-----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, CM8UYDGIpzfJljrZAebIFgvgqObNq7o1qH3bZUmWtKZcBLYRXf63SvteSCeJy1bj 8YqqcDwrCOWFvtUZ76MceQ== 0000780118-96-000014.txt : 19960816 0000780118-96-000014.hdr.sgml : 19960816 ACCESSION NUMBER: 0000780118-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX 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: 1934 Act SEC FILE NUMBER: 001-09580 FILM NUMBER: 96614448 BUSINESS ADDRESS: STREET 1: 6320 CANOGA AVE STE 300 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187041111 MAIL ADDRESS: STREET 1: 6320 CANOGA AVENUE SUITE 300 STREET 2: PO BOX 4500 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 EX-27 1 FDS --
7 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 APR-1-1996 JUN-30-1996 1 104,723 0 0 13,283 0 0 121,356 1,839 10,949 14,794 179,865 36,223 33,709 0 0 12,500 0 0 33 51,010 179,865 21,535 1,679 516 (1,818) 11,830 9,069 3,287 (2,274) (963) (1,311) 0 0 0 (1,311) (0.39) (0.39) 31,915 21,572 331 9,495 8,100 36,223 0
10-Q 2 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, 1996 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.) 6320 Canoga Avenue, Suite 300 Woodland Hills, California 91367 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 704-1111 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 13, 1996, 3,321,957 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 June330, 1996 and 1995 3 Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 4 Consolidated Statements of Cash Flows for the three months and six months ended June630, 1996 and 1995 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 15 Item 3 Defaults Upon Senior Securities 15 Item 4 Submission of Matters to a Vote of Security Holders 15 Item 5 Other Information 16 Item 6 Exhibits and Reports on F16m 8-K 16 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, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Underwriting revenues: Premiums written $ 25,749 $ 25,333 $ 48,957 $ 47,132 Premiums ceded (2,770) (3,171) (5,513) (5,555) ---------------- ---------------- ---------------- ---------------- Net premiums written 22,979 22,162 43,444 41,577 Change in unearned premiums: Direct (1,620) (1,574) (101) (266) Ceded 176 564 27 1,074 ---------------- ---------------- ---------------- ---------------- Net premiums earned 21,535 21,152 43,370 42,385 ---------------- ---------------- ---------------- ---------------- Underwriting expenses: Losses and loss adjustment expenses 12,810 7,456 23,273 16,616 Reinsurance (recoveries) refunds (980) 1,053 (1,372) 27 ---------------- ---------------- ---------------- ---------------- Net losses and loss adjustment expenses 11,830 8,509 21,901 16,643 Policy acquisition costs 9,069 9,668 18,556 18,783 General operating costs 3,287 3,618 7,115 7,757 ---------------- ---------------- ---------------- ---------------- Total underwriting expenses 24,186 21,795 47,572 43,183 ---------------- ---------------- ---------------- ---------------- Underwriting (loss) (2,651) (643) (4,202) (798) Interest expense (307) (268) (545) (548) Collateral interest expense (291) (433) (647) (878) Merger expense - - (710) - Lease termination expense (1,300) - (1,300) - Recovery on misappropriation of funds - 890 - 890 Net investment income 1,679 1,985 3,486 3,982 Net unrealized gain on trading securities - 44 - 75 Net realized investment gains 516 590 1,541 610 Commissions and fees 80 131 223 312 ---------------- ---------------- ---------------- ---------------- Income (loss) before income taxes (2,274) 2,296 (2,154) 3,645 Provision (benefit) for income taxes: Current (55) 569 21 898 Deferred (908) 45 (950) (194) ---------------- ---------------- ---------------- ---------------- Total provision (benefit) for income taxes (963) 614 (929) 704 ---------------- ---------------- ---------------- ---------------- Net income (loss) $ (1,311) $ 1,682 $ (1,225) $ 2,941 ================ ================ ================ ================ Earnings (loss) per common share: Net income (loss) $ (0.39) $ 0.50 $ (0.37) $ 0.88 ================ ================ ================ ================ Weighted average shares outstanding 3,353 3,368 3,348 3,357
