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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1994
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 0-8804
THE SEIBELS BRUCE GROUP, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-
0672136
(State or other jurisdiction of
(IRS employer
incorporation or organization)
identification no.)
1501 Lady Street (P.O. Box 1)
Columbia, S.C. 29201(2)
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (803) 748-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00 per share
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 31, 1995: $19,048,555.
The number of shares outstanding of the registrant's common stock as
of March 31, 1995: 16,717,686.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement in connection with the annual
meeting to be held on May 24, 1995 are incorporated herein by
reference into Part III.
Table of Contents
Table of Contents i
Acronyms ii
PART I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4.Submission of Matters to a vote of Security Holders 8
PART II
Item 5.Market for the Registrant's Common Stock and Related Security
Holder Matters 10
Item 6. Selected Financial Data11
Item 7.Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statements and Supplementary Data26
Item 9.Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 50
PART III
Item 10.Directors, Executive Officers, Promoters and Control Persons
of the Registrant 50
Item 11. Executive Compensation50
Item 12.Security Ownership of Certain Beneficial Owners and
Management 50
Item 13. Certain Relationships and Related Transactions50
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form
8-K 50
SIGNATURES 55
ACRONYMS
The following acronyms used in the text have the meaning set forth
below unless the context requires otherwise:
CAT Catastrophe
FASB Financial Accounting Standards
Board
FLT Forest Lake Travel Service
GAAP Generally Accepted Accounting
Principles
IBNR Incurred-But-Not-Reported
KIC Kentucky Insurance Company
LAE Loss Adjustment Expenses
MGA Managing General Agent
NAIC National Association of Insurance
Commissioners
NCCI National Council on Compensation
Insurance
PFC Policy Finance Company
PSC Premium Service Corporation
RBC Risk Based Capital
SAP Statutory Accounting Principles
SBIG The Seibels Bruce Group, Inc.
(and the "Company")
SCIC South Carolina Insurance Company
WYO Write-Your-Own
PART I
Item 1. Business
Company Profile
The Seibels Bruce Group, Inc. (the "Company") is the parent company
of South Carolina Insurance Company and its wholly-owned
subsidiaries. Founded in 1869, the Company performs servicing
carrier activities for several large state and federal insurance
facilities. MGA services are also performed for a large non-
affiliated insurance company. SCIC consists of a group of multi-
line property and casualty insurance companies and associated
companies with headquarters in South Carolina and Kentucky. The
underwriting activities are primarily conducted in North Carolina,
South Carolina, Kentucky, Georgia and Tennessee by offering
insurance products through independent insurance agents.
Major Events
During the first quarter of 1995, the Company received net proceeds
from a Rights Offering (the "Offering") in the amount of $5.1
million. Pursuant to the Offering, each stockholder of record
received one Right for each five shares of Common Stock held of
record at the close of business on December 9, 1994. The Right
allowed the stockholders to purchase shares of Common Stock at a
price of $2.40 per share. The gross proceeds were generated from
2,217,152 shares being exercised. On the date of receipt of the
proceeds, the Company made a capital contribution of $5 million to
SCIC, its wholly-owned subsidiary.
In 1994, a substantial portion of the Company's servicing carrier
business, the South Carolina Reinsurance Facility, became subject to
a first time bid and qualification process for designation as a
servicing carrier. The bidding was open to all qualified insurers
with the successful bidders being awarded a five year servicing
contract beginning in October 1994. The facility separated the
business into three blocks with "Block 1" being the largest. The
Company was successful in winning the contract for "Block 2", a
block approximately 22% smaller than "Block 1", its former book of
business under the facility. Although
"Block 2" is smaller and will be serviced at a lower commission
rate, the Company believes the effect on net income in 1995 will be
mitigated to some extent by planned reductions in operating costs
and claims adjusting expenses.
In the second quarter of 1994, the Company settled a previously
disclosed dispute which was in pending arbitration. The settlement
agreement resolved all issues arising from the dispute as well as a
commutation of the Company's reinsurance obligation. Under the
settlement, the Company paid $10.3 million to the other party and
such party agreed to pay up to $20 million in direct losses on
American Star claims. Any loss payments in excess of $20 million
that are not collected through reinsurance will be shared equally
between the parties and the Company will only share in those
payments to the extent of 50% of its insurance company's
consolidated statutory surplus above $20 million. At December 31,
1994, such statutory deficit, after adjustments, was $1.6 million.
This settlement had a negative impact on earnings of $2.9 million in
the first and second quarter of 1994, excluding a realized
investment loss of $.8 million upon the sale of securities in order
to generate the cash necessary to make the payment.
In the third quarter of 1994, the Company's recorded workers'
compensation reserves in the amount of $22.4 million were commuted
to the National Council on Compensation Insurance, Inc., resulting
in a reduction of incurred losses of approximately $6.1 million.
NCCI is the administrator and agent for the various workers'
compensation reinsurance pools from which the Company assumed
business. The cash necessary for this commutation was generated
through the sale of securities, which resulted in realized
investment losses of $1.7 million in the same quarter.
The Company initiated a recapitalization plan in December 1993.
Under this plan, the prior outstanding $23 million term loan and the
accrued interest thereon was purchased from the original holder by
new investors. These new investors then exchanged the note for a
new note with a principal balance of $10 million, bearing interest
at 8.5%, due June 30, 1994 and secured by 100% of the stock of SCIC.
The effect of this transaction for 1993 was an increase in net
income of $9.2 million, net of taxes ($1.23 per share).
In accordance with the recapitalization plan, on June 28, 1994, the
new note was then cancelled and exchanged for 7,000,000 newly issued
shares of the Company's common stock. A note for $439,000 equal to
the accrued interest was given to the new investors. After the
exchange, completed in the second quarter of 1994, $10 million was
added to the Company's GAAP equity.
In mid 1993, the Company sold Investors National Life Insurance
Company, its credit life and credit accident and health subsidiary.
Under the sale agreement, the Company retained substantial assets
and the responsibility for policies in existence at the sales date.
The Company has withdrawn from this business and is currently
running off the remaining book of business.
In early 1994, the Company sold substantially all of the receivables
of Premium Service Corporation, its premium financing subsidiary,
and has withdrawn from that business. In addition, during 1994,
Southern Intermediaries, Inc. and Investors National Service
Corporation were dissolved into Seibels, Bruce and Company ("SB&C")
and Investors National Life Insurance Company of South Carolina,
their parent companies, respectively.
During the first quarter of 1995, the accounts receivable and other
immaterial assets of Forest Lake Travel Service, Inc. were sold.
The Company is withdrawing from this business as well and
anticipates transferring the remaining assets (primarily cash and
short-term investments) to SB&C, its parent company, and dissolving
the subsidiary.
All of the sales were made at a gain while the dissolutions resulted
in increased liquidity for their respective parent companies. The
sales and dissolutions took place because of management's emphasis
on restructuring the Company's core operations. In the Company's
continuing focus on its primary business, none of these companies
were considered to be an integral part of operations. The impact on
1994 and 1993 was not material and future years' operations are not
anticipated to be significantly affected.
Servicing Carrier Activities
The Company provides services to the South Carolina and North
Carolina Reinsurance Facilities, two automobile residual market
plans, and the Kentucky Fair Plan, a homeowners' residual market.
Additionally, the Company is a major participant in the WYO federal
flood facility of the National Flood Insurance Program. All
servicing functions are performed on a commission basis without any
underwriting risk to the Company. Ceded premiums written and
commission and service income for the facilities in 1994 are as
follows:
Ceded Commission and
Facility Premiums S
ervice Income
South Carolina Reinsurance Facility $ 80,073,000 $16,501,000
National Flood Insurance Program 29,517,000 4,894,000
Kentucky Fair Plan 5,852,000 987,000
North Carolina Reinsurance Facility 6,513,000 1,051,000
The ceded premium amounts above represent 92.8% of the Company's
total consolidated ceded premiums written during 1994. The
commission and service income amounts above represent 88.1% of the
Company's total commission and service income as stated in the
consolidated financial statements and are reduced by certain
expenses related to servicing the business. The Company's internal
analysis indicates that the servicing of these facilities
contributed a profit during 1994.
Managing General Agent Services
All of the Company's commercial underwriting was written under an
MGA agreement with an unaffiliated insurance company. The Company
serviced these policies and claims on a commission basis without any
underwriting risk. This agreement became effective May 1, 1993.
Direct premiums written for the carrier's account during 1994 were
$25.4 million. Commission and service income generated under this
contract was $2.7 million, which represents 10.1% of the Company's
total commission and service income as stated in the consolidated
financial statements. With the current premium volume and the
corresponding expenses, the Company has not made a profit under the
current contract. The Company is considering various alternatives
to make this business more profitable.
Property and Casualty Insurance Underwriting Segments
SCIC and its insurance subsidiaries, Consolidated American Insurance
Company (Consolidated American), Catawba Insurance Company (Catawba)
and Kentucky Insurance Company, comprise the Company's property and
casualty insurance group. Each company conducts a substantially
similar multi-line property and casualty business. One or more
members of SCIC is currently licensed to do business in 46 states.
The Company's current A.M. Best rating is a group rating of NA-5
("Not Assigned - Significant Change"). This rating is currently
under the normal annual review by A.M. Best. The Company
anticipates a rating of NA-9 ("Not Assigned - Company Request")
after review. A.M. Best is an independent company which rates
insurance companies based on its judgement of factors related to the
ability to meet policyholder and other contractual obligations. A
low rating would not directly impact the Company's servicing carrier
or MGA operations. The Company believes such a rating would not
have a material impact on its ongoing risk-taking operations as this
business can be maintained because of the quality of its agency
relationships, and these lines are generally not as sensitive to the
rating of the insuring company.
In 1994, the voluntarily retained property and casualty business
written by the Company was limited to personal lines business
written in the states of Georgia, Kentucky, North Carolina, South
Carolina and Tennessee. This business included four major lines of
insurance: private passenger automobile, homeowners, dwelling fire
and watercraft inland marine. However, the lack of underwriting
profit potential from the personal property book of business along
with the high cost of catastrophe reinsurance has resulted in a
decision to withdraw as a personal property carrier in all operating
states. The Company will begin the year long process of non-
renewing this business effective June 30, 1995.
Following the general practice in the insurance industry, the
Company cedes (transfers through reinsurance) a portion of premiums
written to other insurers or reinsurers, which agree to assume the
associated liability or risk. By doing so, the Company reduces its
net liability on individual risks and endeavors to protect against
catastrophic losses. Reinsurance is ceded on an automatic basis
under reinsurance contracts known as "treaties" or through
negotiation on individual risks. In addition, the Company purchases
"excess of loss" coverage, which transfers the Company's risks above
certain minimum amounts to other insurers. The maximum limits
retained by the Company are currently $100,000 for casualty risks
and $60,000 for property.
The Company also purchases catastrophe property reinsurance from
other insurers. This program is designed to limit the Company's
risk in the event of a catastrophe as defined by the Company's
reinsurance agreement. The CAT coverage is on a June 30 annual
renewal and is placed with a number of reinsurers, each of which
assumes a certain level of losses above the CAT minimum. The
current program is fully subscribed and provides coverage for 95% of
$13.5 million in excess of $1.5 million. Therefore, the Company's
share of a CAT loss would be $1.5 million plus 5% of $13.5 million.
If a CAT loss exceeded $15 million, such excess would be incurred by
the Company. The Company believes this amount is adequate based on
its use of industry CAT modeling programs and its reduced level of
premium writings. In light of the Company's decision to withdraw as
a personal property carrier in all operating states, it is
anticipated the current CAT program will be extended to April 1,
1996 to provide protection as this book of business runs off.
For all reinsurance programs, the Company has a contingent liability
for amounts ceded to reinsurers in the event any of the reinsurers
should be unable to meet their obligations.
Effective March 15, 1995 (for new business) and May 1, 1995 (for
renewals), the Company has begun the process of ceding back to the
South Carolina Reinsurance Facility and North Carolina Reinsurance
Facility portions of the Company's retained voluntary automobile
business. After these programs are initiated in those states, the
Company will explore similar substandard automobile opportunities in
other southeastern states.
As discussed in Item 1. Business - Regulation and Note 13 to the
financial statements included herein, the Company has taken steps in
1995 to further curtail business written. See the referenced
discussions for detailed steps taken.
Claims Operations
The Company services and adjusts claims for its retained business,
servicing carrier functions and MGA services. In 1994, the Company
has moved away from using outside adjusters and towards direct
handling of claims. This shift has resulted in a significant
reduction in allocated LAE, exclusive of reserve strengthening.
Through the earlier involvement of the Company's claims personnel in
the claim process, the Company has recognized lower overall
adjustment expenses. The Company has continued this trend into
1995.
Salvage on claims is primarily related to automobile claims. The
Company utilized auction yards and has been obtaining 14% to 18% of
actual cash value. Subrogation on servicing carrier claims is
handled in a separate subrogation unit. On its retained and MGA
business, the Company's claims representatives handle their own
subrogation.
The Company, within the context of the weather related catastrophes
of recent years, has developed a comprehensive catastrophe plan
designed to maximize customer service in the event of a catastrophe.
This plan has been particularly useful with the widespread incidence
of flood claims over the last several years. There are currently no
significant cases remaining from the winter storm of 1993 or
Hurricane Andrew.
Management, in conjunction with the Company's independent actuaries,
reviews the loss reserves to determine their adequacy. Such review
is based upon past experience and current circumstances and includes
an analysis of reported claims, an estimate of losses for IBNR
claims, estimates for LAE, reductions for salvage/subrogation
reserves and assumed reinsurance losses. Management believes the
reserves, which approximate the amount determined by independent
actuarial reviews, are sufficient to prevent prior years' losses
from adversely affecting future periods; however, establishing
reserves is an estimation process and adverse developments in future
years may occur and would be recorded in the year so determined.
For information regarding insurance reserves, see Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Other Business Services
The Company offers additional services through the following
subsidiaries:
Agency Specialty, Inc. assists local agents in providing excess and
surplus lines for difficult or unusual risks. This business is
placed with nonaffiliated insurers on a commission basis.
Forest Lake Travel Service, Inc. provides travel services for
businesses and individuals in the Columbia, South Carolina
community. Effective January 1, 1995, the accounts receivable and
various immaterial assets of this subsidiary were sold.
As mentioned previously, services for premium financing, credit
life, and credit accident and health insurance are no longer
provided.
Investments and Investment Results
The Company's invested assets were distributed as follows at
December 31, 1994 and 1993:
1994
1993
Asset Values PercentageAsset Values Percentage
(thousands of (thousands of
dollars) dollars)
U.S. Government and
agency obligations $33,916 54.8% $ 97,935 82.7%
States, municipalities, and
political subdivisions1,121 1.8 1,741 1.5
Corporate bonds 2,402 3.9 500 0.4
Mortgage backed (government
guaranteed) securities1,498 2.4 1,606 1.3
Redeemable preferred stocks 4 - - -
Total fixed maturities$38,941 62.9% $101,782 85.9%
Commercial paper and
invested cash 20,458 33.1 11,135 9.4
Equity securities 458 0.7 3,164 2.7
Mortgage loan on real estate1,965 3.2 2,278 1.9
Other long-term investments 46 0.1 108 0.1
Total invested assets $61,868 100.0% $118,467 100.0%
Asset values for 1994 represent market values at December 31, 1994.
The 1993 asset values represent December 31, 1993 amortized cost for
fixed maturities and market values for all other invested assets.
The Company reorganized the investment portfolio during 1994 to
reduce the percentage concentration in fixed maturities and increase
the concentration in more liquid securities such as cash and short-
term investments. The Company believes that this mix more
accurately matches with the Company's liabilities at this time.
The following table sets forth the consolidated investment results
for the three years ended December 31, 1994:
(amounts in thousands)
1994 1993 1992
Invested assets (1) $ 89,906 $ 126,199 $ 168,515
Net investment income 5,322 5,456
9,973
Average yield 5.92% 4.32% 5.92%
Net realized investment gains (losses) $ (6,327) $
1,969 $ 7,040
(1) Average of the aggregate invested amounts at the beginning of
the year, as of June 30 and as of the end of the year. Amortized
cost of fixed maturities is used for this calculation.
Regulation
Insurance companies are subject to supervision and regulation in the
jurisdictions in which they transact business, and such supervision
and regulation relates to numerous aspects of an insurance company's
business and financial condition. The primary purpose of such
supervision and regulation is the protection of policyholders. The
extent of such regulation varies but generally derives from state
statutes which delegate regulatory, supervisory and administrative
authority to state insurance departments. Accordingly, the state
insurance departments have the authority to establish standards of
solvency which must be met and maintained by insurers; license
insurers and agents; impose limitations on the nature and amount of
investments; regulate premium rates; delineate the provisions which
insurers must make for current losses and future liabilities;
require the deposit of securities for the benefit of policyholders;
and approve policy forms. State insurance departments also conduct
periodic examinations of the affairs of insurance companies and
require the filing of annual and other reports relating the
financial condition of insurance companies.
Most states have also enacted legislation which regulates insurance
holding company systems, including acquisitions, dividends, the
terms of surplus notes, the terms of affiliate transactions and
other related matters. Three of the Company's insurance
subsidiaries are domiciled in the State of South Carolina and are
principally regulated by the South Carolina Department of Insurance.
KIC is domiciled in Kentucky.
The insurance industry has recently received a considerable amount
of publicity because of rising insurance costs, a number of high
profile insurance company insolvencies and a limited exemption from
the provisions of federal anti-trust prohibitions. Changes in the
law are being proposed which would bring the insurance industry
under the regulation of the Federal government and eliminate current
exemptions from anti-trust prohibitions. It is not possible to
predict whether, in what form or in which jurisdictions any of these
proposals might be adopted, or the effect, if any, on the Company.
The NAIC has developed and recommended for adoption by the state
insurance regulatory authorities various model laws and regulations
pertaining to, among other things, capital requirements for the
insurance industry members.
The NAIC has adopted Risk-Based Capital (RBC) requirements for
property and casualty insurance companies to evaluate the adequacy
of statutory capital and surplus in relation to investment and
insurance risks such as asset quality, asset and liability matching,
loss reserve adequacy, and other business factors. The RBC formula
will be used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized.
Compliance is determined by ratio of the Company's regulatory total
adjusted capital to its authorized control level RBC (as defined by
the NAIC). As of December 31, 1994, three of the four insurance
subsidiaries have ratios of total adjusted capital to RBC that are
comfortably in excess of the level which would prompt regulatory
action. In addition, SCIC not only falls below the required RBC
level, but the statutory surplus as adjusted is negative. See
"Regulatory Activity During 1995".
South Carolina and most states have insurance laws requiring that
property-liability rate schedules, policy or coverage forms, and
other information be filed with the state's regulatory authority.
In many cases, such rates and/or policy forms must be approved prior
to use. Rate and form regulation and supervision were originally
designed primarily to ensure the financial stability of insurance
companies and to protect policyholders, and were not designed to
protect shareholders or creditors. There can be no assurance that
state or federal regulatory requirements will not become more
stringent in the future and have an adverse effect on the operations
of the Company's insurance subsidiaries. The Company regularly
monitors proposed legislation in the states in which it currently
does business as it relates to the insurance products sold or
anticipated to be sold in such states. Based on that monitoring,
the Company is not aware of currently proposed legislation in those
states that would materially limit insurance rates for its products
or the Company's ability to raise those rates.
Insurance companies are required to file detailed annual statements
with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to
examination by such agencies at any time. In addition, these
insurance regulators periodically examine the insurer's financial
condition, adherence to statutory accounting principles, and
compliance with insurance department rules and regulations. South
Carolina insurance laws, rather than federal bankruptcy laws, would
apply to the liquidation or reorganization of the insurance
companies. An examination of SCIC, Consolidated American and
Catawba as of December 31, 1994 is currently in progress. The
insurance departments of certain other states may also participate
in these examinations. KIC has been examined by the state of
Kentucky as of December 31, 1991.
Regulation of Dividends and Other Payments from Insurance
Subsidiaries
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company, the primary sources of cash
needed to meet its obligations, including principal and interest
payments with respect to indebtedness, are dividends and other
statutorily permitted payments from its subsidiaries and affiliates.
South Carolina insurance laws and regulations require a domestic
insurer to report any action authorizing distributions to
shareholders and material payments from subsidiaries and affiliates
at least thirty days prior to distribution or payment except in
limited circumstances. Additionally, those laws and regulations
provide the Department of Insurance with the right to disapprove and
prohibit distributions meeting the definition of an "Extraordinary
Dividend" under the statutes and regulations. If the ability of the
insurance subsidiaries to pay dividends or make other payments to
the Company is materially restricted by regulatory requirements, it
could affect the Company's ability to service its debt and/or pay
dividends. No assurance can be given that South Carolina will not
adopt statutory provisions more restrictive than those currently in
effect.
If insurance regulators determine that payment of a dividend or any
other payments to an affiliate would, because of the financial
condition of the paying insurance company or otherwise, be hazardous
to such insurance company's policyholders or creditors, the
regulators may disapprove, prohibit, or mandate return of such
payments that would otherwise be permitted without prior approval.
Regulatory Activity During 1995
As of December 31, 1994, SCIC reported a statutory surplus of $7.3
million in the annual statement as filed. Subsequent thereto, new
management obtained input from additional actuarial consultants and
determined that additional reserve strengthening was required.
Recording the additional reserves resulted in an adjusted statutory
capital and surplus deficiency. As adjusted, the December 31, 1994
statutory capital and surplus of SCIC is approximately $1.6 million
negative. In order to meet and maintain the minimum statutory
capital and surplus requirement of approximately $3 million, the
following actions have been or will be taken:
1. On January 31, 1995, an additional capital contribution of $5
million was made to one of the insurance subsidiaries as a result
of the stock rights offering completed by the parent company.
2. On April 13, 1995, one of the insurance subsidiaries received an
additional $2 million capital contribution.
3. The Company instituted a plan to non-renew all property business
effective no later than July 1, 1995. This elimination of
property exposures will enable SCIC to renegotiate the catastrophe
reinsurance contract that currently costs the Company $1.3 million
per year.
4. Effective March 15, 1995, all auto liability business written in
North Carolina will be ceded to the Reinsurance Facility.
5. On April 13, 1995, the Company voluntarily agreed to temporarily
suspend all new and renewal activity where the Company retained
net underwriting risk.
6. During 1994, the Company incurred an operating loss for the first
full year of serving as an MGA for commercial lines business. The
Company anticipates replacing the underwriter and negotiating a
new contract so that an operating profit can be achieved.
The first two actions above have subsequently raised the statutory
surplus above the minimum requirement in South Carolina.
Required Participation in State Residual Market Plans and Insurance
Guaranty Funds
Most states in which the Company's property and casualty insurance
group writes business have collective pools, underwriting
associations, reinsurance facilities, assigned risk plans or other
types of residual market plans ("plans"), by which coverages not
normally available in the voluntary market are shared by all
companies writing that type of business in that state.
