-----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, BUcV1lzDdPQh6wV6enIVk5XbN09RT4nsOHG9rbvC3naNiZ8hVZi2bjIA58xNdec2 cTeRNOLHCnAdLnOwdu4zsw== 0000889812-96-001722.txt : 19961118 0000889812-96-001722.hdr.sgml : 19961118 ACCESSION NUMBER: 0000889812-96-001722 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUTUAL RISK MANAGEMENT LTD CENTRAL INDEX KEY: 0000826918 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 000000000 STATE OF INCORPORATION: D0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10760 FILM NUMBER: 96665419 BUSINESS ADDRESS: STREET 1: 44 CHURCH ST STREET 2: BERMUDA CITY: HAMILTON HM 12 BERMU STATE: D0 BUSINESS PHONE: 4412955688 MAIL ADDRESS: STREET 1: PO BOX 2064 STREET 2: BERMUDA CITY: HAMILTON HM HX STATE: D0 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly report under section 13 or 15(d) of the Securities Exchange - Act of 1934. For the period ended September 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 1-10760 MUTUAL RISK MANAGEMENT LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) BERMUDA NOT APPLICABLE - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 44 Church Street, Hamilton HM 12, Bermuda - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (441) 295-5688 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO | | - - The number of outstanding shares of the registrant's Common Stock, $0.01 par value, as of September 30, 1996 was 18,739,734. MUTUAL RISK MANAGEMENT LTD. I N D E X Part I. Financial Information: Item 1. Financial Statements: Unaudited Consolidated Statements of Income for the nine month periods ended September 30, 1996 and 1995 3 Unaudited Consolidated Balance Sheets at September 30, 1996 and December 31, 1995 4 Unaudited Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1996 and 1995 5 Unaudited Consolidated Statements of Shareholders' Equity at September 30, 1996 and December 31, 1995 6 Notes to Unaudited Consolidated Financial Statements at September 30, 1996 7 Item 2. Management's Discussion and Analysis of Financial 8-12 Condition and Results of Operations PART II.Other Information: Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibits Exhibit 11 - Computation of Net Earnings per Common Share and Common Share Equivalents Exhibit 27 - Financial Data Schedule MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Quarter Ended September 30 Nine Months Ended September 30 1996 1995 1996 1995 REVENUES Fee income $20,395,469 $16,717,469 $59,862,326 $47,692,674 Premiums earned 7,288,523 15,336,543 35,007,072 40,647,894 Net investment income 5,662,929 3,556,412 16,255,582 11,072,079 Realized capital losses (559,873) (6,056) (1,171,806) (266,498) Other (losses) income (7,526) 15,249 127,863 70,336 ---------- ---------- ----------- ---------- Total Revenues 32,779,522 35,619,617 110,081,037 99,216,485 ---------- ---------- ----------- ---------- EXPENSES Losses and loss expenses incurred 2,570,997 5,887,889 18,680,020 19,318,450 Acquisition costs 4,685,780 9,683,831 16,384,832 22,112,320 Operating expenses 12,449,908 9,429,686 35,571,969 26,712,851 Interest expense 1,560,224 270,850 4,631,871 617,091 Other expenses 177,234 53,081 462,422 155,245 ---------- ---------- ----------- ---------- Total Expenses 21,444,143 25,325,337 75,731,114 68,915,957 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,335,379 10,294,280 34,349,923 30,300,528 Income taxes 1,852,945 2,414,352 6,412,841 7,014,442 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 9,482,434 7,879,928 27,937,082 23,286,086 Minority interest (7,034) (139,783) (248,088) (382,482) ---------- ---------- ----------- ---------- NET INCOME 9,475,400 7,740,145 27,688,994 22,903,604 Preferred share dividends 42,432 43,816 123,608 146,208 ---------- ---------- ----------- ---------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $9,432,968 $7,696,329 $27,565,386 $22,757,396 ========== ========== =========== =========== EARNINGS PER COMMON SHARE (1) Primary EPS $0.49 $0.41 $1.44 $1.23 ===== ===== ===== ===== Fully diluted EPS $0.49 $0.41 $1.42 $1.23 ===== ===== ===== ===== Dividends per share $0.08 $0.06 $0.23 $0.18 ===== ===== ===== ===== Weighted average number of Common Shares outstanding 19,120,043 18,687,410 19,102,653 18,502,561 ========== ========== ========== ==========