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, 1996 1995 --------------------- --------------------- (unaudited) Investments: Fixed maturities, available-for-sale (amortized cost of $105,174 and $114,793 at June 30, 1996 and December 31, 1995, respectively) 104,723 $ 117,191 Common equity securities, available-for-sale (cost of $7,092 and $7,268 at June 30, 1996 and December 31, 1995, respectively) 9,365 8,689 Preferred equity securities, available-for-sale (cost of $3,744 and $2,847 at June 30, 1996 and December 31, 1995, respectively) 3,918 3,592 Other invested assets (cost of $2,307 and $703 at June 30, 1996 and December 31, 1995, respectively) 2,445 797 Short-term investments 905 745 --------------------- --------------------- Total investments 121,356 131,014 Cash and cash equivalents 1,839 5,232 Accrued investment income 1,438 1,573 Agents balances and premiums receivable (less allowance for doubtful accounts of $375 at June 30, 1996 and December 31, 1995) 13,412 9,356 Reinsurance recoverable: Paid loss and loss adjustment expenses 1,708 865 Unpaid loss and loss adjustment expenses 9,241 7,669 Ceded unearned premiums 2,987 2,941 Deferred policy acquisition costs 14,794 13,885 Furniture, equipment and improvements, net 3,960 3,311 Current Federal income taxes 1,957 7 Other assets 7,173 7,980 --------------------- --------------------- Total assets $ 179,865 $ 183,833 ===================== =====================
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 1996 1995 --------------------- --------------------- (unaudited) Liabilities: Unpaid losses and loss adjustment expenses $ 36,223 $ 31,915 Unearned premiums 33,709 33,589 Funds held as collateral 31,676 37,650 Bank indebtedness 12,500 12,500 Amounts due to reinsurers 1,677 2,188 Deferred Federal income taxes 1,681 2,497 Other liabilities 11,356 8,419 --------------------- --------------------- Total liabilities 128,822 128,758 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: 3,321,957 at June 30, 1996 and 3,286,942 at December 31, 1995 33 33 Additional paid-in capital 16,793 17,204 Net unrealized appreciation of investments carried at market, net of income taxes 1,408 3,074 Retained earnings 32,809 34,764 --------------------- --------------------- Total stockholders' equity 51,043 55,075 --------------------- --------------------- Total liabilities and stockholders' equity $ 179,865 $ 183,833 ===================== =====================
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, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Cash flows from operating activities: Net income $ (1,311) $ 1,682 $ (1,225) $ 2,941 Adjustments to reconcile net income to cash provided by operating activities: Change in agents' balances and premiums receivable and unearned premiums (269) (117) (3,936) (2,732) Change in accrued investment income 82 68 135 203 Change in unpaid losses and loss adjustment expenses 1,652 3,239 4,308 (781) Change in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses and ceded unearned premiums (2,296) (2,279) (2,461) (554) Change in amounts due to reinsurers (851) 31 (511) 141 Change in reinsurance funds held, net - 1,030 - 221 Change in other assets and other liabilities 739 (2,331) 3,744 (4,648) Change in income taxes, net (1,355) (229) (1,908) (414) Change in deferred policy acquisition costs (1,103) (122) (909) 409 Net realized (gain) on sale of fixed maturities (289) (453) (885) (533) Net realized (gain) on sale of equity securities (216) (237) (772) (177) Net realized loss on sale of fixed assets - 33 1 37 Equity securities, trading Purchases - (6,883) - (8,989) Sales - 7,299 - 9,174 Net unrealized (gains) on trading securities - (43) - (75) Provision for depreciation and amortization 325 362 655 772 ----------------- --------------- ---------------- ----------------- Net cash provided (used) by operating activities (4,892) 1,050 (3,764) (5,005) Cash flows from investing activities: Cash received from investments sold, matured, called or repaid: Investments held-to-maturity - 16 - 48 Investments available-for-sale 12,885 33,600 35,305 47,735 Cash paid for investments acquired: Investments available-for-sale (11,961) (28,978) (27,274) (36,874) Amortization of discount on bonds 46 500 83 (146) Capital expenditures, net (585) (128) (1,305) (652) ----------------- --------------- ---------------- ----------------- Net cash provided by investing activities 385 5,010 6,809 10,111 Cash flows from financing activities: Proceeds from issuance of common stock 19 (587) 265 (418) Change in funds held as collateral (602) (1,470) (5,974) (4,414) Dividends paid (468) (234) (729) (466) ----------------- --------------- ---------------- ----------------- Net cash (used) by financing activities (1,051) (2,291) (6,438) (5,298) ----------------- --------------- ---------------- ----------------- Net increase (decrease) in cash and cash equivalents (5,558) 3,769 (3,393) (192) Cash and cash equivalents at beginning of period 7,397 2,334 5,232 6,295 ----------------- --------------- ---------------- ----------------- Cash and cash equivalents at end of period $ 1,839 $ 6,103 $ 1,839 $ 6,103 ================= =============== ================ ================= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 598 $ 701 $ 1,192 $ 1,426 Income taxes 748 579 1,312 967 Cash received during the period on: Investments sold prior to maturity $ 11,885 $ 19,819 $ 34,005 $ 33,654 Investments held to maturity 1,000 13,797 1,300 14,129
