10-Q 1 0001.txt 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 June 30, 2000 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 Rd. Calabasas, California 91302 (Address of principal executive offices) (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 August 10, 2000, 4,322,555 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 six months ended June 30, 2000 and 1999 (unaudited) 3 Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 4 Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2000 and 1999 (unaudited) 6 Notes to Interim Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3 Quantitative and Qualitative Disclosures about Market Risk No significant changes from the Company's Annual Report on Form 10-K for the year ended December 31, 1999 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 15 Item 6 Exhibits and Reports on Form 8-K 15 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 Six months ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- OPERATIONS Gross premiums written $ 43,275 $ 36,042 $ 79,947 $ 68,177 ---------------- ---------------- ----------------- ---------------- Net premiums earned $ 27,170 $ 26,986 $ 57,907 $ 53,979 Net investment income 1,575 1,705 3,452 3,474 Net realized investment gain (loss) (244) 1,297 911 2,037 Commissions and fees 481 522 1,324 1,129 ---------------- ---------------- ----------------- ---------------- Total revenues 28,982 30,510 63,594 60,619 ---------------- ---------------- ----------------- ---------------- Net losses and loss adjustment expenses 28,243 10,003 41,791 19,089 Policy acquisition costs 13,807 12,736 29,061 25,923 General operating costs 3,761 4,558 7,814 8,497 Interest expense 630 493 1,250 1,047 ---------------- ---------------- ----------------- ---------------- Total expenses 46,441 27,790 79,916 54,556 ---------------- ---------------- ----------------- ---------------- Income (loss) before income taxes (17,459) 2,720 (16,322) 6,063 Provision (benefit) for income taxes (5,467) 980 (5,133) 1,958 ---------------- ---------------- ----------------- ---------------- Net income (loss) $ (11,992) $ 1,740 $ (11,189) $ 4,105 ================ ================ ================= ================ Earnings (loss) per common share: Basic $ (2.77) $ 0.40 $ (2.58) $ 0.95 ================ ================ ================= ================ Diluted $ (2.77) $ 0.40 $ (2.58) $ 0.95 ================ ================ ================= ================ COMPREHENSIVE INCOME (LOSS) Net income (loss) $ (11,992) $ 1,740 $ (11,189) $ 4,105 Other comprehensive income (loss): Unrealized gains(losses) on securities, net of income taxes of $(440) and $397 for the three months ended June 30, 2000 and 1999, and $(246) and $804 for the six months ended June 30, 2000 and 1999, respectively 856 (771) 478 (1,560) Reclassification adjustment for gains included in net income, net of income taxes of $(28) and $280 for the three months ended June 30, 2000 and 1999, and $269 and $467 for the six months ended June 30, 2000 and 1999, respectively 55 (542) (523) (907) ---------------- ---------------- ----------------- ---------------- Comprehensive income (loss) $ (11,081) $ 427 $ (11,234) $ 1,638 ================ ================ ================= ================ See accompanying notes to interim consolidated financial statements.
