-----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, HYXDNihI5MdpQ5eJcliu/NAlbLwmYupNBTm1Y3L1u6unfhgqwkmgMhL8YEIV86bL moV3Je4gE7LMoqfR7AfD+g== 0000893220-96-001857.txt : 19961118 0000893220-96-001857.hdr.sgml : 19961118 ACCESSION NUMBER: 0000893220-96-001857 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: PHILADELPHIA CONSOLIDATED HOLDING CORP CENTRAL INDEX KEY: 0000909109 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 232202671 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22280 FILM NUMBER: 96663216 BUSINESS ADDRESS: STREET 1: ONE BALA PLAZA STREET 2: SUITE 100 CITY: WYNNEWOOD STATE: PA ZIP: 19096 BUSINESS PHONE: 6106428400 MAIL ADDRESS: STREET 1: ONE BALA PLAZA STREET 2: SUITE 100 CITY: BALA CYNWYD STATE: PA ZIP: 19004 FORMER COMPANY: FORMER CONFORMED NAME: MAGUIRE HOLDING CORP DATE OF NAME CHANGE: 19930714 10-Q 1 PHILA. CONSOLIDATED HOLDING CORP. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1996 COMMISSION FILE NUMBER 0-22280 PHILADELPHIA CONSOLIDATED HOLDING CORP. --------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-2202671 ------------ ---------- (State of Incorporation) (IRS Employer Identification No.) ONE BALA PLAZA, SUITE 100 BALA CYNWYD, PENNSYLVANIA 19004 (610) 617-7900 -------------- (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 12, 1996. Preferred Stock, $.01 par value, no shares outstanding Common Stock, no par value, 6,041,382 shares outstanding 1 2 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES INDEX FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Part I - Financial Information Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3 Consolidated Statements of Operations - For the three and nine months ended September 30, 1996 and 1995 4 Consolidated Statements of Changes in Shareholders' Equity - For the nine months ended September 30, 1996 and year ended December 31, 1995 5 Consolidated Statements of Cash Flows - For the nine months ended September 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Part II - Other Information 12 Signatures 13 Exhibits 14
2 3 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AS OF ---------------------------------- SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) ASSETS INVESTMENTS: FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $129,757 AND $117,740)(INCLUDING $26,980 AND $30,648 IN TRUST ACCOUNTS).............. $132,142 $121,848 EQUITY SECURITIES AT MARKET (COST $16,782 AND $9,685) (INCLUDING $101 AND $118 IN TRUST ACCOUNTS).......... 22,323 12,558 -------- -------- TOTAL INVESTMENTS................................... 154,465 134,406 CASH AND CASH EQUIVALENTS (INCLUDING $4,645 AND $3,048 IN TRUST ACCOUNTS)................. 11,949 5,680 ACCRUED INVESTMENT INCOME.............................. 2,077 2,172 PREMIUMS RECEIVABLE.................................... 9,302 7,898 PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES............................... 18,122 12,785 DEFERRED ACQUISITION COSTS............................. 8,741 5,157 PROPERTY AND EQUIPMENT................................. 5,125 3,868 GOODWILL-LESS ACCUMULATED AMORTIZATION OF $1,173 AND $1,120..................................... 911 964 DEFERRED INCOME TAXES.................................. - 4 OTHER ASSETS........................................... 1,743 1,214 -------- -------- TOTAL ASSETS........................................ $212,435 $174,148 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY POLICY LIABILITIES AND ACCRUALS: UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES.............. $ 92,848 $ 77,686 UNEARNED PREMIUMS..................................... 30,413 18,119 -------- -------- TOTAL POLICY LIABILITIES AND ACCRUALS............... 123,261 95,805 PREMIUMS PAYABLE....................................... 1,626 2,445 PAYABLE FOR INVESTMENT PURCHASES....................... 320 1,017 OTHER LIABILITIES...................................... 7,590 6,051 INCOME TAXES PAYABLE................................... 219 514 DEFERRED INCOME TAXES.................................. 143 - -------- -------- TOTAL LIABILITIES................................... 133,159 105,832 -------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING.......................... - - COMMON STOCK, NO PAR VALUE, 50,000,000 SHARES AUTHORIZED, 6,034,007 AND 5,813,851 SHARES ISSUED AND OUTSTANDING...................................... 41,170 39,057 NOTES RECEIVABLE FROM SHAREHOLDERS ................... (1,010) - UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION), NET OF DEFERRED INCOME TAXES......................... 5,231 4,608 RETAINED EARNINGS..................................... 33,885 24,651 -------- -------- TOTAL SHAREHOLDERS' EQUITY.......................... 79,276 68,316 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $212,435 $174,148 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 3 4 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------- ----------------------- 1996 1995 1996 1995 ---- ---- ---- ---- REVENUE: GROSS EARNED PREMIUMS............................ $ 37,854 $ 29,847 $ 91,380 $ 74,939 CEDED EARNED PREMIUMS............................ (17,531) (12,458) (38,050) (30,184) -------- -------- -------- -------- NET EARNED PREMIUMS.............................. 20,323 17,389 53,330 44,755 NET INVESTMENT INCOME............................ 2,041 1,689 5,772 4,742 NET REALIZED INVESTMENT GAIN..................... 140 169 235 256 OTHER INCOME..................................... 79 82 203 248 -------- -------- -------- -------- TOTAL REVENUE................................ 22,583 19,329 59,540 50,001 -------- -------- -------- -------- LOSSES AND EXPENSES: LOSS AND LOSS ADJUSTMENT EXPENSES................ 13,590 11,296 33,794 31,234 NET REINSURANCE RECOVERIES....................... (1,470) (1,773) (3,911) (6,276) -------- -------- -------- -------- NET LOSS AND LOSS ADJUSTMENT EXPENSES............ 12,120 9,523 29,883 24,958 ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES........................................ 5,920 5,812 16,863 13,987 OTHER OPERATING EXPENSES......................... 58 583 956 1,947 -------- -------- -------- -------- TOTAL LOSSES AND EXPENSES.................... 18,098 15,918 47,702 40,892 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES........................ 4,485 3,411 11,838 9,109 -------- -------- -------- -------- INCOME TAX EXPENSE (BENEFIT): CURRENT.......................................... 1,059 563 2,778 2,500 DEFERRED......................................... (36) 119 (174) (678) -------- -------- -------- -------- TOTAL INCOME TAX EXPENSE..................... 1,023 682 2,604 1,822 -------- -------- -------- -------- NET INCOME........................................ $ 3,462 $ 2,729 $ 9,234 $ 7,287 ======== ======== ======== ======== PER AVERAGE COMMON SHARE DATA: NET INCOME...................................... $ 0.49 $ 0.40 $ 1.30 $ 1.07 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES AND SHARE EQUIVALENTS USED IN COMPUTATION OF NET INCOME PER COMMON SHARE.... 7,091,936 6,882,059 7,091,333 6,799,141 ========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
For the Nine Months For the Year Ended Ended September 30, December 31, 1996 1995 ---- ---- (Unaudited) COMMON SHARES: BALANCE AT BEGINNING OF PERIOD..................... 5,813,851 5,813,851 ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 81,906 - PURSUANT TO EMPLOYEE STOCK OPTION PLAN............ 138,250 - ---------- ---------- BALANCE AT END OF PERIOD........................... 6,034,007 5,813,851 ========== ========== COMMON STOCK: BALANCE AT BEGINNING OF PERIOD..................... $ 39,057 $ 39,096 ISSURANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 1,181 - PURUSANT TO EMPLOYEE STOCK OPTION PLAN............ 932 - OTHER............................................. - (39) --------- --------- BALANCE AT END OF PERIOD........................... 41,170 39,057 --------- --------- NOTES RECEIVABLE FROM SHAREHOLDERS: BALANCE AT BEGINNING OF PERIOD..................... - - NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... (1,181) - COLLECTION OF NOTES RECEIVABLE..................... 171 - --------- ---------- BALANCE AT END OF PERIOD........................... (1,010) - --------- ---------- UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION) NET OF DEFERRED INCOME TAXES: BALANCE AT BEGINNING OF PERIOD..................... 4,608 (1,317) CHANGE IN UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION), NET OF DEFERRED INCOME TAXES...... 623 5,925 ---------- ---------- BALANCE AT END OF PERIOD........................... 5,231 4,608 ---------- ---------- RETAINED EARNINGS: BALANCE AT BEGINNING OF PERIOD..................... 24,651 14,821 NET INCOME......................................... 9,234 9,830 ---------- ---------- BALANCE AT END OF PERIOD........................... 33,885 24,651 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY...................... $ 79,276 $ 68,316 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
For the Nine Months Ended September 30, ---------------------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME.......................................... $ 9,234 $ 7,287 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: CHANGE IN PREMIUMS RECEIVABLE..................... (1,404) (3,158) CHANGE IN OTHER RECEIVABLES AND PREPAIDS.......... (5,242) (4,165) CHANGE IN DEFERRED ACQUISITION COSTS.............. (3,584) (1,025) CHANGE IN OTHER ASSETS............................ (529) (392) CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES......................................... 15,162 14,592 CHANGE IN UNEARNED PREMIUMS....................... 12,294 3,682 CHANGE IN PREMIUMS PAYABLE AND OTHER LIABILITIES.. 720 (463) CHANGE IN INCOME TAXES PAYABLE.................... (295) 127 NET REALIZED INVESTMENT GAIN...................... (235) (256) DEPRECIATION AND AMORTIZATION EXPENSE............. 