-----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, BToZ5Y/Hosp37EbhBqLMPnBT6sviRF0TpNu5vjiWvGOfUbIo+NDh/albs45BdIhy 5EiQ4GDlatUzBMxVBEJxTQ== 0000950130-97-003678.txt : 19970815 0000950130-97-003678.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950130-97-003678 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE 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: 97660921 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 FORM 10-Q 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 June 30, 1997. 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 June 30, 1997 was 19,166,562. MUTUAL RISK MANAGEMENT LTD. I N D E X PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS: Unaudited Consolidated Statements of Income for the quarter and six month periods ended June 30, 1997 and 1996 3 Consolidated Balance Sheets at June 30, 1997 (unaudited) and December 31, 1996 4 Unaudited Consolidated Statements of Cash Flows for the six month periods ended June 30, 1997 and 1996 5 Consolidated Statements of Shareholders' Equity at June 30, 1997 (unaudited) and December 31, 1996 6 Notes to Unaudited Consolidated Financial Statements at June 30, 1997 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8-12 CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION: ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS 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 JUNE 30 SIX MONTHS ENDED JUNE 30 1997 1996 1997 1996 REVENUES Fee income $24,996,802 $19,800,110 $48,933,431 $39,466,858 Premiums earned 17,230,635 15,964,575 35,183,242 27,718,549 Net investment income 6,985,856 5,402,974 12,973,768 10,592,653 Realized capital losses (696,994) (616,901) (1,471,262) (611,933) Other (losses) income (35,991) 57,952 48,281 135,388 ----------- ----------- ----------- ----------- TOTAL REVENUES 48,480,308 40,608,710 95,667,460 77,301,515 ----------- ----------- ----------- ----------- EXPENSES Losses and loss expenses incurred 11,552,875 8,969,099 19,216,255 16,109,023 Acquisition costs 6,083,686 7,027,929 16,688,427 11,699,053 Operating expenses 15,115,134 11,871,721 29,245,468 23,122,061 Interest expense 1,618,880 1,549,474 3,210,030 3,071,647 Other expenses 261,184 176,957 497,607 285,188 ----------- ----------- ----------- ----------- TOTAL EXPENSES 34,631,759 29,595,180 68,857,787 54,286,972 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 13,848,549 11,013,530 26,809,673 23,014,543 Income taxes 2,639,725 1,947,674 4,915,825 4,559,896 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 11,208,824 9,065,856 21,893,848 18,454,647 Minority interest 0 (33,869) 0 (241,055) ----------- ----------- ----------- ----------- NET INCOME 11,208,824 9,031,987 21,893,848 18,213,592 Preferred share dividends 41,510 40,587 83,020 81,175 ----------- ----------- ----------- ----------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $11,167,314 $ 8,991,400 $21,810,828 $18,132,417 =========== =========== =========== =========== EARNINGS PER COMMON SHARE Primary EPS $0.57 $0.47 $1.11 $0.95 =========== =========== =========== =========== Fully diluted EPS $0.55 $0.47 $1.08 $0.94 =========== =========== =========== =========== Dividends per share $0.09 $0.08 $0.18 $0.15 =========== =========== =========== =========== Weighted average number of Common Shares outstanding 19,753,250 19,146,510 19,682,469 19,093,232 ----------- ----------- ----------- -----------
