-----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, BteTvPH9esD5lmSk6yoePZdZ5gpyhg0INQhjrGNfOiZX2oWYCGhuUA3g5LgWkvz8 rw3FwM9WX5K4ysFc5pMmzQ== 0000950137-96-000662.txt : 19960620 0000950137-96-000662.hdr.sgml : 19960620 ACCESSION NUMBER: 0000950137-96-000662 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENERE GROUP INC CENTRAL INDEX KEY: 0000922887 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 431675969 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26062 FILM NUMBER: 96563674 BUSINESS ADDRESS: STREET 1: 1903 E BATTLEFIELD CITY: SPRINGFIELD STATE: MO ZIP: 65804 BUSINESS PHONE: 4178620650 MAIL ADDRESS: STREET 1: 1903 E BATTLEFIELD CITY: SPRINGFIELD STATE: MO ZIP: 65804 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 Commission file number 0-24800 THE TENERE GROUP, INC. (Exact name of Registrant as specified in its charter) Missouri 43-1675969 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1903 E. Battlefield, Springfield, MO 65804 (Address of principal executive offices) (Zip code) 417-889-1010 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant 1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and 2) has been subject to such filing requirements for the past 90 days. Yes x No ---------- ----------- As of March 31, 1996 there were 1,999,774 shares of Common Stock, $.01 par value, issued and outstanding. 2 TENERE GROUP, INC. PAGE NO. -------- INDEX PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3 Consolidated Statements of Operations - Three Months ended March 31, 1996 and 1995 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16-17 2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE TENERE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 UNAUDITED
ASSETS ------ 1996 1995 ---- ---- Investments: Bonds held to maturity, at amortized cost (market - $1,834,151 in 1996; $1,854,359 in 1995) $ 1,858,265 $ 1,867,111 Bonds held available for sale, at market value (amortized cost - $21,818,818 in 1996; $19,961,424 in 1995) 21,740,205 20,536,518 Common stock 340 340 ----------- ----------- Total investments 23,598,810 22,403,969 Other assets: Cash and cash equivalents, including interest-bearing deposits of $27,875,893 and $29,614,311 in 1996 and 1995, respectively 27,593,076 31,180,925 Premiums receivable 2,926,700 3,720,202 Reinsurance recoverable 1,609,851 1,162,495 Prepaid reinsurance premiums 832,314 1,175,252 Accrued investment income 448,311 567,306 Deferred policy acquisition costs 94,957 140,450 Deferred income taxes 2,065,734 1,772,314 Reinsurance premium recoverable 517,845 - Other 902,412 491,101 ----------- ----------- Total other assets 36,991,200 40,210,045 ----------- ----------- Total assets $60,590,010 $62,614,014 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Liabilities: Reserve for losses and loss adjustment expenses $26,531,559 $26,623,138 Unearned premium reserve 9,173,204 10,447,006 Reinsurance premium payable - 137,878 Policyholder dividends payable 44,872 152,042 Income taxes payable 152,359 214,444 Other 408,329 502,228 ----------- ----------- Total liabilities 36,310,323 38,076,736 Stockholders' equity: Common stock, $.01 par value; 7,000,000 authorized shares, 1,999,774 issued and outstanding 19,998 19,998 Gross paid in and contributed capital 21,940,828 21,940,828 Retained earnings 2,318,861 2,576,452 ----------- ----------- Total stockholders' equity 24,279,687 24,537,278 ----------- ----------- $60,590,010 $62,614,014 =========== ===========
See notes to consolidated financial statements 3 4 THE TENERE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 UNAUDITED
1996 1995 ---- ---- Revenues: Direct premiums written $ 1,529,668 $ 1,455,629 Premiums ceded to reinsurers 490,032 458,867 ----------- ----------- Net premiums written 1,039,636 996,762 Decrease in unearned premium reserve 1,248,639 1,625,174 ----------- ----------- Net premiums earned 2,288,275 2,621,936 Net investment income 699,752 615,591 Net realized investment gains - 22,129 Other income 1,110 337 ----------- ----------- Total revenues 2,989,137 3,259,993 Expenses: Sales and marketing expenses 316,330 260,156 Other underwriting expenses 519,415 400,195 Loss and loss adjustment expenses 1,900,072 1,977,338 Dividends to policyholders (10,733) 156,020 ----------- ----------- Total losses and expenses 2,725,084 2,793,709 ----------- ----------- Income before income taxes 264,053 466,284 Income tax expense 90,196 153,320 ----------- ----------- Net Income $ 173,857 $ 312,964 =========== =========== Net Income Per Share $ 0.09 $ N.A. =========== =========== Stockholders' equity: Beginning of period $24,537,278 $19,368,556 Change in unrealized investment gains (losses) (431,448) 946,958 Net income 173,857 312,964 ----------- ----------- End of period $24,279,687 $20,628,478 =========== ===========