Participation is usually based on the ratio of the Company's direct
voluntary business to the total industry business of that type in
that state. As the Company's share of the voluntary market in a
given state changes, tentative participations are assigned for each
policy year
and are updated as actual data becomes available. The required
participation by the Company in all such plans is reflected in the
results of the Company as soon as reported by the plans. Estimates
are maintained for unreported data, which generally is limited to
the most recent calendar quarter of activity. Of particular
significance are those plans involving workers' compensation
insurance, for which underwriting results have normally been
unfavorable. In early 1993, the Company withdrew from the workers'
compensation market in all states. During 1994, the Company settled
all obligations to the Workers' Compensation National Reinsurance
Pool.
Most states have enacted insurance guaranty fund laws. Typically,
these laws provide that when an insurance company is declared
insolvent, the other companies writing the insurance in that
jurisdiction are assessed to pay covered claims of the insolvent
company. The amount a company is assessed is generally determined
by the amount of premiums written in that state, subject to a
maximum annual assessment ranging from 1% to 2% of direct written
premiums. During 1994, the Company paid $303,000 in such
assessments.
Competition and Other Factors
All of the areas of business in which the Company engages are highly
competitive. The principal methods of competing are pricing and
service. Many competing property and casualty companies have been
in business longer than the Company's property and casualty
insurance group, have available more diversified lines of insurance,
and have substantially greater financial resources. The Company
responds to this competitive environment by constantly updating its
policy offerings, improving operating procedures and constantly
reviewing expenses. In addition, effective October 1, 1994, the
Company received a smaller book of business from the South Carolina
Reinsurance Facility due to a competitive bidding process.
Employees
At December 31, 1994, the Company and its subsidiaries employed a
total of 407 employees, which includes 13 part-time employees.
Management's actions during 1994 reduced the number of employees by
16. Additional reductions have occurred during the first quarter of
1995, bringing the total number of employees (including part-time)
to 360 at March 31, 1995.
Item 2. Properties
The Columbia, South Carolina home office, containing approximately
148,000 square feet of occupied space, is owned by the Company and
used primarily by its property and casualty insurance operations.
Some additional premises are leased by the Company in locations in
which they operate.
Management believes that these facilities are adequate for the
current level of operations.
Item 3.Legal Proceedings
The Company has filed suit against the American States Insurance
Company and Lincoln National Corporation for damages resulting from
their unilateral cancellation on August 25, 1992 of its Agreement
and Plan of Merger. The Company has reached a favorable tentative
settlement on all issues and expects the suit to be settled and
dismissed during the second quarter of 1995.
Due to the nature of their business, certain subsidiaries are
parties to various other legal proceedings which are considered
routine litigation incidental to the insurance business.
Item 4.Submission of Matters to a Vote of Security Holders
None/Not Applicable.
Executive Officers
Name Age Position
John C. West 73 Chairman of the Board since
September, 1994. Director of the
Company since May, 1994.
Currently, of counsel with the law
firm of Bethea, Jordan and Griffin
in Hilton Head Island, SC and
professor at the University of
South Carolina. Former Governor of
South Carolina (1971-75) and former
Ambassador to the Kingdom of Saudi
Arabia (1977-81).
Robert D. Brooks 52 President of South Carolina
Insurance Company and its
subsidiaries and Director of the
Company since January, 1995. Held
various executive officer
positions, including President and
Chief Executive Officer (1993 -
1994) of Shelby Insurance Group
from 1987 to 1994.
F. Michael Klopp 47 Senior Vice President since
1992; Vice President of
Underwriting of Seibels, Bruce &
Company from July, 1986 to January,
1992; Officer and Director of
certain Company subsidiaries.
Michael A. Culbertson 46 Vice President of Claims since
June, 1993; Officer of certain
Company subsidiaries. Employee of
the Company in various claims
capacities since December, 1974.
Mary M. Gardner 30 Vice President and Controller
since July, 1994; Officer and
Director of certain Company
subsidiaries. From 1989 to 1994,
Assistant Controller of Mercury
Insurance Group, a group of
property and casualty insurance
companies.
Priscilla C. Brooks 43 Corporate Secretary since
February, 1995; Assistant
Corporate Secretary since 1982.
Employed with the Company since
1973.
PART II
Item 5. Market for the Registrant's Common
Stock and Related Security Holder Matters
(a) Market Information
The Company's common stock is quoted and traded on The NASDAQ
National Market, trading symbol "SBIG". The following table
sets forth the reported high and low closing sales prices for
such shares for each quarter during the two fiscal years ended
December 31, 1994.
High Low
1993
First Quarter $ 2-1/4 $ 1
Second Quarter 1-3/8 13/16
Third Quarter 7/8 3/8
Fourth Quarter 1-3/4 7/16
1994
First Quarter $ 2-1/16 $ 1-1/4
Second Quarter 2 1-
7/16
Third Quarter 3-1/8 1-3/4
Fourth Quarter 3 2-1/4
(b)Holders. As of March 31, 1995, there were approximately
2,626 holders of record of the Company's 16,717,686
outstanding shares of common stock, $1.00 par value.
(c)Dividends. There were no dividends on the Company's
common stock for 1994, 1993 or 1992. See Note 7 of Notes
to Financial Statements included under Item 8 for a
description of restrictions on the Company's present and
future ability to pay dividends.
Item 6. Selected Financial Data
The following selected financial data for each of the five years
ended December 31, 1994 is derived from the audited consolidated
financial statements of the Company. The selected data should be
read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated
financial statements and accompanying notes included elsewhere
herein.
1994 1993 1992 1991 1990
(thousands of dollars, except
per share amounts)
FINANCIAL CONDITION
Total investments $ 61,868$118,467 $156,934 $180,096 $20
7,247
Total assets * $ 255,935$324,695 $461,136 $473,235 $48
2,195
Long-term debt $ -$ 1,694 $ 24,934 $
8,853 $ 32,054
Shareholders' equity $ 650$ 13,902 $ 14,219 $ 46,669
$ 65,949
Per share .04 1.85 1.90 6.23 8.83
RESULTS OF OPERATIONS
Revenues
Insurance
Property and casualty premiums $ 14,718 $ 55,331 $117,172 $124
,487 $164,398
Credit life premiums 1,801 3,207 4,247 4,898 4,836
Commission and service income26,593 18,877 16,300 16,052 14,195
Net investment income 6,226 7,090 12,960 17,445 20,095
Realized gains (losses) on investments(6,327)1,969 7,040 3,938
2,697
Other income 2,673 4,697 4,019 5,144
4,870
Total revenues $ 45,684 $ 91,171 $161,738 $171,964 $2
11,091
Loss from continuing operations$ (19,074)$(10,249)$(32,666)$(16,843
) $ (3,605)
Per share (1.72) (1.37) (4.36) (2.25) (.48)
Income from discontinued operation$ - $ - $
- - - - - $ - $ 13,925
Per share - - - - 1.87
Income (loss) before extraordinary item$ (19,074)$(10,249)$(32,666)
$(16,843) $ 10,320
Per share (1.72) (1.37) (4.36) (2.25) 1.39
Extraordinary item - benefit of utilization of tax loss carry-
forward against income from discontinued operation$ - $
- - - - - $ - $ - $ 3,433
Per share - - - - .46
Extraordinary item - gain from extinguishment
of debt, net of income taxes$ - $ 9,235 $ -
$ - $ -
Per share - 1.23 - - -
Net income (loss) $ (19,074)$ (1,014)$(32,666)$(16,843)$
13,754
Per share (1.72) (0.14) (4.36) (2.25) 1.85
Cash dividends $ - $ - $ - $
2,696 $ 5,132
Per share - - - .36 .69
PROPERTY AND CASUALTY STATUTORY
UNDERWRITING RATIOS
Losses and loss adjustment expenses
to premiums earned 227.0% 105.3% 107.1% 93.9% 80.9%
Ratio of net premiums written to
ending policyholders' surplus ** 1.06 5.95 2.30 2.13
(See Item 7 and Notes to Financial Statements included under Item
8.)
* 1992 and prior year amounts have been reclassified pursuant to
SFAS 113.
** 1994 ratio is not available.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The selected financial data and consolidated financial statements
and the related notes thereto should be read in conjunction with the
following discussion as they contain important information for
evaluation of the Company's financial condition and operating
results.
OVERVIEW
The Company has incurred a loss from continuing operations in each
of the last five years. As the first step of a recapitalization
plan, the Company enjoyed an extraordinary gain during 1993 from the
extinguishment of debt, net of income taxes, in the amount of $9.2
million. In the next step of the recapitalization plan, the note
payable of $10.0 million was cancelled in June of 1994 and exchanged
for 7 million newly issued shares of the Company's common stock.
In the nine months following, the Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer of the Company each
resigned from their respective positions, and the new 48.3% (as of
December 31, 1994) owner obtained representation on the Board of
Directors. The new management is developing strategic plans to
focus on the Company's core operations, which have been defined to
be fee income producing activities, while reducing the amount of
underwriting risk to which the Company has historically been
exposed. Certain operations that were not considered to be an
integral part of the operations have been sold. These included the
credit life and accident and health operations in 1993, the premium
financing operations in 1994, and a travel agency in the first
quarter of 1995. Each of these operations were sold at a profit.
During 1994, the Company elected to commute its workers compensation
loss reserves associated with participation in the National Council
on Compensation Insurance. In addition, a long standing dispute
regarding the 1985 sale of American Star Insurance Company was
settled during the year. These two transactions resulted in an
increase in earnings of $3.3 million. However, the transactions
also generated a cash outflow of $25.4 million and necessitated the
unplanned sale of securities at a loss of $2.6 million.
The new management team also engaged additional actuarial
consultants at the conclusion of the year. Based upon this
actuarial input, loss and adjusting expense reserves were increased
significantly during the fourth quarter. Largely as a consequence
of this reserve strengthening, the Company incurred a net loss of
$19.1 million for the 1994 year. The portion of incurred losses and
loss adjusting expenses that relates to claims occurring in prior
years amounts to $17.0 million. Absent this development on prior
year reserves and the realized capital losses of $6.3 million, the
Company would have been profitable for the 1994 year.
The significant reserve strengthening recorded during the fourth
quarter of 1994 resulted in a statutory deficit for one of the
insurance company subsidiaries. During the first quarter of 1995, a
common stock rights offering was successfully completed, and $5
million of additional capital was contributed to the insurance
subsidiary. In addition, proceeds from a $2 million promissory note
were received by the Company on April 13, 1995. The $2 million was
contributed to the capital of SCIC.
RESULTS OF OPERATIONS
The net loss for 1994 was $19.1 million ($1.72 per share). The
principal factors influencing the loss were the increase in
estimated losses and adjusting expenses for claims occurring in
prior years of $20.3 million, the settlement of a long standing
dispute at an additional cost of $2.8 million, realized losses on
security sales of $6.3 million, and an offset in part by commuting
outstanding liabilities with the National Council of Compensation
Insurance in an amount that was $6.1 million less than the
outstanding reserves. The operating loss for 1993 was $10.2 million
($1.37 per share). An extraordinary gain from the extinguishment of
debt in the amount of $9.2 million ($1.23 per share) reduced the net
loss for the year to $1.0 million ($.14 per share). The net loss
for 1992 was $32.7 million ($4.36 per share) when operating results
were dominated by losses from Hurricane Andrew. The total loss from
Hurricane Andrew was $105.5 million before reinsurance and $35.4
million after reinsurance.
Service Activities
Service activities are predominantly related to acting as a
servicing carrier for the South Carolina and North Carolina
automobile reinsurance facilities, and for the WYO National Flood
Insurance Program. The Company bears no underwriting risk for the
business processed and administered as a servicing carrier.
The Company began in 1993 to produce business in its MGA capacity
for an unaffiliated insurance carrier. The Company receives a
commission for producing, underwriting, and servicing such business.
In addition, the Company began in 1994 to act as a servicing carrier
for the Kentucky Assigned Risk Plan.
The following table reflects the major components of commission and
service revenue and pre-tax operating profit for 1994, 1993, and
1992:
1994 1993 1992
Commission and service revenue: (thousands of
dollars)
Servicing carrier $ 23,433 $ 16,196 $ 15,430
MGA 2,792 1,958 -
Other 368 723 870
Total $ 26,593 $ 18,877 $ 16,300
Pre-tax operating profit $ 15,109 $ 4,321 $ 7,085
The commission and service revenue shown above has been reduced for
certain expenses related to servicing the business. The significant
increase in servicing carrier revenue is primarily attributable to
two factors: 1) a reduction in allocated loss adjustment expenses
associated with the South Carolina Reinsurance Facility (the
"Facility"), which are netted against the revenue for adjusting
claims, and 2) an increase in the component of the Facility fee
based upon claim payments, which rose substantially during 1994.
The increase in MGA commissions is attributable to having twelve
months of operations in 1994, compared to eight months in 1993. The
increase in pre-tax operating profit in 1994 is due to these
increased revenues, decreased direct expenses related to servicing
the business and the Company's more specific identification of
expenses by operating segment.
1993 commission and service revenue was reduced $1.4 million due to
a refinement of its estimate of loss adjusting fees accrued on
claims in process but not yet paid, for which the facility allowance
will be received when the claim is paid.
With respect to the Company's servicing carrier activities for the
South Carolina Reinsurance Facility, the South Carolina legislature
passed a joint resolution in 1993 requiring that servicing carrier
contracts, which previously had been awarded based on application,
be put out for bid. The Company, through this bid process, was
selected as one of three servicing carriers for the facility for a
new five year contract period from October 1, 1994 to September 30,
1999. In response to the competitive aspect of this bid, the
Company had to reduce its commission rates. While the Company did
not retain the ongoing block of business that it was servicing,
which was the largest of the three blocks, it was awarded the next
largest. The premium volume on the previously held block was $82
million; the volume of the new block is estimated to be $64 million.
This lower premium volume, in combination with lower servicing
rates, resulted in approximately $2 million less commission earned
in the fourth quarter of 1994 than in the preceding three quarters.
The Company serviced $29.5 million of flood insurance premiums
through the WYO program in 1994 ($32.7 million in 1993). It is
among the ten largest companies acting in that capacity. The
Independent Insurance Agents of America (the national association)
sponsors the Company country-wide as a WYO company of preference to
provide flood coverage to their members through special marketing
programs of their associations. Approximately 51% of the Company's
volume in this program comes from Florida. Since the Company left
Florida's voluntary marketplace in 1993, the percentage of premium
volume generated in that state 1994 has been reduced approximately
7% due to competition from other WYO companies.
Property and Casualty Underwriting
In 1993, the Company took actions to significantly reduce premium
writings, due to the impact of Hurricane Andrew. Voluntary
underwriting activities are now being conducted only in the five
states of South Carolina, North Carolina, Georgia, Kentucky, and
Tennessee. The Company's commercial business in the five states,
which had been produced for its
own account, is now being produced under an MGA arrangement for the
account of an unaffiliated insurance carrier. The Company also
withdrew from the workers' compensation market in all states.
Effective in March, 1995, all automobile liability business written
in North Carolina is being fully ceded to the reinsurance facility.
Additionally, the Company has instituted a plan to non-renew
property business in all states no later than July, 1995.
Consequently, the Company expects to significantly reduce the
current $1.3 million cost of its catastrophe reinsurance program for
the year beginning July 1, 1995.
A.M. Best, the industry's leading rating authority, last assigned
the Company a group rating of NA-5 ("Not Assigned-Significant
Change") because of the significant recapitalization in 1993. A.M.
Best is an independent company which rates insurance companies based
on their judgement of factors related to the ability to meet
policyholder and other contractual obligations. The rating is not
directed toward the protection of investors. A low rating would not
directly affect the Company's servicing carrier or MGA operations.
The Company believes such a rating would not have a material impact
on its personal lines business as this business can be maintained
because of the quality of its agency relationships and because these
lines are generally not quite so sensitive to the rating of the
insuring company. This rating is currently under the normal annual
review by A.M. Best. The Company anticipates a rating of NA-9 ("Not
Assigned - Company Request") after review.
Underwriting Results
The Company ceased to underwrite commercial lines in 1993 and has
withdrawn from retaining any underwriting risk in all but five
Southeastern states. The following table presents net premiums
earned and loss ratios for the last three years:
1994 1993
1992
Premiums Loss Premiums Loss Premiums Loss
Earned Ratio Earned Ratio Earned Ratio
(thousands of
dollars)
Automobile lines$ 12,655119.3% $ 22,33671.1%$ 45,628 78.5%
All other lines 2,063 887.4 32,995 128.5 71,544
125.3
Totals $ 14,718 227.0% $ 55,331 105.3%$117,172 107
.1%
Several key ratios are used in the industry to measure underwriting
results. The pure loss ratio is the ratio of losses incurred to
premiums earned. The loss adjustment expense ratio is the ratio of
loss adjustment expenses incurred to premiums earned. The sum of
these two ratios is called the loss ratio.
In 1993, $9.6 million of premiums written were assumed as
reinsurance or pool participations ($12.0 million in 1992),
substantially all resulting from various residual market pools. The
1994 amount of $2.2 million was not significant due to withdrawing
from the NCCI pool. Of $131.5 million of ceded premiums ($145.2
million in 1993 and $152.5 million in 1992), $116.1 million ($120.1
million in 1993 and $117.5 million in 1992) was related to
designated carrier and flood servicing carrier business.
The following is a breakdown of percentages of net premiums written
in each of the Company's principal states for 1994, 1993, and 1992:
% of Total Net Premiums Written
1994 1993 1992
Alabama 0.1% 0.0% 4.1%
California 0.4 0.3 0.3
Florida 2.2 (14.9) 24.5
Georgia 1.6 11.0 9.4
Kentucky 1.9 6.4 9.4
Louisiana 0.0 0.4 1.3
North Carolina 53.4 52.8 22.0
South Carolina 38.6 34.0 17.0
Tennessee 1.6 6.9 5.2
Virginia 0.9 0.9 2.5
All other (0.7) 2.2 4.3
Total 100.0% 100.0% 100.0%
The percentage of all other states in 1994 is negative due to the
company's withdrawal from various states during 1993, resulting in
return premium volume during 1994. The percentage for Florida in
1993 is negative because the Company withdrew from that state by
doing mid-term cancellations of policies in force, resulting in
negative premiums written for the year.
Reserve deficiencies from prior years adversely affected 1994 by
$17.0 million, 1993 by $10.5 million, and 1992 by $7.5 million. Such
adverse reserve development is fully discussed following the tabular
ten-year period analysis presented later in the reserves section.
Results for 1993 were impacted by losses of $4.2 million from the
first quarter "Winter Storm of the Century", as well as a $1 million
reduction due to a rate rollback in the state of North Carolina.
The North Carolina Rate Bureau and Commissioner of Insurance of
North Carolina settled litigation for private passenger auto
insurance rate cases for 1987, 1988, 1989 and 1991. The resulting
consent order agreed to leave the rates as filed by the Rate Bureau
for 1987, 1988 and 1991. However, the settlement for 1989 cases
provided the rates approved by the Commissioner (which were lower
than the rates filed by the Rate Bureau) be upheld, and that member
companies issue refunds of premiums and interest to policyholders
affected by the rates previously implemented by the Rate Bureau,
thus resulting in the rate rollback. This consent order settled the
rate cases for the years stated, and there is no other litigation
pending or anticipated.
Hurricane Andrew dominated 1992 results. Excluding Andrew, both the
by-line and overall loss ratios would have been significantly
decreased.
Beginning in 1993, the Company decided, for risk management
purposes, to continue to write personal automobile business only in
the states of North Carolina, South Carolina, and Tennessee.
In 1993 the Company began its withdrawal from the workers'
compensation market in all states. The workers' compensation
business had already been substantially downsized. As a result of
participation in the National Workers Compensation Reinsurance Pool,
the Company had recorded substantial losses for its allocable share
of the business placed in this residual market. The total loss to
the Company relative to this residual market was $2.8 million in
1993 and $3.4 million in 1992. During 1994, this residual market
generated a profit of $4.9 million, largely due to a favorable
impact of $6.1 million upon the commutation of outstanding losses.
In 1993, the Company commuted its $43 million casualty aggregate
excess of loss reinsurance agreement which it had entered into in
1989. The Company reduced its reinsurance recoverable on ceded
losses and loss adjustment expenses by $43 million, and received
$42.9 million in U.S. Treasury Strips. The commutation had no
material effect on underwriting results, or on net income.
Through various types of reinsurance, the Company reduces its net
liability on individual risks. A significant portion of the
Company's covered risks are located in areas that are vulnerable to
major windstorms. These risks are mitigated in part by using
selective underwriting procedures and purchasing catastrophe
property reinsurance protection to contain major losses. Although
this protection was inadequate with regard to Hurricane Andrew, the
substantial downsizing in premiums, risk areas, and lines of
business should more adequately protect the Company in the event of
a catastrophic event.
Reserves
Loss reserves are estimates at a given point in time of the amount
the insurer expects to pay claimants plus investigation and
litigation costs, based on facts and circumstances then known. It
can be expected that the ultimate liability in each case will differ
from such estimates. During the loss settlement period, additional
facts regarding individual claims may become known and,
consequently, it becomes necessary to refine and adjust the
estimates of liability.
The liability for losses on direct business is determined using case-
basis evaluations and statistical projections. The liabilities
determined under these procedures are reduced, for GAAP purposes, by
estimated amounts to be received through salvage and subrogation.
The resulting liabilities represent the Company's estimate of the
ultimate net cost of all unpaid losses and LAE incurred through
December 31 of each year. These estimates are subject to the
effects of changing trends in future claims frequency and/or
severity. These estimates are continually reviewed and, as
experience develops and new information becomes known, the liability
is adjusted as necessary.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price
increases due to inflation are considered, an increase in average
severity of claims may be caused by a number of factors that vary
with the individual type of policy written. Future average severity
is projected based on historical trends adjusted for changes in
underwriting standards, policy provisions, and general economic
trends. These anticipated trends are monitored based on actual
developments and are modified as necessary. The Company does not
discount its loss and LAE reserves.
In 1993, the Company adopted FASB Statement No. 113, which
significantly redefines reinsurance accounting rules and provides
stringent requirements with respect to risk transfer and recognition
of gains. In addition, the Statement requires ceded claims
liabilities and ceded unearned premiums be reported as ceded
reinsurance assets, rather than as a reduction to the respective
liability. For SAP purposes, the ceded reinsurance reserves are
still used to reduce the liability. There were no changes in the
recognition of net losses incurred as a result of adopting FASB
Statement No. 113. The only effect on the Company's GAAP financial
statements was the reflection of the gross liability rather than the
net liability for reserves. The Company does not have surplus
relief reinsurance arrangements, multiple-year retrospectively-rated
reinsurance, or assumption reinsurance transfers.