(1) Prior periods per share calculations have been restated to reflect the four-for-three stock split to holders of record at May 31, 1996. See Accompanying Notes to Unaudited Consolidated Financial Statements 3 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ASSETS Cash and cash equivalents $72,198,254 $79,669,981 Investments : Held in available for sale account at fair value (Amortized cost $386,251,075; 1995 - $350,540,285) 383,593,396 351,917,852 -------------- -------------- Total marketable investments 455,791,650 431,587,833 Investments in affiliates 771,361 202,457 Other investments 2,459,500 2,282,833 Investment income due and accrued 5,117,906 4,487,430 Accounts receivable 86,916,621 82,394,552 Reinsurance receivables 278,995,706 256,678,476 Deferred expenses 22,157,799 19,118,668 Prepaid reinsurance premiums 55,748,439 39,221,053 Fixed assets 8,047,746 5,480,686 Deferred tax benefit 6,002,405 6,182,842 Goodwill 14,887,321 4,874,634 Other assets 3,042,034 1,920,030 Assets held in separate accounts 594,938,900 525,176,516 -------------- -------------- Total Assets $1,534,877,388 $1,379,608,010 ============== ============== LIABILITIES, REDEEMABLE PREFERRED & COMMON SHARES & SHAREHOLDERS' EQUITY LIABILITIES Reserve for losses and loss expenses $331,093,877 $314,927,486 Reserve for unearned premiums 74,965,112 59,775,181 Claims deposit liabilities 70,976,215 71,788,775 Accounts payable 109,241,811 93,259,762 Accrued expenses 5,248,275 4,870,979 Taxes payable 8,931,012 4,811,592 Loans payable 480,286 574,022 Prepaid fees 13,419,343 13,125,653 Debentures 120,634,443 116,038,987 Other liabilities 7,177,133 5,729,685 Liabilities related to separate accounts 594,938,900 525,176,516 -------------- -------------- Total Liabilities 1,337,106,407 1,210,078,638 -------------- -------------- REDEEMABLE PREFERRED & COMMON SHARES Preferred Shares - Series B non-voting Redeemable - authorized and issued 2,951,835 (par value and redemption value $1.00) 2,951,835 2,951,835 Common Shares subject to redemption - 468,584 Common Shares (par value $0.01, redemption value $3.50 less subscription loans receivable - $767,522, plus interest received) 1,500,439 1,074,389 -------------- -------------- Total Redeemable Preferred & Common Shares 4,452,274 4,026,224 -------------- -------------- SHAREHOLDERS' EQUITY Common Shares - Authorized 60,000,000 (par value $0.01) Issued 18,271,150 (1995 - 17,805,138) 182,712 178,051 Additional paid-in capital 75,356,332 65,396,652 Unrealized (loss) gain on investments - net of tax (2,228,040) 1,154,823 Retained earnings 120,007,703 98,773,622 -------------- -------------- Total Shareholders' Equity 193,318,707 165,503,148 -------------- -------------- Total Liabilities, Redeemable Preferred & Common Shares & Shareholders' Equity $1,534,877,388 $1,379,608,010 ============== ==============
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 1995 NET CASH FLOW FROM OPERATING ACTIVITIES Net income $27,688,994 $22,903,604 Items not affecting cash: Depreciation 2,051,202 1,432,895 Amortization of investments and net gain on sales (92,194) (2,476,817) Amortization of Convertible Debentures 4,595,456 0 Deferred tax benefit 832,822 (788,596) Other items 302,447 115,617 Net changes in non-cash balances relating to operations: Accounts receivable (4,522,069) (24,220,363) Reinsurance receivables (22,317,230) (45,652,430) Investment income due and accrued (630,476) 414,624 Deferred expenses (1,087,430) (5,422,899) Prepaid reinsurance premiums (16,527,386) (22,890,669) Other assets (1,122,004) 413,451 Reserve for losses and loss expenses 16,166,391 43,612,235 Claims deposit liabilities (812,560) 1,742,203 Prepaid fees 293,690 887,894 Reserve for unearned premium 15,189,931 30,926,910 Accounts payable 15,982,049 18,643,815 Taxes payable 4,119,420 1,293,573 Accrued expenses 377,296 1,852,997 Other liabilities 1,447,448 639,827 ----------- ----------- NET CASH FLOW FROM OPERATING ACTIVITIES 41,935,797 23,427,871 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments - Available for sale 87,431,657 48,103,683 Proceeds from maturity of investments - Available for sale 29,154,549 20,094,558 Fixed assets purchased (4,656,497) (1,186,939) Investments purchased - Available for sale (152,204,802) (82,013,901) Investment in affiliates and other investments (676,049) (105,879) Goodwill purchased (4,853,555) (200,000) Swap expense (1,951,701) (4,480,803) Other items 68,686 11,982 ----------- ----------- NET CASH APPLIED TO INVESTING ACTIVITIES (47,687,712) (19,777,299) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Loans received 0 11,203,274 Loan repaid (93,736) 0 Loan interest received 42,290 61,882 Loan repayment received 383,760 383,760 Proceeds from shares issued 4,402,787 903,714 Dividends paid (6,454,913) (4,032,206) ----------- ----------- NET