-----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, WHv0btldxO8Mu9+0YWmyTJC8vFlRHnLeg1jIqC0CcY3MFKGr81RCvcuecaUJ0v7i XWsKIpabqt9jfEQff9Mz0A== 0000780118-98-000006.txt : 19980817 0000780118-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000780118-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-09580 FILM NUMBER: 98688512 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 EX-27 1 FDS --
7 (Replace this text with the legend) 0000780118 SIOBHAN K. HORTON 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 APR-01-1998 JUN-30-1998 1 0 0 101,055 16,911 0 0 128,008 6,993 9,428 23,455 205,812 40,963 48,064 0 0 14,500 0 0 39 59,755 205,812 27,248 1,560 1,065 0 11,188 13,036 3,560 1,583 608 975 0 0 0 975 .25 .25 39,523 22,391 1,757 10,728 11,980 40,963 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, 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 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 12, 1998, 3,893,155 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, 1998 and 1997 3 Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows for the three months and six months ended June 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 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, 1998 1997 1998 1997 -------- -------- -------- -------- Underwriting revenues: Premiums written $ 35,044 $ 28,174 $ 64,386 $ 49,784 Premiums ceded (2,739) (1,948) (5,137) (3,097) -------- -------- -------- -------- Net premiums written 32,305 26,226 59,249 46,687 Change in unearned premiums Direct (5,062) (4,329) (4,914) (2,685) Ceded 5 (116) 37 (775) -------- -------- -------- -------- Net premiums earned 27,248 21,781 54,372 43,227 -------- -------- -------- -------- Underwriting expenses: Losses and loss adjustment expenses 13,756 9,364 23,248 16,017 Reinsurance recoveries (2,568) (1,382) (3,152) (967) -------- -------- -------- -------- Net losses and loss adjustment expenses 11,188 7,982 20,096 15,050 Policy acquisition costs 13,036 10,147 27,182 20,968 General operating costs 3,560 3,269 6,715 6,172 -------- -------- -------- -------- Total underwriting expenses 27,784 21,398 53,993 42,190 -------- -------- -------- -------- Underwriting income (loss) (536) 383 379 1,037 Interest expense (506) (478) (911) (879) Net investment income 1,560 1,605 3,137 3,286 Net realized investment gains 1,065 348 1,885 985 -------- -------- -------- -------- Income before income taxes 1,583 1,858 4,490 4,429 Provision (benefit) for income taxes: Current 296 (122) 996 402 Deferred 312 666 463 928 -------- -------- -------- -------- Total provision for income taxes 608 544 1,459 1,330 -------- -------- -------- -------- Net income $ 975 $ 1,314 $ 3,031 $ 3,099 ======== ======== ======== ======== Earnings per common share: Basic $ 0.25 $ 0.36 $ 0.79 $ 0.84 ======== ======== ======== ======== Diluted $ 0.25 $ 0.35 $ 0.77 $ 0.83 ======== ======== ======== ========
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, 1998 1997 -------- -------- (unaudited) Investments: Fixedmaturities, available-for-sale (amortized cost of $99,019 and $96,516 at June 30, 1998 and December 31, 1997, respectively) $ 101,055 $ 98,746 Common equity securities, available-for-sale (cost of $8,184 and $6,856 at June 30, 1998 and December 31, 1997, respectively) 12,695 10,297 Preferred equity securities, available-for-sale (cost of $4,074 and $2,664 at June 30, 1998 and December 31, 1997, respectively) 4,216 2,894 Other invested assets (cost of $7,017 and $5,816 at June 30, 1998 and December 31, 1997, respectively) 7,831 6,455 Short-term investments 2,211 2,281 -------- -------- Total investments 128,008 120,673 Cash and cash equivalents 6,993 3,807 Accrued investment income 1,408 1,366 Agents balances and premiums receivable (less allowance for doubtful accounts of $967 and $467 at June 30, 1998 and December 31, 1997) 18,891 12,511 Reinsurance recoverable: Paid loss and loss adjustment expenses 2,114 2,524 Unpaid loss and loss adjustment expenses 7,314 6,185 Ceded unearned premiums 2,134 2,039 Deferred policy acquisition costs 23,455 21,299 Furniture, equipment and improvements, net 5,474 5,355 Income taxes recoverable 542 1,581 Other assets 9,479 13,179 -------- -------- Total assets $205,812 $190,519 ======== ========
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 1998 1997 -------- -------- (unaudited) Liabilities: Unpaid losses and loss adjustment expenses .............................................. $ 40,963 $ 39,523 Unearned premiums ....................................................................... 48,064 42,013 Funds held as collateral ................................................................ 27,431 23,116 Bank indebtedness ....................................................................... 14,500 14,500 Amounts due to reinsurers ............................................................... 888 455 Deferred Federal income taxes ........................................................... 4,611 3,925 Other liabilities ....................................................................... 8,561 9,808 -------- -------- Total liabilities ................................................................... 145,018 133,340 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: 3,889,788 at June 30, 1998 and 3,798,141 at December 31, 1997 .................................... 