See Accompanying Notes to Unaudited Consolidated Financial Statements 3 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1997 1996 (UNAUDITED) ASSETS Cash and cash equivalents $ 59,903,617 $ 52,242,353 Investments : Held in available for sale account at fair value (Amortized cost $400,592,407; 1996 - $399,871,107) 401,508,018 400,191,211 -------------- -------------- TOTAL MARKETABLE INVESTMENTS 461,411,635 452,433,564 Other investments 5,153,454 2,967,829 Investment income due and accrued 3,460,727 4,976,145 Accounts receivable 134,061,918 123,956,477 Reinsurance receivables 401,462,742 350,317,706 Deferred expenses 21,019,474 20,612,715 Prepaid reinsurance premiums 124,153,663 73,587,920 Fixed assets 12,102,466 9,382,000 Deferred tax benefit 4,491,258 3,361,571 Goodwill 22,783,576 14,956,786 Other assets 4,489,324 5,406,177 Assets held in separate accounts 616,858,097 576,711,687 -------------- -------------- TOTAL ASSETS $1,811,448,334 $1,638,670,577 ============== ============== LIABILITIES, REDEEMABLE PREFERRED & COMMON SHARES & SHAREHOLDERS' EQUITY LIABILITIES Reserve for losses and loss expenses $ 480,533,334 $ 418,975,493 Reserve for unearned premiums 151,258,816 93,741,088 Claims deposit liabilities 40,552,451 45,688,793 Accounts payable 124,406,061 133,265,076 Accrued expenses 5,122,059 5,708,286 Taxes payable 11,868,711 9,261,685 Prepaid fees 14,613,443 13,231,468 Debentures 125,419,030 122,210,991 Other liabilities 6,640,953 7,422,743 Liabilities related to separate 616,858,097 576,711,687 accounts -------------- -------------- TOTAL LIABILITIES 1,577,272,955 1,426,217,310 -------------- -------------- 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) 1,530,921 1,510,544 -------------- -------------- TOTAL REDEEMABLE PREFERRED & COMMON 4,482,756 4,462,379 SHARES -------------- -------------- SHAREHOLDERS' EQUITY Common Shares - Authorized 60,000,000 (par value $0.01) Issued 18,697,978 (1996 - 18,563,269) 186,980 185,633 Additional paid-in capital 82,668,209 79,997,919 Unrealized (loss) gain on investments - net of tax 712,805 47,682 Retained earnings 146,124,629 127,759,654 -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 229,692,623 207,990,888 -------------- -------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED & COMMON SHARES & SHAREHOLDERS' EQUITY $1,811,448,334 $1,638,670,577 ============== ==============
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 1996 NET CASH FLOW FROM OPERATING ACTIVITIES Net income $ 21,893,848 $ 18,213,592 Items not affecting cash: Depreciation 1,765,564 1,314,567 Amortization of investments and net gain on sales (897,130) (166,645) Amortization of Convertible Debentures 3,208,039 3,046,023 Deferred tax benefit (1,060,070) 2,070,997 Other items 400,139 134,655 Net changes in non-cash balances relating to operations: Accounts receivable (10,105,441) (6,901,673) Reinsurance receivables (51,145,036) (11,827,951) Investment income due and accrued 1,515,418 (1,160,656) Deferred expenses (406,759) 199,377 Prepaid reinsurance premiums (50,565,743) (28,192,938) Other assets 916,853 (2,695,277) Reserve for losses and loss expenses 61,557,841 9,878,533 Prepaid fees 1,381,975 198,191 Reserve for unearned premium 57,517,728 26,621,937 Accounts payable (8,859,015) 9,743,765 Taxes payable 2,607,026 5,959,712 Accrued expenses (586,227) (1,324,005) Other liabilities (794,159) 1,252,165 ------------- ------------- NET CASH FLOW FROM OPERATING ACTIVITIES 28,344,851 26,364,369 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments - Available for sale 127,892,478 50,024,043 Proceeds from maturity of investments - Available for sale 14,897,981 20,099,427 Fixed assets purchased (4,493,210) (3,122,094) Investments purchased - Available for sale (142,614,629) (104,679,468) Other investments (2,136,488) (676,049) Goodwill purchased (8,284,396) (4,826,310) Swap expense 0 (2,743,546) Other items 15,509 48,379 ------------- ------------- NET CASH FLOW APPLIED TO INVESTING (14,722,755) (45,875,618) ACTIVITIES ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Loan repaid 0 (61,918) Loan repayment & interest received 20,377 199,559 Proceeds