SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-7411
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 13-2530665
-------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 Main Street, Brooklyn, N.Y 11201-3731
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 422-4000
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[ ]
On August 12, 2002 there were 7,078,625 shares of Common Stock outstanding.
ALLCITY INSURANCE COMPANY
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
ITEM 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2002 and December 31, 2001........ 1
Consolidated Statements of Operations - Six months ended
June 30, 2002 and 2001................................................... 2
Consolidated Statements of Operations - Three months ended
June 30, 2002 and 2001................................................... 3
Consolidated Statements of Cash Flows - Six months
ended June 30, 2002 and 2001 ............................................ 4
Consolidated Statements of Changes in Shareholders' Equity -
Six months ended June 30, 2002 and 2001.................................. 5
Notes to Interim Consolidated Financial Statements ...................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Interim Results of Operations..................... 7
PART II OTHER INFORMATION
- ------- -----------------
ITEM 4. Submission of Matters to a Vote of Security Holders............. 13
ITEM 6. Exhibits and Reports on Form 8-K................................ 13
Signature Page........................................................... 14
i
PART 1 - FINANCIAL INFORMATION
------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
- -------
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
(In thousands, except share and per share amounts)
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
(Unaudited)
ASSETS
Investments:
Fixed maturities
Available for sale (amortized cost of
$31,646 in 2002 and $23,872 in 2001) $ 32,062 $ 24,175
Held to maturity (fair value
of $478 in 2002 and $489 in 2001) 476 480
Equity securities available for sale 429 429
Short-term 71,234 98,467
Other invested assets 6,182 6,088
------- -------
TOTAL INVESTMENTS 110,383 129,639
Cash 40 36
Agents' balances, less allowance for
doubtful accounts ($837 in 2002 and 2001) 2,448 2,873
Accrued investment income 692 464
Reinsurance balances receivable 129,845 160,713
Prepaid reinsurance premiums 786 3,785
Other assets 3,437 4,730
------- -------
TOTAL ASSETS $247,631 $302,240
======= =======
LIABILITIES
Unpaid losses $169,576 $211,254
Unpaid loss adjustment expenses 29,230 32,037
Unearned premiums 2,021 7,215
Due to affiliates 8,728 9,713
Reinsurance balances payable 1,199 949
Other liabilities 5,558 8,054
Surplus note 7,280 7,114
------- -------
TOTAL LIABILITIES 223,592 276,336
------- -------
SHAREHOLDERS' EQUITY
Common stock, $1 par value: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 2002 and 2001 7,079 7,079
Additional paid-in capital 9,331 9,331
Accumulated other comprehensive income 846 732
Retained earnings 6,783 8,762
------- -------
TOTAL SHAREHOLDERS' EQUITY 24,039 25,904
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $247,631 $302,240
======= =======
See Notes to Interim Consolidated Financial Statements.
1
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the six months ended June 30, 2002 and 2001
(In thousands, except share and per share amounts)
SIX MONTHS ENDED
JUNE 30,
-------------------
2002 2001
---- ----
REVENUES
Premiums earned $ 3,054 $11,887
Net investment income 1,736 5,042
Net securities gains 47 1,016
Other income 24 84
------ ------
4,861 18,029
LOSSES AND EXPENSES
Losses 1,761 18,763
Loss adjustment expenses 2,621 6,075
Other underwriting expenses, less
deferrals of $0 in 2002
and $1,783 in 2001 2,292 3,124
Amortization of deferred policy
acquisition costs - 4,818
Interest on surplus note 166 306
------ ------
6,840 33,086
LOSS BEFORE FEDERAL INCOME TAXES (1,979) (15,057)
------ ------
FEDERAL INCOME TAXES
Current expense/(benefit) - -
Deferred expense/(benefit) - -
------ ------
- -
------ ------
NET LOSS $(1,979) $(15,057)
====== ======
Per share data, based on 7,078,625
average shares outstanding in 2002
and 2001
BASIC AND DILUTED LOSS PER SHARE $ (0.28) $ (2.13)
====== ======
See Notes to Interim Consolidated Financial Statements.