675 751 DEFERRED INCOME TAX BENEFIT....................... (174) (678) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES....... 26,622 16,302 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITY SECURITIES AVAILABLE FOR SALE...................... 2,594 12,291 PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITY SECURITIES AVAILABLE FOR SALE............. 8,406 727 PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITY SECURITIES HELD TO MATURITY............... - 932 PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITY SECURITIES HELD TO MATURITY............... - 915 PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES......................................... 1,735 4,680 COST OF FIXED MATURITY SECURITIES AVAILABLE FOR SALE ACQUIRED........................................... (23,658) (39,018) COST OF FIXED MATURITY SECURITIES HELD TO MATURITY ACQUIRED........................................... - (301) COST OF EQUITY SECURITIES ACQUIRED.................. (8,820) (3,700) OTHER - NET......................................... - (3,000) PURCHASE OF PROPERTY AND EQUIPMENT.................. (1,713) (387) ------- ------- NET CASH USED BY INVESTING ACTIVITIES........... (21,456) (26,861) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN....................... 1,181 - PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK OPTION PLAN......................... 932 - NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN................................ (1,181) - COLLECTION OF NOTES RECEIVABLE...................... 171 - ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES....... 1,103 - ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 6,269 (10,559) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 5,680 16,464 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $11,949 $ 5,905 ======= ======= CASH PAID DURING THE PERIOD FOR: INCOME TAXES $ 1,305 $ 2,313
The accompanying notes are an integral part of the consolidated financial statements. 6 7 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements as of and for the nine months ended September 30, 1996 and 1995 are unaudited, but in the opinion of management, have been prepared on the same basis as the annual audited consolidated financial statements and reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the information set forth therein. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the operating results to be expected for the full year or any other period. Certain prior year amounts have been reclassified for comparative purposes. These financial statements should be read in conjunction with the financial statements and notes as of and for the year ended December 31, 1995 included in the Company's Annual Report on Form 10-K. 2. Investments During 1995 implementation guidance for SFAS No. 115 was adopted. Upon adoption, the appropriateness of the classifications for all securities held was reassessed. This reassessment resulted in reclassifying all securities in the Held To Maturity category to the Available For Sale category. The aggregate market value, amortized cost and unamortized unrealized loss on these securities was $25,601,000, $24,690,000, and $243,000, respectively. The reclassification from this one-time reassessment pursuant to the initial adoption of the implementation guidance does not call into question the intent to potentially hold other debt securities to maturity in the future. 3. Earnings Per Share Earnings per common share has been calculated by dividing net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period. 4. Income Taxes The effective tax rate differs from the 34% marginal tax rate principally as a result of interest exempt from tax, the dividend received deduction and other differences in the recognition of revenues and expenses for tax and financial reporting purposes. 5. Shareholders' Equity On May 9, 1996 the Company's shareholders approved a non-qualified Employee Stock Purchase Plan (the "Plan"). The aggregate maximum number of shares that may be issued pursuant to the Plan is 250,000. Shares may be purchased under the plan by eligible employees during designated one-month offering periods established by the Compensation Committee of the Board of Directors at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. The purchase price of shares may be paid by the employee over six (6) years pursuant to the execution of a promissory note. The promissory note will be collateralized by such shares purchased under the Plan and will be interest free. Subscription agreements for 81,906 shares were received by the Company as of September 30, 1996. 