums ............ 2,831 4,274 2,502 2,865 Change in accrued investment income ............. (153) (110) (195) (45) Change in unpaid losses and loss adjustment expenses .................................... (244) 2,330 1,196 (75) Change in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses and ceded unearned premiums ................. (7,988) (783) (8,802) 300 Change in amounts due to/from reinsurers ........ 3,394 317 3,827 260 Change in other assets and other liabilities .... 900 1,699 4,026 (2,991) Change in income taxes, net ..................... 736 (82) 2,133 1,779 Change in deferred policy acquisition costs ..... 4,101 (1,725) 1,945 (4,462) Net realized gain on sale of investments ........ (1,901) (1,049) (3,786) (2,034) Net realized loss on sale of fixed assets ....... -- 53 8 48 Provision for depreciation and amortization ..... 660 336 1,409 997 -------- -------- -------- -------- Net cash provided by operating activities .... 4,434 5,945 9,392 426 Cash flows from investing activities: Cash received from investments sold prior to maturity .............................. 20,998 11,813 52,965 35,578 Cash received from investments Matured or called .............................. 5,076 2,014 11,984 6,611 Cash paid for investments acquired ................. (25,630) (15,390) (69,066) (39,969) Amortization of discount on bonds .................. 45 (60) 120 (88) Capital expenditures, net .......................... (927) (287) (1,803) (1,587) Acquisition of agencies, net ....................... -- (522) (673) (897) Mortgage and other loans, net ...................... -- -- -- (510) -------- -------- -------- -------- Net cash used by investing activities .............. (438) (2,432) (6,473) (862) Cash flows from financing activities: Proceeds from issuance of long term debt ........... -- -- -- 2,000 Proceeds from issuance of common stock ............. 202 776 921 1,166 Change in funds held as collateral ................. 1,061 (1,075) 5,376 (4,855) Dividends paid ..................................... (391) (376) (1,162) (1,116) -------- -------- -------- -------- Net cash provided (used) by financing activities ... 872 (675) 5,135 (2,805) -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 4,868 2,838 8,054 (3,241) Cash and cash equivalents at beginning of period ........ 6,993 355 3,807 6,434 -------- -------- -------- -------- Cash and cash equivalents at end of period .............. $ 11,861 $ 3,193 $ 11,861 $ 3,193 ======== ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ........................................... $ 475 $ 585 $ 1,386 $ 1,464 Income taxes ....................................... 114 (29) 1,841 227
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Notes to Interim Consolidated Financial Statements (unaudited) (1) Basis of Presentation The interim consolidated financial statements presented herein are unaudited and, in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (2) Stock Dividend On April 15, 1998, the Company paid a 10% stock dividend to stockholders of record as of March 31, 1998. The dividend was charged to retained earnings in the amount of $5,424,000, which was based on the closing price of $15.625 per share of the Company's Common Stock on the declaration date. All share and per share amounts included in the accompanying consolidated financial statements and notes are based on the increased number of shares giving retroactive effect to the stock dividend. (3) Comprehensive Income SFAS No. 130 "Reporting Comprehensive Income" was adopted by the Company effective January 1, 1998. Comprehensive Income represents a measure of all changes in equity of enterprises that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income for the quarterly periods ended September 30, 1998 and 1997 was $259,000 and $2,190,000 respectively. The Company's Comprehensive Income is comprised of net income for the period plus the tax effected increase or decrease in unrealized gains occurring during the period. (4) Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which requires the presentation of "basic" and "diluted" earnings per share ("EPS") and is effective for periods ending after December 15, 1997. Basic EPS is calculated based on the weighted average number of common shares outstanding and diluted EPS includes the effects of dilutive potential common shares. The effect of this change on reported EPS data is as follows:
Three months ended September 30, Income Shares Per-Share (Numerator) (Denominator) Amount ($ in thousands) (Dollars) ------------------------------------------------- Basic EPS: 1998 $ 2,098 3,904,297 $ .54 1997 $ 685 3,741,539 $ .18 Effect of Dilutive Securities: 1998 45,045 1997 84,758 Diluted EPS: 1998 $ 2,098 3,949,342 $ .53 1997 $ 685 3,826,297 $ .18
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Premiums written increased 15% and 24% from $30,083,000 and $79,868,000 for the three months and nine months ended September 30, 1997, respectively, as compared to $34,687,000 and $99,073,000 for the three months and nine months ended September 30, 1998, respectively. The premium growth was primarily due to premium increases in the surety product lines. Premiums for the surety business increased 15% and 26% from $23,209,000 and $60,697,000 for the three months and nine months ended September 30, 1997, respectively, to $26,594,000 and $76,437,000 for the three months and nine months ended September 30, 1998, respectively. The increase is attributable to continued strong growth in the commercial surety operations. The commercial surety product has continued to show substantial increases in written premium, with the gross written premium increasing 56% from $4,064,000 for the three months ended September 30, 1997 to $6,336,000 for the comparable 1998 period. Premiums for the property and casualty business also increased by 18% from $6,874,000 and $19,171,000 for the three months and nine months ended September 30, 1997, respectively, to $8,093,000 and $22,636,000 for the three months and nine months ended September 30, 1998, respectively. The increase is primarily due to increased writings in specialty transportation oriented business. Net premiums earned increased 8% and 19% from $23,736,000 and $66,963,000 for the three months and nine months ended September 30, 1997, respectively, as compared to $25,633,000 and $80,005,000 for the three months and nine months ended September 30, 1998, respectively, due to steady growth in the premium writings noted above. Additionally, effective July 1, 1998, the Company entered into a quota share reinsurance treaty, which cedes 15% of premiums written for its surety lines of business, thereby partially offsetting the increases in gross surety premium writings. The Company generally earns premiums ratably over the assigned bond terms for the surety operations and the policy term for the specialty property and casualty operations. Net losses and loss adjustment expenses decreased 3% and increased 19% from $10,229,000 and $25,279,000 for the three months and nine months ended September 30, 1997, respectively, to $9,951,000 and $30,047,000 for the three months and nine months ended September 30, 1998, respectively. The loss ratio for the surety operations increased from 30% to 32% for the three months ended September 30, 1997 and September 30, 1998, respectively, and the loss ratio remained constant at 28% for each of the nine months ended September 30, 1997 and September 30, 1998. The loss ratio for the property and casualty operations decreased from 87% to 63% for the three months ended September 30, 1997 and September 30, 1998, respectively, and the loss ratio increased from 68% to 73% for the nine months ended September 30, 1997 and September 30, 1998, respectively. The decreased loss ratio for the third quarter of 1998 is due to improved loss experience on the commercial auto liability line of business. Policy acquisition costs decreased as a percentage of net premiums earned from 49%, or $11,593,000, to 47%, or $12,072,000, for the three months ended September 30, 1997 and September 30, 1998, respectively. The ratio remained constant at 49%, or $32,561,000 and $39,254,000, for the nine months ended September 30, 1997 and September 30, 1998, respectively. General operating costs increased as a percentage of net premiums earned from 14%, or $3,244,000 to 15%, or $3,824,000, for the three months ended September 30, 1997 and September 30, 1998, respectively, and the ratio decreased from 14%, or $9,416,000 to 13%, or $10,539,000, for the nine months ended September 30, 1997 and September 30, 1998, respectively. The Company had underwriting losses of $1,330,000 and $293,000 for the three months and nine months ended September 30, 1997, respectively, compared with an underwriting loss of $214,000 and underwriting income of $165,000 for the three