2
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended June 30, 2002 and 2001
(In thousands, except share and per share amounts)
THREE MONTHS ENDED
JUNE 30,
------------------
2002 2001
---- ----
REVENUES
Premiums earned $ 1,147 $ 5,322
Net investment income 829 2,351
Net securities gains - 4
Other income 10 38
------ ------
1,986 7,715
LOSSES AND EXPENSES
Losses 275 4,586
Loss adjustment expenses 1,460 1,468
Other underwriting expenses, less
deferrals of $0 in 2002
and $672 in 2001 876 1,269
Amortization of deferred policy
acquisition costs - 1,032
Interest on surplus note 83 140
------ ------
2,694 8,495
LOSS BEFORE FEDERAL INCOME TAXES (708) (780)
------ ------
FEDERAL INCOME TAXES
Current expense/(benefit) - -
Deferred expense/(benefit) - -
------ ------
- -
------ ------
NET LOSS $ (708) $ (780)
====== ======
Per share data, based on 7,078,625
average shares outstanding in 2002
and 2001
BASIC AND DILUTED LOSS PER SHARE $ (0.10) $ (0.11)
====== ======
See Notes to Interim Consolidated Financial Statements.
3
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 2002 and 2001
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------
2002 2001
---- ----
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,979) $(15,057)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Amortization of deferred policy
acquisition costs - 4,818
Provision for doubtful accounts - (574)
Net securities gains (47) (1,016)
Policy acquisition costs incurred
and deferred - (1,783)
Net change in:
Agents' balances 425 3,681
Reinsurance balances receivable 30,868 1,999
Prepaid reinsurance premiums 2,999 4,937
Unpaid losses and loss adjustment
expenses (44,485) (5,197)
Unearned premiums (5,194) (9,975)
Due to(from)affiliates (985) 886
Reinsurance balances payable 250 1,541
Other, net (996) 1,209
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NET CASH USED FOR OPERATING ACTIVITIES (19,144) (14,531)
------- -------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed maturities (13,717) (19,559)
Net change in other invested assets (94) (1,911)
Proceeds from sale of fixed maturities 3,135 72,372
Proceeds from maturities of fixed
maturities 2,591 20,542
Net change in short-term investments 27,233 (56,913)
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 19,148 14,531
------- -------
NET INCREASE IN CASH 4 -
Cash, at beginning of period 36 77
----- -----
Cash at the end of period $ 40 $ 77
===== =====
See Notes to Interim Consolidated Financial Statements.
4
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended June 30, 2002 and 2001
(In thousands, except par value)
ACCUMULATED
COMMON OTHER
STOCK ADDITIONAL COMPREHENSIVE
$1 PAR PAID-IN INCOME/ RETAINED
VALUE CAPITAL (LOSS) EARNINGS TOTAL
----- ------- ------ -------- -----
Balance, January 1, 2001 $7,079 $9,331 $ 571 $26,810 $43,791
Comprehensive loss:
Net loss (15,057) (15,057)
Other comprehensive income(loss):
Unrealized holding gains
arising during the period
(net of deferred tax of $0) 1,444 1,444
Less: reclassification of
net securities gains
included in net loss
(net of deferred tax of $0) (984) (984)
------
Comprehensive loss _ (14,597)
----- ----- ----- ------ ------
Balance, June 30, 2001 $7,079 $9,331 $1,031 $11,753 $29,194
===== ===== ===== ====== ======
Balance, January 1, 2002 $7,079 $9,331 $ 732 $ 8,762 $25,904
Comprehensive loss:
Net loss (1,979) (1,979)
Other comprehensive income(loss):
Unrealized holding gains
arising during the period
(net of deferred tax of $0) 161 161
Less: reclassification of
net securities gains
included in net loss
(net of deferred tax of $0) (47) (47)
------
Comprehensive loss (1,865)
----- ----- ----- ------ ------
Balance, June 30, 2002 $7,079 $9,331 $ 846 $ 6,783 $24,039
===== ===== ===== ====== ======
See Notes to Interim Consolidated Financial Statements.
5
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect
all adjustments (consisting only of normal recurring items) that
management believes necessary to fairly present interim results of
operations, should be read in conjunction with the Notes to
Consolidated Financial Statements (including the Summary of Significant
Accounting Policies) included in the Company's audited consolidated
financial statements for the year ended December 31, 2001 which are
included in the Company's Annual Report filed on Form 10-K for such
year (the "2001 10-K"). Results of operations for interim periods are
not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 2001 was extracted from the
audited annual financial statements and does not include all
disclosures required by generally accepted accounting principles for
annual financial statements.