See notes to consolidated financial statements 4 5 THE TENERE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 UNAUDITED
1996 1995 ---- ---- Net income $ 173,857 $ 312,964 Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment gains - (22,129) Depreciation and amortization expense 40,092 38,024 Amortization of deferred acquisition costs 45,494 46,299 Deferred income taxes (benefit) (71,161) 264,673 Net amortization of discount on bonds 33,619 153,865 Change in operating assets and liabilities: Premiums receivable 793,502 1,037,669 Reinsurance balances (760,141) 215,808 Accrued investment income 118,995 662,233 Income taxes recoverable - 399,442 Prepaid expenses and other assets (410,304) 4,587 Reserve for losses and loss adjustment expenses 75,766 202,333 Unearned premium reserve (1,273,802) (1,625,174) Income taxes payable (62,085) - Policyholder dividends payable (107,170) (98,997) Other liabilities (261,242) (204,289) ----------- ----------- Net cash provided by (used in) operating activities (1,664,580) 1,387,308 ----------- ----------- Cash flows from investing activities: Maturity of bonds held to maturity or available for sale - - Sale of bonds held available for sale 1,700,000 1,068,250 Purchase of bonds held to maturity or available for sale (3,582,168) - Purchase of furniture and equipment (41,101) (26,864) ----------- ----------- Net cash provided by (used in) investing activities (1,923,269) 1,041,386 ----------- ----------- Net increase (decrease) in cash and cash equivalents (3,587,849) 2,428,694 Cash and cash equivalents at beginning of period 31,180,925 1,650,059 ----------- ----------- Cash and cash equivalents at end of period $27,593,076 $ 4,078,753 =========== ===========
See notes to consolidated financial statements 5 6 THE TENERE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements are unaudited and are prepared in accordance with the rules and regulations of the Securities and Exchange Commission with regard to interim financial statements. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been made. Such adjustments consisted of only normal recurring items. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results which may occur for the full year. The accompanying unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 1995 Annual Report. (2) INVESTMENTS The amortized cost and estimated market values of investments in bonds as of March 31, 1996 and December 31, 1995 are as follows:
March 31, 1996 Gross Gross Estimated Amortized unrealized unrealized market Type of Investment cost gains losses value - - - ------------------ ---- ----- ------ ----- Fixed Maturities Held-to-maturity: United States government, government agencies authorities $ 1,858,265 -- ($24,114) $ 1,834,151 ----------- ------- --------- ----------- Available-for-sale: United States government, government agencies and authorities 19,818,013 91,612 (162,220) 19,747,405 States, municipalities and political subdivisions 2,000,805 -- (8,005) 1,992,800 ----------- ------- --------- ----------- Total available-for-sale 21,818,818 91,612 (170,225) 21,740,205 ----------- ------- --------- ----------- Total fixed maturities $23,677,083 $91,612 ($194,339) $23,574,356 =========== ======= ========= ===========
6 7
December 31, 1995 Gross Gross Estimated Amortized unrealized unrealized market Type of Investment cost gains losses value - - - ------------------ ---- ----- ------ ----- Fixed Maturities Held-to-maturity: United States government, government agencies authorities $ 1,867,111 -- ($12,752) $ 1,854,359 ----------- -------- -------- ----------- Available-for-sale: United States government, government agencies and authorities 17,960,592 579,886 -- 18,540,478 States, municipalities political subdivisions 2,000,832 -- (4,792) 1,996,040 ----------- -------- -------- ----------- Total available-for-sale 19,961,424 579,886 (4,792) 20,536,518 ----------- -------- -------- ----------- Total fixed maturities $21,828,535 $579,886 ($17,544) $22,390,877 =========== ======== ======== ===========
The amortized cost and estimated market value of investments in fixed maturities at March 31, 1996 are shown below by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held to maturity Available for sale ----------------------- ------------------ Amortized Estimated Amortized Estimated Cost Market Value Cost Market Value ---- ------------ ---- ------------ Due in one year or less -- -- $ -- $ -- Due after one year through five years 1,749,553 1,728,026 3,503,912 3,507,968 Due after five years through ten years 108,712 106,125 18,314,906 18,232,237 ---------- ---------- ----------- ----------- $1,858,265 $1,834,151 $21,818,818 $21,740,205 ========== ========== =========== ===========