months and nine months ended September 30, 1998, respectively. The combined ratio decreased from 106% for the three months ended September 30, 1997 to 101% for the three months ended September 30, 1998, and it remained constant at 100% for the nine months ended September 30, 1997 and September 30 1998, due to the factors discussed above. Interest expense decreased 19% and 5% from $585,000 and $1,464,000 for the three months and nine months ended September 30, 1997, respectively, to $475,000 and $1,386,000 for the three months and nine months ended September 30, 1998, respectively. The decrease is primarily attributable to a decrease in the interest rate on bank indebtedness from an average rate of 7.9% for the three months ended September 30, 1997 to an average rate of 7.4% for the three months ended September 30, 1998. Net investment income increased 9% from $1,594,000 for the three months ended September 30, 1997 to $1,733,000 for the three months ended September 30, 1998, and remained constant at $4,880,000 and $4,870,000 for the nine months ended September 30, 1997 and September 30, 1998, respectively. The increase for the three months ended September 30, 1998 is primarily due to an increase in the amount of average invested assets from $121,402,000 at September 30, 1997 to $127,321,000 at September 30, 1998. Net realized investment gains increased from $1,044,000 and $2,029,000 for the three months and nine months ended September 30, 1997, respectively, to $1,901,000 and $3,786,000 for the three months and nine months ended September 30, 1998, respectively. The increase is primarily due to a realized gain of approximately $1,000,000 from the sale of an investment property in the third quarter of 1998. Other investments sold during the three months and six months ended September 30, 1998 were primarily equity securities and certain fixed income investments including mortgage-backed and municipal bond securities. Income before income taxes increased from income of $723,000 and $5,152,000 for the three months and nine months ended September 30, 1997, respectively, to income of $2,945,000 and $7,435,000 for the three months and nine months ended September 30, 1998, respectively, due to the factors outlined above. The effective tax rate was 5% and 27% for the three months and nine months ended September 30, 1997, respectively, as compared to an effective tax rate of 29% and 31% for the three months and nine months ended September 30, 1998, respectively. The primary reason for the variance from the corporate income tax rate of 34% is tax advantaged income received on a portion of the Company's investment portfolio partially offset by non-deductible expenses (primarily consisting of goodwill amortization and meals and entertainment disallowances). Net income increased from $685,000 and $3,784,000 for the three months and nine months ended September 30, 1997, respectively, to $2,098,000 and $5,129,000 for the three months and nine months ended September 30, 1998, respectively, due to the factors outlined above. Liquidity and Capital Resources As of September 30, 1998, the Company held total cash and cash equivalents and invested assets of $138,494,000. This amount includes an aggregate of $28,492,000 in funds held as collateral which is shown as a liability on the Company's consolidated balance sheets. As of September 30, 1998, the Company's invested assets consisted of $104,123,000 in fixed maturities, $10,726,000 in common equity securities, $3,440,000 in preferred equity securities, $6,132,000 in other invested assets and $2,212,000 in short-term investments, including certificates of deposit with original maturities less than one year. Because the Company depends primarily on dividends from its insurance subsidiaries for its net cash flow requirements, absent other sources of cash flow, the Company cannot pay dividends materially in excess of the amount of dividends that could be paid by the insurance subsidiaries to the Company. The state of Nebraska regulates, through the Office of the Insurance Commissioner, the amount of dividends which can be paid by a domestic insurance company utilizing various formula methodology. On August 6, 1993, the Company entered into a revolving credit agreement with Union Bank for $12,500,000, which refinanced a previous loan. The debt agreement was amended on April 24, 1995, July 10, 1996 and again on September 30, 1997 to increase