The following table presents, on a GAAP basis, a three-year analysis
of losses and LAE, net of ceded reinsurance recoverable, with the
net liability reconciled to the gross liability per the balance
sheet:
1994 1993 1992
(thousands of
dollars)
Liability for losses and LAE at beginning of year:
Gross liability per balance sheet$ 194,682 $ 257,603 $ 22
8,967
Ceded reinsurance recoverable
reclassified as an asset (76,221) (140,969)
(120,388)
Net liability 118,461 116,634 108,579
Provision for losses and LAE for
claims occurring in the current year16,451 47,776 117,997
Increase in estimated losses and LAE
for claims occurring in prior years 16,957 10,509
7,454
33,408 58,285 125,451
Losses and LAE payments for claims occurring during:
Current year 10,291 26,499 54,645
Prior years 62,464 29,959 62,751
72,755 56,458 117,396
Liability for losses and LAE at end of year:
Net liability 79,114 118,461 116,634
Ceded reinsurance recoverable
reclassified as an asset 88,731 76,221 140,969
Gross liability per balance sheet$ 167,845 $ 194,682 $ 25
7,603
As reflected in the preceding table, each year was affected by
reserves from prior years having been deficient in those earlier
periods. The impact of this adverse development was $17.0 million
in 1994, $10.5 million in 1993, and $7.5 million in 1992. Adverse
reserve development will be fully discussed following the tabular
ten-year period analysis presented later in this section.
Reserve deficiencies are caused primarily by the difficulties
inherent in estimating the liability for claims on the casualty
lines of business, where the full extent of the damages can often be
sizable, but not accurately determinable at the date of estimation.
This situation is further complicated by the fact that the existence
of a claim may not be reported to the Company for a number of years.
The difference between the year-end net liability for losses and LAE
reported in the accompanying consolidated financial statements in
accordance with GAAP and that in accordance with SAP was as follows:
December 31,
1994 1993
(thousands of
dollars)
Net liability on a SAP basis, as filed in annual statement$
70,854 $ 119,536
Additional reserve strengthening 9,000 -
Adjusted net liability on a SAP basis 79,854 119,536
Additional GAAP reserve - 890
Estimated salvage and subrogation recoveries recorded on
a cash-basis for SAP and on an accrual basis for GAAP
(740) (1,965)
Net liability on a GAAP basis, at year-end79,114 118,461
Ceded reinsurance recoverable 88,731 76,221
Gross liability reported on a GAAP basis, at year-end$ 167,
845 $ 194,682
The following table reflects the loss and LAE development for 1994
and 1993 on a GAAP basis:
Unpaid Losses Re-estimated as Cumulative
and LAE of one year later (deficienc
y)
(thousands of dollars)
1994:
Gross liability $167,845
Less: Reinsurance recoverable 88,731
Net liability $ 79,114
1993:
Gross liability $194,682 $220,925 $(26,243)
Less: Reinsurance recoverable 76,221 84,998 (8,777)
Net liability $118,461 $135,927 $(17,466)
The following analysis reflects loss and LAE development on a SAP
basis, net of ceded reinsurance recoverable, for a ten-year period
for retained business only:
Year Ended December 31,
19841985198619871988198919901991199219931994
(millions of dollars)
Liability for unpaid losses
and LAE (SAP) 157 169 162 145 129 122 116 112 118 120 80
Cumulative liability paid through:
One year later 90 101 94 82 104 78 77 63 30 63
Two years later 142 158 142 150 141 121 116 50 84
Three years later 181 193 194 173 166 145 93 91
Four years later 205 235 211 191 183 115 125
Five years later 237 247 224 203 151 139
Six years later 245 257 233 174 170
Seven years later 253 264 208 191
Eight years later 259 241 223
Nine years later 239 255
Ten years later 252
Liability re-estimated as of:
One year later 192 198 181 158 174 135 136 119 129 137
Two years later 207 218 192 197 177 150 147 124 139
Three years later 221 226 229 200 188 156 151 133
Four years later 230 263 233 210 185 159 161
Five years later 258 266 240 204 185 168
Six years later 260 270 235 204 195
Seven years later 263 266 235 213
Eight years later 260 265 243
Nine years later 260 274
Ten years later 268
Cumulative (deficiency)(111)(105)(81)(68)(66)(46)(45)(21)(21)(17)
The preceding table presents the development of balance sheet
liabilities on a SAP basis for 1984 through 1993. The top line of
the preceding table shows the initial estimated liability on a SAP
basis. This liability represents the estimated amount of losses and
LAE for claims arising in years that are unpaid at the balance sheet
date, including losses that have been incurred but not yet reported.
The next portion of the preceding table reflects the cumulative
payments made for each of the indicated years as they have developed
through time. This table has been adjusted for a modification made
to 1994 paid losses on a GAAP basis, not recorded for statutory net
losses incurred. On a statutory basis, the modification is a
reclassification only and has no effect on income. Additionally, a
ceded reinsurance commutation during 1993 for $43 million reduced
the gross asset for reinsurance recoverable on losses and loss
adjustment expenses. Since investments were increased $42.9
million, total assets were basically unchanged. Under the gross
method of reporting the liability for losses and LAE, the
commutation had no effect on liabilities. The 1993 expense for
losses and LAE was also unaffected, because the reduction in the
asset for reinsurance recoverable served to increase the expense,
while the securities received served to decrease the expense. For
these same reasons, the re-estimated liability shown on the ten-year
development table was also not affected. The 1993 impact on the
cumulative liability paid on the ten-year development table, which
was reduced by the value of the securities received, was as follows
(in millions of dollars):
Cumulative Add Back
Cumulative
Liability Commutation
Liability
Paid As Reduction Paid
As
Reported To Paid
Adjusted
1983: 10 years later 185 17 202
1984: 9 years later 239 24 263
1985: 8 years later 241 28 269
1986: 7 years later 208 31 239
1987: 6 years later 174 35 209
1988: 5 years later 151 40 191
1989: 4 years later 115 43 158
1990: 3 years later 93 43 136
1991: 2 years later 50 43 93
1992: 1 year later 30 43 73
The next portion of the table shows the re-estimated amount of the
liability based on experience as of the end of each succeeding year.
The estimate is increased or decreased as more information becomes
known about the claims for the year being reported.
The "cumulative (deficiency)" represents the aggregate change in the
estimates over all subsequent years. The effects on income of the
past three years of changes in estimates of the liabilities for
losses and LAE on a GAAP basis are shown in the reconciliation
table.
In evaluating this information, it should be noted each amount
includes the effects of all changes in amounts for prior periods.
This table does not present accident or policy year development
data, which readers may be more accustomed to analyzing. Conditions
and trends that have affected development of the liability in the
past may not necessarily occur in the future. Accordingly, it may
not be appropriate to extrapolate future redundancies or
deficiencies based on this table.
After the Company experienced adverse loss reserve development in
1990 and 1991 on its southeastern business, it was determined a
significant reserve addition was necessary to bring current and
prior year reserves to a level to avoid or minimize recurrence of
adverse development. Accordingly, in the fourth quarter of 1991 the
Company added $18.4 million to its reserves. The addition was
determined through a comprehensive actuarial review of the Company's
direct and net business.
The adverse loss reserve development in 1994, 1993 and 1992 is
primarily attributable to business other than the Company's core
southeastern business. Business the Company is required to accept
through various mandated pools and associations contributed $2.9
million in 1993 ($1.7 million in 1992). This business relates
primarily to the National Workers' Compensation Reinsurance Pool.
The Company started limiting the burden from this pool by
restricting direct workers' compensation premiums beginning in
1990, and in late 1992 made the decision to discontinue writing any
new or renewal workers' compensation business. During 1994,
liabilities associated with this Pool were commuted, eliminating
exposure to further development for the Pool, and producing a $6.1
million reduction in the adverse development for 1994.
The majority of the adverse reserve development in 1989 was related
to accident years 1982-1985 and the business produced by the former
West Coast operation. The Company purchased that operation in 1981.
The problem West Coast lines were primarily commercial automobile
liability and other liability, including a substantial amount of
contractors' and subcontractors' liability coverages. These claims
turned out to have greater severity and much longer development
periods than the Company had previously experienced. It was not
until 1989 that the full extent of the problems started to become
clear. The Company added $30 million to its reserves for that
business in 1989, and until 1992 had no further adverse development.
As of December 31, 1994, the Company has $21.5 million of reserves
established for this business.
A part of the Company's reserve for losses and LAE is set aside for
environmental, pollution and toxic tort claims. The majority of
these claims relate to business written by the West Coast operation
prior to 1986. At December 31, 1993, the reserves on these claims
was $23.4 million. On June 7, 1994, the Company settled a dispute
relative to approximately 400 of these claims. Any future liability
on them is limited to 50% of the loss and reimbursement of the
Company's 50% does not begin until the other company pays out
subsequent to June 7, 1994 a total of $20 million in losses. The
settlement also has policyholder surplus safeguards to the benefit
of the Company built in to it. Future obligations, if any, are not
likely to become payable for several years.
Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 1994:
Pending, December 31, 1993 112
New claims received 24
Claims settled 47
Pending, December 31, 1994 89
The policies corresponding to these claims were written on a direct
basis. The Company has 100% excess of loss reinsurance through 1980
of $100,000, and $500,000 after that date. The claims are reserved
as follows ($ in thousands):
Case reserves $ 2,160
IBNR reserves 9,950
LAE reserves 3,718
Total $15,828
The above claims involve 11 Superfund sites, 5 asbestos or toxic
tort claims, 11 underground storage tanks and 62 miscellaneous clean-
up sites.
For this direct business there are usually several different
insurers participating in the defense and settlement of claims made
against the insured. Costs and settlements are pro-rated by either
time on the risk or policy limits.
The Company has consistently strived for reserve adequacy. Prior to
1992, thorough actuarial reviews were performed only at year-end.
In 1992, an interim review was done. Additionally, the Company
refined its estimate of the IBNR component of loss reserves to help
ensure the timely recognition of current year losses and the
adequacy of the IBNR for prior years' losses. At the end of 1994,
the new management engaged an additional consultant to review the
adequacy of loss reserves. Management believes the reserves, which
approximate the amount determined by independent actuarial reviews,
are sufficient to prevent future years' losses from adversely
affecting future periods; however, establishing reserves is an
estimation process and adverse developments in future years may
occur and would be recorded in the year so determined.
Investments and Realized Gains
The following table shows net investment income, realized gains, and
the amount of the investment portfolio at the end of the year for
1994, 1993, and 1992:
1994 1993 1992
(thousands of dollars)
Net investment income$ 5,322 $ 5,456 $ 9,973
Realized gains (losses)(6,327) 1,969 7,040
Total investments 61,868 118,467 156,934
At December 31, 1994, 33.0% of total investments were committed to
short term investments, compared to 9.4% at the end of 1993.
Investments in U.S. Government bonds were 87% of the fixed
maturities at the end of 1994, and 96% at the end of 1993. The
Company has no "junk bonds" in its portfolio.
In May 1993, FASB issued Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Statement No. 115
classified securities into three categories: held-to-maturity,
trading, and available-for-sale. The Company's securities are
currently classified as, and will continue to be classified as,
available-for-sale. Statement No. 115 requires available-for-sale
securities to be reported at estimated market value and the
unrealized gains and losses be reported in a separate component of
shareholders' equity. The Company adopted Statement No. 115
effective January 1, 1994.
Given the negative cash flow of operations, all fixed maturities are
considered available-for-sale. Accordingly, they are carried at
market value as of December 31, 1994 (lower of amortized cost or
market value at December 31, 1993). The market values of the fixed
maturity investments were $2.4 million below book value at the end
of 1994 compared to $.8 million greater than the book value at the
end of 1993. The weighted average yield of the fixed maturity
investments was 6.0% at the end of 1994 and 4.4% at the end of 1993.
During 1994, the Company was forced to sell bonds to meet cash
requirements while interest rates were rising. This action resulted
in significant realized losses. A declining interest rate
environment in 1993 and 1992 resulted in realized gains related to
fixed maturity and equity investments. The 1993 and 1992 gains were
taken primarily in the bond portfolio to shorten maturities,
maximize liquidity, and increase surplus.
In December 1993, the Company entered into an Investment Management
Client Agreement with Prudential Securities Incorporated. Prudential
Securities serves as the Company's investment advisor on all
portfolio investments.
Other Operations
Investors National Life Insurance Company of South Carolina was
formed in 1993 to assume the run-off of the business written through
Investors National Life Insurance Company, which, prior to its sale
late in 1993, had provided credit life and credit accident and
health insurance through banks, savings and loan institutions and
automobile dealers. The pre-tax (loss) income of Investors National
was $(677,000), $44,000 and $179,000 in 1994, 1993 and 1992,
respectively. The loss in 1994 is due primarily to realized
investment losses, compared to gains in prior years.
In February 1994, Policy Finance Company was formed to handle the
administration of the assets retained in the sale of Premium Service
Corporation. Pre-tax income of PFC was $538,000 in 1994. PSC's pre-
tax income in 1993 was $470,000 and $262,000 in 1992. The Company
has no plans to continue its own premium financing activity.
Effective January 1, 1995, Forest Lake Travel Service, a subsidiary
travel agency, was sold. FLT's 1994 pre-tax income was $95,000,
$420,000 in 1993 and $443,000 in 1992. The sale generated an
insignificant gain in the first quarter of 1995.
All of the above operations were sold because of management's
emphasis on restructuring the Company's core business. All of these
sales were made at a gain. Future years' operations are not
anticipated to be significantly impacted by these sales.
Income Taxes
In 1993, the Company adopted FASB 109, "Accounting for Income
Taxes", which requires the use of the liability method in accounting
for income taxes. Deferred taxes are determined based on the
estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the
provision of the enacted tax laws. The adoption had no material
effect on the financial statements. Prior to the implementation of
FASB 109, the Company accounted for income taxes using APB Opinion
No. 11.
The 1994 provision for income taxes on operations of $28,820
resulted from certain life insurance taxable income and state income
taxes that cannot be offset by tax operating losses. The provision
also included a benefit from an overaccrual of expense in prior
years.
In 1993, the Company recognized an income tax benefit from
operations of $4.8 million and a $5.6 million income tax expense on
the extraordinary gain from debt extinguishment. The net tax
expense of $797,000 includes the tax effect of certain life
insurance taxable income and state income tax expense that cannot be
offset by tax loss carryovers. The 1992 provision for income taxes
of $58,000 resulted from state taxes on subsidiary operations.
As of December 31, 1994, the Company has a $87.7 million tax net
operating loss carryforward and a $6.6 million capital loss
carryforward. Management anticipates incurring income tax in future
years only to the extent that the carryforwards cannot fully offset
the alternative minimum tax, certain life insurance taxable income,
or state income taxes, or until the carryforward is fully utilized
or limited. The unused loss carryforwards are generally subject to
limitations with respect to changes in ownership, as defined by the
Internal Revenue Code.
Subsequent to year-end, the Company completed a right's offering and
there has been a stock purchase by investors. The possibility
exists that a change in ownership, as defined by the Internal
Revenue Code, may have occurred, although an actual determination
with respect thereto has not been definitely made. If a change in
ownership has occurred or does occur, the unused loss carryforwards
will be subject to certain limitations.
Based on its recent earning history, the Company has determined that
an asset valuation allowance of $46.0 million should be established
against deferred taxes at December 31, 1994.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity relates to the Company's ability to produce sufficient
cash to fulfill contractual obligations, primarily to policyholders.
Sources of liquidity include premium collections, service fee
income, investment income and sales and maturities of investments.
As the Company deliberately downsizes its exposure to underwriting
risk, premium collections decline at a much faster pace than the
decline in claim payments. Consequently, operations have used net
cash in operating activities of $44.6 million in 1994, $43.6 million
in 1993, and $22.3 million in 1992. During 1994, cash disbursements
included $25.4 million for the non-recurring commutation of NCCI
liabilities and a dispute settlement regarding American Star. The
1993 cash used in operating activities would have been $43 million
greater than the actual cash drain had it not been for a non-
recurring commutation of reinsurance ceded which produced a cash
receipt in the amount of the reinsurance recoverable. The 1992 cash
flow from operations would have been positive had it not been for
$35.4 million in Hurricane Andrew losses.
The 1994 cash used in operating activities necessitated unplanned
liquidation of long term bonds. Because this occurred during a
period of declining bond values, the Company incurred $6.3 million
of realized losses on the sale of these securities. While
additional cash drain from operations is anticipated for 1995, the
expected amount is less than the $20.4 million of cash and temporary
investments held at December 31, 1994. Hence, no unplanned sales of
securities are anticipated during 1995.
There have been no shareholder dividends declared during the last
three years, and there is not a likelihood that any will be
considered during 1995. Long-term debt outstanding has been reduced
to an insignificant amount as a consequence of the debt forgiveness
during 1993, and the exchange of debt for common shares during 1994.
The volume of premiums that the property and casualty insurance
subsidiaries may prudently write is based in part on the amount of
statutory net worth as determined in accordance with applicable
insurance regulations. The National Association of Insurance
Commissioners has adopted risk based capital requirements for
property and casualty insurance companies to evaluate the adequacy
of statutory capital and surplus in relation to investments and
insurance risks such as asset quality, asset and liability matching,
loss reserve adequacy, and other business factors. The RBC formula
will be used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action,
insurance companies that are potentially inadequately capitalized.
Compliance is determined by ratio of the companies' regulatory total
adjusted capital to its authorized control level RBC (as defined by
the NAIC). Three insurance subsidiaries of the Company have
December 31, 1994 ratios of total adjusted capital to RBC that are
comfortably in excess of the level which would prompt regulatory
action.
One of the Company's insurance subsidiaries fell below the minimum
required statutory surplus at December 31, 1994. During the first
quarter of 1995, the Company completed a stock rights offering and
contributed $5 million of additional capital to the subsidiary. In
addition, an investor has provided $2 million additional capital in
exchange for a promissory note during April, 1995 to strengthen the
statutory surplus for the subsidiary. These capital infusions will
allow the subsidiary to meet the minimum capital requirements, but
will leave little margin for additional operating losses without
further capital infusions. The subsidiary has submitted a plan to
the regulators which includes further reductions in the level of
direct written premiums.
Item 8. Financial Statements and Supplementary Data
(continued on following page)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
The Seibels Bruce Group, Inc.:
We have audited the accompanying consolidated balance sheets of The
Seibels Bruce Group, Inc. (a South Carolina corporation) (the Parent
Company) and its subsidiaries (collectively the Company ), as of
December 31, 1994 and 1993, and the related consolidated statements
of operations, changes in shareholders equity and cash flows for
each of the three years in the period ended December 31, 1994.
These financial statements and the schedules referred to below are
the responsibility of the Company s management. Our responsibility
is to report on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our report.
As more fully discussed in Note 1, the Company has sustained
significant operating losses during each of the past three years.
Further, as of December 31, 1994, the Company s primary insurance
subsidiary, South Carolina Insurance Company ( SCIC ), reported an
adjusted consolidated statutory capital and surplus deficiency of
approximately $1.6 million, which is substantially below the minimum
required by the State of South Carolina, Department of Insurance (
DOI ). Failure to meet statutory capital minimums exposes the
parent company and such subsidiary insurance companies to regulatory
actions and or agreements with the DOI. The regulators have the
authority to take control of the subsidiary insurance companies if
sufficient capital levels are ultimately not achieved. In the event
the DOI should take control of the subsidiary insurance companies,
the shareholders would lose their respective ownership interests,
therein. Subsequent to year end and as discussed in Note 13, $7
million of additional statutory capital was contributed directly to
SCIC and its subsidiaries. Although results of operations for the
period subsequent to December 31, 1994 have not been quantified,
management believes that SCIC currently meets the minimum statutory
capital and surplus requirements of the DOI. The Company is being
closely monitored by the DOI as it formulates its future operating
plans which include restructuring of its business to minimize
operating losses and restore future profitable operations,
controlling the significant operating cash outflows and raising
additional capital. There can be no assurance that the Company will
be successful in consummating and executing such a plan or in
raising additional capital. If the Company is unable to achieve
such an operating plan or raise additional capital, continuing
operating losses could further deplete statutory capital to a level
which would prompt regulatory action, including taking control of
SCIC. SCIC owns substantially all assets of the Company and all
subsidiaries with operations. Because of the erosion of the Company
s capital base and the inability to limit losses from claims, many
of which occurred years ago, it is unlikely that the Company can
continue to operate indefinitely in the absence of raising
additional capital.
Significant losses and uncertainties existed in prior years and our
reports on the 1993 and 1992 financial statements expressed
substantial doubt about the ability of the Company to continue as a
going concern. The continuing nature of these matters during 1994
again raise substantial doubt about the ability of the Company to
continue as a going concern. The ability of the Company to continue
as a going concern is dependent on many factors including regulatory
action and third-party reactions to the minimal statutory capital
and continuing operations. The consolidated financial statements
have been prepared based on the company continuing as a going
concern, generally reflecting the historical cost basis of
accounting. Accordingly, the consolidated balance sheet does not
include the fair value or liquidation value of all assets and
liabilities. In addition, the consolidated financial statements do
not include any adjustments that might result from the Company not
continuing as a going concern, regulatory actions or third-party
reactions to the minimal statutory capital and surplus levels and
continuing operating losses.
Because of the significance of the matters discussed in the
preceding paragraph, we are unable to express, and we do not
express, an opinion on the 1994 financial statements referred to
above. However, in our opinion, the 1993 and 1992 financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of The Seibels Bruce
Group, Inc. and subsidiaries, as of December 31, 1993 and the
consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
As explained in Note 3 to the financial statements, effective
January 1, 1994, the Company changed its method of accounting for
investments in debt securities.
