-----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, TjtO9qwOm+AZpqlquQnt0JkVqUDBRBCRMszCKfHp0jrjN4f2UXA27dqI4rQADK8Y H3ru+eTCKCPCHDAzmyIypQ== 0000950130-97-004979.txt : 19971113 0000950130-97-004979.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950130-97-004979 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-10760 FILM NUMBER: 97716836 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 September 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 September 30, 1997 was 38,469,410. On September 26, 1997 the Company effected a two-for-one stock split. 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 nine month periods ended September 30, 1997 and 1996 3 Consolidated Balance Sheets at September 30, 1997 (unaudited) and December 31, 1996 4 Unaudited Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1997 and 1996 5 Consolidated Statements of Shareholders' Equity at September 30, 1997 (unaudited) and December 31, 1996 6 Notes to Unaudited Consolidated Financial Statements at September 30, 1997 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8-12 CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION: ITEM 2. CHANGES IN SECURITIES 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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 REVENUES Fee income $27,931,042 $20,395,469 $76,864,473 $59,862,326 Premiums earned 27,346,953 7,288,523 62,530,195 35,007,072 Net investment income 6,551,411 5,662,929 19,525,178 16,255,582 Realized capital gains (losses) 388,665 (559,873) (1,082,598) (1,171,806) Other (losses) income (10,007) (7,526) 38,275 127,863 ------------- ------------ -------------- ------------- Total Revenues 62,208,064 32,779,522 157,875,523 110,081,037 ------------- ------------ -------------- ------------- EXPENSES Losses and loss expenses incurred 17,908,590 2,570,997 37,124,845 18,680,020 Acquisition costs 9,723,610 4,685,780 26,412,037 16,384,832 Operating expenses 16,465,276 12,449,908 45,710,744 35,571,969 Interest expense 1,631,846 1,560,224 4,841,876 4,631,871 Other expenses 301,897 177,234 799,503 462,422 ------------- ------------ -------------- ------------- Total Expenses 46,031,219 21,444,143 114,889,005 75,731,114 ------------- ------------ -------------- ------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 16,176,845 11,335,379 42,986,518 34,349,923 Income taxes 3,071,259 1,852,945 7,987,085 6,412,841 ------------- ------------ -------------- ------------- INCOME FROM CONTINUING OPERATIONS 13,105,586 9,482,434 34,999,433 27,937,082 Minority interest 0 (7,034) 0 (248,088) ------------- ------------ -------------- ------------- NET INCOME 13,105,586 9,475,400 34,999,433 27,688,994 Preferred share dividends 21,908 42,432 104,929 123,608 ------------- ------------ -------------- ------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $13,083,678 $9,432,968 $34,894,504 $27,565,386 ============= ============ ============== ============= EARNINGS PER COMMON SHARE (1) Primary EPS $ 0.33 $ 0.24 $ 0.88 $ 0.72 =========== =========== =========== =========== Fully diluted EPS $ 0.31 $ 0.24 $ 0.85 $ 0.71 =========== =========== =========== =========== Dividends per share $ 0.05 $ 0.04 $ 0.14 $ 0.12 =========== =========== =========== =========== Weighted average number of Common Shares outstanding 40,071,970 38,240,086 39,601,310 38,205,306 ============= ============ ============== =============