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, 1995. (2) Merger On March 14, 1996, the Company completed its previously announced merger with Condor Services, Inc. ("Condor"). The merger has been accounted for under the pooling of interest method. Accordingly, all financial information presented herein for all periods includes Condor. Additionally, share and per share data presented in these financial statements reflect the retroactive effects of the merger with Condor. The following table lists certain financial information for the three months and six months ended June 30, 1996 and 1995 for both Amwest and Condor, as separate entities.
Three months ended Six months ended June 30, June 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Amwest: Total revenues $ 17,926 $ 18,998 $ 37,233 $ 37,375 Underwriting (loss) (1,690) (176) (2,657) (173) Net income (loss) (907) 972 (621) 1,899 Condor: Total revenues 5,884 5,794 11,387 10,879 Underwriting (loss) (961) (467) (1,545) (625) Net income (loss) $ (404) $ 710 $ (604) $ 1,042
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Premiums written increased 2% and 4% from $25,333,000 and $47,132,000 for the three months and six months ended June 30, 1995, respectively, to $25,749,000 and $48,957,000 for the three months and six months ended June 30, 1996, respectively. The increase in premiums written is attributable to increased premiums written by Condor Insurance Company. Net premiums earned increased 2% from $21,152,000 and $42,385,000 for the three months and six months ended June 30, 1995, respectively, to $21,535,000 and $43,370,000 for the three months and six months ended June 30, 1996, respectively. 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 increased 39% and 32% from $8,509,000 and $16,643,000 for the three months and six months ended June 30, 1995, respectively, to $11,830,000 and $21,901,000 for the three months and six months ended June 30, 1996, respectively. The loss ratio for the surety operations increased from 33% for each of the three months and six months ended June 30, 1995 to 45% and 41% for the three months and six months ended June 30, 1996, respectively, primarily due to a continuation of increased loss severity in the contract performance and payment product line. The loss ratio for the property and casualty operations increased from 68% and 64% for the three months and six months ended June 30, 1995, respectively, to 85% and 79% for the three months and six months ended June 30, 1996, respectively, primarily due to adverse results from the private passenger automobile operations in the state of Arizona. Effective May 1, 1996, the Company implemented a rate increase averaging approximately 21.4% on the Arizona private passenger automobile program. Policy acquisition costs decreased as a percentage of net premiums earned from 46%, or $9,668,000, and 44%, or $18,783,000, for the three months and six months ended June 30, 1995, respectively, as compared to 42%, or $9,069,000, and 43%, or $18,556,000, for the three months and six months ended June 30, 1996, respectively. General operating costs decreased as a percentage of net premiums earned from 17%, or $3,618,000, and 18%, or $7,757,000, for the three months and six months ended June 30, 1995, to 15%, or $3,287,000, and 16%, or $7,115,000, for the three months and six months ended June 30, 1996. The improvement in the general and administrative expense ratio is reflective of decreased bonus accruals associated with the net loss during the first half of 1996. The Company's underwriting loss increased from $643,000 and $798,000 for the three months and six months ended June 30, 1995, respectively, to $2,651,000 and $4,202,000 for the three months and six months ended June 30, 1996, respectively. The combined ratio increased from 103% and 102% for the three months and six months ended June 30, 1995, respectively, to 112% and 110% for the three months and six months ended June 30 1996, respectively. Interest expense increased 15% and decreased 1% from $268,000 and $548,000 for the three months and six months ended June 30, 1995, respectively, to $307,000 and $545,000 for the three months and six months ended June 30, 1996, respectively due to fluctuations in the interest rate on bank