Proceeds from the sale of available-for-sale securities were $1,700,000 and $1,068,250 in 1995 and 1994, respectively. Gross gains of $-0- and $23,048 and gross losses of $-0-and $919 were realized on those sales for the three months ended March 31, 1996 and 1995, respectively. 7 8 Net investment income for the three months ended March 31, 1996 and 1995 is comprised of the following:
March 31, March 31, 1996 1995 ---- ---- Investment income: Interest on certificates of deposit and interest-bearing cash accounts $427,036 $ 45,529 Interest on bonds 293,986 600,062 -------- -------- Gross investment income 721,022 645,591 Investment expenses 21,270 30,000 -------- -------- Net investment income $699,752 $615,591 ======== ========
The net change in unrealized investment gains (losses) are as follows:
March 31, March 31, 1996 1995 ---- ---- Gross unrealized investment gains (losses) ($653,707) $1,434,784 Federal income taxes (222,259) 487,826 --------- ---------- ($431,448) $ 946,958 ========= ==========
(3) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES AND REINSURANCE A summary of the reserves for losses and loss adjustment expenses follows:
March 31, December 31, 1996 1995 ---- ---- Undiscounted reserve for losses and loss adjustment expenses $28,752,750 $29,555,760 Less discount (2,221,191) (2,932,622) ----------- ----------- Discounted reserve for losses and loss adjustment expenses $26,531,559 $26,623,138 =========== ===========
8 9 Premiums, premium related reinsurance amounts and reinsurance recoveries for the three months ended March 31, 1996 and 1995 are summarized as follows:
March 31, March 31, 1996 1995 ---- ---- Ceded premiums on an earned basis $518,627 $430,759 ============ ============ Ceded loss and loss adjustment expenses $447,357 $148,045 ============ ============
Activity in the reserve for loss and loss adjustment expenses during the periods ended March 31, 1996 and December 31, 1995 was:
March 31, December 31, 1996 1995 ---- ---- Balance at January 1 $26,623,138 $26,279,977 Less reinsurance 1,162,495 (584,913) ------------ ------------ 25,460,643 25,695,064 ------------ ------------ Incurred related to: Current year 2,438,776 8,629,800 Prior year (538,704) (953,312) ------------- ------------ Total incurred 1,900,072 7,676,488 ------------ ------------ Paid related to: Current year 293,983 3,077,457 Prior year 2,145,025 4,833,452 ------------ ------------ Total paid 2,439,008 7,910,909 ------------ ------------ 24,921,707 25,460,643 Plus reinsurance 1,609,852 1,162,495 ------------ ----------- Balance at end of period $26,531,559 $26,623,138 =========== ===========
(4) FEDERAL INCOME TAXES The Company files a consolidated federal income tax return. Income tax expense varies from the amount which would be provided by applying the federal income tax rates to income before income taxes. The following reconciles the expected provision for income tax expense using the federal statutory tax rate of 34% to the provision for income tax expense reported herein for the three months ended March 31, 1996 and March 31, 1995:
March 31, March 31, 1996 1995 ---- ---- Expected tax expense using statutory rates $89,895 $158,537 Other, net 301 (5,217) ------------ ------------ $90,196 $153,320 ============ ===========
9 10 Income taxes consist of the following at March 31, 1996 and 1995:
March 31, March 31, 1996 1995 ---- ---- Current expense $161,357 ($111,352) Deferred expense (benefit) (71,161) 264,672 -------- ---------- Income taxes $ 90,196 $ 153,320 ======== ==========
Deferred income taxes arise from timing differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. The sources of these differences and the tax effect of each are as follows:
March 31, March 31, 1996 1995 ---- ---- Losses and loss adjustment expenses incurred for financial reporting purposes but not deductible for tax purposes ($153,962) $140,769 Unearned premiums not deductible for tax purposes 84,907 110,513 Other, net (2,106) 13,390 --------- -------- ($ 71,161) $264,672 ========= ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 1996 and December 31, 1995 are presented below:
March 31, December 31, 1996 1995 ---- ---- Deferred tax assets: Discounted unpaid loss reserves $1,658,958 $1,504,996 Discounted unearned premium reserves 609,651 694,558 Investments adjusted to market value 26,728 -- Deferred commissions payable 18,862 26,747 Net operating loss carryforwards 196,114 201,591 ---------- ---------- Total gross deferred tax assets 2,510,313 2,427,892 Less valuation allowance (400,000) (400,000) ---------- ---------- Net deferred tax assets $2,110,313 $2,027,892 Deferred tax liabilities: Investments adjusted to market value -- (195,531) Deferred acquisition costs 32,285 (47,753) Other 12,294 (12,294) ---------- ---------- Total gross deferred liabilities 44,579 (255,578) ---------- ---------- Net deferred tax asset $2,065,734 $1,772,314 ========== ==========
10 11 The valuation allowance for deferred tax assets at March 31, 1996 was $400,000. Based on the Company's historical earnings, future expectations of adjusted taxable income and its ability to change its investment strategy, as well as reversing gross deferred tax liabilities, management believes it is more likely than not that the Company will fully realize the gross deferred tax assets less the valuation allowance. However, there can be no assurances that the Company will generate the necessary adjusted taxable income in any future period. (5) RECONCILIATION TO STATUTORY ACCOUNTING The Company's two wholly-owned insurance subsidiaries, Intermed Insurance Co. and Interlex Insurance Co., are required to file statutory financial statements with state regulatory authorities. Accounting principles used to prepare the statutory financial statements differ from financial statements prepared on the basis of generally accepted accounting principles. Reconciliations of statutory net income, as determined using statutory accounting principles, to the amounts included in the accompanying consolidated financial statements for the three months ended March 31, 1996 and 1995 are as follows:
March 31, March 31, 1996 1995 ---- ---- Net income of insurance companies $ 170,190 $ 342,576 Increase (decrease): Deferred policy acquisition costs (45,494) (46,300) Deferred income taxes 71,161 264,672 Other adjustments, net (22,000) (247,984) --------- ---------- Net income (loss) as reported herein $ 173,857 $ 312,964 ========= ==========
Reconciliations of statutory capital and surplus, as determined using statutory accounting principles, to stockholders' equity included in the accompanying consolidated financial statements at March 31, 1996 and December 31, 1995 are as follows:
March 31, December 31, 1996 1995 ---- ---- Statutory capital and surplus of insurance companies $25,753,525 $25,558,424 Stockholder's equity of noninsurance subsidiaries 500 500 ----------- ----------- Combined capital and surplus 25,754,025 25,558,924 Increase (decrease): Deferred policy acquistion costs 94,957 140,450 Deferred income taxes 2,065,734 1,772,314 Unrealized gain (loss) on securities available for sale (51,884) 575,094 Excess statutory over statement reserves 1,760,000 1,760,000 Non-admitted assets and other adjustments, net 538,366 561,006 Consolidating eliminations and adjustments (5,881,511) (5,830,510) ----------- ----------- Stockholders' equity as reported herein $24,279,687 $24,537,278 =========== ===========
11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis addresses the Company's financial condition at March 31, 1996 as compared with December 31, 1995 and results of operations for the three months ended March 31, 1996 and 1995. RESULTS OF OPERATIONS Premiums written during the three-month period ended March 31, 1996 totaled $1.5 million, an increase of $74,000 or 5% over the comparable period of 1995. Intermed Insurance Company, the Company's principal operating subsidiary, implemented a claims-free discount program September 1, 1995 that replaced the policyholder dividend program in place prior to that date. These discounts are shown on the consolidated statements of operations as a reduction of premiums written. Dividends, however, are shown as an expense. The difference in presentation distorts comparability of premiums written on the consolidated statements of operations. When premiums written are compared after reducing the 1995 premiums by dividends, premiums written in the 1996 period increased by $230,000. This increase was due to an increase in the number of policyholders. Premiums ceded to reinsurers during the current quarter totaled $490,000, an increase of $31,000 or 7% over the prior year. The increase in ceded premiums in the 1996 period was primarily attributable to a new reinsurance treaty between Intermed Insurance Co. and American Re-Insurance Company effective January 1, 1996. The new treaty covers losses incurred in 1996 on claims-paid policies and also limits the Company's overall losses for a four year period