(1) All per share amounts have been adjusted to reflect the two-for-one stock split which was effected on September 26, 1997. See Accompanying Notes to Unaudited Consolidated Financial Statements 3 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 (Unaudited) ASSETS Cash and cash equivalents $ 93,246,463 $ 52,242,353 Investments : Held in available for sale account at fair value (Amortized cost $374,805,624 ; 377,030,589 400,191,211 1996 - $399,871,107) --------------- --------------- TOTAL MARKETABLE INVESTMENTS 470,277,052 452,433,564 Other investments 9,394,978 2,967,829 Investment income due and accrued 3,430,916 4,976,145 Accounts receivable 135,103,467 123,956,477 Reinsurance receivables 453,555,958 350,317,706 Deferred expenses 22,907,621 20,612,715 Prepaid reinsurance premiums 127,311,930 73,587,920 Fixed assets 12,299,594 9,382,000 Deferred tax benefit 5,673,521 3,361,571 Goodwill 29,015,879 14,956,786 Other assets 4,883,579 5,406,177 Assets held in separate accounts 645,045,089 576,711,687 --------------- --------------- TOTAL ASSETS $1,918,899,584 $1,638,670,577 =============== =============== LIABILITIES, REDEEMABLE PREFERRED & COMMON SHARES & SHAREHOLDERS' EQUITY LIABILITIES Reserve for losses and loss expenses $ 537,813,278 $ 418,975,493 Reserve for unearned premiums 166,763,226 93,741,088 Claims deposit liabilities 37,924,879 45,688,793 Accounts payable 115,530,038 133,265,076 Accrued expenses 6,764,892 5,708,286 Taxes payable 11,896,462 9,261,685 Prepaid fees 16,761,911 13,231,468 Debentures 127,050,876 122,210,991 Other liabilities 8,149,162 7,422,743 Liabilities related to separate accounts 645,045,089 576,711,687 --------------- --------------- TOTAL LIABILITIES 1,673,699,813 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) 0 2,951,835 Common Shares subject to redemption - 937,168 Common Shares (par value $0.01, redemption value $1.75 less subscription loans receivable - $383,761, plus interest received) 1,924,135 1,510,544 --------------- --------------- TOTAL REDEEMABLE PREFERRED & COMMON SHARES 1,924,135 4,462,379 --------------- --------------- SHAREHOLDERS' EQUITY Common Shares - Authorized 60,000,000 (par value $0.01) Issued 37,532,242 (1996 - 37,126,538) 375,322 371,265 Additional paid-in capital 83,810,256 79,812,287 Unrealized gain on investments - net of tax 1,805,421 47,682 Retained earnings 157,284,637 127,759,654 --------------- --------------- TOTAL SHAREHOLDERS' EQUITY 243,275,636 207,990,888 TOTAL LIABILITIES,REDEEMABLE PREFERRED & COMMON SHARES --------------- --------------- & SHAREHOLDERS' EQUITY $1,918,899,584 $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
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 NET CASH FLOW FROM OPERATING ACTIVITIES Net income $ 34,999,433 $ 27,688,994 Items not affecting cash Depreciation 2,877,733 2,051,202 Amortization of investments and net gain on sales (3,009,761) (92,194) Amortization of Convertible Debentures 4,839,885 4,595,456 Deferred tax benefit (2,459,071) 832,822 Other items 687,720 302,447 Net changes in non-cash balances relating to operations : Accounts receivable (11,146,990) (4,522,069) Reinsurance receivables (103,238,252) (22,317,230) Investment income due and accrued 1,545,229 (630,476) Deferred expenses (2,294,906) (1,087,430) Prepaid reinsurance premiums (53,724,010) (16,527,386) Other assets 522,598 (1,122,004) Reserve for losses and loss expenses 118,837,785 16,166,391 Prepaid fees 3,530,443 293,690 Reserve for unearned premium 73,022,138 15,189,931 Accounts payable (17,735,038) 15,982,049 Taxes payable 2,634,777 4,119,420 Accrued expenses 1,056,606 377,296 Other liabilities 515,617 (239,128) -------------- -------------- NET CASH FLOW FROM OPERATING ACTIVITIES 51,461,936 41,061,781 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments - Available for sale 194,432,130 87,431,657 Proceeds from maturity of investments - Available for sale 46,666,903 29,154,549 Fixed assets purchased (5,806,410) (4,656,497) Investments purchased - Available for sale (213,023,789) (152,204,802) Other