2. During the past several years, the Company and its parent company,
Empire Insurance Company ("Empire"), (collectively referred to as "the
Group"), experienced poor underwriting results and adverse reserve
development in all of its lines of business. During 2001, the Group
explored its options for developing a new business model and strategy.
After evaluating these options, the Group announced in December 2001
that it had determined that it was in the best interest of its
shareholders and policyholders to commence an orderly liquidation of
all of the Group's operations. The Group will only accept business that
it is obligated to accept by contract or New York insurance law; it
will not engage in any other business activities except for its claims
runoff operations. The voluntary liquidation of its operations is
expected to be substantially complete by 2005. Given the Group's and
the Company's current financial condition, the expected costs to be
incurred during the claims runoff period, and the inherent uncertainty
over ultimate claim settlement values, no assurance can be given that
the Company's shareholders will be able to receive any value at the
conclusion of the voluntary liquidation of its operations.
3. On July 25, 2002, the Company announced that its Board of Directors had
approved a $0.335 per share cash dividend (the "Dividend") payable on
August 14, 2002 to shareholders of record at the close of business on
August 5, 2002. The aggregate amount of the Dividend is $2,371,340. The
Dividend will have the effect of increasing the stand-alone surplus of
Empire. At June 30, 2002, Empire's stand-alone surplus exceeded the
minimum statutory surplus requirement of $3,300,000 by approximately
$3,900,000. The Dividend will increase Empire's stand-alone surplus by
approximately $2,000,000. In the event that Empire's stand-alone
surplus declines below the minimum in the future, no assurance can be
given that material adverse regulatory action will not be taken against
Empire or the Company.
4. The New York State Department of Taxation and Finance (the "Department
of Taxation and Finance") is in the process of auditing the Group's New
York Franchise tax returns for the years 1992 through 1996 and has
asserted that the Company and Empire should have filed their returns on
a combined basis, rather than on a separate company basis. If the
Company and Empire were required to file on a combined basis, the Group
would be required to pay an additional franchise tax and related
surcharge tax of approximately $5,700,000, plus interest, for the
periods in question. The Group has informed the Department of Taxation
and Finance that it does not agree with its position on this matter,
and has submitted additional information. The Company does not believe
it is probable that it will sustain a loss as a result of this
assertion and therefore has not made any loss provision in its
financial statements. However, if the Group does not prevail in this
matter, the Company's share of this additional tax would be
approximately $1,700,000, plus interest pursuant to the terms of the
pooling agreement.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF INTERIM OPERATIONS
The following should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the 2001 10-K.
LIQUIDITY AND CAPITAL RESOURCES
During the past several years, the Group experienced poor
underwriting results and adverse reserve development in all of its
lines of business. During 2001, the Group explored its options for
developing a new business model and strategy. After evaluating these
options, the Group announced in December 2001 that it had determined
that it was in the best interest of its shareholders and policyholders
to commence an orderly liquidation of all of its operations. The Group
will only accept business that it is obligated to accept by contract or
New York insurance law; it will not engage in any other business
activities except for its claims runoff operations. The voluntary
liquidation of its operations is expected to be substantially complete
by 2005. Given the Group's and the Company's current financial
condition, the expected costs to be incurred during the claims runoff
period, and the inherent uncertainty over ultimate claim settlement
values, no assurance can be given that the Company's shareholders will
be able to receive any value at the conclusion of the voluntary
liquidation of its operations.
For the six month periods ended June 30, 2002 and 2001, net cash
was used for operations principally as a result of a decrease in
premiums written and the payment of claims and operating expenses. As a
result of its decision to conduct an orderly liquidation of all of its
operations, the Company expects to report a net use of cash from
operations resulting primarily from the payment of claims and other
expenses in excess of revenues generated for the foreseeable future.
During 2001, the Company replaced a significant portion of its fixed
maturities investment portfolio with shorter-term investments in order
to shorten its duration to match its anticipated cash needs.
At June 30, 2002 and 2001, the yield of the Company's fixed
maturities portfolio was 2.2% and 4.5%, respectively, with an average
maturity of 0.4 years and 1.0 year, respectively. Additionally, the
Company has a diversified investment portfolio of securities, 94.0% of
which is rated "investment grade" by established bond rating agencies
or issued or guaranteed by the U.S. Treasury or by governmental
agencies.