indebtedness. The average interest rate on bank indebtedness was 8.7% for each of the six months ended June 30, 1995 and 1996. Collateral interest expense decreased from $433,000 and $878,000 for the three months and six months ended June 30, 1995, respectively, to $291,000 and $647,000 for the three months and six months ended June 30, 1996, respectively. This decrease is attributed to an overall reduction in average funds held as collateral from $43,247,000 and $44,719,000 for the three months and six months ended June 30, 1995, respectively, to $31,977,000 and $34,663,000 for the three months and six months ended June 30, 1996, respectively. Collateral rates are adjusted at various times throughout the year in accordance with general market conditions. The Company incurred a total of $710,000 in expenses related to the merger with Condor Services, Inc. which was completed on March 14, 1996. The merger was accounted for as a pooling of interest and, accordingly, the costs associated with the merger have been expensed during the first quarter. They have been separately reported as "merger expense" to reflect their non-recurring nature on the Company's operations. The Company has entered into an agreement with its landlord at its corporate headquarters to amend its current lease to accelerate the lease termination date from July 31, 1998 to June 30, 1997. In consideration for the early termination, the Company has recorded lease termination expense during the second quarter in the amount of $1,300,000. Net investment income decreased 13% and 11% from $1,985,000 and $3,982,000 for the three months and six months ended June 30, 1995, respectively, to $1,679,000 and $3,486,000 for the three months and six months ended June 30, 1996, respectively. The decreases are primarily attributed to lower investment yields received on investment purchased due to general decreases in interest rates during 1995. Net realized investment gains decreased from gains of $590,000 for the three months ended June 30, 1995 to gains of $516,000 for the three months ended June 30, 1996 and increased from gains of $610,000 for the six months ended June 30, 1995 to gains of $1,541,000 for the six months ended June 30, 1996. The investments sold during the three months and six months ended June 30, 1996 were primarily equity securities and certain fixed income investments including mortgage-backed and municipal bond securities. Commissions and fees decreased 39% and 29% from $131,000 and $312,000 for the three months and six months ended June 30, 1995, respectively, to $80,000 and $223,000 for the three months and six months ended June 30, 1996, respectively. Commissions and fees include revenue earned from independent third parties by the Company's subsidiary, together with the monthly processing fee charged by the Company to customers of Condor Insurance with monthly policies for services involved in processing monthly premiums. Income before income taxes decreased from $2,296,000 and $3,645,000 for the three months and six months ended June 30, 1995, respectively, to a loss before income taxes of $2,274,000 and $2,154,000 for the three months and six months ended June 30, 1996, respectively, due to the factors outlined above. The effective tax rate was 27% and 19% for the three months and six months ended June 30, 1995 as compared to an effective tax benefit of 42% and 43% for the three months and six months ended June 30, 1996. The lower effective tax rate and higher effective tax benefit rates are attributed to tax advantaged income earned by the Company. Net income decreased from $1,682,000 and $2,941,000 for the three months and six months ended June 30, 1995, respectively, to a net loss of $1,311,000 and $1,225,000 for the three months and six months ended June 30, 1996, respectively, due to the factors outlined above. Liquidity and Capital Resources As of June 30, 1996, the Company held total cash and cash equivalents and invested assets of $123,195,000. This amount includes an aggregate of $31,676,000 in funds held as collateral which is shown as a liability on the Company's consolidated balance sheets. As of June 30, 1996, the Company's invested assets consisted of $104,723,000 in fixed maturities, held at market value, $9,365,000 in common equity securities, $3,918,000 in preferred equity securities, $2,445,000 in other invested assets and $905,000 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 respective domicilary state of each of the insurance subsidiaries 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. The bank loan has a variable rate based upon fluctuations in the London