from shares issued 2,671,637 5,120,507 Claims deposit liabilities (5,136,342) 386,428 Dividends paid (3,156,504) (4,725,816) ------------- ------------- NET CASH FLOW (APPLIED TO) FROM FINANCING ACTIVITIES (5,960,832) 918,760 ------------- ------------- Net increase (decrease) in cash and cash equivalents 7,661,264 (18,592,489) Cash and cash equivalents at beginning of period 52,242,353 79,669,981 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,903,617 $ 61,077,492 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 1,991 $ 25,624 ============= ============= Income taxes paid, net $ 3,115,756 $ 3,246,992 ============= =============
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES 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 SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) - ---------------- Common Shares $ 185,633 $ 1,347 $ - $ - $ - $ - $ 186,980 Additional paid-in capital 79,997,919 2,670,290 - - - - 82,668,209 Unrealized gain on investments 47,682 - 665,123 - - - 712,805 Retained earnings 127,759,654 - - 21,893,848 (83,020) (3,445,853) 146,124,629 ------------ ----------- ----------- ----------- -------- ----------- ------------ TOTAL SHAREHOLDERS' EQUITY AT JUNE 30, 1997 $207,990,888 $ 2,671,637 $ 665,123 $21,893,848 $ (83,020) $(3,445,853) $229,692,623 ============ =========== =========== =========== ========= =========== ============ YEAR ENDED DECEMBER 31, 1996 - --------------------------- Common Shares $ 178,051 $ 7,582 $ - $ - $ - $ - $ 185,633 Additional paid-in capital 65,396,652 14,601,267 - - - - 79,997,919 Unrealized gain on investments 1,154,823 - (1,107,141) - - - 47,682 Retained earnings 98,773,622 - - 37,198,137 (166,041) (8,046,064) 127,759,654 ------------ ----------- ----------- ----------- --------- ----------- ------------ TOTAL SHAREHOLDERS' EQUITY AT DECEMBER 31, 1996 $165,503,148 $14,608,849 $(1,107,141) $37,198,137 $(166,041) $(8,046,064) $207,990,888 ============ =========== =========== =========== ========= =========== ============
(1) Dividend per share amounts were $.02 for the six months ended June 30, 1997 and $.06 for the year ended December 31, 1996. (2) Dividend per share amounts were $.18 for the six months ended June 30, 1997 and $.32 for the year ended December 31, 1996. See Accompanying Notes to Unaudited Consolidated Financial Statements 6 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 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 six months ended June 30, 1997 and 1996. 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 six months ended June 30, 1997 are not necessarily indicative of what operating results may be for the full year. 2. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted for interim and annual periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, primary earnings per share will be replaced by basic earnings per share, which will exclude the dilutive effect of stock options. If implemented in the accompanying interim financial statements, basic earnings per share would exceed primary earnings per share for the quarters and six months ended June 30, 1997 and June 30, 1996 by $.03, $.06, $.02 and $.05 respectively. Statement No. 128 has no impact on the calculation of fully diluted earnings per share for these periods. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 The results of operations for the quarter and six months ended June 30, 1997, 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 Small Business Underwriters (ASBU@) for the first time in 1997. Net income available to common shareholders amounted to $21.8 million or $1.08 per Common Share for the six months ended June 30, 1997 on a fully diluted basis representing an increase of 15% over the corresponding period as shown in the tables below.