CASH FLOW (APPLIED TO) FROM FINANCING ACTIVITIES (1,719,812) 8,520,424 ----------- ----------- Net (decrease) increase in cash and cash equivalents (7,471,727) 12,170,996 Cash and cash equivalents at beginning of period 79,669,981 44,872,994 ----------- ----------- Cash and cash equivalents at end of period $72,198,254 $57,043,990 =========== =========== Supplemental cash flow information: Interest paid $36,415 $346,241 ========== ========== Income taxes paid, net $2,160,284 $4,182,002 ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Series B Preferred Common Change in Share Share Opening Shares Unrealized Net Dividends Dividends Closing Balance Issued Gain (Loss) Income Declared (1) Declared (2) Balance Nine Months Ended September 30, 1996 - ------------------------------------ Common Shares $ 178,051 $ 4,661 $ - $ - $ - $ - $ 182,712 Additional paid-in capital 65,396,652 9,959,680 - - - - 75,356,332 Unrealized gain (loss) on investments 1,154,823 - (3,382,863) - - - (2,228,040) Retained earnings 98,773,622 - - 27,688,994 (123,608) (6,331,305) 120,007,703 ------------ ---------- ----------- ----------- ---------- ------------ ------------ Total Shareholders' Equity at September 30, 1996 $165,503,148 $9,964,341 $ (3,382,863) 27,688,994 $(123,608) (6,331,305) $193,318,707 ============ ========== =========== =========== ========== ============ ============ Year Ended December 31, 1995 (3) - -------------------------------- Common Shares $ 176,560 $ 1,491 $ - $ - $ - $ - $ 178,051 Additional paid-in capital 63,779,856 1,616,796 - - - - 65,396,652 Unrealized (loss) gain on investments (12,913,950) - 14,068,773 - - - 1,154,823 Retained earnings 73,950,774 - - 30,354,371 (190,024) (5,341,499) 98,773,622 ------------ ---------- ----------- ----------- ---------- ------------ ------------ Total Shareholders' Equity at December 31, 1995 $124,993,240 $1,618,287 $14,068,773 $30,354,371 $(190,024) $(5,341,499) $165,503,148 ============ ========== =========== =========== ========== ============ ============
(1) Dividend per share amounts were $.04 for the nine months ended September 30, 1996 and $.06 for the year ended December 31, 1995. (2) Dividend per share amounts were $.32 for the nine months ended September 30, 1996 and $.26 for the year ended December 31, 1995. (3) Effective May 31, 1996 the Company effected a four-for-three stock split recorded in the form of a stock dividend. 4,438,974 Common Shares were issued in respect of this split. Prior periods have been restated. See Accompanying Notes to Unaudited Consolidated Financial Statements 6 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 1. INTERIM ACCOUNTING POLICY In the opinion of management of the Company, the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company and the results of operations and cash flows for the nine months ended September 30, 1996 and 1995. Although the Company believes that the disclosure in these financial statements is adequate to make the information presented not misleading certain information and footnote information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Results of operations for the nine months ended September 30, 1996 are not necessarily indicative of what operating results may be for the full year. 2. FOUR-FOR-THREE STOCK SPLIT In May 1996 the Company announced a four-for-three stock split of its Common Shares. The record date for the stock split was May 31, 1996 and a dividend of additional Common Shares was distributed to shareholders on June 19, 1996. The consolidated financial statements have been adjusted to reflect the effects of the Common Stock split on earnings per share for all periods presented. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Quarter and Nine months ended September 30, 1996 and 1995 The results of operations for the quarter and nine months ended September 30, 1996, reflect a continuation of growth in Fee income and Net income due to the addition of new accounts, increased investment income and the inclusion of Professional Underwriters Corp. ("PUC") for the first time in 1996. The results for all periods reflect the acquisition of The Hemisphere Group Limited ("Hemisphere") in a pooling of interests transaction. Net income available to common shareholders amounted to $9.4 million or $0.48 per Common Share for the third quarter and $27.6 million or $1.42 per Common Share for the nine months ended September 30, 1996 on a fully diluted basis representing increases of 23% and 21% over the corresponding periods as shown in the tables below.