Our audits were made for the purpose of rendering a report on the
basic financial statements taken as a whole. The Schedules I, III,
V, VI, VIII and X as of December 31, 1994 and for each of the three
years in the period ended December 31, 1994 are presented for
purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in
our audit of the basic financial statements. For the reasons
discussed in the third and fourth paragraphs, we are unable to
express, and we do not express, an opinion on the 1994 information
included in the schedules referred to above. However, in our
opinion, the 1993 and 1992 information in the schedules referred to
above does fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
Columbia, South Carolina
April 14, 1995
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1993
ASSETS
Investments:
Fixed maturities, 1994 at market (cost of $41,321,214),
1993 at amortized cost, (market of $102,622,878)$38,940,939 $1
01,781,569
Equity securities available-for-sale, at market (cost of $540,655
at 1994 and $1,589,039 at 1993) 458,492 3,164,135
Short-term investments, including temporary cash
investments of $20,243,331 ($10,205,364 at 1993)20,457,513 11,
135,051
Mortgage loan on real estate, at estimated realizable value (cost
of
$2,949,080 at 1994 and $2,890,018 at 1993)1,965,000 2,277,478
Other long-term investments 46,092 108,4
85
Total investments 61,868,036 118,466,718
Cash, other than invested cash - 2,013,529
Accrued investment income 808,774 1,086,531
Premiums and agents' balances receivable, net13,027,605 13,717,594
Premium notes receivable 93,162 11,213,198
Reinsurance recoverable on paid losses and loss adjustment expenses
30,277,569 33,844,870
Reinsurance recoverable on unpaid losses and loss adjustment
expenses 88,730,898 76,220,368
Property and equipment, net 6,270,334 5,329,019
Prepaid reinsurance premiums - ceded business48,482,673 54,926,144
Deferred policy acquisition cost 899,053 3,841,646
Other assets
5,476,468 4,035,842
Total assets $255,934,572 $324,695,459
LIABILITIES
Losses and claims:
Reported and estimated losses and claims - retained business$64,
220,902 $97,884,221
ceded business 74,140,671 65,731,904
Adjustment expenses - retained business 14,893,169 20,577,200
ceded business 14,590,227
10,488,464
Unearned premiums:
Property and casualty - retained business 6,945,280 7,126,591
ceded business 48,482,673 54,926,144
Credit Life 1,570,468
3,664,488
Balances due other insurance companies 17,264,627 25,922,062
Notes payable
439,167 11,933,511
Current income taxes payable 148,966 719,977
Other liabilities and deferred items 12,588,570 11,819,283
Total liabilities
255,284,720 310,793,845
COMMITMENTS AND CONTINGENCIES (Notes 1, 10, 11 and 13)
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000 shares, none
issued and outstanding - -
Common stock, $1 par value, authorized 25,000,000 shares, issued
and outstanding 14,500,534 shares (7,500,534 shares at 1993)14,500
,534 7,500,534
Additional paid-in capital 30,983,592
27,983,592
Unrealized gain (loss) on securities (2,615,004) 1,562,557
Retained deficit
(42,219,270) (23,145,069)
Total shareholders' equity 649,852 13,901,614
Total liabilities and shareholders' equity$255,934,572 $324,69
5,459
The accompanying notes are an integral part of these consolidated
financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1994 1993
1992
Premiums:
Property and casualty premiums earned $ 14,718,248 $ 55,331,227
$ 117,171,985
Credit life premiums earned 1,800,585 3,206,888
4,246,575
Commission and service income, net 26,592,731 18,877,138
16,299,858
Net investment income 5,321,528 5,455,518 9,973,406
Other interest income 904,898 1,634,822 2,986,798
Realized (losses) gains on investments (6,327,250)1,968,663
7,039,904
Other income 2,673,178 4,697,093 4,019,239
Total revenue 45,683,918 91,171,349 161,737,765
Expenses:
Property and casualty:
Losses and loss adjustment expenses 33,407,690 58,285,055
125,450,865
Policy acquisition costs 5,538,067 17,627,677
35,709,144
Credit life benefits 769,664 1,374,318 1,538,383
Interest expense 321,365 2,526,753 1,853,248
Other operating costs and expenses 24,692,513 26,368,235
29,794,472
Total expenses 64,729,299 106,182,038 194,346,112
Loss before income taxes and extraordinary item (19,045,381)
(15,010,689) (32,608,347)
Provision (benefit) for income taxes 28,820 ( 4,761,463)
58,105
Loss before extraordinary item (19,074,201)(10,249,226)
(32,666,452)
Extraordinary item - gain from extinguishment
of debt, net of income taxes -
9,235,065 -
Net loss $(19,074,201)
$ (1,014,161) $(32,666,452)
Per share:
Loss before extraordinary item $(1.72) $(1.37)
$(4.36)
Extraordinary item - 1.23 -
Net loss $(1.72) $(0.14)
$(4.36)
The accompanying notes are an integral part of these consolidated financial
statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Year Ended December 31,
1994 1993 1992
Common stock outstanding:
Beginning of year $ 7,500,534 $ 7,500,534 $ 7,495,141
Stock issued under employee benefit
plans and dividend reinvestment plan - - 5,393
Stock issued in exchange for cancellation
of note payable 7,000,000 - -
End of year $ 14,500,534 $ 7,500,534 $ 7,500,534
Additional paid-in capital:
Beginning of year $ 27,983,592 $ 27,983,592$ 27,960,216
Stock issued under employee benefit
plans and dividend reinvestment plan - - 23,376
Stock issued in exchange for cancellation
of note payable 3,000,000 -
- - - - -
End of year $ 30,983,592 $ 27,983,592 $ 27,983,592
Unrealized gain (loss) on securities, net
of deferred income taxes:
Beginning of year $ 1,562,557 $ 865,445 $ 678,523
Cumulative effect of change in accounting -
adoption of FASB 115 841,309 - -
Change in unrealized gains on
securities (5,018,870) 697,112 186,922
End of year $ (2,615,004)$ 1,562,557 $
865,445
Retained (deficit) earnings:
Beginning of year $ (23,145,069)$ (22,130,908)$ 10,535,544
Net loss (19,074,201) (1,014,161)
(32,666,452)
End of year $ (42,219,270)$ (23,145,069)$ (22,130,908)
Total shareholders' equity $ 649,852 $ 13,901,614 $ 14,218,663
The accompanying notes are an integral part of these consolidated financial
statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash And Temporary Cash Investments
Year Ended December 31,
1994 1993
1992
Cash flows from operating activities:
Net loss $ (19,074,201)$ (1,
014,161) $ (32,666,452)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 739,241 638,066 748,149
Realized losses (gains) on investments 6,327,250 (1,968,663)(7,03
9,904)
Extraordinary gain from extinguishment of debt*- (14,793,62
7) -
Change in assets and liabilities:
Accrued investment income 277,757 353,546 916,415
Premium and agents' balances receivable, net 689,989 13,292,326
2,881,019
Premium notes receivable 11,120,036 (383,754) 390,966
Reinsurance recoverable on losses and
loss adjustment expenses (8,943,229)59,882,334 (17,147,3
96)
Prepaid reinsurance premiums - ceded business6,443,471 6,341,845
(1,682,915)
Deferred policy acquisition costs2,942,593 11,942,635 2,958,270
Unpaid losses and loss adjustment expenses(26,836,820)(62,920,7
02) 28,635,352
Unearned premiums (8,718,802)(46,070,771)(7,323,9
34)
Balances due other insurance companies(8,657,435)2,118,230 (1,0
07,134)
Current income taxes payable (571,011) 784,380 1,038
Funds held by reinsurers 96,668 1,556,457 (22,787)
Outstanding drafts and bank overdraft(3,335,943)(10,338,384)8,5
13,654
Other - net 2,892,917 (3,007,022) (42
0,118)
Total adjustments (25,533,318)(42,573,104) 10,400,
675
Net cash used in operating activities(44,607,519)(43,587,265)(22,26
5,777)
Cash flows from investing activities:
Proceeds from investments sold 143,608,871 63,794,432 215,067,
928
Proceeds from investments matured 45,000 11,060,000 12,230,0
00
Costs of investments acquired (88,041,144)(93,565,023)(165,44
4,304)
Change in short-term investments - net 715,505 589,038 328,630
Proceeds from property and equipment sold655,455 667,313 239,343
Purchases of property and equipment (2,418,219) (42,145)
(76,676)
Net cash provided by (used in) investing activities 54,565,468 (1
7,496,385) 62,344,921
Cash flows from financing activities:
Employee benefit plans and dividend reinvestment plan- -
28,769
Repayment of notes payable (1,933,511)(219,319)(6,900,921)
Cash dividends paid - -
(674,562)
Net cash used in financing activities (1,933,511) (219,319) (
7,546,714)
Net increase (decrease) in cash and temporary
cash investments 8,024,438 (61,302,969)32,532,
430
Cash and temporary cash investments, January 1 12,218,893 73,52
1,862 40,989,432
Cash and temporary cash investments, December 31$ 20,243,331 $ 1
2,218,893 $ 73,521,862
Supplemental Cash Flow Information:
Cash paid for - Interest $ 210,409 $ 246,392 $
1,911,945
Income taxes 599,831 4,058 45,532
Noncash Investing Activities:
Net receivables for investments sold -$ 39,326 $
39,291
Noncash Financing Activities:
Notes payable exchanged for common stock$ 10,000,000 - -
Notes payable exchanged for accrued interest439,167 - -
Extinguishment of debt through cancellation of debt in exchange
for new debt - $ 14,793,627
- - - - -
* Gain before taxes, from purchase by new investors of previous $23
million term loan, which was exchanged for a new $10 million note.
See Note 1 of Notes to Consolidated Financial Statements for
details.
The accompanying notes are an integral part of these consolidated
financial statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
The Seibels Bruce Group, Inc. ( SBIG and the Company ) has
reported operating losses for each of the past three years.
For the years ended December 31, 1994, 1993 and 1992, losses
before extraordinary items were $19,074,201, $10,249,226 and
$32,666,452, respectively; and net cash used in operating
activities was $44,607,519, $43,587,265, and $22,265,777,
respectively. These results have impaired the underwriting
operations of the Company, including the ability to write
and retain business. The Company voluntarily curtailed
premium writing and has changed its core operations from a
risk taker to activities generating fee income to function
as a general agent for insurers. New management is
developing and implementing a responsive operating plan.
All of these activities are designed to stabilize the
financial condition of the Company. There is, however, no
certainty that the Company can or will achieve its operating
objectives.
As of February 28, 1995, regulatory filings by the
subsidiary insurance companies indicated consolidated
statutory capital and surplus of approximately $7.3 million
at December 31, 1994, which was in excess of required
minimums. Subsequent thereto, management obtained input
from additional actuarial consultants and determined that
additional reserve strengthening was required. Such
adjustments, if reflected retroactively in the regulatory
filings, would have resulted in a deficiency in the December
31, 1994 consolidated statutory capital and surplus of
approximately $1.6 million, which is substantially below the
minimum required by the State of South Carolina, Department
of Insurance ("DOI"). Failure to meet statutory capital
minimums exposes the parent company and such subsidiary
insurance companies to regulatory actions and or agreements
with the DOI. The regulators have the authority to take
control of the subsidiary insurance companies if sufficient
capital levels are ultimately not achieved. In the event
the DOI should take control of the subsidiary insurance
companies, the shareholders would lose their respective
ownership interests, therein. Subsequent to year-end, $7
million of additional statutory capital was contributed
directly and indirectly to SCIC (See Note 13) as follows:
The Company raised approximately $5.1 million through a
rights offering, which was recorded in the equity accounts
in January, 1995, $5 million of which was contributed as
statutory surplus to SCIC. See Note 13.
Effective April 13, 1995, the Company executed a note in
favor of the new investors for $2 million, the proceeds of
which were contributed as statutory surplus directly to
SCICand its subsidiaries. See Note 13.
Although results of operations for the period subsequent to
December 31, 1994 have not been quantified, management
believes that SCIC currently meets the minimum statutory
capital and surplus requirements of the DOI.
In December, 1993, the Company and new investors implemented
a recapitalization plan whereby the previous $23 million
loan and accrued interest was purchased from the original
holder by the new investors and exchanged for a new $10
million note, at 8.5%, due June 30, 1994 and secured by 100%
of the stock of South Carolina Insurance Company. The new
investors then agreed to exchange the new $10 million note
for 7,000,000 shares of the Company s common stock. In
June, 1994, the note was returned to the Company, the shares
were delivered to the investors and an interest note equal
to the accrued interest was given to the new investors. In
1993, the Company recognized an after tax gain of $9,235,065
due to reducing the debt to $10 million. In June 1994, the
Company recognized an increase in shareholders equity of
$10 million.
The Company is working closely with the regulators as it
formulates its future operating plans which include
restructuring of its business to minimize operating losses
and restore future profitable operations, controlling the
significant operating cash outflows and raising additional
capital. While the Company has been successful in obtaining
the necessary financing to date, there can be no assurance
that the Company will be successful in consummating and
executing its operating plan or in raising additional
capital. If the Company is unable to achieve such an
operating plan or raise additional capital, continuing
operating losses could further deplete statutory capital to
a level which would prompt regulatory action, including
taking control of SCIC and/or its subsidiaries. Because of
the reduction of the Company s capital base, the Company
could be unable to operate indefinitely in the absence of
raising additional capital. These matters raise substantial
doubt about the ability of the Company to continue as a
going concern. The ability of the Company to continue as a
going concern is dependent on many factors including
regulatory action and third-party reactions to the minimal
statutory capital and continuing operations. The
consolidated financial statements have been prepared based
on the Company continuing as a going concern, generally
reflecting the historical cost basis of accounting.
Accordingly, the consolidated financial statements do not
include any adjustments that might result from the Company
not continuing as a going concern, regulatory actions or
third-party reactions to the minimal statutory capital and
surplus levels and continuing operating losses.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is the parent company of SCIC. SCIC and its
property and casualty insurance subsidiaries underwrite
multi-line property and casualty insurance, provide
servicing carrier activities for several large state and
federal insurance facilities and provide MGA services to
another insurance company.
Principles of Consolidation
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles (GAAP) and include the accounts of the Company
and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated
in consolidation.
Prior Year Reclassifications
Certain classifications previously presented in the
consolidated financial statements for prior periods have
been changed to conform to current classifications.
Statutory Reporting
The Company's insurance subsidiaries' assets, liabilities
and results of operations have been reported on the basis of
GAAP, which varies from statutory accounting practices
("SAP") prescribed or permitted by insurance regulatory
authorities. The principal differences between SAP and
GAAP, are that under SAP: (i) certain assets that are not
admitted assets are eliminated from the balance sheet; (ii)
acquisition costs for policies are expensed as incurred,
while they are deferred and amortized over the estimated
life of the policies under GAAP; (iii) no provision is
made for deferred income taxes; (iv) the timing of
establishing certain reserves is different than under GAAP;
and (v) valuation allowances are established against
investments. Each of the Company's insurance subsidiaries
must file with applicable state insurance regulatory
authorities an "Annual Statement" which reports, among other
items, net income (loss) and shareholders' equity (called
"surplus as regards policyholders" in property and casualty
reporting).
Net income and shareholders' equity of the credit life
insurance subsidiary as determined in accordance with
statutory accounting practices are as follows:
Year Ended December 31,
1994 1993
1992
Net income $ 749,526 $
466,912 $ 220,191
Shareholders' equity ("surplus as regards policyholders")$ 4,035,583 $ 6,310,554
$ 3,991,410
A reconciliation between GAAP net loss and statutory net
income (loss) of the property and casualty insurance
subsidiaries is as follows:
Year Ended December 31,
1994 1993 1992
(thousands of
dollars)
GAAP loss before extraordinary item$ (19,074)$ (10,
249) $ (32,666)
Increase (decrease) due to:
Deferred policy acquisition costs2,943 11,942 2,958
Salvage/subrogation recoverable and reserves1,225 677 2,027
Deferred reinsurance benefits (155) (1,324) (2,169)
Timing difference on contingency accrual - 2,424 (2,424)
Parent Company GAAP-only items
(primarily interest expense and income taxes)181 1,377 1,302
Intercompany dividends from Investors National Life 2,500 - -
Adjustments to premium and loss reserves (1,833) - -
Other 606 (154) (344)
Adjusted statutory net income (loss)(13,607) 4,693 (31,316)
Additional reserve strengthening 9,000 - -
Other adjustments 492 - -
Statutory net income (loss) - property/casualty, as
filed
in annual statement $ (4,115) $ 4,693 $(31,316)
A reconciliation between GAAP shareholders' equity and
statutory capital and surplus is as follows:
Year Ended December 31,
1994 1993 1992
(thousands of
dollars)
GAAP shareholders' equity $ 650 $ 13,902 $ 14,219
Increase (decrease) due to:
Deferred policy acquisition costs (899) (3,842) (15,784)
Parent Company loan - 10,000 23,000
Adjustments to premiums and loss reserves (1,874) - -
Other 559 (2,708)
(2,995)
Adjusted statutory surplus - property/casualty(1,564) 17,352 18,440
Additional reserve strengthening 9,000 - -
Other adjustments (107) - -
Statutory surplus - property/casualty, as filed
in annual statement $ 7,329 $ 17,352 $ 18,440
Policy Acquisition Costs
Policy acquisition costs attributable to property and
casualty operations represent that portion of the cost of
writing business that varies with and is primarily related
to the production of business. Such costs are deferred and
charged against income as the premiums are earned. The
deferral of policy acquisition costs is subject to the
application of recoverability tests to each primary line or
source of business based on past and anticipated
underwriting results. The deferred policy acquisition costs
that are not recoverable from future policy revenues are
expensed. The Company has considered anticipated investment
income in determining premium deficiency which would reduce
the recoverable policy acquisition cost. Policy
acquisition costs for property and casualty operations are
as follows:
1994
1993
Deferred at beginning of year $ 1,299,542$ 11,990,142
Costs incurred and deferred during year:
Commissions and brokerage 2,541,823 4,916,439
Taxes, licenses and fees 544,070 608,153
Other 1,152,632 1,412,485
Total 4,238,525 6,937,077
Amortization charged to income during year(5,538,067) (17
,627,677)
Deferred at end of year $ - $ 1,299,542
Deferred policy acquisition costs attributable to the credit
life operation were $899,053 at December 31, 1994 and
$2,542,104 at December 31, 1993. These costs represent that
portion of the cost of writing business which is deferred
and charged against income, through other operating costs
and expenses, as premiums are earned.
Property and Casualty Premiums
Property and casualty premiums are reflected in income when
earned as computed on a monthly pro-rata method. Written
premiums and earned premiums have been reduced by
reinsurance placed with other companies, including
substantial amounts related to business produced as a
servicing carrier. A reconciliation of direct to net
premiums, on both a written and an earned basis is as
follows (See Note 10):
1994
1993 1992
(thousands of dollars)
Written Earned Written Earned
Written Earned
Direct$ 140,683 $ 146,481 $ 153,073 $ 196,386 $ 250,147 $
254,378
Assumed 5,332 2,275 9,572 10,503 11,994
13,565
Ceded(131,478)(134,038) (145,216) (151,558) (152,454) (150
,771)
Net $ 14,537 $ 14,718 $ 17,429 $ 55,331 $ 109,687 $
117,172
The amounts of premiums pertaining to catastrophe
reinsurance that were ceded from earned premiums during
1994, 1993 and 1992 were $1,693,752, $4,409,596, and
$7,177,797 respectively.
Credit life premiums are reflected in income when earned as
computed on a monthly pro-rata method for level term
premiums and on a sum-of-the-digits method for decreasing
term premiums.
Property and Casualty Unpaid Loss and Loss Adjustment
Expense
The liability for property and casualty unpaid losses and
loss adjustment expenses includes:
(1) An accumulation of formula and case estimates
for losses reported prior to the close of the
accounting period.
(2) Estimates of incurred-but-not-reported losses
based upon past experience and current
circumstances.
(3) Estimates of loss adjustment expense
liabilities by applying percentage factors to the
unpaid loss reserves, with such factors determined
on a by-line basis from past results of paid loss
adjustment expenses to paid losses.
(4) The deduction of estimated amounts recoverable
from salvage and subrogation.
(5) Estimated losses as reported by ceding
reinsurers.
A part of the Company's reserve for losses and LAE is set
aside for environmental, pollution and toxic tort claims.
The majority of these claims relate to business written by
the West Coast operation prior to 1986. At December 31,
1993 the reserves on these claims was $23.4 million. On
June 7, 1994 the Company settled a dispute relative to
approximately 400 of these claims, and any future liability
on them is limited to 50% of the loss and reimbursement of
the Company's 50% does not begin until the other company
pays out a post June 7, 1994 total of $20 million. The
settlement also has policyholder surplus safeguards inuring
to the benefit of the Company built in to it. Future
obligations, if any, are not likely to become payable for
several years. (See Note 11)
The policies corresponding to these claims were written on a
direct basis. The Company has 100% excess of loss
reinsurance through 1980 of $100,000, and $500,000 after
that date. At December 31, 1994, the claims are reserved as
follows ($ in thousands):
Case reserves $ 2,160
IBNR reserves 9,950
LAE reserves 3,718
Total $15,828
The above claims involve 11 Superfund sites, 5 asbestos or
toxic tort claims, 11 underground storage tanks and 62
miscellaneous clean-up sites.
For this direct business there are usually several different
insurers participating in the defense and settlement of
claims made against the insured. Costs and settlements are
pro-rated by either time on the risk or policy limits.
For the direct retained and assumed reinsurance without LAE
claim limits, the Company is only one of a group of
insurers. Each member of the group participates in the
handling and monitoring of the claim and the group selects
one attorney to defend the case. Legal fees are prorated
among the group based on each member's number of years of
coverage. For assumed reinsurance with LAE limits, claims
represent upper level excess policies assumed from the
London market. As such, the primary insurers handle claim
settlements and the Company pays its portion of the claim
and LAE, up to its retention amounts, based on the
settlement amounts determined by the primary insurers.
Management, in conjunction with the Company's consulting
actuaries, performs a complete review of the above
components of the Company's loss reserves to determine the
adequacy of such reserves. Management believes the
reserves, which approximate the amount determined by
independent actuarial reviews, are sufficient to prevent
prior years' losses from adversely affecting future periods;
however, establishing reserves is an estimation process and
adverse developments in future years may occur and would be
recorded in the year so determined.
Losses are recognized as incurred and as estimated by the
procedure previously described. Losses and LAE incurred
have been reduced by recoveries made and to be made from
reinsurers, which also includes substantial amounts related
to business produced as a servicing carrier, as follows:
1994 1993
1992
Losses incurred $145,930,161$147,306,704$20
0,369,214
Loss adjustment expenses 19,428,579 15,954,003
23,544,928
$165,358,740$163,260,707$22
3,914,142
The following table summarizes net property and casualty
losses and LAE incurred:
1994 1993
1992
Estimated losses and LAE incurred$202,052,840 $221,545,762
$349,365,007
Estimated reinsurance loss recoveries
on incurred losses (165,358,740)(163,260,707)(223,914
,142)
NCCI commutation (1) ( 6,138,217) - -
American Star commutation (2) 2,851,807
- - - - - -
$ 33,407,690 $ 58,285,055 $ 125,4
50,865
(1) Until March 31, 1994, the Company participated in the
National Workers' Compensation Reinsurance Pool ("NCCI"),
which is a national reinsurance fund for policies allocated
to insurers under various states' workers' compensation
assigned risk laws for companies that cannot otherwise
obtain coverage. On September 30, 1994, the Company
satisfied its obligation with respect to all outstanding and
future claims associated with the Company's participation
for a cash payment of $16.2 million. The redundancy in the
losses and claim reserves, as a result of its settlement, of
$6.1 million reduced 1994 loss and LAE incurred.
(2) In June, 1994, the Company made a cash payment in the
amount of $10.3 million for a settlement of pending
arbitration relating to indemnification of American Star for
certain loss and LAE reserves. Recorded reserves amounted
to $7.4 million before the settlement. This transaction
increased loss and LAE incurred by $2.9 million.
Activity in the liability for unpaid losses and LAE is
summarized as follows:
1994 1993 1992
(thousands of
dollars)
Liability for losses and LAE at beginning of year:
Gross liability per balance sheet$ 194,682 $ 257,603 $
228,967
Ceded reinsurance recoverable(76,221)(140,969)(120,388)
Net liability 118,461 116,634 108,579
Provision for losses and LAE for
claims occurring in the current year 16,451 47,776
117,997
Increase in estimated losses and LAE
for claims occurring in prior years 16,957 10,509
7,454
33,408 58,285 125,451
Losses and LAE payments for claims occurring during:
Current year 10,291 26,499 54,645
Prior years 62,464 29,959 62,751
72,755 56,458 117,396
Liability for losses and LAE at end of year:
Net liability 79,114 118,461 116,634
Ceded reinsurance recoverable 88,731 76,221 140,969
Gross liability per balance sheet$ 167,845$ 194,682 $ 2
57,603
Commission and Service Income
Commission and service income is predominantly derived from
servicing carrier activities. The commission income related
to producing and underwriting the business is recognized in
the period in which the business is written. Beginning in
1993, a significant portion of commission income is also
derived from business produced by the Company as a Managing
General Agent. The Company receives commissions for
producing and underwriting the business as well as servicing
such business. These revenues are recognized on an accrual
basis as earned and are reduced by certain direct expenses
related to acquiring and servicing the business.