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS June 30, December 31, 2000 1999 -------------------- --------------------- (unaudited) Investments: Fixedmaturities, available-for-sale (amortized cost of $89,578 and $104,193 at June 30, 2000 and December 31, 1999 respectively) $86,751 $100,892 Common equity securities, available-for-sale (cost of $3,855 and $2,886 at June 30, 2000 and December 31, 1999, respectively) 5,134 4,199 Preferred equity securities, available-for-sale (cost of $3,826 and $4,905 at June 30, 2000 and December 31, 1999, respectively) 3,390 5,073 Other invested assets (cost of $7,858 and $7,725 at June 30, 2000 and December 31, 1999, respectively) 7,977 7,749 Short-term investments 3,226 2,691 -------------------- --------------------- Total investments 106,478 120,604 Cash and cash equivalents 5,070 15,821 Accrued investment income 1,585 1,654 Agents balances and premiums receivable (less allowance for doubtful accounts of $1,260 at June 30, 2000 and December 31, 1999, respectively) 21,711 15,365 Contract settlement funds and collateral receivable 22,234 16,270 Reinsurance recoverable: Paid loss and loss adjustment expenses 6,089 5,401 Unpaid loss and loss adjustment expenses 28,021 21,903 Ceded unearned premiums 16,633 6,747 Deferred policy acquisition costs 19,411 22,147 Furniture, equipment and improvements, net 5,144 5,635 Income taxes recoverable 4,684 1,472 Other assets 11,164 8,676 -------------------- --------------------- Total assets $248,224 $241,695 ==================== =====================
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 2000 1999 -------------------- --------------------- (unaudited) Liabilities: Unpaid losses and loss adjustment expenses $ 68,767 $ 56,466 Unearned premiums 61,511 51,736 Funds held 43,986 50,271 Bank indebtedness 14,500 14,500 Amounts due to reinsurers 4,305 2,181 Deferred Federal income taxes (535) 494 Other liabilities 10,166 9,245 -------------------- --------------------- Total liabilities 202,700 184,893 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: 4,319,498 at June 30, 2000 and 4,328,592 at December 31, 1999 43 43 Additional paid-in capital 19,680 19,724 Accumulated other comprehensive income (1,231) (1,186) Retained earnings 27,032 38,221 -------------------- --------------------- Total stockholders' equity 45,524 56,802 -------------------- --------------------- Total liabilities and stockholders' equity $248,224 $241,695 ==================== ===================== 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 Six months ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Cash flows from operating activities: Net income (loss) $(11,992) $ 1,740 $ (11,189) $ 4,105 Adjustments to reconcile net income to cash provided by operating activities: Change in agents' balances and premiums receivable and unearned premiums 3,911 (699) 3,429 (3,776) Change in accrued investment income 65 58 69 (87) Change in unpaid losses and loss adjustment expenses 13,941 (110) 12,301 (3,312) Change in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses and ceded unearned premiums (16,448) 2,854 (16,692) (234) Change in amounts due to/from reinsurers 7,541 (6,250) 2,124 (4,062) Change in other assets and other liabilities (6,844) (1,988) (7,531) (3,011) Change in income taxes, net (5,617) 326 (4,218) 1,327 Change in deferred policy acquisition costs 5,739 (1,565) 2,736 (2,065) Net realized gain (loss) on sale of investments 244 (1,297) (911) (2,037) Net realized (gain)loss on sale of fixed assets 3 (1) 8 (5) Provision for depreciation and amortization 443 454 904 947 ---------------- ------------- ---------------- -------------- Net cash used by operating activities (9,014) (6,478) (18,970) (12,210) Cash flows from investing activities: Cash received from investments sold prior to maturity 13,727 12,489 25,003 27,418 Cash received from investments matured or called 1,852 3,613 3,371 6,374 Cash paid for investments acquired (5,531) (13,907) (13,400) (30,928) Amortization of discount on bonds (5) 47 (5) 93 Capital expenditures, net (191) (495) (421) (1,150) Acquisition of agencies, net - - - 256 ---------------- ------------- ---------------- -------------- Net cash provided by investing activities 9,852 1,747 14,548 2,063
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued) (Dollars in thousands) Three months ended Six months ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Cash flows from financing activities: Proceeds from issuance of common stock 22 51 52 409 Repurchase of common stock (96) - (96) - Change in funds held (2,736) 2,566 (6,285) 9,863 Dividends paid - (389) - (777) ------------- ---------------- ---------------- -------------- Net cash provided (used) by financing activities (2,810) 2,228 (6,329) 9,495 ---------------- ------------- ---------------- -------------- Net decrease in cash and cash equivalents (1,972) (2,503) (10,751) (652) Cash and cash equivalents at beginning of period 7,042 4,282 15,821 2,431 ---------------- ------------- ---------------- -------------- Cash and cash equivalents at end of period $ 5,070 $ 1,779 $5,070 $1,779 ================ ============= ================ ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 630 $493 $1,250 $1,047 Income taxes 150 654 152 655 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, 1999. (2) Bank Covenant The Company has entered into a revolving credit agreement, as amended, with Union Bank for $15,000,000. At June 30, 2000, $14,500,000 of the $15,000,000 line is currently utilized. 