Third Quarter to September 30, 1996 1995 ------------------------------ ----------------------------- ($ thousands except per share data) PER PER COMMON SHARE COMMON SHARE ------------------- ----------------- Fully Fully Primary Diluted Primary Diluted Net income excluding realized capital losses (a) $9,813 $0.51 $0.50 $7,762 $0.41 $0.41 Realized capital losses (b) (380) (0.02) (0.02) (66) (0.00) (0.00) ----- ------ ----- ------- ----- ----- Net income available to Common Shareholders $9,433 $0.49 $0.48 $7,696 $0.41 $0.41 ====== ===== ===== ====== ===== ===== Average number of shares outstanding (000's) 19,120 22,609 18,687 18,687 ------ ------ ------ ------ Nine Months Ending September 30, 1996 1995 ------------------------------ ----------------------------- ($ thousands except per share data) PER PER COMMON SHARE COMMON SHARE ------------------- ----------------- Fully Fully Primary Diluted Primary Diluted Net income excluding realized capital losses (a) $28,442 $1.49 $1.46 $23,001 $1.24 $1.24 Realized capital losses (b) (877) (0.05) (0.04) (244) (0.01) (0.01) ----- ----- ----- --------- ----- ----- Net income available to Common Shareholders $27,565 $1.44 $1.42 $22,757 $1.23 $1.23 ======= ===== ===== ======= ===== ===== Average number of shares outstanding (000's) 19,103 22,592 18,503 18,503 ------ ------ ------ ------
(a) 1995 results have been restated to reflect a pooling of interests following the acquisition of The Hemisphere Group Limited. (b) Net of tax. (c) All per share amounts have been adjusted to reflect the four-for-three stock split which was effected May 31, 1996. 8 Total revenues amounted to $32.8 million and $110.1 million for the quarter and nine months ended September 30, 1996 representing a decrease of 8% and an increase of 11% over the corresponding 1995 periods. The following table shows the major components of Revenues for these periods. (In thousands)
TOTAL REVENUES Periods to September 30, Third Quarter Nine Months 1996 1995 Increase 1996 1995 Increase ---- ---- -------- ---- ---- -------- Fee income $20,395 $16,717 22% $59,862 $47,693 26% Premiums earned 7,289 15,337 (52%) 35,007 40,648 (14%) Net investment income 5,663 3,556 59% 16,256 11,072 47% Realized capital losses (560) (6) N/M (1,172) (267) N/M Other (losses) income (7) 15 N/M 128 70 82% ---------- ----------- -------- ---------- $32,780 $35,619 (8%) $110,081 $99,216 11% ======= ======= ======== =======
Fee income increased 22% and 26% for the quarter and nine months ended September 30, 1996 to $20.4 million and $59.9 million as compared to $16.7 million and $47.7 million in the corresponding 1995 periods. The components of Fee income are illustrated by company and by business segment in the following tables: (In thousands)
FEE INCOME BY COMPANY Periods to September 30, Third Quarter Nine Months 1996 1995 Increase 1996 1995 Increase ---- ---- -------- ---- ---- -------- Legion policy-issuing fees $7,590 37% $7,115 43% 7% $22,325 37% $20,386 43% 10% IPC Program fees 4,324 21% 3,635 22% 19% 12,462 21% 10,652 22% 17% CRS fees 2,842 14% 2,524 15% 13% 8,143 14% 7,020 15% 16% Underwriting management fees 1,239 6% - -% N/M 4,098 7% - -% N/M Captive management fees 1,053 5% 878 5% 20% 3,145 5% 2,650 6% 19% Financial services fees 1,554 8% 986 6% 58% 4,477 7% 3,035 6% 48% Other fees 1,793 9% 1,579 9% 14% 5,212 9% 3,950 8% 32% ------- ---- ------- ---- ------- ---- -------- ---- Total $20,395 100% $16,717 100% 22% $59,862 100% $47,693 100% 26% ======= ==== ======= ==== ======= ==== ======= ==== (In thousands) FEE INCOME BY BUSINESS SEGMENT Periods to September 30, Third Quarter Nine Months 1996 1995 Increase 1996 1995 Increase ---- ---- -------- ---- ---- -------- Corporate risk management fees $12,417 61% $11,645 70% 7% $38,082 64% $35,373 74% 8% Program business fees $4,920 24% $2,807 17% 75% $12,870 21% $5,954 12% 116% Specialty brokerage fees $1,504 7% $1,279 8% 18% $4,433 7% $3,331 7% 33% Financial services fees $1,554 8% $986 6% 58% $4,477 7% $3,035 6% 48% ------- ---- ------- ---- ------- ---- -------- ---- Total $20,395 100% $16,717 100% 22% $59,862 100% $47,693 100% 26% ======= ==== ======= ==== ======= ==== ======= ====