Allowance for Uncollectible Accounts
Allowance for uncollectible accounts for agents' balances
receivable, other receivables, and premium notes receivable
were $69,992, $150,555, and $245,774 at December 31, 1994
and $186,770, $151,015, and $418,123 at December 31, 1993,
respectively. There are no material credit concentrations
related to premiums receivable, agents' balances, and
premium notes receivable.
Property and Equipment
Property and equipment are stated at cost and, for financial
reporting purposes, depreciated on a straight-line basis
over the estimated useful lives of the assets. For income
tax purposes, accelerated depreciation methods are used for
certain equipment. Property and equipment are as follows:
Estimated
December 31,
Description Life-years 1994 1993
Land - $ 1,153,395 $ 1,484,895
Buildings 10-40 4,584,555 5,231,360
Data processing equipment 3-7 4,134,570
2,043,355
Furniture and equipment 3-10 7,507,372
7,621,384
17,379,892 16,380,994
Accumulated depreciation (11,109,558)
(11,051,975)
$6,270,334 $ 5,329,019
Depreciation expense charged to operations was $739,241 in
1994 ($638,066 in 1993 and $748,149 in 1992).
Other Interest Income
Other interest income for 1993 and 1992 includes $1.0
million and $1.9 million, respectively, on an excess of loss
reinsurance agreement which was commuted in 1993. Other
interest income also includes interest received on
reinsurance balances withheld, agents' balances receivable,
and balances due from the South Carolina Reinsurance
Facility.
Other Income
Other income for 1994 includes a $650,000 gain on the sale
of a subsidiary, and other income for 1993 includes $687,031
from the sale of real estate.
Cash and Temporary Cash Investments
For purposes of the Statements of Cash Flows, the Company
considers both cash and temporary cash investments within
the caption "Cash and temporary cash investments" to be
those highly liquid investments purchased with an initial
maturity of three months or less. At December 31, 1994, the
Company had cash overdrafts of $3.9 million which are
classified "other liabilities" in the accompanying balance
sheet.
Fair Value of Financial Instruments
The fair value of fixed maturities, equity securities, short-
term investments, mortgage loans on real estate, other long-
term investments, cash and accrued investment income was
$62,676,810 and $122,408,087 at December 31, 1994 and 1993,
respectively. Fair values of cash and short-term
investments approximates carrying value because of the short
maturity of those instruments. Fixed maturities and equity
securities fair values were determined in accordance with
methods prescribed by the National Association of Insurance
Commissioners, which do not differ materially from
nationally quoted market prices. The fair value of certain
municipal bonds is assumed to be equal to amortized cost
where no market quotations exist. The fair value of
mortgage loans on real estate is a net realizable value.
Premium and agents' balances receivable are carried at their
historical costs which approximate fair value as a result of
timely evaluation of recoverability and allowance for
uncollectible amounts.
The fair value of debt was $439,167 and $11,933,511 at
December 31, 1994 and 1993 respectively. The fair value of
debt is estimated to be its carrying value based on the
current rates offered for debt having the same or similar
terms, and remaining maturities.
NOTE 3INVESTMENTS
In May 1993, FASB issued Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Statement No. 115 classifies securities into three
categories: held-to-maturity, trading and available-for-
sale. The Company's securities are classified as available-
for-sale. Statement No. 115 requires available-for-sale
securities be reported at fair value and the unrealized
gains and losses be reported in a separate component of
shareholders' equity. The Company adopted Statement No.
115 effective January 1, 1994. The market value of the
fixed maturity investments was approximately $2,380,000 less
than the amortized cost at the end of 1994.
(a) Investments in fixed maturities, notes and redeemable
preferred stocks are carried at market at December 31, 1994
and at the lower of aggregate cost or market value at
December 31, 1993. Investments in common stocks and
nonredeemable preferred stocks are carried at market value.
The mortgage loan on real estate is carried at the
estimated realizable value. Short-term investments are
carried at cost, which approximates market value.
(b) Unrealized gains and losses on marketable equity
securities are credited or charged directly to shareholders'
equity. Realized gains and losses on investments included
in the results of operations are determined using the
"identified certificate" cost method. Realized gains
(losses) and the change in unrealized gains (losses) on
investments are summarized as follows:
Fixed Equity
Maturities Securities Other
Total Realized
1994$(7,019,379)$ 930,416 $ (238,287) $(6,327,250)
19932,024,300 1,113 (56,750) 1,968,663
19927,019,084 452,675 (431,855) 7,039,904
Change in unrealized
1994$(3,221,584)$(1,657,259)$ (140,027)$(5,018,870)
1993 (13,657) 724,690 (13,921) 697,112
1992 - 362,022 (78,806) 283,216
The change in unrealized gains for 1992 is before income
taxes of $96,294.
Net amortization of bond discount and premium charged to
income for the years ended December 31, 1994, 1993 and 1992
are $153,602, $53,021 and $355,394, respectively.
Unrealized gains and losses reflected in equity are as
follows:
1994 1993
1992
Gross unrealized gains $ 136,025 $ 1,716,292 $ 1,63
8,047
Gross unrealized losses (2,751,029) (153,735) (154,
311)
Net unrealized gains (losses) before taxes(2,615,004)1,5
62,557 1,483,736
Applicable deferred income taxes -
- - - - - (618,291)
Net unrealized gain (loss)$ (2,615,004)$ 1,562,557 $
865,445
At December 31, 1992, net unrealized gains included in
shareholders equity were $865,445 after charging deferred
taxes of $618,291. In 1993, the previously recognized
deferred taxes of $618,291 were reversed due to the tax loss
carryforward position of the Company.
Proceeds from sales of investments in fixed maturities and
related realized gains and losses were as follows:
1994
1993 1992
Proceeds from sales $ 134,317,939 $ 63,669,007 $214,338,
560
Gross realized gains 497,952 2,038,451 7,032,526
Gross realized losses (7,517,331) (14,151) (13,442)
Proceeds from sales of investments in equity securities and
related realized gains and losses were as follows:
1994
1993 1992
Proceeds from sales $ 9,290,932 $ 125,425 $
729,368
Gross realized gains 1,555,773 1,162 452,675
Gross realized losses (625,357) (49) -
(c) Investments which exceed 10% of shareholders' equity,
excluding investments in U.S. Government and government
agencies and authorities, at December 31, 1994, are as
follows:
Carrying Value
Municipal bonds:
Louisiana St., 7.0%, Due 08/01/2001$ 312,000
Lapeer Co., MI, 6.40%, Due 06/01/2001206,000
Knoxville, TN, 4.50%, Due 11/01/2000 105,000
Vero Beach, FL, 6.50%, Due 12/01/2007101,000
Montgomery Co., NC, 5.50%, Due 05/01/1995100,000
Columbia Co., GA, 6.80%, Due 04/01/199978,000
Florida St., 6.75%, Due 01/01/1995 65,000
Corporate bonds:
Greyhound Lines Inc., 10.0%, Due 07/00/20011,227,000
IBM Credit Corp., 9.675%, Due 07/01/20081,175,000
Non-sinking fund preferred stocks:
Ohio Edison, 7.75% 147,000
Utilicorp United, Inc., $2.05 69,000
Common stock:
BB&T Financial Corp. 88,000
Catalytica Incorporated 87,000
Short-term investments:
Dominion Resources - commercial paper 14,900,000
Cash Accumulation Trust - National Money Market Fund
2,902,000
First Union Bank - sweep investment account1,320,000
NationsBank - sweep investment account 566,000
Liberty National Bank - repurchase agreement fund
445,000
National Bank of South Carolina - certificate of deposit
75,000
Mortgage loan on real estate - commercial property
1,965,000
There were no bonds which were non-income producing for the
twelve months ended December 31, 1994.
Fixed maturity investments with an amortized cost of
$21,873,897 at December 31, 1994 ($21,393,010 at 1993) are
on deposit with regulatory authorities.
(d) The amortized cost and estimated market values of
investments in fixed maturities and equity securities by
categories of securities are as follows:
December 31,
1994
Gross Gross
Estimated
Amortized Unrealized
Unrealized Market
Cost Gains
Losses Value
U.S. Government and government
agencies and authorities$ 36,368,053 $ 1,808 $
(2,454,461) $ 33,915,400
States, municipalities and political
subdivisions 1,093,246 28,275 (371)1,121,150
All other corporate2,357,581 44,474 - 2,402,055
Mortgage-backed (government guaranteed)
securities 1,498,234 - - 1,498,234
Redeemable preferred stocks 4,100 -
- - - - - 4,100
Total fixed maturities 41,321,214 74,557 (
2,454,832) 38,940,939
Non-redeemable preferred stocks282,094 - (66,031)
216,063
Common stocks 258,561 61,468 (77,600)
242,429
Total equity securities 540,655 61,468 (
143,631) 458,492
Other long-term investments 198,658 -
(152,566) 46,092
Total $ 42,060,527 $ 136,025 $(2,751,029)$ 39,
445,523
December 31,
1993
Gross Gross
Estimated
Amortized Unrealized
Unrealized Market
Cost Gains
Losses Value
U.S. Government and government
agencies and authorities$ 97,934,599 $ 753,517 $
(9,505) $ 98,678,611
States, municipalities and political
subdivisions 1,741,112 99,427 (1,513)1,839,026
All other corporate499,659 38,466 - 538,125
Redeemable preferred stocks 1,606,199 12,205
(51,288) 1,567,116
Total fixed maturities 101,781,569 903,615
(62,306) 102,622,878
Non-redeemable preferred stocks25,622 - (2,692)
22,930
Common stocks 1,563,417 1,577,888 (100)
3,141,205
Total equity securities 1,589,039 1,577,888
(2,792) 3,164,135
Other long-term investments 121,024 138,404
(150,943) 108,485
Total $ 103,491,632 $ 2,619,907 $ (216,041)$
105,895,498
(e) Actual maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without penalties. The amortized
cost and estimated market value of fixed maturities at
December 31, 1994, by contractual maturity, are as follows:
December 31, 1994
Estimated
Amortized
Market
Cost
Value
Due in one year or less $ 2,031,646$ 2,030,000
Due after one year through five years20,717,39119,743,150
Due after five years through ten years15,568,91114,167,442
Due after ten years 2,999,1662,996,247
Redeemable preferred stocks 4,100 4,100
Total $41,321,214$38,940,939
(f) Investment income consists of the following:
1994
1993 1992
Fixed maturities $ 4,347,768 $ 4,323,593 $ 8,04
2,946
Equity securities 266,688 96,221 101,032
Short-term investments 626,366 958,706 1,859,250
Mortgage loan 254,792 273,345 273,769
Total investment income 5,495,614 5,651,865 10,276,997
Investment expenses (174,086) (196,347) (303,591)
Net investment income $ 5,321,528 $ 5,455,518 $ 9,97
3,406
In December, 1993, the Company entered into an Investment
Management Client Agreement with Prudential Securities
Incorporated. Prudential Securities serves as the Company's
investment advisor on all portfolio investments.
NOTE 4NOTES PAYABLE
Notes payable at December 31, 1994 and 1993, are summarized
as follows:
Total Total
1994
1993
Real estate mortgage loans:
Interest at 8-3/4%, $30,946 principal and interest due
monthly to December, 1999 $ - $ 1,740,738
Interest at 9-3/4%, $2,473 principal and interest due
monthly to March, 2004 - 192,773
Note payable, principal and interest due June 30, 1994,
interest at 8.5% - 10,000,000
Interest note payable, principal due when called, interest
at 8.5%, due
annually 439,167
- - - - -
439,167 11,933,511
Less amount due in one year (439,167)(10,239,426)
Total long-term debt $ - $ 1,694,085
Principal on the new interest note payable is not due until
called by the holders, and the interest is accrued yearly,
on the anniversary date of the transaction. If the accrued
interest is not paid by the anniversary date, that accrued
interest will be added to the principal amount of the note.
In June 1994, the $10 million note payable was exchanged for
7 million shares of common stock. This exchange resulted in
$7 million of capital for Common Stock issued at a $1 par
value and $3 million of additional paid in capital based
upon the Company's estimate that the $10 million note
approximated the value of the stock issued.
The extraordinary gain from the extinguishment of debt
recognized in 1993 is as follows (000's omitted):
Gain before income taxes $ 14,794
Provision for income taxes 5,559
Net gain $ 9,235
NOTE 5BENEFIT PLANS
(a) The Seibels Bruce & Company Employees' Profit Sharing
and Savings Plan contains both profit-sharing and 401(k)
plan elements.
The profit-sharing element of the plan covers all full-time
employees. There were no contributions to this element of
the plan during the last three years. The profit-sharing
account currently holds 214,587 shares of SBIG stock.
Under the 401(k) element of the plan, employees may elect to
have a portion of their salary withheld on a pre-tax basis
for investment in the plan, subject to limitations imposed
by IRS regulations. Through December 31, 1992, the employer
matched 50% of an employee's contributions, to the extent
the match did not exceed a maximum 3% of the employee's
eligible compensation. The
employer contribution was invested half in common stock of
the Company and half in accordance with the investment
option selected by the participant. From January 1, 1993
through June 30, 1994, the employer matched 25% of the
employee contributions, limited to a maximum of 1.5% of the
employee's eligible compensation. Effective July 1, 1994,
the employer began matching 50% of the employee
contributions, limited to a maximum of 3% of the employee's
eligible compensation. The employer matched portion is
invested in accordance with the investment options selected
by the participant. The employer contribution to the plan
on behalf of participating employees was $270,233 in 1994
($81,850 in 1993 and $239,887 in 1992).
(b) The Company has a plan under which SBIG stock options
may be granted to officers and key employees of the Company
and its subsidiaries. SBIG option activity for the three
years ended December 31, 1994 is summarized as follows:
1994
1993 1992
Shares under options outstanding at beginning of year64
,175 150,950 232,725
Canceled or expired during year(13,025) (86,775) (81,775)
Shares under options outstanding at end of year 51,150
64,175 150,950
The range of option prices per share for options outstanding
at the end of 1994 is $10.63-$11.25, such option prices
being substantially greater than the current trading price.
At December 31, 1994, 948,850 shares of the Company's common
stock have been reserved for future grant.
(c) The Company and its subsidiaries currently provide
certain health care and life insurance benefits for retired
employees. Prior to 1993, the cost of these benefits was
recognized as claims and premiums were paid.
In 1993, the Company adopted FASB Statement No. 106, which
requires that the projected future cost of providing
postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render
service instead of when the benefits are paid. The
cumulative effect of the accounting change is being recorded
as a charge against income on a prospective basis as part of
the future annual benefit cost.
The postretirement benefit expense was approximately $91,300
in 1994, $90,764 in 1993, and $292,000 in 1992.
The following table presents the reconciliation of the
funded status at December 31, 1994 and 1993:
1994
1993
Accumulated postretirement benefit obligation:
Active employees $ (80,171) $ (
70,078)
Current retirees (633,740)(649,658)
Total (713,911)(719,736)
Fair value of assets -
- - - - -
Accumulated postretirement benefit obligation in excess of
fair value of assets (713,911)(719,736)
Unrecognized transition obligation (asset) 627,525
662,388
Accrued postretirement benefit cost $ (86,386) $ (5
7,348)
Net periodic postretirement benefit cost includes the
following components for 1994 and 1993:
1994
1993
Service cost $ 4,742 $ 4,500
Interest cost 51,695 51,401
Amortization of transition obligation 34,863 34,863
Net periodic postretirement benefit $ 91,300 $ 90,764
The weighted average annual assumed rate of increase in the
per capita cost of covered benefits (i.e., health care cost
trend rate) was 12% for 1994 and 1993 and is assumed to
decrease to a 7% ultimate trend with a duration to ultimate
trend of 9 years. The health care cost trend rate
assumption has a significant effect on the amounts reported.
For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of
December 31, 1994 by $44,882.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at
December 31, 1994 and 1993.
NOTE 6INCOME TAXES
In 1993, the Company adopted FASB 109, "Accounting for
Income Taxes", which requires the use of the liability
method in accounting for income taxes. Deferred taxes are
determined based on the estimated future tax effects of
differences between the financial statement and tax bases of
assets and liabilities given the provisions of the enacted
tax laws. The adoption had no material effect on the
financial statements. Prior to the implementation of FASB
109, the Company accounted for income taxes using Accounting
Principles Board Opinion No. 11.
The Company files a consolidated federal income tax return
which includes all companies. A formal tax-sharing
agreement has been established by the Company with its
subsidiaries.
A reconciliation of the differences between income taxes
(benefit) on loss before extraordinary items computed at the
federal statutory income tax rate and tax expense (benefit)
from operations is as follows:
1994 1993
1992
(thousands of
dollars)
Federal income tax (benefit), at statutory rates$ (6
,475) $ (5,104)$ (11,087)
Increase (decrease) in taxes due to:
Tax exempt interest (92) (49) (130)
Dividends received deduction (82) (19) (71)
"Fresh start" adjustment for loss reserve
discounting for tax purposes - (251) (292)
Changes in asset valuation allowance 6,695 777
- - - - -
Limitation on recognition of loss benefits - -
11,607
Other (17) (116) 31
Tax expense (benefit) from operations$ 29 $
(4,762) $ 58
The provision (benefit) for income taxes on loss from
operations consists entirely of current income taxes. The
change in deferred amounts has been offset by the valuation
allowance.
Deferred tax liabilities and assets at December 31, 1994 and
1993, are comprised of the following:
1994 1993
Tax Effect Tax
Effect
(thousands of
dollars)
Deferred tax liabilities:
Deferred acquisition costs $ 302 $ 1,306
Property and equipment 99 51
Net unrealized investment gains - 535
Other 38 -
Total deferred tax liabilities 439 1,892
Deferred tax assets:
Net operating loss carryforwards (38,961) (30,603)
Insurance reserves (4,963) (8,762)
Net unrealized investment losses (837) -
Bad debts (718) (1,025)
Other (948) (795)
Total deferred tax assets (46,427) (41,185)
Asset valuation allowance 45,988 39,293
Net deferred tax liabilities $ - $ -
The Company has determined, based on its recent earnings
history, that an asset valuation allowance of $46.0 million
should be established against the deferred tax asset at
December 31, 1994. The Company's asset valuation allowance
changed by $6,695,000 during 1994, due primarily to the
increase in net operating loss carryforwards.
As of December 31, 1994, the Company has unused tax net
operating loss carryforwards and capital loss carryforwards
of $94.3 million for income tax purposes. If not utilized
against taxable income in future years, the tax
carryforwards will expire as follows:
Year of Expiration Net Operating
Loss Capital Loss
1999 $ - $6,600,000
2004 16,000,000 -
2006 20,400,000 -
2007 31,900,000 -
2009 19,400,000 -
$87,700,000 $6,600,000
Subsequent to year-end, the Company completed a rights
offering and there has been a stock purchase by investors
(see Note 13). The possibility exists that a change in
ownership, as defined by the Internal Revenue Code, may have
occurred, although an actual determination with respect
thereto has not been definitely made. If a change in
ownership has occurred or does occur, the unused loss
carryforwards will be subject to certain limitations.
NOTE 7SHAREHOLDERS' EQUITY AND DIVIDENDS
The ability of SBIG to declare and pay cash dividends, as
well as to pay any debt service, is dependent upon the
ability of SCIC to declare and pay dividends to SBIG. SCIC
is regulated as to its payment of dividends by the South
Carolina Insurance Holding Company Regulatory Act (the
"Act").
The Act provides that, without prior approval of the South
Carolina Insurance Commissioner, dividends within any twelve-
month period may not exceed the greater of (i) 10% of SCIC's
surplus as regards policyholders as of December 31 of the
prior year or (ii) SCIC's statutory net income, not
including realized gains, for the prior calendar year.
Notwithstanding the foregoing, SCIC may not pay any dividend
without the prior approval of the Chief Insurance
Commissioner of the State of South Carolina.
The Company has 185,858 outstanding warrants at an exercise
price of $.01 per share.
NOTE 8LOSS PER SHARE
Loss per share is based on the weighted average number of
shares outstanding. Such weighted average outstanding
shares are 11,067,656 in 1994 (7,500,534 in 1993 and
7,500,461 in 1992). Outstanding stock options and warrants
are common stock equivalents but have no dilutive effect on
income per share.
NOTE 9COMPANY'S OPERATIONS IN DIFFERENT BUSINESS SEGMENTS
The Company acts as a servicing carrier for certain state
and federal insurance facilities on a commission basis. The
Company is also engaged in the underwriting of property and
casualty insurance through its subsidiary property and
casualty insurance group.
Effective January 1, 1995, Forest Lake Travel Service, a
subsidiary travel agency, was sold. FLT's 1994 pre-tax
income was $95,000, $420,000 in 1993 and $443,000 in 1992.
In the third quarter of 1993, Investors National Life
Insurance Company, the Company's credit life and credit
accident and health insurance subsidiary, transferred all of
its assets, other than bonds pledged to various state
insurance departments, and all of its liabilities to
Investors National Life Insurance Company of South Carolina.
Immediately following, all of the outstanding stock of
Investors National Life Insurance Company was sold. The
runoff of the business was assumed by Investors National
Life Insurance Company of South Carolina. The pretax income
(loss) of Investors National was $(677,000), $44,000 and
$179,000 in 1994, 1993 and 1992, respectively.
Premium Service Corporation of Columbia ("PSC") provides
insurance premium financing services through independent
agents. Pretax income of Premium Service was $470,000 in
1993, and $262,000 in 1992. In February, 1994,
substantially all of the assets of PSC were sold, and a new
company, Policy Finance Company, ("PFC") was formed to
handle the administration of the assets retained. The pre-
tax income of PFC was $538,000 in 1994. The Company has no
plans to continue its own premium financing activity.
The following sets forth certain information with respect to
the Company's operations in different business segments:
Year Ended December 31,
1994 1993
1992
(thousands of
dollars)
Revenue:
Property and casualty insurance segments:
Insurance underwriting segments:
Automobile $ 12,655 $ 22,336 $ 45,628
All other lines of insurance 2,063 32,995 71
,544
Total for insurance underwriting segments14,718
55,331 117,172
Commission and service activities segment26,593 18,877
16,300
Net investment income and other interest income5,690
6,578 12,230
Realized gains (losses) on investments (5,793) 1,965
6,869
Total for property and casualty insurance segments
41,208 82,751 152,571
Other business segments 4,476 8,420 9,167
Total revenue $ 45,684 $ 91,171 $161,738
Year Ended December 31,
1994 1993
1992
(thousands of
dollars)
Operating profit (loss):
Insurance underwriting segments:
Automobile $ (13,205)$ (1,234)$
(5,706)
All other lines of insurance (19,635) (23,190) (48
,437)
Total for insurance underwriting segments(32,840)(2
4,424) (54,143)
Commission and service activities segment 15,109 4,321
7,085
Net investment income 5,690 6,578 12,230
Realized gains (losses) on investments (5,793) 1,965
6,869
Subtotal (17,834)(11,560)(27,959)
Other business segments 141 1,863 1,435
Operating loss (17,693) (9,697)(26,524)
General corporate expenses, net of miscellaneous income and
expense (1,031) (2,787)(4,231)
Interest expense (321) (2,527) (1,8
53)
Consolidated loss before income taxes$ (19,045)$ (15,011)$
(32,608)
Operating loss represents revenue less operating expenses.