SECOND QUARTER TO JUNE 30, 1997 1996 --------------------------- ------------------------------ ($ thousands except per share data) PER PER COMMON SHARE COMMON SHARE ------------ ------------- FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED Net income excluding realized capital losses $11,779 $ 0.60 $ 0.58 $ 9,488 $ 0.50 $ 0.49 Realized capital losses (a) (612) (0.03) (0.03) (497) (0.03) (0.02) ------- ------- ------- ------- ------- ------------ Net income available to Common Shareholders $11,167 $ 0.57 $ 0.55 $ 8,991 $ 0.47 $ 0.47 ======= ======= ======= ======= ======= ============ Average number of shares outstanding (000's) 19,753 23,243 19,147 22,636 ------- ------- ------- ------------ SIX MONTHS ENDING JUNE 30, 1997 1996 ---------------------------- --------------------------- ($ thousands except per share data) PER PER COMMON SHARE COMMON SHARE ------------ ------------ FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED Net income excluding realized capital losses $22,937 $ 1.17 $ 1.13 $18,628 $ 0.98 $ 0.96 Realized capital losses (a) (1,126) (0.06) (0.05) (496) (0.03) (0.02) ------- ------- ------- ------- ------- ------------ Net income available to Common Shareholders $21,811 $ 1.11 $ 1.08 $18,132 $ 0.95 $ 0.94 ======= ======= ======= ======= ======= ============ Average number of shares outstanding (000's) 19,682 23,172 19,093 22,583 ------- ------- ------- ------------
(a) Net of tax. Total revenues amounted to $48.5 million and $95.7 million for the quarter and six months ended June 30, 1997 representing an increase of 19% and 24% over the corresponding 1996 periods. The following table shows the major components of Revenues for these periods. 8
(In thousands) TOTAL REVENUES PERIODS TO JUNE 30, SECOND QUARTER SIX MONTHS 1997 1996 INCREASE 1997 1996 INCREASE -------- -------- ---------- -------- -------- ------------ Fee income $24,997 $19,800 26% $48,933 $39,467 24% Premiums earned 17,230 15,965 8% 35,183 27,719 27% Net investment income 6,986 5,403 29% 12,974 10,593 22% Realized capital losses (697) (617) (13%) (1,471) (612) (140%) Other income (36) 58 (162%) 48 135 (64%) ------- ------- ---- ------- ------- ---- $48,480 $40,609 19% $95,667 $77,302 24% ======= ======= ==== ======= ======= ====
Total Fee income increased 24% to $48.9 million for the first six months of 1997 as compared to $39.5 million in 1996. Pre-tax profit margins were 40% for the second quarter of both 1997 and 1996 and 40% for the first six months of 1997 as compared to 41% for the first six months of 1996. Excluding the underwriting management portion of the Program Business segment and the Financial Services segment, which generally have lower margins, pre-tax profit margins were 43% for the quarter as compared to 44% in 1996 and 44% for the half year as compared to 45% in 1996. The components of Fee income are illustrated by business segment in the following table:
(In thousands) FEE INCOME BY BUSINESS SEGMENT PERIODS TO JUNE 30, SECOND QUARTER SIX MONTHS 1997 1996 INCREASE 1997 1996 INCREASE ------- ------- ---------- ------- ------- ------------ Corporate risk management fees $10,777 $12,629 (15%) $22,227 $25,229 (12%) Program business fees 10,585 4,252 149% 19,753 8,386 136% Specialty brokerage fees 1,543 1,504 3% 3,131 2,929 7% Financial services fees 2,092 1,415 48% 3,822 2,923 31% ------- ------- --- ------- ------- --- Total $24,997 $19,800 26% $48,933 $39,467 24% ======= ======= === ======= ======= ===
Program Business, the fastest growing segment, involves the Company replacing traditional insurers and acting as a conduit between producers of specialty books of business and reinsurers wishing to write that business. Program Business accounted for 40% of total Fee income for the first six months of 1997 compared to 22% in the corresponding 1996 period. Program Business fees increased by 149% in the second quarter to $10.6 million compared to $4.3 million in the second quarter of 1996 and by 136% to $19.8 million in the first six months as compared to $8.4 million in 1996 as a result of the continued expansion in this business and the acquisition of Small Business Underwriters (ASBU@) on February 1, 1997. Profit margins, excluding underwriting management, were 47% for the second quarter and the first six months of both 1997 and 1996. Including underwriting management, profit margins were 40% for both the quarter and six months of 1997, up from 37% and 39% respectively in 1996. In July 1997 the Company acquired American Policyholders Insurance Company (AAPI@), a Massachusetts insurance company licensed in most states. The Company intends to change API=s name to Villanova Insurance Company (AVillanova@). Villanova will provide the Company with an additional admitted insurance company to accommodate the growth in Program Business. 