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 first installment is due September 30, 2001. The interest rate at June 30, 2000 was 8.4%. 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 currently in violation of Section 5.13 of the revolving credit agreement pertaining to a minimum of $32,500,000 in policyholders' surplus as well as Section 5.14 pertaining to a maximum operating leverage ratio of 3:1 for Amwest Surety Insurance Company and its subsidiaries. The Company has provided Union Bank with pertinent information regarding an action plan and is currently seeking a waiver and amendment regarding this covenant. Should the Company be unsuccessful in obtaining a waiver and amendment regarding this covenant, the Company would be deemed to be in default and all sums then owing would be due and immediately payable. In such case, The Company would attempt to refinance the amounts owed to Union Bank, however, no assurances can be given that the Company would be successful in doing so. (3) Earnings Per Share Basic EPS is calculated based on the weighted average number of common shares outstanding and diluted EPS includes the effects of dilutive potential common shares. The calculation of basic and diluted EPS for the three months ended June 30, 2000 and 1999 is as follows:
Three months ended June 30, Income (Loss) Shares Per-Share (Numerator) (Denominator) Amount ($ in thousands) (Dollars) ------------------- -------------------- ------------------- Basic EPS: 2000 $ (11,992) 4,332,889 $ (2.77) 1999 $ 1,740 4,318,254 $ .40 Effect of Dilutive Securities: 2000 0 1999 6,910 Diluted EPS: 2000 $ (11,992) 4,332,889 $ (2.77) 1999 $ 1,740 4,325,164 $ .40
Diluted EPS for 2000 is the same as basic EPS because the result of the calculation is antidilutive due to the net loss reported for the three months ended June 30, 2000. Dilutive securities represent the Company's stock options. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Gross premiums written increased 20% and 17% from $36,042,000 and $68,177,000 for the three months and six months ended June 30, 1999, respectively, to $43,275,000 and $79,947,000 for the three months and six months ended June 30, 2000, respectively. Gross premiums for the surety business increased 11% and 12% from $28,916,000 and $53,949,000 for the three months and six months ended June 30, 1999, respectively, to $31,960,000 and $60,662,000 for the three months and six months ended June 30, 2000, respectively. The increase is attributable to increased writings in the commercial surety and court operations. Gross premiums for the property and casualty business increased 59% and 36% from $7,126,000 and $14,228,000 for the three months and six months ended June 30, 1999, respectively, to $11,315,000 and $19,285,000 for the three months and six months ended June 30, 2000, respectively. The increase is primarily due to increased writings in the commercial trucking product, the California specialty motorcycle program and the Florida homeowners program. As of April 1, 2000, the Company entered into a 35% quota share reinsurance agreement on it's surety business with Swiss Reinsurance America Corporation. Premiums ceded under this contract amounted to $18,890,000 during the three months ended June 30, 2000. With this quota share agreement in place, net written premium decreased by 26% for the quarter ended June 30, 2000. Net premiums earned increased 1% and 7% from $26,986,000 and $53,979,000 for the three months and six months ended June 30, 1999, respectively, to $27,170,000 and $57,907,000 for the three months and six months ended June 30, 2000, respectively. The growth in net premiums earned for the three months and six months ended June 30, 2000 was lower than growth in premiums written due to higher premium cessions in 2000 versus 1999 on the surety quota share reinsurance. The Company generally earns premiums ratably over the assigned bond terms for the surety business and the policy term for the specialty property and casualty business. Net investment income decreased 8% and 1% from $1,705,000 and $3,474,000 for the three months and six months ended June 30, 1999, respectively, to $1,575,000 and $3,452,000 for the three months and six months ended June 30, 2000, respectively. The decrease is due to a decrease in the amount of average invested assets from $126,311,000 at June 30, 1999 to $113,541,000 at June 30, 2000. Realized investment gains decreased from $1,297,000 and $2,037,000 for the three months and six months ended June 30, 1999, respectively, to a loss of $244,000 and a gain of $911,000 for the three months and six months ended June 30, 