the amount available under the revolving line of credit from $12,500,000 to $15,000,000 and to change certain covenants and payment requirements. The bank loan has a variable rate of interest based upon fluctuations in the London Interbank Offered Rate (LIBOR) and has amortizing principal payments. The annual interest rate at September 30, 1998 was 7.4%. The credit agreement contains certain financial covenants with respect to capital expenditures, business acquisitions, liquidity ratio, leverage ratio, tangible net worth, net profit and dividend payments. The Company is a party to a lease with ACD2 for its corporate headquarters. This lease has a term of 15 years and contains provisions for scheduled lease charges. The Company's remaining minimum lease commitment with respect to this lease in 1998 is approximately $233,000. The Company also has the option to purchase this office building during a six month period commencing in May 2000 at a predetermined rate for the building, with the value of land based on then existing market rates. Other than the Company's obligations with respect to funds held as collateral, the Company's obligation to pay claims as they arise, the Company's commitments to pay principal and interest on the bank debt and lease expenses as noted above, the Company has no significant cash commitments. The Company believes that its cash flows from operations and other present sources of capital are sufficient to sustain its needs for at least the remainder of 1998. The Company generated $5,945,000 and $426,000 in cash from operating activities for the three months and nine months ended September 30, 1997, respectively, as compared to generating $4,434,000 and $9,392,000 for the three months and nine months ended September 30, 1998, respectively. The Company used $2,432,000 and $862,000 in cash from investing activities for the three months and nine months ended September 30, 1997, respectively, as compared to using $438,000 and $6,473,000 for the three months and nine months ended September 30, 1998. The Company used $675,000 and $2,805,000 in cash from financing activities for the three months and nine months ended September 30, 1997, respectively, as compared to generating $872,000 and $5,135,000 for the three months and nine months ended September 30, 1998, respectively. Year 2000 Computer Matters Since 1996, the Company has been in the process of developing a new surety production computer system. Development is substantially complete and implementation is currently in process. The Company has tested the new surety system and believes it is year 2000 compliant. The property and casualty computer operating systems are currently running in a version that is not year 2000 compliant. In connection with improving the operational effectiveness of the property and casualty computer systems, the Company is in the process of installing an updated version of its property and casualty operating system which has been certified as Year 2000 compliant by the software vendor. The Company expects to be substantially complete with this implementation by December 31, 1998. Additionally, the Company has tested and/or received certification from its vendors that the financial and corporate computer and communication systems are year 2000 compliant. While the Year 2000 considerations are not expected to materially impact the Company's internal operations, they may have an effect on some of the Company's agents and brokers, suppliers, financial institutions and others with whom the Company conducts business, and thus indirectly affect the Company. It is not possible to quantify the aggregate cost to the Company with respect to external Year 2000 problems, if any, although the Company does not presently anticipate it will have a material adverse impact on its business. The Company's contingency plans with respect to problems associated with Year 2000 non-compliance of specific internal and external applications are currently being evaluated. Other Matters Certain statements contained in this Form 10-Q regard matters which are not historical facts and are forward looking statements. Because such forward looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to: a decline in demand for surety bonds or specialty property and casualty insurance, the ineffectiveness of certain management and reorganization changes made, a deterioration in results of any of the Company's