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 segment, which accounted for 46% of total Fee income for the first six months of 1997 down from 64% in the 9 corresponding 1996 period, has been the most affected by the extremely soft commercial insurance market cycle. Corporate risk management fees decreased by 15% in the second quarter to $10.8 million compared to $12.6 million in the second quarter of 1996 and by 12% in the first six months to $22.2 million compared to $25.2 million in 1996 as a result of a continuation of the soft market and declines in workers= compensation rates. Profit margins decreased to 42% in the quarter as compared to 44% in 1996 and 43% for the first six months of 1997 compared to 45% in 1996. Legion Insurance Company and Legion Indemnity, the Company=s policy-issuing subsidiaries, added 29 new accounts in the second quarter of 1997 bringing the total new accounts added during the first half of 1997 to 64 as compared to 24 in the 1996 second quarter and 55 for the first six months of 1996. Legion=s renewal rate was 80% for the first six months of 1997 as compared to 71% in the corresponding 1996 period. In California these companies added 11 new accounts in the first six months of 1997 compared to 3 in 1996 and their renewal rate increased to 87% as compared to 67% in the first six months of 1996. There were 317 active accounts at June 30, 1997, including 36 in California, as compared to 257 at June 30, 1996, of which 22 were in California. Gross premiums written increased 78% to $280.5 million for the first six months of 1997 as compared to $157.5 million in 1996 primarily as a result of the number of Program Business accounts written. Program Business generally involves greater premium volume per unit than Corporate Risk Management business. Premiums earned increased 27% to $35.2 million in the first six months of 1997, as compared to $27.7 million in 1996, this increase was also primarily due to the expansion in the Program Business segment. The Company's Specialty Brokerage business segment provides access to Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. Specialty Brokerage produced $1.5 million of total Fee income in the second quarter and $3.1 million in the first six months representing 6% of total Fee income. Specialty Brokerage fees grew by only 7% in the first six months of 1997 from $2.9 million in the corresponding 1996 period reflecting declines in premium on renewal policies and the fact that the 1996 comparatives include one significant account that was a one-time opportunity and could not be renewed. Renewal rates remained high in this segment at 82% for the first six months of 1997 as compared to 85% in 1996. Profit margins decreased to 34% in the second quarter from 37% for the 1996 second quarter and to 37% in the first six months down from 41% in 1996 primarily as a result of the inclusion of the one large account in the 1996 comparatives. Financial Services, the Company=s newest business segment, is being built on the 1996 acquisition of The Hemisphere Group Limited (AHemisphere@) which provides administrative services to offshore mutual funds and other companies. Financial Services fees accounted for 8% of total Fee income for the first six months of 1997 as opposed to 7% in the corresponding 1996 period. Fees from Financial Services increased in the quarter by 48% to $2.1 million over the 1996 corresponding period and by 31% to $3.8 million for the half year primarily as a result of an increase in the number of mutual funds under administration from 76 at June 30, 1996 to 104. Renewal rates remained very high in this business segment at 96% for the first six months of 1997 as compared to 97% in 1996. Profit margins improved in 1997 to 30% in the quarter and 27% for the first six months up from 15% and 17% respectively in 1996. The U.S. budget passed in August 1997 contains provisions which rescind certain of the so called Aten commandments@ that stated rules as to when an investment fund will be considered offshore for U.S. tax purposes. One of the rescinded rules required that the administration of the fund be offshore. The change in these rules could adversely affect Hemisphere=s fund administration business. In July 1997, the Company acquired a twenty percent interest in Tremont Advisers, Inc. (ATremont@) through the purchase of common shares for a consideration of $3.1 million. Tremont is a manager of mutual funds and a consultant to the hedge fund industry. In a related venture, Tremont and the Company will jointly develop offshore variable annuity and life insurance products primarily utilising offshore hedge funds as the underlying investment. Independently of the joint venture, the Company has also formed MRM Life Ltd. in Bermuda to offer these products utilising investments other than hedge funds. These new annuity and life products will be introduced during the second half of 1997 but no significant fee income is expected to be earned until 1998. Gross investment income increased by $1.5 million or 11% to $14.6 million in the first six months of 1997 over the corresponding 1996 period as a result of an increase of 3% in gross invested assets to $460.5 million and an increase 10 in the yield on these assets. Net investment income, after adjusting for investment income which is not included in the earnings of the Company, increased by 22% in the first six months as a result of an increase of 12% in net invested assets to $402.3 million and an increase in the yield on these assets to 6.6% from 6.0% in the first six months of 1996.