investments (6,387,331) (676,049) Goodwill purchased (14,798,596) (4,853,555) Swap expense 0 (1,951,701) Other items 23,047 68,686 -------------- -------------- NET CASH FROM (APPLIED TO) INVESTING ACTIVITIES 1,105,954 (47,687,712) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Loan repaid 0 (93,736) Loan repayment & interest received 413,591 426,050 Proceeds from shares issued 4,002,026 4,402,787 Redemption of preferred shares (2,951,835) 0 Claims deposit liabilities (7,763,914) (812,560) Dividends paid (5,263,648) (4,768,337) -------------- -------------- NET CASH FLOW APPLIED TO FINANCING ACTIVITIES (11,563,780) (845,796) -------------- -------------- Net increase (decrease) in cash and cash equivalents 41,004,110 (7,471,727) Cash and cash equivalents at beginning of period 52,242,353 79,669,981 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,246,463 $ 72,198,254 ============== ============== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 1,991 $ 36,415 ============== ============== Income taxes paid, net $ 9,217,001 $ 2,160,284 ============== ==============
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) - ------------------------------------------------ Common Shares $ 371,265 $ 4,057 $ - $ - $ - $ - $ 375,322 Additional paid-in capital 79,812,287 3,997,969 - - - - 83,810,256 Unrealized gain on investments 47,682 - 1,757,739 - - - 1,805,421 Retained earnings 127,759,654 - - 34,999,433 (104,929) (5,369,521) 157,284,637 ----------- --------- --------- ---------- --------- ----------- ----------- TOTAL SHAREHOLDERS' EQUITY AT SEPTEMBER 30, 1997 $207,990,888 $ 4,002,026 $ 1,757,739 $34,999,433 $(104,929) $(5,369,521) $243,275,636 =========== ========= ========= ========== ========= =========== =========== YEAR ENDED DECEMBER 31, 1996 - -------------------------------- Common Shares $ 356,103 $ 15,162 $ - $ - $ - $ - $ 371,265 Additional paid-in capital 65,218,600 14,593,687 - - - - 79,812,287 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 $.04 for the nine months ended September 30, 1997 and $.06 for the year ended December 31,1996 (2) Dividend per share amounts were $.14 for the nine months ended September 30, 1997 and $.16 for the year ended December 31,1996. (3) Effective September 26, 1997 the Company effected a two-for-one stock split recorded in the form of a stock dividend. 18,741,121 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, 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 1997 and September 30, 1996 by $.02, $.06, $.02 and $.04 respectively. Statement No. 128 has no impact on the calculation of fully diluted earnings per share for these periods. 3. TWO-FOR-ONE STOCK SPLIT In September 1997 the Company announced a two-for-one stock split of its Common Shares. The record date for the stock split was September 26, 1997 and a dividend of additional Common Shares was distributed to shareholders on October 10, 1997. The consolidated financial statements have been adjusted to reflect the effects of the Common Stock split on earnings per share for all periods presented. 4. REDEMPTION OF PREFERRED SHARES During the quarter the Company repaid the principal amount of $2.9 million owing on the Series B non-voting Redeemable Preferred Shares. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 The results of operations for the quarter and nine months ended September 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 ("SBU") for the first time in 1997. Net income available to common shareholders amounted to $34.9 million or $0.85 per Common Share for the nine months ended September 30, 1997 on a fully diluted basis representing an increase of 20% over the corresponding period as shown in the tables below.