9 Corporate risk management, the Company's original business segment, involves providing services to businesses and associations seeking to insure a portion of their risk in a loss sensitive Alternative Market structure. This business segment, which accounted for 64% of total Fee income for the first nine months of 1996 compared to 74% in the corresponding 1995 period, has been the most affected by the extremely soft insurance market cycle for commercial risks. Corporate risk management fees increased by 7% in the quarter to $12.4 million and 8% in the first nine months of 1996 to $38.1 million compared to the corresponding 1995 periods. Profit margins remained steady at 41% for the quarter and 44% for the nine months compared to 41% and 43% in the corresponding 1995 periods. Program Business, the fastest growing segment of the Company's business, involves replacing traditional insurers as the conduit between producers of specialty books of business and reinsurers wishing to write that business. Program Business accounted for 21% of total Fee income for the first nine months of 1996 compared to 12% in the corresponding 1995 period. Program Business fees increased by 75% in the third quarter to $4.9 million and 116% for the first nine months of 1996 to $12.9 million. Program Business fee growth was assisted by the acquisition of PUC in 1996 since its results are not included in the 1995 comparatives. Adjusting for this, Program Business fee growth would have been 37% in the quarter and 35% for the nine months. Profit margins excluding the underwriting management business of PUC were 51% for the quarter and 49% for the nine months. Including PUC's underwriting management business profit margins were 41% for the quarter and 39% for the first nine months of 1996. The Company's Specialty Brokerage business segment provides access to Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. Specialty Brokerage accounted for 7% of total Fee income in both the third quarter and nine months at $1.5 million and $4.4 million respectively. Specialty Brokerage fees grew by 18% in the quarter and 33% in the nine months over the corresponding 1995 periods. The lower third quarter growth rate reflects the seasonal nature of this business segment and the fact that the first half of 1995 does not include the results of HJF International which was acquired on July 1, 1995. Renewal rates remained high in this segment at 90% for the first nine months of 1996. Profit margins decreased to 35% for the quarter and 39% for the nine months as opposed to 41% and 43% for the same periods last year primarily as a result of the Company's acquisition of substantially all of the minority interest in one of these businesses. Although immediately accretive to earnings per share, this acquisition lowered the business's profit margin by replacing a charge for minority interest, which is not part of the profit margin calculation, with a bonus expense which is part of the calculation. Financial Services is the Company's newest business segment and will be built on the recent acquisition of The Hemisphere Group Limited which provides administrative services to offshore mutual funds and other companies. Financial Services fees accounted for 8% of total Fee income for the quarter and 7% for the nine months as opposed to 6% in both 1995 periods. Fees from Financial Services increased in the quarter by 58% to $1.6 million and 48% for the nine months to $4.5 million over the 1995 corresponding periods primarily as a result of an increase in the number of mutual funds under management from 52 at September 30, 1995 to 83 a year later. Renewal rates remained very high in this business segment at 97% for the quarter and 93% for the first nine months of 1996. Profit margins improved somewhat in 1996 to 21% in the quarter and 18% in the first nine months as opposed to 2% and 16% in the corresponding 1995 periods. Legion Insurance Company and Legion Indemnity, the Company's policy-issuing subsidiaries, added 26 new accounts in the third quarter as compared to 21 in 1995 bringing the total of new accounts added for the first nine months of 1996 to 81 as compared to 61 in 1995. Legion's renewal rate was 75% for the third quarter and 72% for the nine months of 1996 as compared to 83% and 82% in the corresponding 1995 periods. In California the Legion companies have added 6 new accounts in 1996 as compared to 5 in 1995 and their renewal rate is unchanged at 74% for the nine months of 1996 and 1995. The Legion companies had 267 active accounts at September 30, 1996 including 25 in California as compared to 228 at September 30, 1995 of which 25 were in California. 