product lines, adverse loss development and associated expense incurred by the Company due to the severity or frequency of claims filed with respect to the Company's insurance products, or a general economic decline. The Company undertakes no obligation to release publicly the results of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The table on the next page shows, for the periods indicated, the gross premiums written, net premiums earned, net losses and loss adjustment expenses, other expenses, underwriting income (loss), and ratios for the Company's specialty property and casualty operations and surety operations. The surety operations are detailed by the Company's three major types of bonds: TABLE 1 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE (Dollars in thousands)
Three months ended Nine months ended Year ended September 30, September 30, December 31, Type of Bond 1998 1997 1998 1997 1997 1996 ------------ ---- ---- ---- ---- ---- ---- Court Gross premiums written ....... $ 3,201 $ 2,940 $ 9,079 $ 8,036 $ 11,109 $ 11,196 Net premiums earned .......... 3,501 2,932 9,282 7,926 11,038 10,897 Net losses and loss adjustment expenses .................. (214) 1,356 257 1,363 1,403 835 Loss ratio ................... -6% 46% 3% 17% 13% 8% Contract Gross premiums written ....... $ 17,057 $ 16,205 $ 47,003 $ 40,883 $ 54,808 $ 49,782 Net premiums earned .......... 11,246 11,784 38,086 33,552 46,741 46,158 Net losses and loss adjustment expenses .................. 5,695 3,397 14,145 10,956 15,738 24,430 Loss ratio ................... 51% 29% 37% 33% 34% 53% Commercial Surety Gross premiums written ....... $ 6,336 $ 4,064 $ 20,355 $ 11,778 $ 16,694 $ 11,357 Net premiums earned .......... 5,140 3,443 16,081 9,001 12,786 8,446 Net losses and loss adjustment expenses .................. 827 605 3,503 1,720 2,873 2,571 Loss ratio ................... 16% 18% 22% 19% 22% 30% Total Surety Gross premiums written ....... $ 26,594 $ 23,209 $ 76,437 $ 60,697 $ 82,611 $ 72,335 Net premiums earned .......... 19,887 18,159 63,449 50,479 70,565 65,501 Net losses and loss adjustment expenses ................. 6,308 5,358 17,905 14,039 20,014 27,836 Other expenses ............... 13,934 12,500 43,451 35,338 49,184 43,721 Underwriting income (loss) ... (355) 301 2,093 1,102 1,367 (6,056) Loss ratio ................... 32% 30% 28% 28% 28% 42% Expense ratio ................ 70% 69% 68% 70% 70% 67% Combined ratio ............... 102% 98% 97% 98% 98% 109% Property & Casualty Gross premiums written ....... $ 8,093 $ 6,874 $ 22,636 $ 19,171 $ 25,481 $ 25,006 Net premiums earned .......... 5,746 5,577 16,556 16,484 21,585 22,382 Net losses and loss adjustment expenses .................. 3,643 4,871 12,142 11,240 14,644 18,811 Other expenses ............... 1,962 2,337 6,342 6,639 8,802 7,344 Underwriting income (loss) ... 141 (1,631) (1,928) (1,395) (1,861) (3,773) Loss ratio ................... 63% 87% 73% 68% 68% 84% Expense ratio ................ 34% 42% 38% 40% 41% 33% Combined ratio ............... 98% 129% 112% 108% 109% 117% Total Company Gross premiums written ....... $ 34,687 $ 30,083 $ 99,073 $ 79,868 $ 108,092 $ 97,341 Net premiums earned .......... 25,633 23,736 80,005 66,963 92,150 87,883 Net losses and loss adjustment expenses ................. 9,951 10,229 30,047 25,279 34,658 46,647 Other expenses ............... 15,896 14,837 49,793 41,977 57,986 51,065 Underwriting income (loss) ... (214) (1,330) 165 (293) (494) (9,829) Loss ratio ................... 39% 43% 38% 38% 38% 53% Expense ratio ................ 62% 63% 62% 63% 63% 58% Combined ratio ............... 101% 106% 100% 100% 101% 111%
PART II - OTHER INFORMATION AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Items 1-5: LEGAL PROCEEDINGS, CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, OTHER INFORMATION None Item 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index on page 16. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended September 30, 1998. 