7 8 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL Although the Company's financial performance is dependent upon its own specific business characteristics, certain risk factors can affect the profitability of the Company. These include: - Industry factors - In the current environment, insurance industry pricing in general continues to be soft, however the Company's strategy is to focus on underwriting profits and accordingly the Company's marketing organization is being directed into those niche businesses that exhibit the greatest potential for underwriting profits. - Competition - The Company competes in the commercial property and casualty business with other domestic and international insurers having greater financial and other resources than the Company. - Regulation - The Company's insurance subsidiaries are subject to a substantial degree of regulatory oversight, which generally is designed to protect the interests of policyholders, as opposed to shareholders. - Inflation - Commercial property and casualty insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may effect such amounts is known. - Investment Risk - Substantial future increases in interest rates could result in a decline in the market value of the Company's investment portfolio and resulting losses and/or reduction in shareholders' equity. RESULTS OF OPERATIONS (NINE MONTHS ENDED SEPTEMBER 30, 1996 VS SEPTEMBER 30, 1995) Premiums: Gross written premiums grew $25.0 million (31.8%) to $103.7 million for the nine months ended September 30, 1996 from $78.7 million for the same period of 1995; gross earned premiums grew $16.4 million (21.9%) to $91.3 million for the nine months ended September 30, 1996 from $74.9 million for the same period of 1995; net written premiums increased $14.6 million (30.4%) to $62.6 million for the nine months ended September 30, 1996 from $48.0 million for the same period of 1995; and net earned premiums grew $8.5 million (19.0%) to $53.3 million in 1996 from $44.8 million in 1995. The overall growth in premiums and the varying growth rates for gross written premiums, gross earned premiums, net written premiums and net earned premiums are attributable to a number of factors: - - Overall premium growth is primarily attributable to: the recent growth in the field production underwriting organization enabling the expansion of the Company's marketing efforts to non-profit organizations, the health and fitness industry and selected professional liability products; and continued favorable market conditions for certain leasing products. - - Overall premium growth has been offset in part by a continued decrease in premiums from rental products due primarily to decreased pricing levels which are currently being experienced as a result of market competition. Consistent with the Company's conservative underwriting and pricing guidelines the underwriting of certain rental products has been curtailed. The Company does not anticipate an improvement in these market conditions in the foreseeable future. Additionally, there have been recent consolidations in the rental industry the effect of which, if any, are not known at this time. - - A revision in the Company's supplemental liability reinsurance programs, in the third quarter of 1996 retroactive to January 1, 1996. While this change increased by $1.3 million the written and earned premiums the Company ceded in 1996, (and hence lowered new written and earned premiums), an offsetting ceding commission which lowered acquisition costs and other underwriting expenses was received by the Company. A comparable supplemental liability reinsurance revision for 1995 occurred in the fourth quarter. The amount of this adjustment which pertained to the nine months ended September 30, 1995 approximated $1.2 million. After consideration of this adjustment, comparable net written and earned premium growth was 33.8% and 22.3% respectively. Net Investment Income: Net investment income approximated $5.8 million for the nine months ended September 30, 1996 and $4.7 million for the same period of 1995. Total investments grew to $154.5 million at September 30, 1996 from $123.8 million at September 30, 1995, primarily due to cash flows provided from operating activities. 8 9 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued) Net Realized Investments Gain: Net realized investment gains were $235,000 for the nine months ended September 30, 1996 compared to $256,000 for the same period of 1995. Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $4.9 million (19.6%) to $29.9 million for the nine months ended September 30, 1996 from $25.0 million for the same period of 1995 and the Company's statutory loss ratio increased to 56.1% in 1996 from 55.8% in 1995. However, if net earned premiums for the nine months ended September 30, 1995 were restated for the $1.2 million increase in ceded earned premiums due to the retroactive change in the supplemental liability reinsurance programs (see Premiums), the statutory loss ratio is 57.3% (see Acquisition Costs and Other Underwriting Expenses). The increase in net loss and loss adjustment expenses was due primarily to the growth (22.3% restated for retroactive reinsurance change) in net earned premiums. Additionally, since there was relatively higher net earned premium growth on products with low loss experience, the percentage increase in net loss and loss adjustment expenses (19.6%) was lower than the 22.3% (restated) net earned premium growth. Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $2.9 million (20.7 %), to $16.9 million for the nine months ended September 30, 1996 from $14.0 million for the same period of 1995. However, if acquisition costs and other underwriting expenses for the nine months ended September 30, 1995 were restated for the $1.2 million increase in ceding commissions due to the retroactive change in the supplemental liability reinsurance programs (see Premiums), acquisition costs and other underwriting expenses would have increased by 32.0%. The 32.0% (restated) increase in acquisition costs and other underwriting expenses exceeds the 22.3% (restated - See Premiums) net earned premium growth due to increased commission expense as a result of the Company beginning to market its niche underwriting to preferred and program brokers. Other Operating Expenses: Other operating expenses decreased $991,000 (50.9%), to $956,000 for the nine months ended September 30, 1996 compared to $1,947,000 for the same period of 1995 principally due to a greater portion of expenses being attributable to acquisition costs and other underwriting expenses. Income Tax Expense: The Company's effective tax rates for the nine months ended September 30, 1996 and 1995 were 22.0% and 20.0%, respectively. The effective rates differed from the 34% statutory rate principally due to investments in tax-exempt securities. RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 30, 1996 VS SEPTEMBER 30, 1995) Premiums: Gross written premiums grew $13.1 million (40.1%) to $45.8 million for the three months ended September 30, 1996 from $32.7 million for the same period of 1995; gross earned premiums grew $8.0 million (26.8%) to $37.9 million for the three months ended September 30, 1996 from $29.9 million for the same period of 1995; net written premiums increased $6.1 million (30.8%) to $25.9 million for the three months ended September 30, 1996 from $19.8 million for the same period of 1995; and net earned premiums grew $2.9 million (16.7%) to $20.3 million in 1996 from $17.4 million in 1995. The overall changes in premiums for gross written, gross earned, net written and net earned are attributable to a number of factors: - - Overall premium growth is primarily attributable to: the growth in the field production underwriting organization enabling the expansion of the Company's marketing efforts to non-profit organizations, the health and fitness industry and selected professional liability products; and continued favorable market conditions for certain leasing products. - - Overall premium growth has been offset in part by a continued decrease in premiums from rental products due primarily to decreased pricing levels which are currently being experienced as a result of market competition. Consistent with the Company's conservative underwriting and pricing guidelines the underwriting of certain rental products has been curtailed. The Company does not anticipate an improvement in these market conditions in the foreseeable future. 9 10 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued) - - A revision in the Company's supplemental liability reinsurance programs, in the third quarter of 1996 retroactive to January 1, 1996. While this change increased by $1.3 million the written and earned premiums the Company ceded in 1996, (and hence lowered new written and earned premiums), an offsetting ceding commission which lowered acquisition costs and other underwriting expenses was received by the Company. Of this $1.3 million amount, $.4 million pertained to the three months ended September 30, 1996. A comparable supplemental liability reinsurance revision for 1995 occurred in the fourth quarter. The amount of the adjustment which pertained to the three months ended September 30, 1995 was $.7 million. After consideration of this adjustment, comparable net written and earned premium growth was 40.3% and 26.9% respectively. Net Investment Income: Net investment income approximated $2.0 million for the three months ended September 30, 1996 and $1.7 million for the same period of 1995. Total investments grew to $154.5 million at September 30, 1996 from $123.8 million at September 30, 1995, primarily due to cash flows provided from operating activities. Net Realized Investments Gain: Net realized investment gains were $140,000 for the three months ended September 30, 1996 compared to $169,000 for the same period of 1995. Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $2.6 million (27.4%) to $12.1 million for the three months ended September 30, 1996 from $9.5 million for the same period of 1995 and the Company's statutory loss ratio increased to 59.6% in 1996 from 54.6% in 1995. However, if net earned premiums for the respective periods were restated for the increase in ceded earned premiums due to the retroactive change in the supplemental liability reinsurance programs (see Premiums), the statutory loss ratios are 57.1% and 57.2% for the three months ended September 30, 1996 and 1995, respectively (see Acquisition Costs and Other Underwriting Expenses). The increase in net loss and loss adjustment expenses was due primarily to the growth (26.9% restated for retroactive reinsurance change) in net earned premiums. Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $.1 million (1.7 %), to $5.9 million for the three months ended September 30, 1996 from $5.8 million for the same period of 1995. However, if acquisition costs and other underwriting expenses for the respective periods were restated for the increase in ceding commissions due to the retroactive change in the supplemental liability reinsurance programs (see Premiums) applicable within the period, acquisition costs and other underwriting expenses would have increased by 34.5%. The 34.5% (restated) increase in acquisition costs and other underwriting expenses exceeds the 26.9% (restated - See Premiums) net earned premium growth due to increased commission expense as a result of the Company beginning to market its niche underwriting to preferred and program brokers. Other Operating Expenses: Other operating expenses decreased $525,000 (90.0%), to $58,000 for the three months ended September 30, 1996 compared to $583,000 for the same period of 1995 principally due to a greater portion of expenses being attributable to acquisition costs and other underwriting expenses. Income Tax Expense: The Company's effective tax rates for the three months ended September 30, 1996 and 1995 were 22.8% and 20.0%, respectively. The effective rates differed from the 34% statutory rate principally due to investments in tax-exempt securities. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1996 the Company's investments classified as available for sale experienced unrealized investment appreciation of $.6 million, net of the related deferred tax expense of $.3 million. The change in unrealized appreciation is primarily due to changes in market interest rates during the period. At September 30, 1996, 100% of the Company's fixed maturity securities consisted of U.S. Government securities or securities rated "1" or "2" by the NAIC, 96.1% were rated "A-" or better (with no security rated lower than "BBB-") by Standard & Poor's Corporation. The Company produced net cash from operations of $26.6 million and $16.3 million, respectively, for the nine months ended September 30, 1996 and 1995. Management believes that the Company has adequate ability to pay all claims and meet all other cash needs. 10 11 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued) Risk-based capital is designed to measure the acceptable amount of capital an insurer should have based on the inherent specific risks of each insurer. Insurers failing to meet this benchmark capital level may be subject to scrutiny by the insurer's domiciliary insurance department and ultimately rehabilitation or liquidation. Based on the standards currently adopted, the Company's insurance subsidiaries' capital and surplus is in excess of the prescribed risk-based capital requirements. 11 12 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other information. None Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. Page No. Description ----------- -------- ----------- 11 14 Computation of Earnings Per Share. 27 FINANCIAL DATA SCHEDULE b. The Company has not filed any reports on Form 8-K during the quarter for which this report is filed. 12 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. PHILADELPHIA CONSOLIDATED HOLDING CORP. --------------------------------------- Registrant Date November 12, 1996 /s/ James J. Maguire ----------------- -------------------------------------------------- James J. Maguire Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) Date November 12, 1996 /s/ Craig P. Keller ------------------ -------------------------------------------------- Craig P. Keller Vice President, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Dollars and Share Data in Thousands, except Per Share Data) (Unaudited)
As of and for the As of and for the Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Weighted Average Shares Outstanding 6,027 5,814 5,906 5,814 Weighted Average Stock Options Outstanding 1,801 1,602 1,882 1,599 Assumed Shares Repurchased (736) (534) (697) (614) ----- ----- ----- ----- Weighted Average Shares and Share Equivalents Outstanding 7,092 6,882 7,091 6,799 ===== ===== ===== ===== Net Income $3,462 $2,729 $9,234 $7,287 ====== ====== ====== ====== Net Income per Share $0.49 $0.40 $1.30 $1.07 ===== ===== ===== =====
14 EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 132,142 0 0 22,323 0 0 154,465 11,949 1,329 8,741 212,435 92,848 30,413 0 0 0 0 0 41,170 38,106 212,435 53,330 5,772 235 203 29,883 16,863 956 11,838 2,604 9,234 0 0 0 9,234 1.30 1.29 68,246 29,883 0 4,594 11,840 81,695 0 UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES DIFFER FROM THE AMOUNTS REPORTED IN THE CONSOLIDATED FINANCIAL STATEMENTS BECAUSE OF THE INCLUSION HEREIN OF REINSURANCE RECEIVABLES OF $11,153 AND $9,440 AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995.
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