2000, respectively. The investments sold during the three months and six months ended June 30, 2000 were primarily equity securities and convertible bonds. Commissions and fees decreased 8% and increased 17% from $522,000 and $1,129,000 for the three months and six months ended June 30, 1999, respectively, to $481,000 and $1,324,000 for the three months and six months ended June 30, 2000, respectively. The increase for the six months ended June 30, 2000 is primarily due to an increase in fee income on the funds control business offset by a decrease in fee income from the Liberty Retail Bail division for the three months ended June 30, 2000. Net losses and loss adjustment expenses increased 182% and 119% from $10,003,000 and $19,089,000 for the three months and six months ended June 30, 1999, respectively, to $28,243,000 and $41,791,000 for the three months and six months ended June 30, 2000, respectively. The loss and loss adjustment expense ratio for the surety operations increased from 18% and 22% for the three months and six months ended June 30, 1999, respectively, to 103% and 66% for the three months and six months ended June 30, 2000, respectively, primarily due to net adverse development of $4,676,000 for the 1999 loss year, increases in net reserves for the 2000 loss year to bring it in line with the development trends of the 1999 loss year, and changes in the Company's reinsurance program which resulted in an increase in retained losses. The 1999 and 2000 loss year development is the result of claims on contract bonds with larger penal amounts, generally in excess of $1,000,000. An analysis of the development on these bonds indicate that these larger obligations tend to develop at a slower pace and are generally more susceptible to issues of severity than smaller, less complex obligations. The loss and loss adjustment expense ratio for the property and casualty operations decreased from 112% to 106% for the three months ended June 30, 1999 and 2000, respectively, and increased slightly from 88% to 90% for the six months ended June 30, 1999 and 2000, respectively. The commercial trucking insurance market has continued to firm and the Company has been able to affect rate increases without sacrificing policy retention. Policy acquisition costs increased as a percentage of net premiums earned from 47%, or $12,736,000, and 48%, or $25,923,000, for the three months and six months ended June 30, 1999, respectively, to 51%, or $13,807,000, and 50%, or $29,061,000, for the three months and six months ended June 30, 2000, respectively. The increase in the ratio is due to increased commission expense on the surety business offset slightly by higher ceding commissions from the surety quota share reinsurance. General operating costs decreased as a percentage of net premiums earned from 17%, or $4,558,000, and 16%, or $8,497,000, for the three months and six months ended June 30, 1999, respectively, to 14%, or $3,761,000, and 13%, or $7,814,000, for the three months and six months ended June 30, 2000, respectively. The improvement in the general operating cost ratio is a continuation of the Company's ability to service increased writings without corresponding increases in home office expenses. Interest expense increased 28% and 19% from $493,000 and $1,047,000 for the three months and six months ended June 30, 1999, respectively, to $630,000 and $1,250,000 for the three months and six months ended June 30, 2000, respectively. The increase is attributable to an increase in average funds held on which the Company pays interest from $35,474,000 for the six months ended June 30, 1999 to $47,129,000 for the six months ended June 30, 2000. Income before income taxes decreased from $2,720,000 and $6,063,000 for the three months and six months ended June 30, 1999, respectively, to a loss of $17,459,000 and $16,322,000 for the three months and six months ended June 30, 2000, respectively, due to the factors outlined above. The effective tax rate was 36% and 32% for the three months and six months ended June 30, 1999 as compared to a benefit of 31% for the three months and six months ended June 30, 2000. 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 offset by certain non-deductible expenses. The Company has recorded for the six months ended June 30, 2000 its estimated effective tax rate for the year based on current underwriting and investment income recorded. Changes to the Company's estimated effective tax rate are recorded quarterly. Net income decreased from $1,740,000 and $4,105,000 for the three months and six months ended June 30, 1999, respectively, to a net loss of $11,992,000 and $11,189,000 for the three months and six months ended June 30, 2000, respectively, due to the factors outlined above. Liquidity and Capital Resources As of June 30, 2000, the Company held total cash and cash equivalents and invested assets of $111,548,000. This amount includes an aggregate of $43,986,000 in funds held which is shown as a liability on the Company's consolidated balance sheets. As of June 30, 2000, the Company's invested assets consisted of $86,751,000 in fixed maturities, $5,134,000 in common equity securities, $3,390,000 in preferred equity securities, $7,977,000 in other invested assets and $3,226,000 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. The Company has entered into a revolving credit agreement, as amended, with Union Bank for $15,000,000. At June 30, 2000, $14,500,000 of the $15,000,000 line is currently utilized. 