Net investment income is that related to, but not
individually identifiable with, the various property and
casualty insurance underwriting and commission and service
activities business segments.
Identifiable assets by business segment or combined segments
represent assets directly identified with those operations
and an allocable share of jointly used assets.
Year Ended December 31,
1994 1993
1992
(thousands of
dollars)
Identifiable Assets
Property and casualty insurance underwriting and commission
and service
activities segments, combined, including related
investment activities $ 245,389$ 297,073$ 433,
151
Other business segments 8,449 26,250 25,515
General corporate assets 2,097 1,372 2,
470
Total assets $ 255,935$ 324,695$ 461,
136
In 1994, depreciation and amortization charges for the
various property and casualty insurance underwriting and
commission and service activities segments, combined, were
$832,042 ($412,922 in 1993 and $920,623 in 1992). These
amounts exclude policy acquisition costs of $5,538,067 in
1994, ($17,627,677 in 1993 and $35,709,144 in 1992).
Costs of additions to property and equipment for the
property and casualty insurance underwriting and commission
and service activities segments, combined, amounted to
$2,418,219, $41,015 and $67,882 in 1994, 1993 and 1992,
respectively. The majority of the additions in 1994 were
due to purchases made to begin the conversion to bring the
Company's data processing in-house.
NOTE 10 REINSURANCE
(a) The Company's property and casualty insurance
subsidiaries are involved in several types of reinsurance
arrangements. Ceding reinsurance programs include quota
share, pro-rata surplus and excess of loss. In its
servicing carrier operations, premiums are ceded entirely to
the applicable state's reinsurance facility.
(b) Reinsurance contracts do not relieve the Company of its
obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the
Company; consequently, allowances are established for
amounts deemed uncollectible. The Company evaluates the
financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics
of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvency. Reinsuring companies are
obligated for the following amounts for unearned premiums,
unpaid losses and LAE, and paid losses and LAE: (000's
omitted)
1994
1993
Unearned premiums $48,483 $ 54,926
Unpaid losses and LAE $88,731 $ 76,220
Paid losses and LAE $30,278 $ 33,845
Reinsurance recoverable on paid and unpaid losses and LAE
and prepaid reinsurance at December 31, 1994, reflecting the
five largest balances with reinsurers, were: (000's omitted)
Reinsurance Prepaid
Reinsurer Recoverable
Reinsurance
South Carolina Reinsurance Facility$89,805 $23,029
North Carolina Reinsurance Facility 9,730 2,075
North American Reinsurance Corp. 10,917 1,947
National Flood Program (FEMA) 2,952 19,162
Kentucky Insurance Placement Facility3,526 2,216
All Others 2,079 54
Total $119,009 $48,483
The Company believes these balances from the various
facilities are fully collectible due to the governmental
agency's ability to assess member companies for
deficiencies. The remaining recoverables due from
nonaffiliated reinsurance companies have also been deemed
fully collectible by the Company.
With respect to credit concentrations, most of the Company's
business activity is with agents and policyholders located
within the five operating states. The primary reinsurance
recoverables are from the state and federal servicing
carrier activities. There are otherwise no material credit
concentrations related to premiums receivable, agents'
balances, and premium notes receivable.
NOTE 11 COMMITMENTS AND CONTINGENCIES
(a) A contingent liability exists with respect to
reinsurance placed with other companies. (See Note 10.)
(b) Due to the nature of their business, certain
subsidiaries are parties to various other legal proceedings,
which are considered routine litigation incidental to the
insurance business.
(c) In connection with the 1990 sale of a subsidiary, the
Company has committed to provide certain stated minimum
dollar volumes of claims adjusting fees through December 31,
1996. Amounts provided in excess of the requirement, up to
10% of the requirement, can be carried forward to benefit
future periods. Similarly, amounts provided below the
requirement, up to 10%, can be added to the next year's
commitment. The estimated commitment for 1995 is $6.3
million.
(d) The 1994 results include a settlement of a dispute which
was in pending arbitration. The settlement agreement
resolved all issues arising from an indemnification dispute
as well as a commutation of the Company's associated
reinsurance obligation. Under the settlement, the Company
paid $10.3 million to the other party and such party agrees
to pay up to $20 million in direct losses on all American
Star claims. Any loss payments in excess of $20 million will
be shared equally between the parties net of any reinsurance
collections. The Company will only share in those payments
to the extent of 50% of its insurance company's consolidated
statutory surplus above $20 million, exclusive of direct
contributions to capital. At December 31, 1994, such
statutory deficit, as adjusted, was $1.6 million.
Therefore, the Company has recorded no liability at this
time.
NOTE 12 RELATED PARTY TRANSACTIONS
Certain members of the Board of Directors of the Company are
also members of the Board of Directors of Policy Management
Systems Corporation (PMSC), which provides data processing
services to the Company. The term of this contract expires
December 31, 1995. The Company paid data processing charges
of $3,449,723 in 1994 ($6,128,624 in 1993 and $7,123,208 in
1992). The amount payable to PMSC at year-end was $203,210
at 1994 and $402,996 at 1993.
During 1994, both the Chief Executive Officer and the
President of the Company resigned. They received
termination agreements that provide for severance. The
former President received a one-time lump sum payment in the
fourth quarter of 1994. The former Chief Executive Officer
received a severance arrangement whereby half was received
in a lump-sum payment in the fourth quarter of 1994 with two
additional payments in the future.
NOTE 13 SUBSEQUENT EVENTS:
During the first quarter of 1995, the Company completed a
Rights Offering. Each shareholder of record received one
right for each five shares of common stock held at the close
of business on December 9, 1994. The rights allowed the
shareholders to purchase additional shares of common stock
at a price of $2.40 per share. The Company received
proceeds, net of expenses, of $5.1 million in exchange for
2,217,152 newly issued shares.
On April 13, 1995, the Company received $2 million proceeds
from a promissory note payable to the investors who acquired
approximately 49% of the outstanding common shares. The
debt accrues interest at prime rate plus 2%, and is payable
in full no later that May 1, 1996. The note is secured by
certain property and equipment of the Company and its
subsidiaries.
As a consequence of recording additional loss and loss
adjusting expense liabilities after filing its statutory
annual statement with regulators, SCIC has an adjusted
negative statutory net worth as of December 31, 1994. To
cure the deficiency, $7 million of capital was contributed
directly to SCIC and its subsidiaries by the Company from
the proceeds of the transactions described above. In
addition, premium writings have been voluntarily curtailed
until the Company and its regulators are satisfied that the
financial condition of the Company has been stabilized.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION (unaudited)
(Dollars in thousands, except per share amounts)
The following is a summary of unaudited quarterly
information for the years ended December 31, 1994 and 1993:
1st Quarter 2nd Quarter 3rd
Quarter 4th Quarter
1994
Property and casualty premiums earned$ 5,228 $ 3,186 $
3,488 $ 2,816
Credit life premiums 556 466 830 (51)
Commission and service income6,038 7,527 7,106 5,922
Net investment income and other interest income1,757 1,862
1,960 647
Realized gains (losses) on investments1,842 (612) (3,405)
(4,152)
Net income (loss) $ 219 $ 561 $ 3,271 $(23,125)
Per share 0.03 0.07 0.23 (1.59)
The third quarter was affected by a $6.1 million reserve
redundancy in connection with a commutation and $3.4 million
in realized investment losses. The fourth quarter results
include a reserve strengthening charge of $9.0 million in
loss and loss adjustment expense reserves in addition to
already recorded fourth quarter incurred losses and LAE of
$10.4 million, a $2 million decrease, compared to prior
quarters, in commission and service income and $4.1 million
in realized investment losses.
1993
Property and casualty premiums earned$ 22,189 $ 18,064 $ 1
0,273 $ 4,805
Credit life premiums 1,047 822 639 699
Commission and service income4,835 3,872 5,157 5,013
Net investment income and other interest income2,072 1,880
1,651 1,487
Realized gains (losses) on investments1,716 311 153
(211)
Loss from continuing operations$ (1,422)$ (4,747)$ (3,501)
$ (580)
Per share (0.19) (0.63) (0.47) (0.08)
Extraordinary item-gain on extinguishment
of debt, net of taxes$ - $ - $ -
$ 9,235
Per share - - - 1.23
Net income (loss) $ (1,422)$ (4,747)$ (3,501)$ 8,655
Per share (0.19) (0.63) (0.47) 1.15
The first quarter was affected by $4.2 million from the
severe winter storm in March, 1993, as well as a $1 million
rate rollback on North Carolina premiums. The second
quarter was impacted by a $1.4 million reduction to revenue
due to a refinement in the estimate of accrued servicing
carrier loss adjusting fee income, and a $1.3 million loss
from the Company's required participation in residual market
pools and associations, primarily the National Workers'
Compensation Pool. The third quarter was impacted by a $2.5
million expense due to an accrual for a litigation
contingency. Fourth quarter underwriting results were
affected by a $5.5 million addition to loss reserves.
Item 9.Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
Inapplicable.
PART III
Item 10. Directors, Executive Officers, Promoters, and
Control Persons of the Registrant
Information other than the listing of executive
officers of the Company (which is presented in Part
I of this document) is contained under the heading
"Election of Directors" in the proxy statement
relating to the annual meeting of shareholders to be
held May 24, 1995 and is incorporated herein by
reference since the Company files such definitive
proxy materials pursuant to Regulation 14A on or
prior to April 30, 1995.
Item 11. Executive Compensation
The information contained under the headings
"Compensation of Executive Officers," "Directors'
Compensation," and "Compensation Plans and
Arrangements" in the proxy statement relating to the
annual meeting of shareholders to be held May 24,
1995 is incorporated herein by reference since the
Company files such definitive proxy materials
pursuant to Regulation 14A on or prior to April 30,
1995.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information contained under the headings
"Principal Shareholders" and "Election of Directors"
in the proxy statement relating to the annual
meeting of shareholders to be held on May 24, 1995
is incorporated herein by reference since the
Company files such definitive proxy materials
pursuant to Regulation 14A on or prior to April 30,
1995.
Item 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain
Transactions" in the proxy statement relating to
the annual meeting of shareholders to be held on May
24, 1995 is incorporated herein by reference since
the Company files such definitive proxy materials
pursuant to Regulation 14A on or prior to April 30,
1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) (1) and (2) - List of Financial Statements and
Financial Statement Schedules
The following consolidated financial statements of
The Seibels Bruce Group, Inc. and subsidiaries are
included in Item 8:
Report of Independent Public Accountants - Arthur
Andersen LLP
Consolidated balance sheets - December 31, 1994 and
December 31, 1993.
Consolidated statements of operations - Years ended
December 31, 1994; December 31, 1993; and December
31, 1992.
Consolidated statements of changes in shareholders'
equity - Years ended December 31, 1994; December 31,
1993; and December 31, 1992.
Consolidated statements of cash flows - Years ended
December 31, 1994; December 31, 1993; and December
31, 1992.
The notes to the consolidated financial statements
included in Item 8 pertain both to the consolidated
financial statements listed above and the condensed
financial information of the registrant included in
Schedule III under Item 14.
The following financial statement schedules are
included in Item 14(d):
Schedule I -
Summary of Investments Other than Investments in
Related Parties
Schedule III -
Condensed Financial Information of Registrant
Schedule V - Supplementary Insurance Information
Schedule VI - Reinsurance
Schedule VIII - Valuation and Qualifying Accounts
Schedule X -
Supplemental Information Concerning Property/Casua
lty Insurance Operations
All other schedules to the consolidated financial
statements required by Article 7 of Regulation S-X
are not required under the related instructions or
are inapplicable and therefore have been omitted.
(a) (3) List of Exhibits
(2) Plan of Acquisition:
(a) Agreement and Plan of Merger among Registrant,
American States Insurance Company, Lincoln National
Corporation, and ASIC Corporation dated April 13,
1992, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit (2)(1)-1, for
the year ended December 31, 1991.
(b) Stock Purchase Agreement between registrant,
Abdullatif Ali Alissa Est. and Saad A. Alissa,
dated December 22, 1993, incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (2)(1)-1, for the year ended December 31,
1993.
(3) Articles and By-Laws:
Articles of Incorporation of the Registrant, as
amended, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit (3)(1)-1, for
the year ended December 31, 1989.
By-Laws of the Registrant, as amended February 25,
1992, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit (3)(1)-1, for
the year ended December 31, 1991.
(10) Material Contracts:
* Separation Agreement and Mutual Release, dated
October 14, 1994, by and between The Seibels Bruce
Group, Inc. and W. Thomas Reichard, incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(3)-1, for the year ended December
31, 1994.
* Amended and Restated Employment Agreement, dated
October 14, 1994, by and between The Seibels Bruce
Group, Inc. and Sterling E. Beale, incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(3)-2, for the year ended December
31, 1994.
* Retirement Agreement, dated October 14, 1994, by
and between The Seibels Bruce Group, Inc. and
Sterline E. Beale, incorporated herein by reference
to the Annual Report on Form 10-K, Exhibit (10(3)-
3, for the year ended December 31, 1994.
The Third Amended and Restated Promissory Note,
dated as of December 22, 1993, by and between The
Seibels Bruce Group, Inc., Abdullatif Ali Alissa
Est. and Saad A. Alissa, incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (10)(10)-1, for the year ended December 31,
1993.
Custody Agreement, dated as of December 16, 1993,
by and between The Seibels Bruce Group, Inc., its
subsidiaries and The Prudential Bank and Trust
Company, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit (10)(10)-2, for
the year ended December 31, 1993.
Consulting Agreement, dated as of December 30,
1993, by and between The Seibels Bruce Group, Inc.,
its subsidiaries and Albert H. Cox, Jr,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(10)-3, for the
year ended December 31, 1993.
Investment Management Client Agreement, dated as of
December 16, 1993, by and between The Seibels Bruce
Group, Inc. and Prudential Securities Incorporated,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(10)-4, for the
year ended December 31, 1993.
Stock Purchase Agreement, dated as of July 30,
1993, by and between National Teachers Life
Insurance Company and South Carolina Insurance
Company, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit (10)(10)-5, for
the year ended December 31, 1993.
Asset Purchase Agreement, dated as of July, 1993,
by and between Premium Service Corporation,
Seibels, Bruce and Company and Norwest Financial
Resources, Inc., incorporated herein by reference
to the Annaul Report on Form 10-K, Exhibit (10)(10)-
6, for the year ended December 31, 1993.
First Amendment to Asset Purchase Agreement, dated
as of December 22, 1993, by and between Premium
Service Corporation, Seibels, Bruce and Company and
Norwest Financial Resources, Inc., incorporated
herein by reference to the Annaul Report on Form 10-
K, Exhibit (10)(10)-7, for the year ended December
31, 1993.
Second Amendment to Asset Purchase Agreement, dated
as of February, 1994, by and between Premium
Service Corporation, Seibels, Bruce and Company and
Norwest Financial Resources, Inc., incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(10)-8, for the year ended December
31, 1993.
Third Amendment to Asset Purchase Agreement, dated
as of February 15, 1994, by and between Premium
Service Corporation, Seibels, Bruce and Company and
Norwest Financial Resources, Inc., incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(10)-9, for the year ended December
31, 1993.
Agency Agreement, dated as of June 3, 1993, by and
between American Reliable Insurance Company,
Seibels, Bruce and Company and Agency Specialty of
Kentucky, Inc., incorporated herein by reference to
the Annual Report on FOrm 10-K, Exhibit (10)(10)-
10, for the year ended December 31, 1993.
The Second Amended and Restated Credit Agreement,
dated as of February 4, 1993, by and between The
Seibels Bruce Group, Inc. and NationsBank of North
Carolina, N.A., incorporated herein by reference to
the Annual Report on Form 10-K, Exhibit (10)(9)-1,
for the year ended December 31, 1992.
The Second Amended and Restated Promissory Note,
dated as of February 4, 1993, by and between The
Seibels Bruce Group, Inc. and NationsBank of North
Carolina, N.A., incorporated herein by reference to
the Annual Report on Form 10-K, Exhibit (10)(9)-2,
for the year ended December 31, 1992.
The Seibels Bruce Group, Inc., Common Stock
Warrant, dated as of February 4, 1993, incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(9)-3, for the year ended December
31, 1992.
The Second Amended and Restated Pledge Agreement,
dated as of February 4, 1993, by and between The
Seibels Bruce Group, Inc. and NationsBank of North
Carolina, N.A., incorporated herein by reference to
the Annual Report on Form 10-K, Exhibit (10)(9)-4,
for the year ended December 31, 1992.
The Amended and Restated Security Agreement, dated
as of February 4, 1993, by and between The Seibels
Bruce Group, Inc. and NationsBank of North
Carolina, N.A., incorporated herein by reference to
the Annual Report on Form 10-K, Exhibit (10)(9)-5,
for the year ended December 31, 1992.
The Amended and Restated Subsidiary Security
Agreement, dated as of February 4, 1993, by and
between Seibels, Bruce & Company and NationsBank of
North Carolina, N.A., incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (10)(9)-6, for the year ended December 31,
1992.
The Amended and Restated Subsidiary Security
Agreement, dated as of February 4, 1993, by and
between Forest Lake Travel Service, Inc. and
NationsBank of North Carolina, N.A., incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(9)-7, for the year ended December
31, 1992.
Agency Agreement, dated as of February 26, 1993, by
and between Generali - U.S. Branch and Seibels,
Bruce & Company, incorporated herein by reference
to the Annual Report on Form 10-K, Exhibit (10)(9)-
8, for the year ended December 31, 1992.
Stock Purchase Agreement dated as of April 16,
1990, by and among European International
Reinsurance Company Ltd., The Seibels Bruce Group,
Inc., and South Carolina Insurance Company, with
all exhibits thereto, including the Binder of
Reinsurance dated December 31, 1989, as amended by
the First Amendment thereto dated as of April 16,
1990, incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(7)-5, for the year ended December
31, 1990.
Agreement for Data Processing Services dated as of
October 1, 1981, by and between Policy Management
Systems Corporation and Seibels, Bruce & Company,
as amended September 1, 1990, incorporated herein
by reference to the Annual Report on Form 10-K,
Exhibit (10)(7)-6, for the year ended December 31,
1990.
Employment Agreement between Registrant and
Sterling E. Beale, dated December 15, 1988,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(6)-3, for the
year ended December 31, 1988.
Employment Agreement between Registrant and W.
Thomas Reichard, III, dated December 15, 1988,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(6)-5, for the
year ended December 31, 1988.
Agreement between Registrant and Jack S. Hupp,
dated December 30, 1991, incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (10)(5)-2, for the year ended December 31,
1991.
Amended and Restated Executive Compensation
Agreement between Registrant and Jack S. Hupp,
dated December 30, 1991, incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (10)(5)-3, for the year ended December 31,
1991.
The Seibels, Bruce & Company Employees' Profit
Sharing and Savings Plan, dated as of June 30,
1992, as amended January 4, 1993, incorporated
herein by reference to the Annual Report on Form 10-
K, Exhibit (10)(9)-9, for the year ended December
31, 1992.
The Seibels Bruce Group, Inc., Stock Option Plan,
dated May 20, 1987, incorporated herein by
reference to the Annual Report on Form 10-K,
Exhibit (10)(4)-3, for the year ended December 31,
1987.
Amendment No. 1, dated February 25, 1992, to The
Seibels Bruce Group, Inc., 1987 Stock Option Plan,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(5)-4, for the
year ended December 31, 1991.
Minutes of the Compensation Committee of The
Seibels Bruce Group, Inc., adopting an Incentive
Compensation Program, as of January 19, 1987,
incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (10)(8)-6, for the
year ended December 31, 1986.
Deferred Compensation Agreement between the
Registrant and Sterling E. Beale, dated March 8,
1983. Amended February 18, 1987, incorporated
herein by reference to the Annual Report of Form 10-
K, Exhibit (10)(4)-4, for the year ended December
31, 1987.
*Management contract or compensatory plan or
arrangement required to be filed as an exhibit to
this Form 10-K, pursuant to Item 14(c).
(22) Subsidiaries of the Registrant
(24) Consent of Independent Public Accountants
(29) Information from reports furnished to state
insurance regulatory authorities.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
last quarter of the period covered by this report.
(c) and (d) Exhibits and Financial Statement Schedul
es
The applicable exhibits and financial statement
schedules are included immediately after the
signature pages.
For purposes of complying with the amendments to the
rules governing Form S-8 (effective July 13, 1990)
under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into
registrant's Registration Statements on Form S-8
Nos. 2-70057, 2-83595, 33-34973, 33-43618, 33-43601,
and 2-48782, as amended.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange
Commission such indemnification is against public
policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities
(other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Seibels Bruce Group, Inc.
(Registrant)
Date
By /s/ John C. West
John C. West
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date
By /s/John C. West
John C. West
Chairman of the Board and
Office of Chief
Executive Officer
Date
By /s/Robert D. Brooks
Robert D. Brooks
Director and
Office of Chief Executive
Officer
Date
By
Michael M. Ameen, Jr.
Director
Date
By ___________________________________
William M. Barilka
Director
Date
By __________________________________
Albert H. Cox, Jr.
Director
Date
By /s/ Roy L. Faulks_____________________
Roy L. Faulks
Director
Date
By /s/ John P. Seibels____________________
John P. Seibels
Director
Date
By /s/ George R.P. Walker, Jr
George R.P. Walker, Jr.
Director
Date
By /s/ Mary M. Gardner
Mary M. Gardner
Controller (Principal
Accounting Officer)
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS
IN RELATED PARTIES
December
31, 1994
Market Balance Sheet
Cost Value Value
Fixed maturities*
Bonds and Notes:
U. S. Government and government agencies and authorities$
36,368,053 $ 33,915,400$ 33,915,400
States, municipalities and political subdivisions1,093,246
1,121,150 1,121,150
All other corporate 2,357,5812,402,0552,402,055
Mortgage backed securities 1,498,2341,498,2341,498,234
Redeemable preferred stocks:
Public utilities 4,100 4,100
4,100
Total fixed maturities $ 41,321,214$ 38,940,939$ 38,
940,939
Equity securities
Common stocks:
Public utilities $ 10,553$ 21,063$
21,063
Industrial, miscellaneous and all other203,10087,15287,152
Banks, trusts and insurance companies44,908134,214134,214
Nonredeemable preferred stocks:
Public utilities 282,094 216,063
216,063
Total equity securities$ 540,655$ 458,492$
458,492
Mortgage loan on real estate 2,949,080 1,965,0001,965,000
Other long-term investments 198,659 46,092 46,092
Short-term investments 20,457,513 20,457,513 20,45
7,513
Total investments $ 65,467,121$ 61,868,036$ 61,
868,036
*These fixed maturities are classified as fixed maturities
held for sale and are valued at market.