(In thousands) TOTAL EXPENSES PERIODS TO JUNE 30, SECOND QUARTER SIX MONTHS 1997 1996 INCREASE 1997 1996 INCREASE ------- ------- --------- ------- ------- ----------- Operating expenses $15,115 $11,872 27% $29,245 $23,122 26% Total insurance costs 17,637 15,997 10% 35,905 27,808 29% Interest expense 1,619 1,549 4% 3,210 3,072 5% Other expenses 261 177 48% 498 285 74% ------- ------- -- ------- ------- -- Total $34,632 $29,595 17% $68,858 $54,287 27% ======= ======= == ======= ======= ==
Total expenses increased 27% to $68.9 million for the first six months as compared to $54.3 million in 1996. Operating expenses increased by 26% to $29.2 million for the first six months from $23.1 million in the corresponding 1996 period partly as a result of the inclusion of SBU, for the first time in 1997, which added $1.2 million or 5% of the total increase in Operating expenses in the first six months together with the growth in personnel and other expenses stemming from the increased business in each segment. The increase in Total insurance costs was the result of a 27% increase in Premiums earned in the first six months of 1997 over the corresponding 1996 period. The effective tax rate was 19.1% in the quarter and 18.3% for the six months compared to 17.7% and 19.8% in the corresponding 1996 periods. The increase in the quarterly rate is due mainly to the Company=s decreased holding of tax exempt municipal bonds, offset by an increase in earnings outside of the United States. The decline in the six month rate 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 offset by a decrease in the Company=s holding of tax exempt municipal bonds. FINANCIAL CONDITION AND LIQUIDITY Total assets increased to $1.8 billion at June 30, 1997 from $1.6 billion at December 31, 1996. Assets held in separate accounts which are principally managed assets attributable to participants in the Company's IPC Programs accounted for approximately 34% of Total assets at June 30, 1997 and 35% at December 31, 1996. Total Shareholders' equity increased to $229.7 million at June 30, 1997 from $208.0 million at December 31, 1996 primarily as a result of Net income in the six months and the issuance of Common Shares offset by the payment of dividends. Return on equity was 20% for the first six months of 1997 compared to 21% in the corresponding 1996 period. The Company continues to produce a positive cash flow from operating activities which is used to fund short term requirements. The Financial Accounting Standards Board has recently issued the following Statements of Financial Accounting Standards ("SFAS"): (a) SFAS No. 129 - Disclosure of Information about Capital Structure (b) SFAS No. 130 - Reporting Comprehensive Income (c) SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information. 11 SFAS No. 129 is effective for periods ending after December 15, 1997 and SFAS No. 130 and No. 131 are effective for periods beginning after December 15, 1997. The Company is currently evaluating the effects of these statements on its results and disclosures. 12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held it's 1997 Annual General Meeting of Shareholders on May 21, 1997. The following are the results of the voting on the various matters considered at the meeting: (i) Election of Directors. NOMINEE FOR WITHHELD ROGER E. DAILEY 15,266,072 32,042 DAVID J. DOYLE 15,265,471 32,643 ARTHUR E. ENGEL 14,009,054 1,289,060 JOSEPH D. SARGENT 15,254,410 43,704 NORMAN L. ROSENTHAL 15,262,407 35,707 (ii) Appointment of Ernst & Young as the Company's Auditors. FOR: 15,272,677 AGAINST: 6,348 ABSTAIN: 19,089 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 June 30, 1997. 