39 34 Additional paid-in capital .............................................................. 24,347 18,209 Net unrealized appreciation of investments carried at market, net of income taxes ................................................................. 4,952 4,316 Retained earnings ....................................................................... 31,456 34,620 -------- -------- Total stockholders' equity .......................................................... 60,794 57,179 -------- -------- Total liabilities and stockholders' equity ................................. $205,812 $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 Six months ended June 30, June 30, 1998 1997 1998 1997 -------- -------- -------- -------- Cash flows from operating activities: Net income .................................................................... $ 975 $ 1,314 $ 3,031 $ 3,099 Adjustments to reconcile net income to cash provided by operating activities: Change in agents' balances and premiums receivable and unearned premiums ....................................... 3,138 1,200 (329) (1,409) Change in accrued investment income ........................................ 15 88 (42) 65 Change in unpaid losses and loss adjustment expenses ............................................................... 1,907 582 1,440 (2,405) Change in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses and ceded unearned premiums ............................................ (1,585) (288) (814) 1,083 Change in amounts due to/from reinsurers ................................... 289 (324) 433 (57) Change in other assets and other liabilities ............................... 2,631 (2,472) 3,126 (4,690) Change in income taxes, net ................................................ (451) 333 1,397 1,861 Change in deferred policy acquisition costs ................................ (1,852) (2,625) (2,156) (2,737) Net realized gain on sale of investments ................................... (1,066) (348) (1,885) (985) Net realized (gain)loss on sale of fixed assets ............................ 6 (7) 8 (5) Provision for depreciation and amortization ................................ 356 316 749 661 -------- -------- -------- -------- Net cash provided (used) by operating activities ............................ 4,363 (2,231) 4,958 (5,519) Cash flows from investing activities: Cash received from investments sold prior to maturity .................................................................. 15,214 13,594 31,967 23,765 Cash received from investments matured or called 3,347 1,710 6,908 4,597 Cash paid for investments acquired ............................................ (23,207) (12,335) (43,436) (24,579) Amortization of discount on bonds ............................................. 42 (30) 75 (28) Capital expenditures, net ..................................................... (488) (1,187) (876) (1,300) Acquisition of agencies, net .................................................. (73) (375) (673) (375) Mortgage and other loans, net ................................................. -- -- -- (510) -------- -------- -------- -------- Net cash provided (used) by investing activities .............................. (5,165) 1,377 (6,035) 1,570
Cash flows from financing activities: Proceeds from issuance of long term debt ...................................... -- 2,000 -- 2,000 Proceeds from issuance of common stock ........................................ 540 164 719 390 Change in funds held as collateral ............................................ 940 (1,043) 4,315 (3,780) Dividends paid ................................................................ (390) (371) (771) (740) -------- -------- -------- --------- Net cash provided (used) by financing activities .............................. 1,090 750 4,263 (2,130) -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents ............................... 288 (104) 3,186 (6,079) Cash and cash equivalents at beginning of period ................................... 6,705 459 3,807 6,434 -------- -------- -------- -------- Cash and cash equivalents at end of period ......................................... $ 6,993 $ 355 $ 6,993 $ 355 ======== ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ...................................................................... $ 506 $ 478 $ 911 $ 879 Income taxes .................................................................. 1,565 212 1,727 256
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 June 30, 1998 and 1997 was $220,000 and $3,569,000, respectively. The Company's Comprehensive Income is comprised of net income for the period plus the tax effected increase or decrease in unrealized gains occurring during the period. (4) Earnings Per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share", which requires the presentation of "basic" and "diluted" earnings per share("EPS") and is effective for periods ending after December 15, 1997. Basic EPS is calculated based on the weighted average number of common shares outstanding and diluted EPS includes the effects of dilutive potential common shares. The effect of this change on reported EPS data is as follows:
Three months ended June 30, Income Shares Per-Share (Numerator) (Denominator) Amount ($ in thousands) (Dollars) -------------------------------------------- Basic EPS: 1998 $ 975 3,862,272 $ .25 1997 $ 1,314 3,700,290 $ .36 Effect of Dilutive Securities: 1998 100,559 1997 59,667 Diluted EPS: 1998 $ 975 3,962,831 $ .25 1997 $ 1,314 3,759,957 $ .35
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Premiums written increased 24% and 29% from $28,174,000 and $49,784,000 for the three months and six months ended June 30, 1997, respectively, to $35,044,000 and $64,386,000 for the three months and six months ended June 30, 1998, respectively. The premium growth was primarily due to premium increases in the surety product lines. Premiums for the surety business increased 25% and 33% from $21,778,000 and $37,488,000 for the three months and six months ended June 30, 1997, respectively, to $27,209,000 and $49,843,000 for the three months and six months ended June 30, 1998, respectively. The increase is attributable to continued strong growth in the contract and commercial surety operations and the impact of acquiring two small surety agencies in August and October 1997, which the Company believes increased premiums written by 5% for the three months ended June 30, 1998. Premiums for the property and casualty business also increased 22% and 18% from $6,397,000 and $12,297,000 for the three months and six months ended June 30, 1997, respectively, to $7,836,000 and $14,543,000 for the three months and six months ended June 30, 1998, respectively. The increase is primarily due to the commencement of one specialty transportation oriented general agency program. Net premiums earned increased 25% and 26% from $21,781,000 and $43,227,000 for the three months and six months ended June 30, 1997, respectively, to $27,248,000 and $54,372,000 for the three months and six months ended June 30, 1998, respectively. 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 losses and loss adjustment expenses increased 40% and 34% from $7,982,000 and $15,050,000 for the three months and six months ended June 30, 1997, respectively, to $11,188,000 and $20,096,000 for the three months and six months ended June 30, 1998, respectively. The loss ratio for the surety operations increased from 29% to 31% for the three months ended June 30, 1997 and June 30, 1998, respectively, and the loss ratio remained constant at 27% for the six months ended June 30, 1997 and June 30, 1998, respectively. The loss ratio for the property and casualty operations also increased from 58% for each of the three months and six months ended June 30, 1997 to 80% and 79% for the three months and six months ended June 30, 1998, respectively, primarily due to an increase in claims activity for commercial trucking and the non-standard personal automobile program in Arizona. Policy acquisition costs increased as a percentage of net premiums earned from 47%, or $10,147,000, and 49%, or $20,968,000, for the three months and six months ended June 30, 1997, respectively, to 48%, or $13,036,000, and 50%, or $27,182,000, for the three months and six months ended June 30, 1998, respectively. This increase is primarily attributable to expenses incurred by the property and casualty business in establishing specialty programs handled by its Interstate Program Managers subsidiary as well as increased commission costs for the Company's surety business. In addition, the Company has incurred additional expenses to enhance its licensing in order to expand its specialty commercial trucking product to other Western States outside California. General operating costs decreased as a percentage of net premiums earned from 15%, or $3,269,000, and 14%, or $6,172,000, for the three months and six months ended June 30, 1997, respectively, to 13%, or $3,560,000, and 12%, or $6,715,000, for the three months and six months ended June 30, 1998, respectively. The improvement in general and administrative ratio is attributable to increased net premiums earned. Underwriting results were income of $383,000 and $1,037,000 for the three months and six months ended June 30, 1997, respectively, and a loss of $536,000 and income of $379,000 for the three months and six months ended June 30, 1998, respectively. The combined ratio increased from 98% for each of the three months and six months ended June 30, 1997, to 102% and 99% for the three months and six months ended June 30, 1998, respectively, due to a combination of the factors discussed above. Interest expense increased 6% and 4% from $478,000 and $879,000 for the three months and six months ended June 30, 1997, respectively, to $506,000 and $911,000 for the three months and six months ended June 30, 1998, respectively. The increase is attributable to an increase in the outstanding balance of bank indebtedness from $12,500,000 to $14,500,000 in June 1997 as well as an increase in the interest rate on the bank indebtedness from an average rate of 7.1% for the six months ended June 30, 1997 to an average rate of 7.5% for the six months ended June 30, 1998. Net investment income and realized investment gains increased 34% and 18% from $1,953,000 and $4,271,000 for the three months and six months ended June 30, 1997, respectively, to $2,625,000 and $5,022,000 for the three months and six months ended June 30, 1998, respectively. The increase is primarily due to an increase in realized gains from $348,000 and $985,000 for the three months and six months ended June 30, 1997, respectively, to $1,065,000 and $1,885,000 for the three months and six months ended June 30, 1998, respectively. The investments sold during the three months and six months ended June 30, 1998 were primarily equity securities and certain fixed income investments including mortgage-backed and municipal bond securities. Income before income taxes decreased from $1,858,000 to $1,583,000 for the three months ended June 30, 1997 and June 30, 1998, respectively, and income before income taxes increased from $4,429,000 to $4,490,000 for the six months ended June 30, 1997 and June 30, 1998, respectively, due to the factors outlined above. The effective tax rate was 29% and 30% for the three months and six months ended June 30, 1997 as compared to an effective tax rate of 38% and 32% for the three months and six months ended June 30, 1998. 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 non-deductible expenses (primarily consisting of goodwill amortization and meals and entertainment disallowances). The Company has recorded for the six months ended June 30, 1998 its estimated effective tax rate for the year based on current underwriting and investment income recorded. Changes to the Company's effective tax rate estimates are recorded quarterly. Net income decreased from $1,314,000 and $3,099,000 for the three months and six months ended June 30, 1997, respectively, to $975,000 and $3,031,000 for the three months and six months ended June 30, 1998, respectively, due to the factors outlined above. Liquidity and Capital Resources As of June 30, 1998, the Company held total cash and cash equivalents and invested assets of $135,001,000. This amount includes an aggregate of $27,431,000 in funds held as collateral which is shown as a liability on the Company's consolidated balance sheets. As of June 30, 1998, the Company's invested assets consisted of $101,055,000 in fixed maturities, $12,695,000 in common equity securities, $4,216,000 in preferred equity securities, $7,831,000 in other invested assets and $2,211,000 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 interest rate at June 30, 1998 was 7.5%. 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 $466,000. The Company also has the option to purchase this office building and land three years into the lease period 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 used $2,231,000 and $5,519,000 in cash from operating activities for the three months and six months ended June 30, 1997 as compared to generating $4,363,000 and $4,958,000 for the three months and six months ended June 30, 1998. The Company generated $1,377,000 and $1,570,000 in cash from investing activities for the three months and six months ended June 30, 1997 as compared to using $5,165,000 and $6,035,000 for the three months and six months ended June 30, 1998. The Company generated $750,000 and used $2,130,000 in cash from financing activities for the three months and six months ended June 30, 1997 as compared to generating $1,090,000 and $4,263,000 for the three months and six months ended June 30, 1998. Other Matters Since 1996, the Company has been in the process of implementing a new surety production computer system. Implementation is currently in process. This new surety production system is year 2000 compliant. The property and casualty operating computer systems are currently running in a version that is not year 2000 complaint. The Company is working to install and test the year 2000 compliant version by October 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. The cost of achieving year 2000 compliance is not expected to have a materially adverse effect on the consolidated financial position of the Company. 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 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 and loss 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 1998 1997 1998 1997 1997 1996 - ---------------------------------------------- -------- -------- -------- -------- -------- -------- Contract Gross premiums written .................... $ 17,471 $ 15,059 $ 29,945 $ 24,678 $ 54,808 $ 49,782 Net premiums earned ....................... 13,453 10,691 26,841 21,768 46,741 46,158 Net losses and loss adjustment expenses ............................... 4,715 4,103 8,450 7,559 15,738 24,430 Loss ratio ................................ 35% 38% 31% 35% 34% 53% Commercial Surety Gross premiums written .................... $ 6,742 $ 4,454 $ 14,019 $ 7,714 $ 16,694 $ 11,192 Net premiums earned ....................... 5,183 3,253 10,940 5,558 12,786 8,446 Net losses and loss adjustment expenses ............................... 1,708 547 2,677 1,115 2,873 2,571 Loss ratio ................................ 33% 17% 24% 20% 22% 30% Court Gross premiums written .................... $ 2,996 $ 2,265 $ 5,879 $ 5,096 $ 11,109 $ 11,196 Net premiums earned ....................... 2,995 2,255 5,781 4,994 11,038 10,897 Net losses and loss adjustment expenses ............................... 266 73 470 7 1,403 835 Loss ratio ................................ 9% 3% 8% 0% 13% 8% Total Surety Gross premiums written .................... $ 27,209 $ 21,778 $ 49,843 $ 37,488 $ 82,611 $ 72,335 Net premiums earned ....................... 21,631 16,199 43,562 32,320 70,566 65,501 Net losses and loss adjustment expenses ............................... 