/TABLE
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
BALANCE SHEETS
December 31,
1994 1993
ASSETS
Cash $ 7,856$ 7,285
Investment in subsidiary companies*
South Carolina Insurance Company 6,967,120 30,037,587
Seibels Bruce Service Corporation 115 -
Total assets $ 6,975,091$ 30,044,872
LIABILITIES
Notes payable $ 439,167$ 10,000,000
Income taxes payable to subsidiaries ***4,779,5834,820,782
Other liabilities, including $233,577 payable
to affiliate ($71,055 at 1993)* 210,989 426,976
Total liabilities 5,429,739 15,247,758
SHAREHOLDERS' EQUITY
Special stock, no par value authorized 5,000,000
shares, none issued and outstanding - -
Common stock, $1 par value, authorized 25,000,000
shares, issued and outstanding 14,500,534 shares
(7,500,534 shares at 1993) 14,500,534 7,500,534
Additional paid-in capital 31,879,092 28,879,092
Unrealized (loss) gain on investments owned by subsidiaries (2,615,004)
1,562,557
Retained deficit (42,219,270)(23,145,069)
Total shareholders' equity** 1,545,352 14,797,114
Total liabilities and shareholders' equity$ 6,975,091 $ 30,044,872
* Eliminated in consolidation.
** The shareholders' equity as shown above is for the parent company
only. It does not agree with the consolidated shareholders' equity because
of treasury stock transactions between the parent company and a subsidiary.
*** On March 31, 1995, the intercompany payable as of December 31, 1994
was forgiven by Seibels, Bruce and Company's board of directors.
The accompanying notes are an integral part of these financial statements..
SCHEDULE III (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF LOSS
Year Ended December 31
1994 1993 1992
Income:
Dividends from subsidiary company*$ -$ - $1,470,739
Interest - - 444
Total revenue - - 1,471,183
Expenses:
Interest 110,9562,280,3611,573,737
Other** 111,403 120,898 (122,908)
Total expenses 222,359 2,401,259 1,450,829
Income (loss) before income taxes, equity in undistributed
loss of subsidiary, and extraordinary item(222,359)(2,401,259) 20,354
Tax benefit (41,199)(1,024,635) (148,432)
Income (loss) before equity in undistributed
loss of subsidiary and extraordinary item(181,160)(1,376,624) 168,786
Equity in undistributed loss of subsidiary company*(18,893,041) (8,872,602)
(32,835,238)
Loss before extraordinary item(19,074,201)(10,249,226)(32,666,452)
Extraordinary item - gain from extinguishment
of debt, net of income taxes - 9,235,065 -
Net loss
$(19,074,201)$ (1,014,161)$(32,666,452)
Per share:
Loss before extraordinary item $ (1.72)$ (1.37)$ (4.36)
Extraordinary item - 1.23 -
Net loss $ (1.72)$ (0.14)$ (4.36)
Cash dividends $ -$ -$ -
* Eliminated in consolidation.
**1992 includes a $298,000 reversal of a prior year accrued liability, which
was paid in 1992 by a subsidiary.
The accompanying notes are an integral part of these financial statements.
SCHEDULE III (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Year Ended December 31
1994 1993 1992
Common stock outstanding:
Beginning of year $ 7,500,534$ 7,500,534$ 7,495,141
Stock issued under employee benefit
plans and dividend reinvestment plan - - 5,393
Stock issued in exchange for cancellation
of note payable 7,000,000 - -
End of year $ 14,500,534 $ 7,500,534 $ 7,500,534
Additional paid-in capital:
Beginning of year $ 28,879,092 $ 28,879,092 $ 28,855,716
Stock issued under employee benefit
plans and dividend reinvestment plan- - 23,376
Stock issued in exchange for cancellation
of note payable 3,000,000 - -
End of year $ 31,879,092 $ 28,879,092 $ 28,879,092
Unrealized gain (loss) on securities, net
of deferred income taxes:
Beginning of year $ 1,562,557 $ 865,445 $ 678,523
Cumulative effect of change in accounting -
adoption of FASB 115841,309 - -
Change in unrealized gains on
securities(5,018,870) 697,112 186,922
End of year $ (2,615,004)$ 1,562,557 $ 865,445
Retained (deficit) earnings:
Beginning of year $ (23,145,069)$ (22,130,908)$ 10,535,544
Net loss (19,074,201) (1,014,161)
(32,666,452)
End of year $ (42,219,270)$ (23,145,069)$ (22,130,908)
Total shareholders' equity$ 1,545,352 $ 14,797,114 $
15,114,163
The shareholders' equity as shown above is for the parent company only. It does
not agree with the consolidated shareholders' equity because of treasury stock
transactions between the parent company and a subsidiary.
The accompanying notes are an integral part of these financial statements.
SCHEDULE III (CONTINUED) - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
Year Ended December 31,
1994 1993
1992
Cash flows from operating activities:
Net loss $ (19,074,201) $ (1,014,161) $ (32,666,452)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Equity in undistributed loss of subsidiary company 18,893,041 8,872,602
32,835,238
Gain from extinguishment of debt* - (14,793,627) -
Changes in assets and liabilities:
Income taxes payable to subsidiaries (41,199) 4,533,927
39,511
Other assets - 59,949 61,439
Other liabilities 223,180 2,340,653 (349,684)
Total adjustments 19,075,022 1,013,504 32,586,504
Net cash provided by (used in) operating activities 821
(657) (79,948)
Cash flows from investing activities:
Cost of subsidiaries acquired (250) -
- - - - -
Cash flows from financing activities:
proceeds from stock issued under employee
benefit plans and dividend reinvestment plan - - 28,769
Dividends paid - -
(674,562)
Net cash used in financing activities -
- - - - - (645,793)
Net increase (decrease) in cash 571 (657) (725,741)
Cash, January 1 7,285 7,942
733,683
Cash, December 31 $ 7,856 $ 7,285 $
7,942
Supplemental Cash Flow Information:
Cash paid for - Interest $ - $ -
$ 1,631,224
Income taxes, from a subsidiary
company (recovered) $ - $ -
$ (187,943)
Noncash financing activities:
Notes payable exchanged for common stock $ 10,000,000 $
- - - - - $ -
Notes payable exchanged for accrued interest 439,167 -
- - - - -
Extinguishment of debt through cancellation of debt
in exchange for new note, net $ - $14,793,627
$ -
The accompanying notes are an integral part of these financial
statements.
* Gain, before taxes, from purchase by new investors of previous $23 million
term loan, which was exchanged for a new $10 million note. See Note 1 of notes
to consolidated financial statements for details.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION
(thousands of dollars)
Column A Column B Column C Column D Column E
Column F Column G Column H Column I Column J
Column K
Future policy
Deferred benefits Other policy Net
investment Benefits, Amortization
policy losses, claims claims and income
(1) claims, losses of deferred Other
acquisition and loss Unearned benefits Premium
and other and settlement acquisition operating Premiums
costs expenses premiums payable revenue
interest income expenses costs expenses(1) written
Segment
Year ended December 31, 1994
Property and casualty insurance$ - $167,845 $ 55,428 - $ 14,718 $
2,027 $ 33,408 $ 5,538 $ 9,385 $ 14,537
Credit life insurance 899 206 1,570 - 1,801 506 770 (1,855) 3,503
Commission and service activities- - - - - 3,663 - - 11,671
Other - - - - - 30 - -
1,988
Total $ 899 $ 168,051 $ 56,998 - $ 16,519 $ 6,226 $ 34,178 $ 3,683 $ 26,547
Year ended December 31, 1993
Property and casualty insurance$ 1,300 $194,682 $ 62,053 - $ 55,331 $ 4,907 $ 58,285 $ 17,
628 $ 6,047 $ 17,429
Credit life insurance 2,542 313 3,664 - 3,207 483 1,374 (258) 2,762
Commission and service activities- - - - - 1,671 - - 14,957
Other - - - - - 29 -
- - - - - 2,861
Total $ 3,842 $194,995 $ 65,717 - $ 58,538 $ 7,090 $ 59,659 $ 17,370 $ 26,627
Year ended December 31, 1992
Property and casualty insurance$ 11,990 $257,602 $106,297 - $117,172 $ 10,804 $125,451
$ 35,709 $ 14,005 $109,687
Credit life insurance 3,794 278 5,491 - 4,247 588 1,538 1,103 2,337
Commission and service activities- - - - - 1,501 - - 9,422
Other - - - - - 67 -
- 2,927
Total $ 15,784 $257,880 $111,788 - $121,419 $ 12,960 $126,989 $ 36,812 $ 28,691
(1) Allocations of net investment income and other operating expenses are
based on a number of assumptions and estimates. Results would change if
different methods were applied
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE VI - REINSURANCE
(thousands of dollars)
COL. A COL. B COL. C COL. D COL. E
COL. F
Ceded to Assumed Percentage
Gross other from other Net of amount
Amount * companies*companies amount assumed to net
Year Ended December 31, 1994
Credit life insurance in force $ 39,897$ - $ - $39,897 -
%
Premiums:
Property/casualty insurance$146,481$134,038 $ 2,275$14,718 15.5%
Credit life insurance 967 - - 967 - %
Accident/health insurance 832 (1) - 833 -
%
$148,280 $134,037 $ 2,275$ 16,518
Year Ended December 31, 1993
Credit life insurance in force $ 92,318$ - $ - $ 92,318 -
%
Premiums:
Property/casualty insurance$196,386$151,558 $ 10,503$ 55,331 17.1%
Credit life insurance 2,181 88 - 2,094 - %
Accident/health insurance 1,154 40 - 1,113 -
%
$199,721 $151,686 $ 10,503$ 58,538
Year Ended December 31, 1992
Credit life insurance in force $138,795$ - $ - $138,795 -
%
Premiums:
Property/casualty insurance$254,378$150,771$ 13,565$117,172 11.6%
Credit life insurance 3,105 154 - 2,951 - %
Accident/health insurance 1,373 77 - 1,296 -
%
$258,856 $151,002 $ 13,565$121,419
*Includes amounts written as designated carrier for two state sponsored
automobile facilities, a homeowners' residual market and the WYO National
Flood Insurance Program.
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
Balance at
beginning Balance at
Description of year Additions(1)Deductions end of
year
Year ended December 31, 1994
Allowance for uncollectible:
Agents' balances receivable $187 $ 48 $165 $ 70
Other receivables $151 $ 64 $205 $ 10
Premium notes receivable $418 $211 $384 $246
Year ended December 31, 1993
Allowance for uncollectible:
Agents' balances receivable $443 $143 $399 $187
Other receivables $103 $ 66 $ 18 $151
Premium notes receivable $435 $196 $213 $418
Year ended December 31, 1992
Allowance for uncollectible:
Agents' balances receivable $576 $105 $238 $443
Other receivables $127 $ 25 $ 49 $103
Premium notes receivable $102 $461 $128 $435
(1)Additions to the allowance accounts include only the increase in the
allowance charged to bad debt expense and do not include some expenses
charged directly to bad debt expense, such as write-offs of uncollectible
direct billings.
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE X - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE
OPERATIONS
(thousands of dollars)
Column A Column B Column C Column D Column E Column F Column G Column H Column
I Column J Column K
Claims
and Claim
Reserves for Adjustm
ent Expenses
Deferred Unpaid Claims Discount, Net Investment Incurr
ed Related to Amortization Paid Claims
Policy and Claim if any, Income (1) (2) of Deferred and Claim
Acquisition Adjustment Deducted inUnearned Earned and other
Current PriorPolicy AcquisitionAdjustmentPremiums
Affiliation with Registrant Costs Expenses Column C* PremiumsPremiumsInterest Income Year
Years Costs Expenses Written
Company and
consolidated subsidiaries
Year ended
December 31, 1994$ - $167,845 $ 55,428 $ 14,718$ 5,690 $ 16,
451 $ 16,957$ 5,538 $ 72,755 $ 14,537
Year ended
December 31, 1993$ 1,300 $194,682 $ 62,053$ 55,331$ 6,578 $ 47,776$ 10,
509 $ 17,628 $ 56,458 $ 17,429
Year ended
December 31, 1992$ 11,990 $257,602 $106,297$117,172$ 12,305 $117,997$ 7,
454 $ 35,709 $117,396 $109,687
*The Company does not discount loss and LAE reserves.
Exhibit 22
SUBSIDIARIES OF REGISTRANT
The following is a listing of all subsidiaries of The Seibels Bruce Group, Inc.
as of December 31, 1994:
State or Other Jurisdiction
Subsidiary
of Incorporation
Seibels, Bruce & Company South Carolina
South Carolina Insurance Company South Carolina
Consolidated American Insurance Company South Carolina
Catawba Insurance Company South Carolina
Kentucky Insurance Company Kentucky
Agency Specialty of Kentucky, Inc. Kentucky
Agency Specialty, Inc. South Carolina
Investors National Life Insurance Company of S.C. South Carolina
Policy Finance Company South Carolina
Forest Lake Travel Service, Inc. South Carolina
FLT Plus, Inc. South Carolina
Seibels Bruce Service Corporation South Carolina
The financial statements of these subsidiaries are included in the Registrant's
consolidated financial statements.
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated April 14, 1995, with respect to the consolidated financial
statements and schedules of The Seibels Bruce Group, Inc., included in this
Annual Report (Form 10-K) for the year ended December 31, 1994 into the
Company's previously filed Registration Statements (File S-8 Nos. 2-70057, 2-
83595, 33-34973, 33-43618, 33-43601, and 2-48782).
Arthur Andersen, LLP
Columbia, South Carolina
April 14, 1995
Exhibit 29
(29) Information from reports furnished to state insurance regulatory
authorities. The attached exhibit includes the Company's Schedule P as prepared
for its 1994 Consolidated Annual Statement which will be provided to state
regulatory authorities. The schedules have been prepared on a statutory basis.
(Schedule P as filed with the Securities and Exchange Commission has been
omitted from this copy. They are available upon request by writing the address
shown on Page 1.)
Exhibit (10)(3)-1
SEPARATION AGREEMENT AND MUTUAL RELEASE
THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (hereinafter "Agreement) is
made and entered into between W. Thomas Reichard, III (hereinafter referred to
as "Employee") and The Seibels Bruce Group, Inc., a South Carolina Corporation
(hereinafter referred to as the "Company'), and Seibels, Bruce & Company, a
South Carolina corporation and a wholly-owned subsidiary of the Company
(hereinafter referred to as the "Employer"), at Columbia, South Carolina this
14th day of October, 1994.
WITNESSETH:
WHEREAS, Employee has worked diligently for many years on behalf of the
Company and the Employer, and at the time of the execution of this Agreement
served in the capacity of President and Chief Operating Officer of the Company
and a member of the boards of directors of the Company and its subsidiaries
pursuant to the Employment Agreement entered into on the 15th day of December,
1988, between the Company, the Employer and the Employee (hereinafter referred
to as the "Employment Agreement"); and
WHEREAS, the Employee, the Company, and the Employer, wish to terminate
completely the employment between the Employee, the Company and the Employer;
and
WHEREAS, the Employee, the Company and the Employer, after numerous
discussions, have mutually agreed that the termination of the employment
relationship and all of the duties and obligations inherent in the Employee's
service as an Employee, Officer and Director of the Company and its subsidiaries
including, but not limited to, those set forth in the Employment Agreement shall
be accomplished upon the following terms and conditions:
NOW, THEREFORE, in consideration of the premises and mutual promises herein
contained, it is agreed as follows:
FIRST: This Agreement shall not in any way be construed as a claim or an
admission by the Employee or by the Company or the Employer that either has
acted wrongfully with respect to the other or to any other person, or that the
Employee has any rights whatsoever against the Company and/or the Employer
except those expressly set forth herein, and the Company, the Employer, and the
Employee specifically disclaim any liability or wrongful acts against the
Employee or against any other person on the part of the Company, the Employer,
or their employees or agents.
SECOND: The Company, the Employer, and the Employee agree and acknowledge
that the Employee is at liberty to devote reasonable time and effort in locating
other employment while still actively employed by the Employer and the Company.
Given this understanding, it is further understood and agreed between the
Company, the Employer and the Employee that the Employee's employment with the
Company and the Employer shall terminate on October 14, 1994 (the "Termination
Date").
THIRD: In consideration for the Employee's relinquishment of rights under
the Employment Agreement, the Company and the Employer agree to the following:
(1) The Company agrees to bear the cost of outplacement services at a
level appropriate to the Employee's position, such costs not to exceed
$20,000.00
(2) The Company and the Employer agree to provide references in response
to any and all inquiries concerning the Employee's work performance and work
history with the Company and the Employer which are consistent with the
Employer's normal policy of providing only "neutral" references in that they
shall provide generally only dates of employment and last position held.
Subject to the TENTH section below, the Employee's right to compete with the
Company and/or the Employer in any of their business segments shall not be
restrained in any way.
FOURTH: As further consideration for the Employee's relinquishment of
rights under the Employment Agreement the Company and the Employer agree to pay
to the Employee the following:
(1) One month's salary in the amount of $10,572.92, and
(2) The equivalent of two years ("Basic Compensation") as defined by the
Employment Agreement at the Employee's 1994 Compensation level, calculated at
net present value at 6% per annum. Such amount is agreed to be the sum of
$238,929.00.
Both sums shall be paid in a lump sum on October 14, 1994, and shall be subject
to applicable statutory withholdings.
FIFTH: It is expressly understood that the Employee shall continue to
receive his salary and benefits under the terms of the Employment Agreement
through the Termination Date.
SIXTH: The Employee agrees that payment of the sums described herein is
not required by the Company's or the Employer's policies and procedures.
SEVENTH: Employee understands and the Company and the Employer agree that
he will be covered through the Termination Date of his employment by all the
benefit programs then in effect. On or about the Termination Date, the Employee
will be provided with the option of continuing his health coverage pursuant to
COBRA.
EIGHTH: The Company, the Employer and the Employee all represent that they
have not filed any complaints or charges or lawsuits against the other relating
to the Employee's employment with the Employer and the Company and/or the
termination thereof with any governmental agency or any court and that they will
not do so at any time hereafter, provided, however, that this shall not limit
the right of the Company and/or the Employer from filing a lawsuit or making a
claim based on a conviction of the Employee of fraud, embezzlement or other
conduct against the company and/or the Employer which constitutes a felony, and
shall not limit the right of either party from making a claim for the sole
purpose of enforcing rights under this Agreement. Further, the parties agree
that the losing party or parties in any lawsuit to enforce the provisions of
this Agreement shall pay the legal fees and costs incurred by the prevailing
party in any such lawsuit. The Company and the Employer further agree to defend
the Employee from any and all claims of any kind whatsoever arising out of his
employment with the Company and the Employer and to indemnify fully and hold the
Employee harmless from any liability arising out of such claims, except claims
based on a conviction of the Employee of fraud, embezzlement or other conduct
against the Company and/or the Employer which constitutes a felony. Further, to
the extent these guarantees and protections are afforded to any other director
of the Company pursuant to the company's by laws and, to the extent permitted by
law, the Employer and the Company agree to defend, indemnify and hold the
Employee harmless from any and all claims arising out of or related to the
Employee's service as a director of the Company and/or any of its subsidiaries.
Where an affirmative action of the Board of Directors of the Company is required
to afford such protection, such determination shall be made in good faith and
shall not unreasonably be withheld. Notwithstanding anything in this Agreement
to the contrary, the company and the Employer specifically agree that the
Employee shall retain all of his rights and benefits under applicable state
Workers Compensation laws.
NINTH: Employee understands and agrees that following the Termination
Date, he is no longer authorized to incur any expenses, obligations or
liabilities on behalf of the Company and/or the Employer.
TENTH: Upon the termination of the Employee's employment with the Employer
and the Company under this Agreement the Employee shall return to the Employer
and the Company all Company or/or Employer information and related reports,
maps, files, memoranda, and records; credit cards, cardkey passes; door and file
keys; computer access codes; software and other physical or personal property
which Employee received or prepared or helped prepare in connection with his
current employment and his prior employment with the Employer and/or the
Company; and Employee shall not retain any copies, duplicates, reproductions, or
excerpts thereof. The Employee agrees to keep all Employer or Company
information confidential and not to divulge to anyone or appropriate for his own
benefit any Employer or Company information. The term "Employer or Company
information" as used in this agreement means (a) confidential information
including without limitation information received from third parties under
confidential conditions; and (b) other technical, business, or financial
information, the use or disclosure of which might reasonably be construed to be
contrary to the interests of the Employer and/or the Company; provided, however,
"Employer or Company information" does not include any information (i) in the
public domain not as a result of a violation of the Employee's undertakings
herein, (ii) available on a nonconfidential basis without regard to the
disclosure by the Employee, or (iii) available from a source other than the
Employee (provided that such source in so acting is not violating any duty or
agreement of confidentiality).
ELEVENTH: Releases.
(a) As a material inducement to the Employer and Company to enter into
this Agreement and with the exception of those claims specifically discussed in
Section Eight above, Employee hereby irrevocably and unconditionally releases,
acquits and forever discharges the Employer and the Company and each of the
Employer's and Company's owners, stockholders, predecessors, successors,
assigns, agents, directors, officers, employees, representatives, attorneys,
parent companies, divisions, subsidiaries, affiliates (and agents, directors,
officers, employees, representatives and attorneys of such parent companies,
divisions, subsidiaries and affiliates),and all persons acting by, through,
under or in concert with any of them (collectively "Releasees"), or any of them
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys' fees
and costs actually incurred) of any nature whatsoever, known or unknown,
suspected or unsuspected, including, but not limited to, rights arising out of
alleged violations of any contracts, express or implied, any covenant of good
faith and fair dealing, express or implied, or any tort, or any legal
restrictions on the Company's or the Employer's right to terminate employees, or
any federal, state or other governmental statute, regulations, or ordinance,
including, without limitation: (1) Title VII of the Civil Rights Act of 1964
(race, color, religion, sex and national origin discrimination); (2) 42 U.S.C.
1981 (discrimination); (3) The Age Discrimination in Employment Act of 1967, 42
U.S.C. 621-634 (age discrimination); (4) 29 U.S.C. 206(d)(1) (equal pay); (5)
Executive Order 11246 (race, color, religion, sex and national origin
discrimination); (6) Executive Order 11141 (age discrimination); and (7) 503
of the Rehabilitation Act of 1973 and The Americans
with Disabilities Act, 42 U.S.C. 12, 101 (disability discrimination) ("Claim" or
"Claims"), which Employee now has, owns or holds, or claims to have, own or
hold, or which Employee at any time heretofore had, owned or held, or claimed to
have, own or hold, or which Employee at any time hereinafter may have, own or
hold, or claim to have, own or hold against each or any of the Releasees.