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. AMWEST INSURANCE GROUP, INC. Date: November 13, 1998 by: /s/ JOHN E. SAVAGE --------------------------- John E. Savage President, Co-Chief Executive and Chief Operating Officer (Principal Executive Officer) by: /s/ STEVEN R. KAY ---------------------------- Steven R. Kay Senior Vice-President, Chief Financial Officer, Treasurer and Director (Principal Financial and Principal Accounting Officer) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description Location 2 Plan of acquisition, reorganization, arrangement, liquidation or succession None 4 Instruments defining the rights of security holders, including indentures Not required 11 Statement re computation of per share earnings Page 17 15 Letter re unaudited interim financial information None 18 Letter re change in accounting principles None 19 Previously unfiled documents None 20 Report furnished to security holders None 23 Published report regarding matters submitted to vote of security holders None 24 Consents of experts and counsel None 25 Power of attorney None 28 Additional exhibits None EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Basic Diluted (2) earnings per share earnings per share 1998 1997(3) 1998 1997(3) Average shares outstanding for the nine month period ending September 30, 3,856,101 3,703,090 3,856,101 3,703,090 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $5.582- $16.375(486,967 and 510,742 options at September 30, 1998 and 1997, respectively) (1) 75,065 56,614 --------- --------- --------- --------- Total incremental shares resulting from conversion of common stock equivalents at September 30, 75,065 56,614 --------- --------- --------- --------- Total shares and incremental shares resulting from conversion of common stock equivalents at September 30, 3,856,101 3,703,090 3,931,166 3,759,704 ========= ========= ========= ========= Percentage of incremental shares resulting from conversion of common stock equivalents at September 30, 1.91% 1.51% ========= ========= ========= =========
EXHIBIT 11 (continued) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Basic Diluted(2) earnings per share earnings per share 1998 1997(3) 1998 1997(3) Average shares outstanding for the three month period ending September 30, 3,904,297 3,741,539 3,904,297 3,741,539 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $5.582 - $16.375 (486,967 and 510,742 options at September 30, 1998 and 1997, respectively) (1) 45,045 84,758 --------- --------- --------- --------- Total incremental shares resulting from conversion of common stock equivalents at September 30, 45,045 84,758 --------- --------- --------- --------- Total shares and incremental shares resulting from conversion of common stock equivalents at September 30, 3,904,297 3,741,539 3,949,342 3,826,297 ========= ========= ========= ========= Percentage of incremental shares resulting from conversion of common stock equivalents at September 30, 1.14% 2.22% ========= ========= ========= =========
EXHIBIT 11, (continued) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (1) Outstanding options and warrants to purchase common stock. Options to purchase shares of common stock as of September 30, 1998 and 1997, respectively: September 30, September 30, 1998 1997 Grant price: $5.582 2,722 3,328 Grant price: $8.182 3,848 5,555 Grant price: $8.273 3,748 5,264 Grant price: $8.977 - 11,275 Grant price: $9.432 - 3,300 Grant price: $9.545 3,326 5,005 Grant price: $9.659 - 12,650 Grant price: $9.773 - 17,875 Grant price: $10.114 11,000 12,100 Grant price: $10.375 1,578 - Grant price: $10.750 - 11,000 Grant price: $11.023 75,350 83,050 Grant price: $11.364 19,250 19,250 Grant price: $11.591 2,288 4,400 Grant price: $12.159 86,677 102,630 Grant price: $12.614 59,879 66,495 Grant price: $12.745 - 1,815 Grant price: $12.841 19,250 19,250 Grant price: $12.955 113,551 118,250 Grant price: $13.523 8,250 8,250 Grant price: $16.375 76,250 - ------- -------- 486,967 510,742 ======= ======== (2) Calculation of incremental shares resulting from conversion of common stock equivalents, using the Treasury Stock Method for calculating diluted earnings per share, is based on the greater of the average ending ask price or the closing ask price on September 30, 1998 and 1997, as reported on the American Stock Exchange. (3) 1997 amounts are restated to reflect the 10% stock dividend paid to stockholders of record as of March 31, 1998. EX-27 3 FDS --
7 (Replace this text with the legend) 0000780118 SIOBHAN K. HORTON 1,000 U.S. DOLLAR 3-MOS DEC-31-1997 JUL-01-1998 SEP-30-1998 1 0 0 104,123 14,166 0 0 126,633 11,861 10,679 19,354 215,783 40,719 50,842 0 0 14,500 0 0 39 60,824 215,783 25,633 1,733 1,901 0 9,951 12,072 3,824 2,945 847 2,098 0 0 0 2,098 .54 .53 39,523 34,211 346 18,450 14,911 40,719 0
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