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 first installment is due September 30, 2001. The interest rate at June 30, 2000 was 8.4%. 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 currently in violation of Section 5.13 of the revolving credit agreement pertaining to a minimum of $32,500,000 in policyholders' surplus as well as Section 5.14 pertaining to a maximum operating leverage ratio of 3:1 for Amwest Surety Insurance Company and its subsidiaries. The Company has provided Union Bank with pertinent information regarding an action plan and is currently seeking a waiver and amendment regarding this covenant. Should the Company be unsuccessful in obtaining a waiver and amendment regarding this covenant, the Company would be deemed to be in default and all sums then owing would be due and immediately payable. In such case, the Company would attempt to refinance the amounts owed to Union Bank, however, no assurances can be given that the Company would be successful in doing so. 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 minimum commitment with respect to this lease in 2000 is approximately $447,000. The Company also has the option to purchase this office building and land commencing on April 27, 2000 and extending for a six month period at a predetermined rate for the building, with the value of land based on then existing market rates. The Company has exercised such option in the second quarter of 2000 and expects to finalize the transaction by the end of the third quarter of 2000. 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 used $6,478,000 and $12,210,000 in cash from operating activities for the three months and six months ended June 30, 1999, respectively, as compared to using $9,014,000 and $18,970,000 for the three months and six months ended June 30, 2000, respectively. The Company generated $1,747,000 and $2,063,000 in cash from investing activities for the three months and six months ended June 30, 1999, respectively, as compared to generating $9,852,000 and $14,548,000 for the three months and six months ended June 30, 2000, respectively. The Company generated $2,228,000 and $9,495,000 in cash from financing activities for the three months and six months ended June 30, 1999, respectively, as compared to using $2,810,000 and $6,329,000 for the three months and six months ended June 30, 2000, respectively. The cash used for operating activities increased primarily due to operating losses for the six months ended June 30, 2000, changes in the Company's reinsurance program, and a reduction in funds held as collateral. The cash used for operating activities during the period was primarily funded by investing activities. As a result of significant operating losses experienced during the first six months of 2000, the Company's capital levels have materially decreased. Such decreases could result in regulatory action and a possible rating reduction from A.M. Best and other industry rating agents. The Company is currently undergoing an intensive analysis of operations designed to improve operating results, however, the Company believes it must quickly raise additional capital or enter into one or more strategic alliances which would provide same. The Company has engaged Cochran, Caronia & Co. LLC, an investment banking firm, to immediately seek strategic alliances or other capital-raising alternatives on behalf of the Company. No assurances can be given such efforts will succeed. Other Matters Year 2000 issues: The Company did not experience material Year 2000 problems and does not expect to incur any significant additional costs related to Year 2000 matters. Other issues: 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: the ineffectiveness of changes made by management, a deterioration in premiums written or losses incurred in the Company's surety and other specialty businesses, the ability to achieve increased percentage writings of commercial surety and court products, the lack of adherence by branch personnel to Company underwriting guidelines, failure of the Company to improve its leverage which could result in a reduction in the ratings from A.M. Best and other industry rating agencies, the ability of the Company to obtain a waiver or amendment regarding a covenant included in the Company's revolving bank credit agreement, failure of the Company to raise additional capital or to sucessfully consumate a strategic alliance, a reduction in the investment yield earned on the Company's investment portfolio, or 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 and loss ratios for the Company's specialty property and casualty operations and surety operations.