10 Gross premiums written decreased 27% to $61.1 million for the third quarter and 0.2% to $218.6 million for the first nine months of 1996 as compared to $84.1 million and $219.1 million in 1995. Premiums earned decreased 52% to $7.3 million in the third quarter and 14% to $35.0 million for the first nine months, as compared to $15.3 million and $40.6 million in 1995. These decreases are primarily due to a reversal of an overaccrual of gross written premium booked earlier in the year and a significant drop in premium from assigned risk pools. The Company passes on the financial result of premium from these assigned risk pools to its clients so this drop has no direct effect on the Company's net income and is offset by a corresponding 53% and 15% decrease in Total insurance costs. Gross investment income increased by $2.3 million and $5.9 million or 50.5% and 42.1% to $6.9 million and $20.0 million in the quarter and nine months of 1996 over the corresponding 1995 periods as a result of an increase of 42.2% in gross invested assets to $458.4 million. Net investment income, after adjusting for investment income which is not included in the earnings of the Company, increased by 59% and 47% in the quarter and nine months as a result of an increase of 56.8% in net invested assets to $373.4 million offset by a decrease in the yield on these assets to 5.9% from 6.6% in the first nine months of 1995. The effective tax rate in the quarter was 16.4% and 18.7% in the first nine months compared to 23.5% and 23.2% in the corresponding 1995 periods. This decline was due primarily to the tax benefit derived from the exercise of employee stock options and an increase in earnings outside of the United States. (In thousands) TOTAL EXPENSES
Periods to September 30, Third Quarter Nine Months 1996 1995 Increase 1996 1995 Increase ---- ---- -------- ---- ---- -------- Operating expenses $12,450 $9,430 32% $35,572 $26,713 33% Total insurance costs 7,257 15,571 (53%) 35,065 41,431 (15%) Interest expense 1,560 271 476% 4,632 617 651% Other expenses 177 53 234% 462 155 198% ---------- ---------- --------- --------- Total $21,444 $25,325 15% $75,731 $68,916 10% ======= ======= ======= =======
Total expenses increased 15% and 10% to $21.4 million and $75.7 million for the quarter and nine months as compared to $25.3 million and $68.9 million in 1995. Operating expenses increased by 32% and 33% to $12.4 million and $35.6 million for the quarter and nine months from $9.4 million and $26.7 million in the corresponding 1995 periods as a result of the inclusion of PUC which added $1.1 million or 12% to operating expenses in the third quarter and $3.3 million or 12% for the nine months together with the growth in personnel and other expenses stemming from the increased number of client accounts. The decreases in Total insurance costs were the result of 52% and 14% decreases in Premiums earned in the third quarter and first nine months of 1996 over the corresponding 1995 periods. The increase in Interest expense was attributable to the Convertible Debentures issued October 30, 1995. Income from continuing operations before income taxes increased by 10% and 13% in the quarter and nine months of 1996 to $11.3 million and $34.3 million as compared to $10.3 million and $30.3 million in the corresponding 1995 periods as shown in the following table. (In thousands) 11
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Periods to September 30, Third Quarter Nine Months 1996 1995 1996 1995 ---- ---- ---- ---- Risk management income $8,857 71% $8,278 73% $27,206 72% $23,817 72% Investment income * 3,543 29% 3,279 29% 10,452 28% 10,188 31% Underwriting loss 31 -% (235) (2%) (58) -% (782) (3%) ------- ---- ------- ---- ------- --- ------- ---- Sub-total $12,431 100% $11,322 100% $37,600 100% $33,223 100% ==== ==== ==== ==== General corporate expenses (1,096) (1,028) (3,250) (2,922) ------- ------- ------- ------- Total $11,335 $10,294 $34,350 $30,301 ======= ======= ======= =======