THIRD QUARTER TO SEPTEMBER 30, 1997 1996 ---------------------------------------------------------- ($ thousands except per share data) PER PER COMMON SHARE (b) COMMON SHARE (b) ------------ ------------ FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED Operating income $12,773 $ 0.32 $ 0.31 $ 9,813 $ 0.25 $ 0.25 Realized capital gains (losses) (a) 311 0.01 0.00 (380) (0.01) (0.01) ------- ------ ------ ------- ------- ------- Net income available to Common Shareholders $13,084 $ 0.33 $ 0.31 $ 9,433 $ 0.24 $ 0.24 ======= ====== ====== ======= ======= ======= Average number of shares outstanding (000's) 40,072 47,051 38,240 45,219 ------- ------- ------- ------- NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 ----------------------------------------------- ($ thousands except per share data) PER PER COMMON SHARE (b) COMMON SHARE (b) ------------ ------------ FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED Operating income $35,710 $ 0.90 $ 0.87 $28,442 $ 0.74 $ 0.73 Realized capital losses (a) (815) (0.02) (0.02) (877) (0.02) (0.02) ------- ------ ------ ------- ------- ------- Net income available to Common Shareholders $34,895 $ 0.88 $ 0.85 $27,565 $ 0.72 $ 0.71 ======= ====== ====== ======= ======= ======= Average number of shares outstanding (000's) 39,601 46,580 38,205 45,184 ------- ------- ------- -------
(a) Net of tax. (b) All per share amounts have been adjusted to reflect the two-for-one stock split which was effected on September 26, 1997. 8 Total revenues amounted to $62.2 million and $157.9 million for the quarter and nine months ended September 30, 1997 representing an increase of 90% and 43% over the corresponding 1996 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 1997 1996 INCREASE 1997 1996 INCREASE -------- -------- --------- --------- --------- --------- Fee income $27,931 $20,395 37% $ 76,864 $ 59,862 28% Premiums earned 27,347 7,288 275% 62,530 35,007 79% Net investment income 6,551 5,663 16% 19,526 16,256 20% Realized capital gains (losses) 389 (560) N/M (1,082) (1,172) N/M Other (losses) income (10) (7) N/M 38 128 N/M ------- ------- -------- -------- Total $62,208 $32,779 90% $157,876 $110,081 43% ======= ======= ======== ========
Total Fee income increased 28% to $76.9 million for the first nine months of 1997 as compared to $59.9 million in 1996. Pre-tax profit margins were 41% for the third quarter of 1997 as compared to 39% in the third quarter of 1996 and 41% for the first nine months of both 1997 and 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 44% for the quarter as compared to 43% in 1996 and 44% for the nine months of both 1997 and 1996. The components of Fee income are illustrated by business segment in the following table:
(In thousands) FEE INCOME BY BUSINESS SEGMENT PERIODS TO SEPTEMBER 30, THIRD QUARTER NINE MONTHS 1997 1996 INCREASE 1997 1996 INCREASE ------- ------- ---------- ------- ------- ---------- Program business fees $14,200 $ 4,991 185% $33,953 $13,377 154% Corporate risk management fees 9,720 12,346 (21%) 31,947 37,575 (15%) Specialty brokerage fees 1,955 1,504 30% 5,086 4,433 15% Financial services fees 2,056 1,554 32% 5,878 4,477 31% ------- ------- ------- ------- Total $27,931 $20,395 37% $76,864 $59,862 28% ======= ======= ======= =======
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 doubled its share of the Company's fee income accounting for 44% of total Fee income for the first nine months of 1997 compared to 22% in 1996. Program Business fees increased by 185% in the third quarter to $14.2 million compared to $5.0 million in the third quarter of 1996 and by 154% to $34.0 million in the first nine months as compared to $13.4 million in 1996. This resulted from the continued expansion of this business segment in the extremely soft commercial insurance market and was helped by the acquisition of SBU on February 1, 1997. Profit margins, excluding underwriting management, were 45% for the third quarter of 1997 compared to 44% for the third quarter of 1996 and 46% for the first nine months of both 1997 and 1996. Including underwriting management, profit margins were 42% for the quarter and 41% for the first nine months of 1997, compared to 36% and 38% respectively in 1996. The Company completed its 9 acquisition of American Policyholders Insurance Company ("API") in July. API is a Massachusetts insurance company licensed in most states. The Company intends to change API's name to Villanova Insurance Company ("Villanova"). Villanova will provide the Company with an additional admitted insurance company to accommodate the growth in Program Business and to avoid conflicts among producers of 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 accounted for 41% of total Fee income for the first nine months of 1997 down from 63% in the corresponding 1996 period. This business segment has been the most affected by the extremely