During the six months ended June 30, 2002 and 2001, the Company
sold certain securities to meet short-term cash flow needs and realized
a capital gain of $1,016,000 in the 2001 period; such amount was not
material for 2002. The Company will continue to use the cash flow
generated from its investment portfolio, including investment income
and proceeds generated from the maturity and sale of investments, and
from collection of its reinsurance receivables to settle its loss and
loss adjustment expense ("LAE") reserves. At June 30, 2002, these
assets totaled $240,960,000 as compared to the Company's loss and LAE
reserves of $198,806,000. The Company expects to settle approximately
60% of these liabilities by the end of 2004. Additionally, the Company
has not experienced any material default in the payment of reinsurance
claims due from its reinsurance providers.
7
On July 25, 2002, the Company announced that its Board of
Directors had approved a $0.335 per share cash dividend (the
"Dividend") payable on August 14, 2002 to shareholders of record at the
close of business on August 5, 2002. The aggregate amount of the
Dividend is $2,371,340. The Dividend will have the effect of increasing
the stand-alone surplus of Empire. At June 30, 2002, Empire's
stand-alone surplus exceeded the minimum statutory surplus requirement
of $3,300,000 by approximately $3,900,000. The Dividend will increase
Empire's stand-alone surplus by approximately $2,000,000. In the event
that Empire's stand-alone surplus declines below the minimum in the
future, no assurance can be given that material adverse regulatory
action will not be taken against Empire or the Company.
INTERIM RESULTS OF OPERATIONS-SIX AND THREE MONTHS ENDED JUNE 30, 2002
COMPARED TO THE SIX AND THREE MONTHS ENDED JUNE 30, 2001.
Net earned premium revenues of the Company were $3,054,000 and
$11,887,000 for the six month periods ended June 30, 2002 and 2001,
respectively, and $1,147,000 and $5,322,000 for the three month periods
ended June 30, 2002 and 2001, respectively. The Company's earned
premiums declined in all lines of business during the six and three
month periods ended June 30, 2002 as a result of actions announced
during late 2000 and the first quarter of 2001. During the fourth
quarter of 2000, the Group announced that it would no longer accept any
new private passenger automobile policies. Existing policies of private
passenger automobile insurance will be either sold, non-renewed or
cancelled in accordance with New York insurance law. If the private
passenger automobile book of business is not sold, it is expected that
the Group will continue to issue renewal policies over the next several
years as required by applicable insurance law. In March 2001, the Group
announced that it would no longer issue any new (as compared to
renewal) insurance policies in all other lines of business and that it
had filed plans of orderly withdrawal with the New York Insurance
Department as required. Commercial lines policies will be non-renewed
or canceled in accordance with New York insurance law or replaced by
Tower Insurance Company of New York or Tower Risk Management
(collectively "Tower") under the agreement for the sale of the Group's
renewal rights. Excluding the remaining terms of existing policies that
the Group intends to either non-renew, cancel or that will be replaced
by Tower, as of June 30, 2002, the Group's in force premium volume
totaled $8,400,000. As indicated above, these policies are primarily
personal lines policies whose volume will continue to decline as the
Group exercises its non-renewal rights under New York insurance law.
Pre-tax losses for the Company were $1,979,000 and $15,057,000
for the six month periods ended June 30, 2002 and 2001, respectively,
and $708,000 and $780,000 for the three month periods ended June 30,
2002 and 2001, respectively. The pre-tax losses include increases for
loss and LAE for prior accident years of $700,000 and $11,700,000 for
the six month periods ended June 30, 2002 and 2001, respectively, and
$250,000 for the three month period ended June 30, 2002. In addition,
during the six and three month periods ended June 30, 2001, the Company
wrote-off approximately $2,600,000 and $400,000, respectively, of
deferred policy acquisition costs as their recoverability from premiums
and related investment income was no longer anticipated.
8
During the six month period ended June 30, 2002, the Company
increased its reserve estimates by a net amount of $700,000. This
increase was comprised of $1,800,000 of a net increase in expected
losses, an increase in LAE reserves of $1,400,000 and a reduction of
$2,500,000 of an accrual for workers' compensation fund assessments.