TABLE 1 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE (Dollars in thousands) Three months ended Six months ended Year ended June 30, June 30, December 31, Type of Bond 2000 1999 2000 1999 1999 1998 ------------ ---- ---- ---- ---- ---- ---- Surety Gross premiums written $31,960 $28,916 $60,662 $53,949 $108,184 $102,270 Net premiums earned 19,327 21,395 42,935 42,895 85,500 84,166 Net losses and loss adjustment expenses 19,948 3,747 28,328 9,388 27,373 23,262 Loss and loss adjustment expense ratio 103% 18% 66% 22% 32% 28% Property & Casualty Gross premiums written $ 11,315 $ 7,126 $19,285 $14,228 $28,304 $30,549 Net premiums earned 7,843 5,591 14,972 11,084 25,044 21,805 Net losses and loss adjustment expenses 8,295 6,256 13,463 9,701 20,937 17,569 Loss and loss adjustment expense ratio 106% 112% 90% 88% 84% 81% Total Company Gross premiums written $43,275 $36,042 $79,947 $68,177 $136,488 $132,819 Net premiums earned 27,170 26,986 57,907 53,979 110,544 105,971 Net losses and loss adjustment expenses 28,243 10,003 41,791 19,089 48,310 40,831 Loss and loss adjustment expense ratio 104% 37% 72% 35% 44% 39%
PART II - OTHER INFORMATION AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Items 1-3: LEGAL PROCEEDINGS, CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES None Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of stockholders was held on May 19, 2000. (b) (i) The following directors were elected to serve until the 2003 Annual Meeting of Stockholders or until their successors have been duly elected and qualified: Richard H. Savage Neil F. Pont Charles L. Schultz (ii) The other directors whose terms of office continued after the meeting are: John E. Savage Thomas R. Bennett Bruce A. Bunner Robert W. Kleinschmidt Guy A. Main Arthur F. Melton Roland D. Miller (c) (i) Of the 3,506,756 shares represented at the meeting, the directors named in (b) (i) above were elected by the following votes: No. of Votes Received Withhold Name For Authority Richard H. Savage 3,467,884 38,872 Neil F. Pont 3,112,604 394,152 Charles L. Schultz 3,467,584 39,172 Item 5: OTHER INFORMATION None Item 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index on page 17. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended June 30, 2000. 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: August 14, 2000 by: /s/ JOHN E. SAVAGE ------------------------------------- John E. Savage President, Co-Chief Executive Officer and Chief Operating Officer (Principal Executive Officer) by: /s/ PHILLIP E. HUFF ------------------------------------- Phillip E. Huff Senior Vice-President, Treasurer (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 securityholders, including indentures Not required 10.1 Consulting Agreement with Richard H. Savage dated May 21, 1999 Exhibits 10.2 Aggregate Stop Loss Reinsurance Contract effective April 1, 2000 issued to Amwest Surety Insurance Company, Far West Insurance Company and Condor Insurance Company by Underwriters Reinsurance Company (Barbados) Inc. Exhibits 10.3 Quota Share Reinsurance Agreement effective April 1, 2000 issued to Amwest Surety Insurance Company and Far West Insurance Company by Swiss Reinsurance America Corporation. Exhibits 11 Statement re computation of per share earnings Page 8, Note 3 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