commencing January 1, 1996. The cover note for this treaty is attached as Exhibit 10-13. Net premiums written during the first quarter of 1996 totaled $1.0 million, an increase of $43,000 or 4% over the prior year period. There was a release of $1.2 million from the unearned premium reserve (UPR) in the current period compared with a release of $1.6 million in the prior year period. The decline in the release of unearned premium was primarily due to increased premium writings offset by a release in the 1996 period of the death, disability and retirement reserve (DDR) associated with claims-paid policies which converted to claims-made policies during the quarter. DDR reserves are included in the overall UPR reserve in accordance with industry practice. Due to the significant decline in premiums released from the UPR in 1996 compared with 1995, net premiums earned in the 1996 period were $334,000 or 13% below the prior year period. Investment income was approximately $700,000 during the first quarter of 1996, an increase of $84,000 or approximately 14% over the prior year period. Factors contributing to the improvement were (a) the investment of a significant portion of the portfolio in short-term investments with a yield in excess of the yield on the long-term portfolio and (b) the investment of excess cash overnight under a repurchase agreement for a full quarter in 1996 compared to a partial quarter in 1995. 13 Expenses totaled $2.7 million during the first quarter of 1996 compared with $2.8 million in the comparable period of 1995. The reduction was entirely due to a $167,000 reduction in dividends to policyholders. The dividend program was eliminated effective September 1, 1995 and replaced with the claims-free discount. The recovery of $10,700 during the current period was due to cancellation of policies upon which dividends had been accrued but not yet paid. Losses and loss adjustment expenses totaled $1.9 million in the first quarter of 1996, producing a loss ratio of 83%. Losses and loss adjustment expenses of approximately $2.0 million in the prior year period produced a loss ratio of only 75% because premiums earned in 1995 were 15% higher than in 1996. Increased frequency and severity during the current quarter caused the higher loss ratio, and this trend has continued into the second quarter of 1996. Income before taxes was $264,000 in the 1996 period compared with $466,000 in 1995. Net income in the current period was $174,000 compared with $313,000 in 1995. FINANCIAL CONDITION Assets declined from $62.6 million at December 31, 1995 to $60.6 million at March 31, 1996. The decline of $2.0 million was primarily attributable to a $431,000 decline in the market value of bonds held available for sale and carried at market on the balance sheet, an increase in losses and loss adjustment expense payments of approximately $798,000 in the 1996 period compared with 1995, and an increase in ceded premium payments of $595,000. Cash and cash equivalents declined from $31.2 million at December 31, 1995 to $27.6 million at March 31, 1996 due to the purchase of $3.6 million of bonds during the first quarter. Bond prices declined briefly during the first quarter and the bonds were purchased with an approximate yield of 7%. The $794,000 decline in premiums receivable during the first quarter was due to cyclical fluctuations. Premiums receivable at March 31, 1996 are comparable to premiums receivable at March 31, 1995. The decline in deferred policy acquisition costs is due to the purchase of an agency which produced approximately 40% of total premiums written. Commissions are no longer paid on this business and no longer deferred to, thus the amount of commissions subject to deferral has decreased significantly. The increase in deferred income taxes is primarily due to the decline in the market value of bonds held available for sale and carried at market. Reinsurance premiums recoverable of approximately $518,000 increased $656,000 from the December 31, 1995 reinsurance premium payable of approximately $138,000 due to provisional premium payments and favorable development on losses ceded under the experience-rated treaty with Lloyd's. 13 14 The $411,000 increase in Other Assets is due to the purchase of Trout Insurance Services, Inc. The acquisition cost will be amortized over three years. Retained earnings declined $257,000 during the first quarter due to the $431,000 decline in the market value of bonds carried at market. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations was a negative $1.7 million in the first quarter of 1996 compared with a positive cash flow of $1.4 million in the prior year period. This reversal was due to the $798,000 increase in paid losses and loss adjustment expenses and to the $300,000 increase in ceded premiums attributable to the new reinsurance treaty with American Re. Anticipated investment income of $2.8 million in 1996 and the cash position of $28 million will provide sufficient liquidity to preclude the necessity for selling bonds in order to meet cash demands. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit Index (b) Reports on Form 8-K: None 14 15 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. THE TENERE GROUP, INC. (Registrant) May 14, 1996 /s/ J D Williams - - - ------------ ------------------- Date Joseph D. Williams, CPA Vice President - Finance, Chief Financial Officer and Chief Accounting Officer 15 16 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. -------- ----------- -------- NO. --- 3.1 Articles of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant's Registration Statement on Forms S-1 (Reg. No. 33- 78702) is incorporated herein by this reference. N/A 3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-78702) is incorporated herein by this reference. N/A 4.1 Form of common stock certificate, filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-78702) is incorporated herein by this reference. N/A 10.1 Management Contract, dated July 8, 1994, by and between RCA Mutual Insurance Company, Interlex Insurance Co. and Insurance Services, Inc., filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10K for the year ended December 31, 1995, is incorporated herein by reference. 10.2 Lease Agreement, dated December 7, 1994, by and between Georgetown Square II, Ltd. and Insurance Services, Inc., filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.3 Medical Practitioners' Liability Primary Excess of Loss Reinsurance Contract, dated October 1, 1993, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.4 Addendum No. 1 to Medical Practitioners' Liability Primary Excess of Loss Reinsurance Contract, dated February 1, 1995, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.5 Addendum No. 2 to Medical Practitioners' Liability Primary Excess of Loss Reinsurance Contract, effective April 27, 1995, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.6 Reinsurance Cover Note: 95/1146/RM to Medical Practitioners' Liability Primary Excess of Loss Reinsurance Contract, dated October 16, 1995, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A
16 17
EXHIBIT DESCRIPTION PAGE NO. NO. ----------- -------- - - - --- 10.7 Reinsurance Cover Note: 95/1212/RM(A) to Catastrophe "Awards Made" Excess of Loss Reinsurance Contract, dated October 16, 1995, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.8 Catastrophe "Awards Made" Excess of Loss Reinsurance Contract, commencing February 1, 1995, by and between RCA Mutual Insurance Company and Certain Reinsurers of Lloyd's of London including Amendment No. 1, effective April 27, 1995, filed as Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.9 Reinsurance Cover Note: 95/1249/IP to Lawyers' Professional Liability Primary Excess of Loss Reinsurance Treaty, dated October 16, 1995, by and between Interlex Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.10 Lawyers' Professional Liability Primary Excess of Loss Reinsurance Contract, commencing July 1, 1995, by and between Interlex Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.11 Reinsurance Cover Note: 95/1250/IP to Prior Agreement Excess of Loss Reinsurance Contract, dated October 16, 1995, by and between Interlex Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.12 Prior Agreement Excess of Loss Reinsurance Contract, commencing July 1, 1995, by and between Interlex Insurance Company and Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, is incorporated herein by reference. N/A 10.13 Draft Reinsurance Slip by and between Intermed Insurance Company and American Re-Insurance Company. N/A 27 Financial Data Schedules N/A