* Includes Realized capital gains and losses and Interest expense. The pre-tax profit margin on Risk management fee income, including General corporate expenses was 39% and 41% for the quarter and nine months of 1996. Excluding the results of PUC and Hemisphere pretax profit margins continued to be strong at 43% for the third quarter and 45% for the first nine months of 1996 compared to 46% for both corresponding periods of 1995. Financial Condition and Liquidity Total assets increased to $1,535 million at September 30, 1996 as compared to $1,380 million at December 31, 1995. Assets held in separate accounts which are principally managed assets attributable to participants in the Company's IPC Programs accounted for approximately 39% and 38% of Total assets at September 30, 1996 and December 31, 1995 respectively. Total Shareholders' equity increased to $193 million at September 30, 1996 from $166 million at December 31, 1995 primarily as a result of Net income in the nine months offset by a decrease in the unrealized gain on investments net of tax from $1.2 million at December 31, 1995 to a loss of $2.2 million at September 30, 1996. Return on equity was 20% for the third quarter and first nine months of 1996 compared to 20% and 22% in the corresponding 1995 periods. 12 MUTUAL RISK MANAGEMENT LTD. PART II - OTHER INFORMATION Item 5. Other Information The United States Internal Revenue Service (the "IRS") has commenced an examination of the Company's calculation of "Related Party Insurance Income" ("RPII") for 1993 and 1994. The Company calculates RPII on behalf of certain of its clients participating in its Insurance Profit Center Program in order to provide those clients with information used in preparing their United States income tax returns. The Company believes that its calculation of RPII was materially correct in both years. In addition, any adjustment made by the IRS would affect the Company's clients and not the Company directly. The Company believes, however, that as a part of this examination the IRS may question whether certain clients of the Insurance Profit Center Program properly deducted all or a portion of the premium paid in connection with their program. In general, the IRS has challenged the deductibility of premiums paid to captive insurance companies in a series of rulings and cases since 1977. It is not presently possible to determine whether the IRS will challenge any deductions taken by the Company's clients or the outcome of any such challenge. The Company believes that the particular fact situations of each of its Insurance Profit Center clients are sufficiently diverse such that no general determination can be made with respect to the appropriate tax treatment of the premium paid by participants in the Company's programs. Item 6. Exhibits and Reports on Form 8-K A. Exhibit 11 - Computation of Net Earnings Per Common Share and Common Share Equivalents. Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K. No reports on Form 8-K were filed during the three month period ended September 30, 1996. 13 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. MUTUAL RISK MANAGEMENT LTD. /s/ James C. Kelly ------------------ James C. Kelly Date: November, 13, 1996 14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 MUTUAL RISK MANAGEMENT LTD. COMPUTATION OF EARNINGS PER SHARE
Quarter Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands except share and per share amounts) Net income available to common shareholders $9,433 $7,696 $27,565 $22,757 ====== ====== ======= ======= Weighted Average Common Shares Common shares outstanding 18,248,477 17,744,501 18,123,989 17,699,345 ---------- ---------- ---------- ---------- Common share equivalents associated with options and Redeemable Common Shares: Options 1,647,691 1,552,536 1,647,691 1,552,536 Redeemable Common Shares 468,584 468,584 468,584 468,584 ---------- ---------- ---------- ---------- 2,116,275 2,021,120 2,116,275 2,021,120 Common Shares purchased with proceeds from options exercised (1,244,709) (1,078,211) (1,137,611) (1,217,904) ---------- ---------- ---------- ---------- 871,566 942,909 978,664 803,216 ---------- ---------- ---------- ---------- Total Weighted Average Common Shares 19,120,043 18,687,410 19,102,653 18,502,561 ========== ========== ========== ========== Earnings Per Common Share: Net income available to common shareholders $0.49 $0.41 $1.44 $1.23 ===== ===== ===== =====
EX-27 3 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000826918 MUTUAL RISK MANAGEMENT LTD. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 383,593 0 0 0 0 0 383,593 72,198 278,996 22,158 1,534,877 331,094 74,965 0 70,976 121,115 2,952 0 183 193,136 1,534,877 35,007 16,256 (1,172) 59,990 18,680 16,385 40,666 34,350 6,413 27,937 0 0 0 27,565 1.44 1.42 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----