soft commercial insurance market cycle. Corporate risk management fees decreased by 21% in the third quarter to $9.7 million compared to $12.3 million in the third quarter of 1996 and by 15% in the first nine months to $31.9 million compared to $37.6 million in 1996 as a result of a continuation of the soft market and declines in workers' compensation rates. Profit margins increased to 45% in the quarter as compared to 43% in 1996 and remained stable at 43% for the first nine months of 1997 as compared to 44% in 1996. The Company's policy-issuing subsidiaries added 30 new accounts in the third quarter of 1997 bringing the total new accounts added during the first nine months of 1997 to 94 as compared to 26 in the 1996 third quarter and 81 for the first nine months of 1996. The renewal rate on this business was 80% for the first nine months of 1997 as compared to 72% in the corresponding 1996 period. In California the Company added 19 new accounts in the first nine months of 1997 compared to 6 in 1996 and the renewal rate increased to 81% as compared to 74% in the first nine months of 1996. There were 329 active accounts at September 30, 1997, including 42 in California, as compared to 267 at September 30, 1996, of which 25 were in California. Gross premiums written increased 112% to $462.6 million for the first nine months of 1997 as compared to $218.6 million in 1996 primarily as a result of the growth in Program Business. Program Business generally involves greater premium volume per unit than Corporate Risk Management business. Premiums earned increased 79% to $62.5 million in the first nine months of 1997, as compared to $35.0 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 $2.0 million of total Fee income in the third quarter and $5.1 million in the first nine months of 1997 representing 7% of total Fee income. Specialty Brokerage fees grew by 15% in the first nine months of 1997 from $4.4 million in the corresponding 1996 period despite declines in premium on new and 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 83% for the first nine months of 1997 as compared to 90% in 1996. Profit margins decreased to 33% in the third quarter from 35% for the 1996 third quarter and to 35% in the first nine months down from 39% in 1996 partly as a result of the inclusion of the one significant 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 which provides administrative services to offshore mutual funds and other companies. Financial Services fees accounted for 8% of total Fee income for the first nine months of both 1997 and 1996. Fees from Financial Services increased in the quarter by 32% to $2.1 million over the 1996 corresponding period and by 31% to $5.9 million for the nine months primarily as a result of an increase in the number of mutual funds under administration from 83 at September 30, 1996 to 124. Renewal rates remained very high in this business segment at 96% for the first nine months of 1997 as compared to 93% in 1996. Profit margins improved in 1997 to 24% in the quarter and 26% for the first nine months up from 21% and 18% respectively in 1996. Gross investment income increased by $1.6 million or 8.0% to $21.6 million in the first nine months of 10 1997 over the corresponding 1996 period as a result of an increase of 2.1% in gross invested assets to $468.1 million and an increase 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 20.1% in the first nine months as a result of an increase of 9.1% in net invested assets to $407.4 million and an increase in the yield on these assets to 6.6% from 5.9% in the first nine months of 1996.
(In thousands) TOTAL EXPENSES PERIODS TO SEPTEMBER 30, THIRD QUARTER NINE MONTHS 1997 1996 INCREASE 1997 1996 INCREASE Operating expenses $16,465 $12,450 32% $ 45,711 $35,572 29% Total insurance costs 27,632 7,257 281% 63,537 35,065 81% Interest expense 1,632 1,560 5% 4,842 4,632 5% Other expenses 302 177 70% 799 462 73% ------- ------- -------- ------- Total $46,031 $21,444 115% $114,889 $75,731 52% ======= ======= ======== =======
Total expenses increased 52% to $114.9 million for the first nine months as compared to $75.7 million in 1996. Operating expenses increased by 29% to $45.7 million for the first nine months from $35.6 million in the corresponding 1996 period partly as a result of the inclusion of SBU, for the first time in 1997 and the expansion of Professional Underwriters Corporation into New York State, which combined added $3.6 million or 10% of the total increase in Operating expenses in the first nine months. The remaining additional expenses were primarily due to 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 79% increase in Premiums earned in the first nine months of 1997 over the corresponding 1996 period. The effective tax rate was 19.0% in the quarter and 18.6% for the nine months compared to 16.4% and 18.7% 