(b) Likewise, as a material inducement to the Employee to enter into this
Agreement and with the exception of those claims specifically discussed in
Section Eight above, the Employer and Company hereby irrevocably and
unconditionally release, acquit and forever discharge the Employee from any and
all charges, complaints, claims, liabilities, obligations, promises, suits,
rights, demands, costs, losses, debts and expenses, (including attorneys' fees
and costs actually incurred) of any nature whatsoever, known or unknown,
suspected or unsuspected, which the Company or the Employer now have, own, or
hold or claim to have, own or hold, or which the Company or the Employer at any
time heretofore had, owned or held, or claimed to have, own or hold or which
Company or Employer at any time hereafter may have, own or hold, or claim to
have, own or hold against the Employee.
TWELFTH: Effective Date of Agreement. This Agreement was presented to
Employee for his review and consideration on October 12, 1994 ("Review Date").
Employee has twenty-one (21) calendar days following the Review Date to review,
consider and sign this Agreement. If Employee does not return this Agreement
fully executed within twenty-one (21) days of the Review Date, any offer implied
by the presentation of this Agreement for his review and consideration is
withdrawn in its entirety at that time. For a period of seven (7) calendar days
following his execution of this Agreement, Employee may revoke this Agreement
("Revocation"). Employee may revoke this Agreement only by giving the Company
formal, written notice of his revocation of this Agreement, to be received by
the Company by the close of business on the seventh (7th) day following
Employee's execution of this Agreement. This Agreement shall not become
effective in any respect until the revocation period has expired without notice
of Revocation. In the absence of Employee's revocation of this Agreement, the
eighth (8th) day after Employee's execution of this Agreement shall be the
"Effective Date" of this Agreement, at which time the rights of all parties
under this Agreement become fully enforceable, final and binding in all
respects.
THIRTEENTH: The provisions of this Agreement are severable, and if any
part of it is found to be unenforceable, the other paragraphs shall remain fully
valid and enforceable. This Agreement shall survive the termination of any
arrangements contained therein.
FOURTEENTH: It is expressly understood that the provisions of this
Agreement shall be binding upon the Employee, the Company, the Employer, and the
officers, agents, directors, affiliates, subsidiaries, successors and assigns of
the Employee, the Company and the Employer.
FIFTEENTH: The Employee, the Employer and the Company all represent and
agree that they fully understand their respective rights to discuss all aspects
of this Agreement with their attorneys, and that to the extent, if any, desire,
that have availed themselves of this right, and that each has carefully read and
understands all of the provisions of this Agreement, and that they are
voluntarily entering into this Agreement.
THIS AGREEMENT sets forth the entire agreement between the parties hereto,
and fully supersedes any and all prior agreements or understandings between the
parties hereto pertaining to the subject matter hereof.
Executed at Columbia, South Carolina, this 14th day of October, 1994.
WITNESS:
/s/ Irby H. Schultz /s/ W. Thomas Reichard
W. Thomas Reichard, III
/s/ F. Michael Klopp Employee
WITNESS: THE SEIBELS BRUCE GROUP, INC.,
/s/ Steven M. Armato By: /s/ Terry E, Fields
Its: SVP and CFO
/s/ Priscilla C. Brooks
WITNESS: SEIBELS, BRUCE & COMPANY
/s/ Steven M. Armato By: /s/ Terry E. Fields
Its: SVP and CFO
/s/ Priscilla C. Brooks
Exhibit (10)(3)-2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), made and
entered into as of the 14th day of October, 1994, by and between THE SEIBELS
BRUCE GROUP, INC., a South Carolina corporation (Hereinafter referred to as the
"Company"), SEIBELS, BRUCE & COMPANY, a South Carolina corporation and a wholly-
owned subsidiary of the Company (hereinafter referred to as the "Employer"), and
STERLING E. BEALE, a resident of Columbia, South Carolina (hereinafter referred
to as the "Employee").
W I T N E S S E T H :
WHEREAS, the Employer is a corporation engaged in business in the State of
South Carolina and throughout the United States; and
WHEREAS, the Company owns all of the outstanding capital stock of the
Employer; and
WHEREAS, the Employee is currently employed by the Employer pursuant to the
terms of that certain Employment Agreement dated as of December 15, 1988 (the
"Superseded Employment Agreement"); and
WHEREAS, the Employer desires to obtain the continued services of the
Employee, and the Employee desires to remain in the employ of the Employer upon
the terms and conditions herein contained; and
WHEREAS, both the Employer and the Employee intend for this Agreement to
supersede and replace in all respects the Superseded Employment Agreement;
NOW, THEREFORE, in consideration of the mutual obligations contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company, the Employer and the Employee hereby
do agree that the Superseded Employment Agreement is hereby amended and restated
to read as follows:
1. Duration of Contract. The term of the Employee's employment with the
Employer shall continue through November 15, 1995 and may not be terminated by
either the Employer, the Company or the Employee for any reason or under any
circumstances, except for conviction of fraud, embezzlement or other conduct
which constitutes a felony and involves the Employer or the Company or a breach
of the provisions of Sections 4,5 or 6 below.
2. Duties of Employee. The Employee agrees that, during the term of his
employment with the Employer and except as otherwise expressly provided herein,
he will make himself available to the Employer on a full-time basis, during the
Employer's regular weekday business hours and at other reasonable times upon
reasonable advance notice by the Employer, to consult with and advise the
officers and employees of the Employer concerning matters relating generally to
any matter arising out of the business affairs of the Employer, including, but
not limited to, management, financial matters, insurance regulatory issues, and
all other business and goodwill relationships of the Employer, as the Employer
may desire.
During the term of this Agreement, the Employee shall be permitted, with
the express written permission of the Employer to perform consultation or
arbitration services for other entities or persons, so long as such consultation
or services do not prevent the Employee from performing his obligations under
this Agreement and do not conflict with the provisions of Sections 4, 5 or 6
below.
3. Compensation.
(a) The Employer agrees to pay the Employee during the term of his
employment with the Employer, as compensation for services rendered to it by the
Employee as provided herein, an amount equal to One Hundred Eighty-Three
Thousand Seven Hundred Fifty Dollars (183,750.00), said amount to be paid in
twenty-eight equal payments of Six Thousand Five Hundred Sixty-Two and 50/100
Dollars ($6,562.50) each at such times as are consistent with the Employee's
general employment practices, with the first payment to be made on October 28,
1994 and the last payment to be made on November 10, 1995.
(b) In addition to the amount set forth in Section 3(a), during the
term of his employment with Employer, the Employee shall be entitled to
participate in and to receive benefits from the employee benefit plans of the
Employer on the same basis and to the same extent as he now participates
therein.
4. Non-Competition. The Employee hereby acknowledges that he has served
as an officer and director of both the Company and the Employer, performed
executive-level management services for both such companies and for the direct
or indirect subsidiaries of the Company, and is intimately familiar with, or has
had ready access to information concerning, the operations, personnel and
customers of the Company and the operating subsidiaries (direct or indirect) of
the Company and the Employer (collectively, the "S-B Companies").
The employee therefore covenants and agrees that, for the term of this
Agreement, the Employee shall not, within the states of Tennessee, North
Carolina, South Carolina, Georgia and Kentucky, throughout which territories the
Employee agrees and acknowledges the S-B Companies are currently conducting a
property and casualty insurance business through the independent agency system
(as conducted by the S-B Companies, hereafter referred to as the "Business"),
either on his own behalf or on behalf of or together with any other person or
entity, directly or indirectly (as such terms are defined below), compete with
the Business by (1) calling on, soliciting, taking away, accepting as a client,
agent or customer, or attempting to call on, solicit, take away or accept as a
client, agent or customer, any individual, partnership, corporation or
association that is, as of the date of this Agreement, a present or identified
prospective client, agent or customer of any of the S-B Companies, or was a
client, agent or customer of the S-B Companies within the preceding twelve
months of the date of this Agreement, with respect to the Business for purposes
of conducting an enterprise substantially similar to the Business; (ii) hiring,
soliciting, or taking away or attempting to hire, solicit, or take away any
employee of the S-B Companies with respect to the Business for purposes of
conducting an enterprise substantially similar to the Business; or (iii)
entering into or attempting to enter into, and performing or intending to
perform managerial services for, any business substantially similar to the
Business. For the purposes of this Section 4, the words "directly or
indirectly" as they modify the word "compete" shall mean (i) acting as an agent,
representative, consultant, officer, director ,independent contractor, or
employee of any entity or enterprise that is competing (as defined above) with
any of the S-B Companies with respect to the Business and, in such capacity,
performing managerial services or rendering management advice to any such entity
or enterprise: (ii) participating in any such competing entity or enterprise as
an owner, partner, limited partner, joint venturer, investor or stockholder
(except as a stockholder holding less than a one percent (1%) interest in a
corporation whose shares are actively traded on a regional or national
securities exchange or in the over-the counter market); and (iii) communicating
to any such competing entity or enterprise the names or addresses or any other
information concerning any present, or identified prospective client, agent or
customer (as of the date of this Agreement) of any of the S-B companies, or
concerning any client, agent or customer of the S-B Companies within the
preceding twelve months of the Agreement, with respect to the Business.
5. Confidential Data. The Employee agrees that he will keep confidential
and not divulge to anyone nor appropriate for his own benefit any pricing,
marketing, planning or financial information pertaining to the Company, the
Employer or any of their subsidiaries (the "Confidential Data"). The Employee
hereby acknowledges and agrees that the prohibition against disclosure of
Confidential Data recited herein is in addition to, and not in lieu of, any
rights or remedies which the Company and the Employer may have available
pursuant to the laws of any jurisdiction or at common law to prevent the
disclosure of trade secrets, and the enforcement by the Company, the Employer or
any of their subsidiaries of its rights and remedies pursuant to this Agreement
shall not be construed as a waiver of any other rights or available remedies
which it may possess in law or equity absent this Agreement.
6. Non-Solicitation of Employees. The Employee agrees that during the
period for which he is entitled to payment hereunder, he will neither directly
or indirectly induce or attempt to induce any employee of the Company, the
Employer or their subsidiaries to terminate his or her employment therewith.
7. Complete Agreement. Except for that certain Retirement Agreement of
even date herewith and except for any of the Employee's general employee benefit
plans or those stock option plans, if any, pursuant to which the Employee has
been granted specific rights or options, this Agreement constitutes the entire
agreement of the parties and, without limiting the foregoing, specifically
supersedes all rights and obligations of the parties under the Superseded
Employment Agreement. The Agreement may not be changed orally, but only by an
agreement in writing executed by the parties.
8. Successors Bound. This Agreement shall be binding upon the Company,
the Employer and the Employee, their respective heirs, executors, administrators
or successors in interest, including any company into which the company or the
Employer may be merged or by which it may be acquired.
9. Construction. This Agreement shall be interpreted according to the
laws of South Carolina. In the Event that any provision of the Agreement is
deemed unenforceable, said provision shall be deemed null and void, but the
remainder of the Agreement shall be enforced according to its terms.
10. Equitable Relief. The Employee acknowledges that the services to be
rendered by him are of a special and intellectual character, which gives them a
peculiar value, that he possesses unique skills, knowledge and ability, and that
any breach of the provisions of this Agreement would cause the employer
irreparable injury which would not reasonably or adequately be compensated in
damages in an action at law. By reason thereof, the Employee agrees that the
Employer shall be entitled, in addition to any other remedies it may have under
this Agreement or otherwise, to injunctive and other equitable relief to prevent
or curtail any breach of this Agreement by the Employee.
IN WITNESS WHEREOF, the Company, the Employer and the Employee have
executed this Agreement and caused these seals to be affixed hereto the day and
year first above written, to be effective said date.
COMPANY
THE SEIBELS BRUCE GROUP, INC.
Attest:/s/ Bernard Manning By:/s/ Terry E. Fields
(Corporate Seal) Its: SVP & CFO
EMPLOYER
SEIBELS BRUCE & COMPANY
Attest: /s/ Bernard Manning By: /s/ Terry E. Fields
(Corporate Seal) Its: SVP & CFO
EMPLOYEE
/s/ Sterling E. Beale
Sterling E. Beale
Exhibit (10)(3)-3
RETIREMENT AGREEMENT
THIS RETIREMENT AGREEMENT (this "Agreement"), made and entered into as of
the 14th day of October, 1994, by and among THE SEIBELS BRUCE GROUP, INC., a
South Carolina corporation (hereinafter referred to as the "Company"), SEIBELS,
BRUCE & COMPANY, a South Carolina corporation (hereinafter referred to as the
"Employer") and STERLING E. BEALE, a resident of Columbia, South Carolina
(hereinafter referred to as the "Employee").
WITNESSETH:
Whereas, the Employer is a corporation engaged in business in the State of
South Carolina and throughout the United States: and
Whereas, the Company owns all of the outstanding capital stock of the
Employer; and
Whereas, the Employee is an employee of the Employer under the provisions
of that certain Amended and Restated Employment Agreement made and entered into
on October 14, 1994 (the "Amended and Restated Employment Agreement"); and
Whereas, the Employee's employment with Employer terminates on
November 15, 1995 in accordance with the terms of the Amended and Restated
Employment Agreement; and
Whereas, the parties hereto have agreed that, after the termination of
employment pursuant to the Amended and Restated Employment Agreement on November
15, 1995, the Employee shall take
early retirement from his position as an employee of the Employer pursuant to
the terms hereof, and
Whereas, the Employee and the Employer agree that this Agreement terminates
and cancels that certain Executive Compensation Agreement made and entered into
on January 18, 1978 and amended on March 8, 1983 and on February 18, 1987 (as so
amended, the "Executive Compensation Agreement"); and
Whereas, the Employer desires to compensate the Employee upon his early
retirement pursuant to the terms hereof in lieu of any amounts payable to the
Employee under the Executive Compensation Agreement or under the Employment
Agreement between the Employer and the Employee dated December 15, 1988 (the
"Superseded Employment Agreement") before such agreement was amended and
restated by the Amended and Restated Employment Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises herein
contained, the parties hereto do hereby agree as follows:
1. Retirement Date - On November 16, 1995, (the "Retirement Date"), the
Employee shall retire as an employee of the Employer and the Company.
2. Termination of Executive Compensation Agreement and Relief of
Obligations Under the Superseded Employment Agreement. The Company, the
Employer and the Employee agree that the Executive Compensation Agreement is
hereby terminated and cancelled, and that such agreement is hereby deemed null
and void and without any further force or effect. The parties further agree
that the Company, the Employer and the Employee are each hereby relieved of all
rights, duties and obligations of any nature whatsoever, under both the
Superseded Employment Agreement and the Executive Compensation Agreement, except
as specifically set forth in the Amended and Restated Employment Agreement.
3. Compensation. In consideration of the premises of this Agreement, in
lieu of all payments to be made to the Employee under the Employment Agreement
or under the Executive Compensation Agreement (except those as set forth in the
Amended and Restated Employment Agreement), the Employer will pay to the
Employee the sum of Three Hundred Fifty-Five Thousand Five Hundred Dollars
($355,500.00) on October 14, 1994, One Hundred Ninety-Three Thousand Seven
Hundred Forty-Eight Dollars ($193,748.00) on October 14, 1995, and One Hundred
Ninety-Three Thousand Seven Hundred Forty-Eight Dollars ($193,748.00) on October
14, 1996. Said amounts shall be payable, in the event of Employee's death, to
his estate or to any beneficiary that he designates in writing to the Company or
the Employer.
4. Certain Fringe Benefits. After his retirement, the Employee will
receive those health insurance benefits, as well as any other benefits provided
to retired employees, to which other retired employees of the Company or the
Employer are generally entitled from time to time.
5. Release and Covenant No to Sue.
(a) The Company, the Employer and the Employee all represent that they
have not filed any complaints or charges or lawsuits against the other relating
to the Employee's employment with the Employer and the Company and/or the
termination thereof with any governmental agency or any court and that they will
not do so at any time hereafter, provided, however, that this shall not limit
the right of the Company and/or the Employer from filing a lawsuit or making a
claim based on a conviction of the employee of fraud, embezzlement or other
conduct against the Company and/or the Employer which constitutes a felony, and
shall not limit the right of either party from making a claim for the sole
purpose of enforcing rights under this Agreement. Further, the parties agree
that the losing party or parties in any lawsuit to enforce the provisions of
this Agreement shall pay the legal fees and costs incurred by the prevailing
party in any such lawsuit. The Company and the Employer further agree to defend
the Employee from any and all claims of any kind whatsoever arising out of his
employment with the Company and the Employer and to indemnify fully and hold the
Employee harmless from any liability arising out of such claims, except claims
based on a conviction of the Employee of fraud, embezzlement or other conduct
against the Company and/or the Employer which constitutes a felony. Further, to
the extent these guarantees and protections are afforded to any other director
of the Company pursuant to the company's by-laws, and to the extent permitted by
law, the Employer and the Company agree to defend, indemnify and hold the
Employee harmless from any and all claims arising out of or related to the
Employee's service as a director of the Company and/or any of its subsidiaries.
Where an affirmative action of the Board of Directors of the Company is required
to afford such protection, such determination shall be made in good faith and
shall not unreasonably be withheld. Notwithstanding anything to the contrary in
this Agreement, the Company and the Employer specifically agree that the
Employee shall retain all of his rights and benefits under applicable state
workers compensation laws.
(b) As a material inducement to the Employer and Company to enter into
this Agreement and with the exception of those claims specifically discussed in
Section 5(a) above, Employee hereby irrevocably and unconditionally releases,
acquits and forever discharges the Employer and the Company and each of the
Employer's and Company's owners, stockholders, predecessors, successors,
assigns, agents, directors, officers, employees, representative, attorneys,
parent companies, divisions, subsidiaries, affiliates (and agents, directors,
officers, employees, representatives and attorneys of such parent companies,
divisions, subsidiaries and affiliates), and all persons acting by, through,
under or in concert with any of them (collectively "Releasees"), or any of them,
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorney's fees
and costs actually incurred) of any nature whatsoever, known or unknown,
suspected or unsuspected, including, but not limited to, rights arising out of
alleged violations of any contracts, express or implied, any covenant of good
faith and fair dealing, express or implied, or any tort, or any legal
restrictions on the Company's or the Employer's right to terminate employees, or
any federal, state or other governmental statute, regulations, or ordinance,
including, without limitation: (1) Title VII of the Civil Rights Act of 1964
(race, color, religion, sex and national origin discrimination); (2) 43 U.S.C.
1981 (discrimination); (3) The Age Discrimination in Employment Act of 1967, 42
U.S.C. 621-634 (age discrimination); (4) 29 U.S.C. 206(d)(1) (equal pay); (5)
Executive Order 11246 (race, color, religion, sex and national origin
discrimination); (6) Executive Order 11141 (age discrimination); and (7) 503 of
the Rehabilitation Act of 1973 and The Americans with Disabilities Act, 42
U.S.C. 12, 101 (disability discrimination) ("Claim" or "Claims"), which Employee
now has, owns or holds, or claims to have, own or hold, or which Employee at any
time heretofore had, owned or held, or claimed to have, own or hold, or which
Employee at any time hereinafter may have, own or hold, or claim to have, own or
hold against each or any of the Releasees.
(c) Likewise, as a material inducement to the Employee to enter into this
Agreement and with the exception of those claims specifically discussed in
Section 5(a) above, the Employer and the Company hereby irrevocably and
unconditionally release, acquit and forever discharge the Employee from any and
all charges, complaints, claims, liabilities, obligations, promises, suits,
rights, demands, costs, losses, debts and expenses (including attorney's fees
and costs actually incurred) of any nature whatsoever, known or unknown,
suspected or unsuspected, which the Company or the Employer now have, own or
hold or claim to have, own or hold, or which the Company or the Employer at any
time heretofore had, owned or held, or claimed to have, own or hold or which the
Company or the Employer at any time hereafter may have, own or hold, or claim to
have, own or hold against the Employee.
6. Effective Date of Agreement. This agreement was presented to the
Employee for his review and consideration on October 12, 1994 ("Review Date").
The Employee has twenty-one (21) calendar days following the Review Date to
review, consider and sign this Agreement. If the Employee does not return this
Agreement fully executed within twenty-one (21) days of the Review Date, any
offer implied by the presentation of this Agreement for his review and
consideration is withdrawn in its entirety at that time. For a period of seven
(7) calendar days following his execution of this Agreement, the Employee may
revoke this Agreement ("Revocation"). The Employee may revoke this Agreement
only by giving the Employer formal, written notice of his revocation of this
Agreement, to be received by the Employer by the close of business on the
seventh (7th) day following the Employee's execution of this Agreement. This
Agreement shall not become effective in any respect until the revocation period
has expired without notice of Revocation. In the absence of the Employee's
revocation of this Agreement, the eight (8th) day after the Employee's execution
of this Agreement shall be the "Effective Date" of this Agreement, at which time
the rights of all parties under this Agreement become fully enforceable, final
and binding in all respects.
7. No Obligation. The Employee agrees that payment of the sums described
above is not required by the Employer's employment policies and procedures.
8. Successors Bound; Assignability. This Agreement shall be binding upon
the Company, the Employer and the Employee, their respective heirs, executors,
administrators or successors in interest, including without limitation, any
corporation into which the Company or the Employer may be merged or by which it
may be acquired. This Agreement is nonassignable except that the Company's or
the Employers' rights, duties and obligations under this Agreement may be
assigned to its acquiror in the event either of them is merged, acquired or
sells substantially all of its assets.
9. Governing Law. This Agreement has been made in, and shall be governed
in accordance with, the laws of the State of South Carolina.
10. Duplicate Originals. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be a duplicate original, but all
of which, taken together, shall constitute a single instrument.
11. Captions. The captions contained in this Agreement are included only
for convenience of reference and do not define, limit, explain or modify this
Agreement or its interpretation, construction or meaning and are in no way to be
construed as a part of this Agreement.
12. Severability. In the event that any one or more of the provisions of
this Agreement or any word, phrase, clause, sentence or other portion thereof
(including without limitation the geographical and temporal provisions contained
herein) shall be deemed to be illegal or unenforceable for any reason, such
provision or portion thereof shall be modified or deleted in such a manner as to
make this Agreement as modified legal and enforceable to the fullest extent
permitted under applicable laws.
13. Number and Gender. When used in this Agreement, the number and gender
of each pronoun shall be construed to be such number and gender as the context,
circumstances or its antecedent may require.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto in respect of the subject matter of this Agreement,
and this Agreement supersedes all prior and contemporaneous agreements between
any of the parties hereto in connection with the subject matter of this
Agreement including, without limitation, the Executive Compensation Agreement
and the Superseded Employment Agreement (except as specifically set forth in the
Amended and Restated Employment Agreement). No change, termination or attempted
waiver of any of the provisions of this Agreement shall be binding upon any
party hereto unless in writing and signed by the party to be charged.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed to be effective as of the date first above written.
THE SEIBELS BRUCE GROUP, INC.
("Company")
By: /s/ Terry E. Fields
Title: SVP & CFO
SEIBELS, BRUCE & COMPANY
("Employer")
By: /s/ Terry E. Fields
Title: SVP & CFO
("Employee")
/s/ Sterling E. Beale
Sterling E. Beale