Interbank Offered Rate ("LIBOR"). The annual interest rate at June 30, 1996 was 7.2%. On July 10, 1996, the agreement was amended to increase the amounts available under the line of credit to $17,500,000. The amounts available will be reduced by $2,500,000 on September 30, 1996 and by $3,000,000 each September 30 thereafter with the final payment due September 30, 2001. The Company is a party to a lease with Trillium/Woodland Hills regarding its corporate headquarters. Such lease contains provisions for scheduled lease charges and escalations in base rent over the lease term. The Company's minimum lease commitment for the remainder of 1996 is approximately $1,250,000. The Company has entered into an agreement with its landlord at its corporate headquarters to amend its current lease to accelerate the lease termination date from July 31, 1998 to June 30, 1997. In consideration for the early termination, the Company has accrued during the second quarter lease termination costs in the amount of $1,300,000. Additionally, the Company has entered into a new lease agreement for approximately 63,000 square feet in a building currently under construction in Calabasas, California. The new lease is anticipated to commence on approximately April 1, 1997. The annual occupancy cost is expected to approximate $1,150,000 with a minimum lease commitment of $870,000. This represents a significant reduction from the current annualized occupancy cost of approximately $2,500,000. In addition to the new lease agreement, the Company has obtained a one-time six month option to purchase the new Company headquarters building beginning three years after lease commencement, subject to certain acceleration provisions. 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, the payment of lease expenses as noted above and the payment of the potential rollback obligations pursuant to Proposition 103 (see "Item 1 - Legal Proceedings"), 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 1996. The Company generated $1,050,000 and used $5,005,000 in cash from operating activities for the three months and six months ended June 30, 1995 as compared to using $4,892,000 and $3,764,000 for the three months and six months ended June 30, 1996. The Company generated $5,010,000 and $10,111,000 in cash for investing activities for the three months and six months ended June 30, 1995 as compared to generating $385,000 and $6,809,000 for the three months and six months ended June 30, 1996. The Company used $2,291,000 and $5,298,000 in cash from financing activities for the three months and six months ended June 30, 1995 as compared to using $1,051,000 and $6,438,000 for the three months and six months ended June 30, 1996. 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, expense and combined 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 Six months ended Year ended June 30, June 30, December 31, Type of Bond 1996 1995 1996 1995 1995 1994 ------------ ---- ---- ---- ---- ---- ---- Specialty Property and Casualty Operations Gross premiums written $ 6,420 $ 6,066 $ 13,737 $ 11,656 $ 24,101 $ 23,736 Net premiums earned 5,437 4,330 10,371 8,843 17,872 19,460 Net losses and loss adjustment expenses 4,596 2,951 8,230 5,695 13,131 14,633 Loss ratio 85% 68% 79% 64% 73% 75% Expense ratio 33% 43% 36% 43% 41% 40% Combined ratio 118% 111% 115% 107% 114% 115% Surety Operations Contract Performance Gross premiums written $ 13,823 $ 15,283 $ 25,423 $ 27,531 $ 54,039 $ 51,362 Net premiums earned 11,240 12,008 23,283 24,873 49,736 43,353 Net losses and loss adjustment expenses 6,411 4,878 12,050 9,988 20,044 11,250 Loss ratio 57% 41% 52% 40% 40% 26% Court Gross premiums written $ 3,876 $ 2,071 $ 6,460 $ 4,063 $ 8,571 $ 9,531 Net premiums earned 3,386 2,150 6,063 4,134 8,749 9,183 Net losses and loss adjustment expenses 247 88 796 107 467 1,114 Loss ratio 7% 4% 13% 3% 5% 12% Commercial Surety Gross premiums written $ 1,630 $ 1,913 $ 3,337 $ 3,882 $ 7,472 $ 9,592 Net premiums earned 1,472 2,664 3,654 4,535 8,813 9,293 Net losses and loss adjustment expenses 576 592 825 853 1,623 1,740 Loss ratio 39% 22% 23% 19% 18% 19% Total Surety Gross premiums written $ 19,329 $ 19,267 $ 35,220 $ 35,476 $ 70,082 $ 70,485 Net premiums earned 16,098 16,822 32,999 33,542 67,298 61,829 Net losses and loss adjustment expenses 7,234 5,558 13,671 10,948 22,134 14,104 Loss ratio 45% 33% 41% 33% 33% 23% Expense ratio 65% 68% 67% 68% 70% 72% Combined ratio 110% 101% 108% 101% 103% 95%