The increase for expected loss development consisted of an increase to
the Company's reserve estimates in the workers' compensation line by
$3,500,000, primarily for accident years 1999 and prior which reflects
the Company's current analysis of its and the industry's recent
experience. Partially offsetting this was a decrease in the Company's
reserve estimates in the automobile lines of business for the 1998
through 2001 accident years by $2,600,000, primarily relating to
personal injury protection coverage ("PIP"). This decrease was
principally due to favorable reported loss development during the
period and changes during 2002 in the PIP insurance laws that shorten
the time periods in which both a notice of accident and a proof of
claim for medical expenses must be submitted to the Company by a
claimant or insured. These legislative changes, which were passed in an
effort to prevent fraud in the New York insurance marketplace, are
expected to result in a reduction in the frequency of fraudulent PIP
claims reported to the Company. The Company also increased its loss
reserve estimate for older accident years by approximately $900,000
principally in the general liability and property lines of businesses
which reflects the Company's recent claim experience. The 2002 increase
in LAE reserves of $1,400,000 referred to above is primarily the result
of a higher than expected level of payment activity during the period,
principally related to outside attorneys handling third party liability
claims and the payment of internal overhead costs allocated to claims
handling. During the three months ended June 30, 2002, the Company
reduced its accrual for certain New York workers' compensation fund
assessments. As a result of a legislative change, these workers'
compensation fund assessments are currently determined based on
workers' compensation premiums writings, rather than on the basis of
loss payments as had previously been the case. Due to a reduction in
workers' compensation premium volume, the Company was able to reduce
its accrual for these fund assessments by approximately $3,000,000 of
which $2,500,000 was recorded as a reduction in loss reserves and
$500,000 was recorded as a reduction in other liabilities.
During the six month period ended June 30, 2001, the Company
increased its reserve estimates for its commercial package policies
lines of business, primarily due to increases in severity of liability
claims for accident years 1998 and prior. The Company has exposure for
third party liability claims in many of its lines of insurance. During
2001, there were several settlements and court decisions on third party
liability cases for amounts that were greater than the industry's or
the Company's historical experience for similar claims, which had
formed the basis for the Company's estimated loss reserves. While many
of these decisions are being appealed, these results may signal a
change in the judicial environment in the Company's marketplace.
Accordingly, in 2001, the Company increased its loss reserve estimate
by approximately $5,400,000 due to an estimated increase in severity
for these exposures. Reserve increases in the six month period ended
June 30, 2001 also resulted from unfavorable development principally in
automobile lines of business for the 1998 through 2000 accident years,
primarily relating to PIP, and in its workers' compensation lines of
insurance. The Company believes that the increased loss estimates for
PIP are consistent with industry trends during 2001, and increased loss
reserves for all automobile lines by $2,700,000. In addition, the
Company also increased its reserves for LAE by $2,100,000 as a result
of increases to its loss reserves and an increase in future overhead
costs which will be allocated to settle claims currently incurred.
9
During the period between 1984 and 1995, the Company entered
into certain retrospectively rated reinsurance contracts covering
substantially all lines of business, except workers' compensation.
Under these contracts, the Company paid the reinsurer provisional
premiums that are subject to adjustment based on subsequent loss
development. Ceded premiums accrued under these contracts reduce both
net written and earned premiums during the period the retrospective
reinsurance premiums are accrued. If additional unfavorable loss
development emerges in future periods, the Company may be required to
accrue additional retrospective reinsurance premiums. As a consequence
of its reserve increases, the Company reduced premiums and pre-tax
profits by $228,000 and $1,035,000 for the six month periods ended June
30, 2002 and 2001, respectively, and $0 and $585,000 for the three
month periods ended June 30, 2002 and 2001, respectively, to recognize
reinsurance premiums due for 1995 and prior years under retrospectively
rated reinsurance contracts.
In management's judgment, information currently available has
been appropriately considered in estimating the Company's loss
reserves. However, the reserving process relies on the basic assumption
that past experience is an appropriate basis for predicting future
events. The Company will continue to evaluate the adequacy of its loss
reserves on a quarterly basis, incorporating any future changes in
trends and actual loss experience, and record adjustments to its loss
reserves as appropriate.
Net investment income for the six and three month periods ended
June 30, 2002 were lower than the comparable 2001 periods due to a
reduction in investments held as a result of a decrease in premiums
written and the payment of claims and operating expenses, as well as a
reduction in investment yields resulting from lower interest rates and
the Company's decision to shorten the duration of its investment
portfolio.