17 18 INTERMED INSURANCE COMPANY REINSURANCE SLIP COMPANY: Intermed Insurance Company Springfield, Missouri REINSURER: American Re-Insurance Company Princeton, New Jersey SHARE: 100% COVERAGE A: TERM: Effective January 1, 1996 through December 31, 1996 BUSINESS COVERED: Incurred Losses and Allocated Loss Adjustment Expenses (ALAE) as a result of the non- renewal of claims-paid policies, net after all other reinsurance. COVERAGE: Subject Business Incurred Losses and ALAE allocated to the 1996 Accident Year. LIMITS: The Reinsurer shall indemnify the company up to $4,800,000 in excess of $4,176,000 for the Covered Business. PREMIUM: $450,000 COVERAGE B: TERM: Effective January 1, 1996 through December 31, 1999. SUBJECT BUSINESS: Incurred Losses and Allocated Loss Adjustment Expenses (ALAE) attributable to Covered Accident Year's during the term of this Agreement net after all other reinsurances whether collectible or not for all Medical Malpractice business written by the Company. COVERED ACCIDENT YEARS: Covered Accident Year: Period: 1996 January 1, 1996 through December 31, 1996 1997 January 1, 1997 through December 31, 1997 1998 January 1, 1998 through December 31, 1998 1999 January 1, 1999 through December 31, 1999 19 LIMITS: The Reinsurer shall indemnify the Company up to $2,000,000 for any individual Covered Accident Year, and $6,000,000 in the aggregate for all Covered Accident Years hereunder. RETENTIONS: The Company shall retain all losses and ALAE up to a Loss and ALAE Ratio of 75% for Accident Year 1996. The Retention will be 2-5%, as mutually agreed, above the calculated loss ratio for the immediately preceding 3 covered accident years, as described below. If the attachment point cannot be mutually agreed to, the attachment point shall be 5% above the calculated loss ratios, as described below. The calculated loss ratio shall be weighted as follows: 60% of the actual loss ratio for the immediately preceding covered accident year, 30% of the actual loss ratio for the second preceding covered accident year; 10% of the actual loss ratio for the third preceding covered accident year. The retention shall be determined by dividing the Subject Net Losses, including a provision for Incurred But Not Reported Losses (IBNR), as defined herein, by Subject Net Earned Premium as defined herein. Subject Net Earned Premium shall be defined as Gross Earned Premium less premium paid in respect of all inuring reinsurances, including premium ceded under this agreement. However, the DD&R Premium shall not be included in the calculation of Subject Net Earned Premium. Subject Net Losses Incurred shall be defined as Gross Losses Incurred including ALAE less recoveries under all inuring reinsurances, whether collectible or not, but prior to any recoveries hereunder. It is hereby agreed that the reinsurances shown in Exhibit A shall be deemed to be in place, whether purchased by the Company or not, whether fully subscribed or not in determining Subject Net Losses Incurred to this agreement. ACCIDENT YEAR PREMIUM: $1,200,000 for each Covered Accident Year ALL COVERAGES: - - - -------------- REINSURER'S EXPENSE: 15% of Accident Year Premium EXPERIENCE BALANCE: Quarterly, within 30 days of the end of each quarter, an Experience Balance shall be calculated as follows: Accident Year Premium Paid, less Reinsurer's Expense, less Paid Losses, plus Interest Credits, on any positive balance 20 Interest Credits shall be calculated and credited each quarter using the quarterly equivalent to the average 1-year U.S. T-bill rate. REPORTS AND REMITTANCES: Within 30 days following the end of each quarter, the Company shall render a report detailing Covered Losses and ALAE paid and outstanding including a provision for IBNR contemplating ultimate valuation of losses and ALAE for both coverage sections. The report shall also contain the Net Earned Premiums for the coverage periods. Within 30 days of receipt of the report the Reinsurer shall remit to the Company the amount of settled losses in excess of the retention up to the Accident Year and Aggregate Limits applicable under both coverage sections of this Agreement. COMMUTATION: Beginning, but not before December 31, 1996, and at any time thereafter, and with 30 days prior written notice, the Company shall have the option to commute this Agreement. Failure to pay premiums; or a change in ownership or control or management of the company will result in immediate commutation. Upon Commutation, 100% of the Experience Fund account will be returned. Within thirty days subsequent to the date of Commutation, the Reinsurer shall remit the Positive Experience Balance as compensation for a complete release of all liability associated with the Covered Accident Years being commuted under this agreement. GENERAL CONDITIONS: Contract must be considered Reinsurance by the State of Missouri Access to Records Actuarial review of Ultimate Net Losses Claims Currency Errors and Omissions Insolvency Offset and Security Reserves Salvage and Subrogation Aggregate Ultimate Net Loss Insolvency Funds Exclusion Clause Pools, Associations & Syndicates Exclusion Clause Nuclear Incident Exclusion Clause -Physical Damage-Reinsurance-No. 2 Pollution, Contamination, Debris Removal -Exclusion Clause-No. 1 Others to be agreed WORDING: To be agreed. 