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 SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND AUTHORIZED SIGNATORY DATE: AUGUST 13, 1997 14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 MUTUAL RISK MANAGEMENT LTD. COMPUTATION OF EARNINGS PER SHARE
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1997 1996 1997 1996 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) PRIMARY - ------- Net income available to common shareholders $ 11,167 $ 8,991 $ 21,811 $ 18,132 =========== =========== ========== ============ Weighted Average Common Shares Common shares outstanding 18,650,999 18,213,404 18,617,72 618,061,019 ----------- ----------- ---------- ------------ Common share equivalents associated with options and Redeemable Common Shares: Options 1,947,518 1,665,741 1,947,518 1,665,741 Redeemable Common Shares 468,584 468,584 468,584 468,584 ----------- ----------- ---------- ------------ 2,416,102 2,134,325 2,416,102 2,134,325 Common Shares purchased with proceeds from options exercised (1,313,851) (1,201,219) (1,351,359) (1,102,112) ----------- ----------- ---------- ------------ 1,102,251 933,106 1,064,743 1,032,213 ----------- ----------- ---------- ------------ Total Weighted Average Common Shares 19,753,250 19,146,510 19,682,469 19,093,232 =========== =========== ========== ============ Primary Earnings Per Common Share: Net income available to common shareholders $0.57 $0.47 $1.11 $0.95 ===== ===== ===== ===== FULLY DILUTED - ------------- Net income available to common shareholders $11,167 $8,991 $21,811 $18,132 Debenture interest 1,618 1,536 3,208 3,046 ------- ------ ------- ------- $12,785 $10,527 $25,019 $21,178 ======= ======= ======= ======= Weighted Average Common Shares Common shares outstanding 18,650,999 18,213,404 18,617,726 18,061,019 ----------- ----------- ---------- ------------ Common share equivalents associated with options, Redeemable Common Shares and Convertible Debentures: Options 1,947,518 1,665,741 1,947,518 1,665,741 Redeemable Common Shares 468,584 468,584 468,584 468,584 Convertible Debentures 3,489,400 3,489,400 3,489,400 3,489,400 ----------- ----------- ---------- ------------ 5,905,502 5,623,725 5,905,502 5,623,725 Common Shares purchased with proceeds from options exercised (1,313,851) (1,201,219) (1,351,359) (1,102,112) ----------- ----------- ---------- ------------ 4,591,651 4,422,506 4,554,143 4,521,613 ----------- ----------- ---------- ------------ Total Weighted Average Common Shares 23,242,650 22,635,910 23,171,869 22,582,632 =========== =========== ========== ============ Fully Diluted Earnings Per Common Share: Net income available to common shareholders $0.55 $0.47 $1.08 $0.94 ===== ===== ===== =====
EX-27 3 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000826918 MUTUAL RISK MANAGEMENT LTD. 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 401,508 0 0 0 0 0 401,508 59,904 401,463 21,019 1,811,448 480,533 151,259 0 40,552 125,419 2,952 0 187 229,506 1,811,448 35,183 12,974 (1,471) 48,981 19,216 16,688 32,954 26,810 4,916 21,894 0 0 0 21,811 1.11 8 0 0 0 0 0 0 0
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