PART II - OTHER INFORMATION AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Item 1: LEGAL PROCEEDINGS California voters passed Proposition 103, an insurance initiative which required a rollback in insurance rates for policies (and bonds) written or renewed during the twelve month period beginning November 8, 1988 and provided that changes in insurance premiums after November 8, 1988 must be submitted for approval of the California Insurance Commissioner prior to implementation. While the Proposition has the most significant impact on automobile insurance, its provisions, as written, also apply to other property and casualty insurers including surety insurers. On August 26, 1991, The State of California enacted Insurance Code Section 1861.135 ("Section 1861.135") exempting surety insurance from the rate rollback and prior approval provisions of Proposition 103. Section 1861.135 does not affect Proposition 103's prohibition against excessive, inadequate or discriminatory rates. Due to the enactment of Section 1861.135, the Company terminated a previously established reserve for potential premium rebates. Subsequently, the Department of Insurance ("Department") and Voter Revolt brought a motion for writ of mandate challenging the validity of Section 1861.135. On March 21, 1992, the Los Angeles Superior Court concluded that Section 1861.135 did not violate the California Constitution or the provisions of Proposition 103. The Department and Voter Revolt appealed. On December 7, 1993, the Second District Court of Appeal overturned Section 1861.135 by a 2-1 vote. On February 24, 1994, the California Supreme Court agreed to hear the Company's petition for review, thereby staying the Court of Appeals opinion. On December 14, 1995, the California Supreme Court affirmed the decision of the Second District Court of Appeal. Accordingly the surety insurance industry will no longer be exempted from the rate rollback and prior approval provisions contained in Proposition 103. The Company accrued $2,000,000 during the quarter ended December 31, 1995 representing the Company's best estimate of its rollback obligations pursuant to Proposition 103, the exact amount of which has not yet been determined. Such estimate was based on a variety of factors, including but not limited to, the profitability of the Company in California during 1989 (the rollback period), a review of the various regulations promulgated by the Department, and a review of rollback obligations of other insurance companies, including a surety company. Pursuant to the provisions of Proposition 103, the rollback amount will ultimately be determined by complex Department formulas but is statutorily limited to a maximum of 20% of California written premiums during 1989, plus accrued interest thereon. In the event that the Company's rollback obligation was eventually determined to be the statutory maximum, it could approximate $7,500,000 which is $5,500,000 in excess of the Company's best estimate of its ultimate rollback liability. While the current accrual represents management's best estimate of the Company's Proposition 103 rollback obligations, no assurance can be given that a final settlement with the Department will not result in a rollback amount which could have a significant adverse impact on the Company's future earnings, although it is not anticipated that such result would materially adversely impact the Company's financial position. Until a final settlement is reached with the Department, no assurances can be given as to the ultimate amount of premiums to be refunded to policyholders. Items 2-3: 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 31, 1996. (b) (i) The following directors were elected to serve until the 1999 Annual Meeting of Stockholders or until their successors have been duly elected and qualified: John E. Savage Guy A. Main Thomas R. Bennett Jonathan K. Layne (ii) The following director was elected to serve until the 1997 Annual Meeting of Stockholders or until his successor has been duly elected and qualified: Charles L. Schultz (iii) The following director was elected to serve until the 1998 Annual Meeting of Stockholders or until his successor has been duly elected and qualified: Bruce A. Bunner (iv) The other directors whose terms of office continued after the meeting are: Richard H. Savage Steven R. Kay Arthur F. Melton Neil F. Pont Edgar L. Fraser (c) (i) Of the 3,010,195 shares represented at the meeting, the directors named in (b) (i),(ii) and (iii) above were elected by the following votes: No. of Votes Received Withhold Name For Authority John E. Savage 3,006,214 3,981 Guy A. Main 3,006,226 3,969 Thomas R. Bennett 3,004,426 5,769 Jonathan K. Layne 3,005,226 4,969 Charles L. Schultz 3,002,126 8,069 Bruce A. Bunner 3,002,126 8,069 (d) (i) A proposal to approve and adopt the Employee Stock Purchase Plan was approved and adopted by a vote of 2,459,505 for, 129,871 against and 420,819 abstaining. Item 5: OTHER INFORMATION None Item 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index on page 18. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended June 30, 1996. 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, 1996 by: /s/ JOHN E. SAVAGE --------------------------- John E. Savage President, Co-Chief Executive Officer 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 securityholders, including indentures Not required 11 Statement re computation of per share earnings Page 19 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 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Primary (2) Fully diluted (3) earnings per share earnings per share 1996 1995 1996 1995 Average shares outstanding for the six month period ending June 30, 3,309,301 3,284,562 3,309,301 3,284,562 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $3.64 - $15.675 (399,230 and 451,355 options at June 30, 1995 and 1996, respectively) (1) 38,839 72,733 38,839 76,569 ----------------- ------------------ ------------------ ----------------- Total incremental shares resulting from conversion of common stock equivalents at June 30, 38,839 72,733 38,839 76,569 ----------------- ------------------ ------------------ ----------------- Total shares and incremental shares resulting from conversion of common stock equivalents at June 30, 3,348,140 3,357,295 3,348,140 3,361,131 ================= ================== ================== ================= Percentage of incremental shares resulting from conversion of common stock equivalents at June 30, 1.16% 2.17% 1.16% 2.28% ================= ================== ================== =================
EXHIBIT 11 (continued) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Primary (2) Fully diluted (3) earnings per share earnings per share 1996 1995 1996 1995 Average shares outstanding for the three month period ending June 30, 3,321,080 3,288,107 3,321,080 3,288,107 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $3.64 - $15.675 (399,230 and 451,355 options at June 30, 1995 and 1996, respectively) (1) 31,780 79,744 31,780 79,744 ----------------- ------------------ ------------------ ----------------- Total incremental shares resulting from conversion of common stock equivalents at June 30, 31,780 79,744 31,780 79,744 ----------------- ------------------ ------------------ ----------------- Total shares and incremental shares resulting from conversion of common stock equivalents at June 30, 3,352,860 3,367,851 3,352,860 3,367,851 ================= ================== ================== ================= Percentage of incremental shares resulting from conversion of common stock equivalents at June 30, 0.95% 2.37% 0.95% 2.37% ================= ================== ================== =================
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 June 30, 1996 and 1995, respectively: June 30, 1996 June 30, 1995 ------------- ------------- Grant price: $3.64 - 3,000 Grant price: $5.37 - 11,000 Grant price: $6.14 3,025 6,325 Grant price: $6.82 1,650 6,600 Grant price: $7.75 - 6,600 Grant price: $8.375 32,250 36,250 Grant price: $9.00 5,550 8,100 Grant price: $9.10 5,005 5,005 Grant price: $9.213 8,500 8,500 Grant price: $9.875 10,500 10,750 Grant price: $9.90 1,650 - Grant price: $10.375 3,000 3,000 Grant price: $10.50 4,850 12,450 Grant price: $10.625 12,750 13,250 Grant price: $10.75 27,000 33,000 Grant price: $11.125 12,000 13,750 Grant price: $11.375 - 7,500 Grant price: $11.55 1,650 1,650 Grant price: $11.825 10,000 10,000 Grant price: $12.50 17,500 - Grant price: $12.75 4,000 10,600 Grant price: $13.375 101,000 - Grant price: $13.875 67,950 70,200 Grant price: $14.02 1,650 1,650 Grant price: $14.25 112,375 111,250 Grant price: $14.875 7,500 - Grant price: $15.675 - 8,500 ------- ------- 451,355 399,230 ======= ======= (2) Calculation of incremental shares resulting from conversion of common stock equivalents, using the Treasury Stock Method for calculating primary earnings per share, is based on the average of the closing prices, for the three months and six months ended June 30, 1996 and 1995, as reported on the American Stock Exchange. (3) Calculation of incremental shares resulting from conversion of common stock equivalents, using the Treasury Stock Method for calculating fully diluted earnings per share, is based on the greater of the average ending ask price or the closing ask price on June 30, 1996 and 1995, as reported on the American Stock Exchange. -----END PRIVACY-ENHANCED MESSAGE-----