21 FOR AND ON BEHALF OF INTERMED INSURANCE COMPANY: NAME: Raymond A. Christy, MD TITLE: President SIGNATURE /s/Raymond A. Christy DATE: 2-21-96 FOR AND ON BEHALF OF AMERICAN RE-INSURANCE COMPANY: NAME: John Bunt TITLE: Vice-President SIGNATURE: /s/ John S. Bunt DATE: 2/7/96 22 EXHIBIT A TYPE: CATASTROPHE "AWARDS MADE" EXCESS OF LOSS REINSURANCE CONTRACT. CLASS: Covering Medical Practitioners' Liability policies (including Dentists' Liability) and all other ancillary coverages as original: but only to indemnify the Reassured in respect of liability incurred as a result of that portion of their Ultimate Net Loss relating to awards in excess of their original policy limit and/or relating to claims related extra-contractual obligations on such business. TERRITORIAL SCOPE: As per the Reassured's original policies: LIMIT: Section (A) In respect of original losses with claims made dates on or after 1st October, 1993. To pay up to US $5,000,000 Ultimate Net Loss each and every loss occurrence, EXCESS OF US $250,000 Ultimate Net Loss each and every loss occurrence. Reinsurers heron shall have the benefit of all recoveries under all Excess of Loss Contracts effected by the Reassured in respect of all original losses coming within the scope of the Section, as such Contracts apply to the limit of the original policy against which the Award is made: but only to the extent of the limits of the Reassured's applicable reinsurance programmes, whether commuted exhausted or otherwise, which for the purposes of this Section are deemed to be in full force. Section (B) In respect of original losses with claims made dates prior to 1st October, 1993: To pay up to US $5,000,000 Ultimate Net Loss each and every loss occurrence, EXCESS OF US $1,000,000 Ultimate Net Loss each and every loss occurrence. Reassured shall have the benefit of all recoveries under reinsurances in respect of all original losses coming within the scope of this Section, provided always that the Reassured retain net and unreinsured in any way an amount of US $5,000,000 each and every loss occurrence. 23 However, the maximum limit recoverable hereunder in respect of Sections (A) and (B) combined shall not exceed US $5,000,000 each and every loss occurrence. CO-REINSURANCE WARRANTY: Warranted that the Reassured retain 10% of the premium and of any loss recoverable hereunder, net and unreinsured in any way. 24 TYPE: PRIMARY EXCESS OF LOSS REINSURANCE TREATY. CLASS: Covering Medical Practitioners' Liability policies (including Dentists' Liability) and all other ancillary coverages as original. TERRITORIAL SCOPE: As per the Reassured's original policies. LIMITS: To pay: (A) Up to US $1,600,000 Ultimate Net Loss each and every loss, each policy and/or insured, excess of US $400,000 Ultimate Net Loss each and every loss, each policy and/or insured. and, in addition, where two or more policies and/or insureds are involved in the same loss occurrence: (B) Up to US $1,600,000 Ultimate Net Loss each and every loss occurrence, excess of US $500,000 Ultimate Net Loss each and every loss occurrence. Recoveries under Section (A) to inure to the benefit of Section (B). In the event that two or more policies or insureds are involved in the same loss occurrence and there is a difference in the dates claims are made, the date on which the first claims is made shall establish the date of loss for all related claims arising out of the same loss occurrence. Notwithstanding the foregoing, in any loss occurrence, should any claim made date(s) fall prior to the inception of this Contract, it is hereby understood and agreed that those specific loss(es) shall be disregarded for the purposes of determining recoveries hereunder. For the purposes of this Contract, the date of loss shall be the date of receipt by the Reassured of acceptable notice from its original insured or a representative of its original insured; that a claim is being or may be made against that original insured. Maximum recoverable hereon to be 300% of the maximum reinsurance premium payable hereunder for the Contract Period. WARRANTY: Warranted Maximum Original Policy Limit US $1,000,000 or so deemed, except as respects Excess of Original Policy Limits and/or Extra-Contractual Obligation coverage. EX-27 2 FDS
7 3-MOS DEC-31-1996 DEC-31-1995 MAR-31-1996 21,740,205 1,858,265 1,834,151 340 0 0 23,598,810 27,593,076 0 94,957 60,590,010 26,531,559 9,173,204 0 44,872 0 19,998 0 0 24,259,689 60,590,010 2,288,275 699,752 0 1,110 1,900,072 316,330 519,415 264,053 90,196 173,857 0 0 0 173,857 .09 .09 0 0 0 0 0 0 0
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