The Company had no current federal tax expense or benefit for
the six and three month periods ended June 30, 2002 and 2001. In
addition, due to the Company's uncertainty as to having future taxable
income necessary for realization of the deferred tax assets, a
valuation allowance has been provided for all periods shown for the
total amount of the deferred tax asset.
The New York State Department of Taxation and Finance (the
"Department of Taxation and Finance") is in the process of auditing the
Group's New York Franchise tax returns for the years 1992 through 1996
and has asserted that the Company and Empire should have filed their
returns on a combined basis, rather than on a separate company basis.
If the Company and Empire were required to file on a combined basis,
the Group would be required to pay an additional franchise tax and
related surcharge tax of approximately $5,700,000, plus interest, for
the periods in question. The Group has informed the Department of
Taxation and Finance that it does not agree with its position on this
matter, and has submitted additional information. The Company does not
believe it is probable that it will sustain a loss as a result of this
assertion and therefore has not made any loss provision in its
financial statements. However, if the Group does not prevail in this
matter, the Company's share of this additional tax would be
approximately $1,700,000, plus interest pursuant to the terms of the
pooling agreement.
10
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis
of Financial Condition and Results of Interim Operations may contain
forward-looking statements pursuant to the safe-harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may relate, but are not limited, to
projections of revenues, income or loss, capital expenditures,
fluctuations in insurance reserves, plans for growth and future
operations, competition and regulation as well as assumptions relating
to the foregoing.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted or quantified. When
used in this Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations, the words "estimates",
"expects", "anticipates", "believes", "plans", "intends" and variations
of such words and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Future
events and actual results could differ materially from those set forth
in, contemplated by or underlying the forward-looking statements.
The factors that could cause actual results to differ materially
from those suggested by any such statements include, but are not
limited to, those discussed or identified from time to time in the
Company's public filings, including:
o general economic and market conditions or prevailing interest
rate levels,
o changes in domestic laws, regulations and taxes,
o changes in competition and pricing environments,
o regional or general changes in asset valuation,
o the occurrence of significant natural disasters,
o the inability to reinsure certain risks economically,
o the adequacy of loss and LAE reserves,
o prevailing interest rate levels,
o weather related conditions that may affect the Company's
operations,
o effectiveness of the Tower agreement,
o the ability to attract and retain key personnel,
o adverse selection through renewals of the Group's policies,
o regulatory approval of the Group's proposed actions in
response to the findings of the Department,
o adverse regulatory action against the Group,
o Empire's surplus falling below the minimum statutory surplus
requirement,
11
o developments in claims handling, including adverse litigation
developments, that could adversely affect the voluntary
liquidation plan of the Group,
o the Group's ability to manage the claims runoff,
o increased loss adjustment expenses resulting from an extended
claims run-off period, and
o changes in composition of the Company's assets and liabilities
through acquisitions or divestitures.
o an adverse determination by the New York State Department of
Taxation and Finance on its audit of the Group's New York
State franchise tax returns for the years 1992 through 1996.
Undue reliance should not be placed on these forward-looking
statements, which are applicable only as of the date hereof. The
Company undertakes no obligation to revise or update these
forward-looking statements to reflect events or circumstances that
arise after the date of this Management's Discussion and Analysis of
Financial Condition and Results of Interim Operations or to reflect the
occurrence of unanticipated events.
12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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The following matters were submitted to a vote of shareholders at the
Company's 2002 Annual Meeting of Shareholders held on June 24, 2002.
Election of directors.
Number of Shares
----------------
For Withheld
--- --------
Class I:
--------
Rocco J. Nittoli 7,001,962 10,752
Class II:
---------
Martin B. Bernstein 7,001,962 10,752
H.E. Scruggs 7,001,962 10,752
Louis V. Siracusano 7,001,962 10,752
Lucius Theus 7,001,962 10,752
Class III:
----------
Christopher J. Gruttemeyer 7,001,962 10,752
James E. Jordan 7,001,962 10,752
Joseph A. Orlando 7,001,962 10,752
Harry H. Wise 7,001,962 10,752
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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a) Exhibits
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Report on Form 8-K
None.
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SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLCITY INSURANCE COMPANY
Registrant
Date: August 14, 2002 By: /s/ Rocco J. Nittoli
--------------- -------------------------------
Rocco J. Nittoli
Chief Operating Officer
(Principal Financial Officer)
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EXHIBIT INDEX
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Exhibit
Number Description
------ -----------
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
15