6,689 4,723 11,597 8,681 20,013 27,836 Loss ratio ................................ 31% 29% 27% 27% 28% 42% Property & Casualty Gross premiums written .................... $ $ $ 14,543 $ 12,296 $ 25,481 $ 25,072 7,835 6,396 Net premiums earned ....................... 5,617 5,582 10,810 10,907 21,585 22,382 Net losses and loss adjustment expenses ............................... 4,499 3,259 8,499 6,369 14,644 18,811 Loss ratio ................................ 80% 58% 79% 58% 68% 84% Total Company Gross premiums written .................... $ 35,044 $ 28,174 $ 64,386 $ 49,784 $108,091 $ 97,242 Net premiums earned ....................... 27,248 21,781 54,372 43,227 92,151 87,883 Net losses and loss adjustment Expenses .............................. 11,188 7,982 20,096 15,050 34,657 46,647 Loss ratio ................................ 41% 37% 37% 35% 38% 53%
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 22, 1998. (b) (i) The following directors were elected to serve until the 2001 Annual Meeting of Stockholders or until their successors have been duly elected and qualified: Bruce A. Bunner Robert W. Kleinschmidt Arthur F. Melton Roland D. Miller (ii) The following director was elected to serve until the 2000 Annual Meeting of Stockholders or until his successor has been duly elected and qualified: Neil F. Pont (iii) The other directors whose terms of office continued after the meeting are: Richard H. Savage John E. Savage Guy A. Main Steven R. Kay Thomas R. Bennett Jonathan K. Layne Charles L. Schultz (c) (i) Of the 3,339,761 shares represented at the meeting, the directors named in (b) (i) and (ii) above were elected by the following votes: No. of Votes Received Withhold Name For Authority Bruce A. Bunner 3,337,893 1,868 Robert W. Kleinschmidt 3,337,893 1,868 Arthur F. Melton 3,337,882 1,879 Roland D. Miller 3,337,893 1,868 Neil F. Pont 3,337,893 1,868 (d) (i) A proposal to approve and adopt the 1998 Stock Incentive Plan was approved and adopted by a vote of 2,488,731 for, 515,312 against and 335,718 abstaining. Item 5: 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 June 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: August 13, 1998 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 18 15 Letter re unaudited interim financial informatio 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
Basic Diluted(2) earnings per share earnings per share 1998 1997(3) 1998 1997(3) Average shares outstanding for the six month period ending June 30, 3,832,004 3,683,866 3,832,004 3,683,866 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 (499,461 and 444,495 options at June 30, 1998 and 1997, respectively)(1) 90,075 42,541 --------- --------- --------- --------- Total incremental shares resulting from conversion of common stock equivalents at June 30, 90,075 42,541 --------- --------- --------- --------- Total shares and incremental shares resulting from conversion of common stock equivalents at June 30, 3,832,004 3,683,866 3,922,079 3,726,407 ========= ========= ========= ========= Percentage of incremental shares resulting from conversion of common stock equivalents at June 30, 2.30% 1.14% ========= ========= ========= =========
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 June 30, 3,862,272 3,700,290 3,862,272 3,700,290 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 (499,461 and 444,495 options at June 30, 1998 and 1997,respectively) (1) 100,559 59,667 ---------- ---------- --------- ---------- Total incremental shares resulting from conversion of common stock equivalents at June 30, 100,559 59,667 ---------- ---------- --------- ---------- Total shares and incremental shares resulting from conversion of common stock eqivalents at June 30, 3,862,272 3,700,290 3,962,831 3,759,957 ========== ========== ========= ========== Percentage of incremental shares resulting from 2.54% 1.59% conversion of common stock equivalents at June 30, ========== ========== ========= ==========
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, 1998 and 1997, respectively: June 30, 1998 June 30, 1997 ------------- ------------- Grant price: $ 5.58 ..................... 2,722 3,328 Grant price: $ 8.18 ..................... 4,565 5,555 Grant price: $ 8.27 ..................... 4,537 5,264 Grant price: $ 8.977..................... -- 11,550 Grant price: $ 9.43 ..................... 3,300 3,300 Grant price: $ 9.54 ..................... 4,015 5,005 Grant price: $ 9.659..................... -- 14,025 Grant price: $ 9.773..................... -- 28,050 Grant price: $ 10.11 ..................... 11,000 13,200 Grant price: $ 10.750..................... -- 11,000 Grant price: $ 11.02 ..................... 77,550 -- Grant price: $ 11.36 ..................... 19,250 19,250 Grant price: $ 11.59 ..................... 2,805 4,400 Grant price: $ 12.15 ..................... 89,672 104,033 Grant price: $ 12.61 ..................... 60,345 68,970 Grant price: $ 12.745..................... -- 1,815 Grant price: $ 12.84 ..................... 19,250 19,250 Grant price: $ 12.951..................... 14,950 118,250 Grant price: $ 13.52 ..................... 8,250 8,250 Grant price: $ 16.37 ..................... 77,250 -- ------- ------- 499,461 444,495 ======= ======= (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 June 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. -----END PRIVACY-ENHANCED MESSAGE-----