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. The decline in the nine month rate was due primarily to an increase in earnings outside of the United States offset by the decrease in the Company's holding of tax exempt municipal bonds. FINANCIAL CONDITION AND LIQUIDITY Total assets increased to $1.9 billion at September 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 September 30, 1997 and 35% at December 31, 1996. Total Shareholders' equity increased to $243.3 million at September 30, 1997 from $208.0 million at December 31, 1996 primarily as a result of Net income in the nine months and the issuance of Common Shares offset by the payment of dividends. Return on equity was 21% for the first nine months of 1997 compared to 20% in the corresponding 1996 period. During the quarter the Company repaid the principal amount of $2.9 million owing on the Series B non-voting Redeemable Preferred Shares. 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 11 Accounting Standards ("SFAS"): (a) SFAS No. 130 - Reporting Comprehensive Income (b) SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information. 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 2. CHANGES IN SECURITIES. On October 10, 1997, the Company issued 18,741,121 Common Shares pursuant to a two-for-one stock split to shareholders of record as of September 26, 1997. This stock split was effected by means of a stock dividend. Registration of the shares issued was not required under the Securities Act of 1933 as no sale was involved for the purposes of said Act. 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, 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. ___________________________________________ JAMES C. KELLY SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND AUTHORIZED SIGNATORY DATE: NOVEMBER 14, 1997 14 EX-11 2 COMPUTATIONS OF EARNINGS PER SHARE Exhibit 11 Exhibit 11 MUTUAL RISK MANAGEMENT LTD. COMPUTATION OF EARNINGS PER SHARE
Quarter Ended September 30, Nine Months Ended September 30 1997 1996 1997 1996 (in thousands except share and per share amounts) Primary - ------- Net income available to common shareholders $ 13,084 $ 9,433 $ 34,895 $ 27,565 =========== =========== =========== =========== Weighted Average Common Shares Common shares outstanding 37,422,524 36,496,954 37,298,504 36,247,978 ----------- ----------- ----------- ----------- Common share equivalents associated with options and Redeemable Common Shares: Options 3,824,704 3,295,382 3,824,704 3,295,382 Redeemable Common Shares 937,168 937,168 937,168 937,168 ----------- ----------- ----------- ----------- 4,761,872 4,232,550 4,761,872 4,232,550 Common Shares purchased with proceeds from options exercised (2,112,426) (2,489,418) (2,459,066) (2,275,222) ----------- ----------- ----------- ----------- 2,649,446 1,743,132 2,302,806 1,957,328 ----------- ----------- ----------- ----------- Total Weighted Average Common Shares 40,071,970 38,240,086 39,601,310 38,205,306 =========== =========== =========== =========== Primary Earnings Per Common Share: Net income available to common shareholders $0.33 $0.24 $0.88 $0.72 =========== =========== =========== =========== Fully Diluted - ------------- Net income available to common shareholders $ 13,084 $ 9,433 $ 34,895 $ 27,565 Debenture interest 1,632 1,549 4,840 4,595 $ 14,716 $ 10,982 $ 39,735 $ 32,160 =========== =========== =========== =========== Weighted Average Common Shares Common shares outstanding 37,422,524 36,496,954 37,298,504 36,247,978 ----------- ----------- ----------- ----------- Common share equivalents associated with options, Redeemable Common Shares and Convertible Debentures: Options 3,824,704 3,295,382 3,824,704 3,295,382 Redeemable Common Shares 937,168 937,168 937,168 937,168 Convertible Debentures 6,978,800 6,978,800 6,978,800 6,978,800 ----------- ----------- ----------- ----------- 11,740,672 11,211,350 11,740,672 11,211,350 Common Shares purchased with proceeds from options exercised (2,112,426) (2,489,418) (2,459,066) (2,275,222) ----------- ----------- ----------- ----------- 9,628,246 8,721,932 9,281,606 8,936,128 ----------- ----------- ----------- ----------- Total Weighted Average Common Shares 47,050,770 45,218,886 46,580,110 45,184,106 =========== =========== =========== =========== Fully Diluted Earnings Per Common Share: Net income available to common shareholders $ 0.31 $ 0.24 $ 0.85 $ 0.71 =========== =========== =========== ===========
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, 1997 AND IS QUALLIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000826918 MUTUAL RISK MANAGEMENT LTD. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 377031 0 0 0 0 0 377031 93246 453556 22908 1918900 537813 166763 0 37925 127051 0 0 375 242901 1918900 62530 19525 (1083) 76903 37125 26412 51352 42987 7987 35000 0 0 0 34895 0.88 0.85 0 0 0 0 0 0 0
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