SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
----------------------------------
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 0-22316
--------------------
Penn-America Group, Inc.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2731409
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 South York Road, Hatboro, Pennsylvania 19040
-----------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 443-3600
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other 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 .
----- ----
At August 10, 2001, 7,629,734 shares of the registrant's common stock, $.01 par
value, were outstanding.
Page 1
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Index
Page Number
Part I - Financial Information
Consolidated Balance Sheets - June 30, 2001 (unaudited) and
December 31, 2000 3
Consolidated Unaudited Statements of Operations - For the three and
six months ended June 30, 2001 and 2000 4
Consolidated Unaudited Statement of Stockholders' Equity -
For the six months ended June 30, 2001 5
Consolidated Unaudited Statements of Cash Flows -
For the nine months ended June 30, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II - Other Information 16
Page 2
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
June 30, December 31,
2001 2000
---------------- -----------------
ASSETS (Unaudited)
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost 2001, $125,713; 2000, $ 128,283 $ 125,477
$123,873)
Held to maturity, at amortized cost (fair value 2001, $15,589; 2000, $17,441) 15,307 17,282
Equity securities, at fair value (cost 2001, $27,768; 2000, $27,324) 24,622 24,491
---------------- -----------------
Total investments 168,212 167,250
Cash 9,030 11,425
Accrued investment income 2,157 2,181
Premiums receivable, net 11,848 9,695
Reinsurance recoverable 24,102 24,447
Prepaid reinsurance premiums 4,120 4,635
Deferred policy acquisition costs 9,220 10,317
Capital lease 1,709 1,753
Deferred income taxes 4,323 4,272
Income tax recoverable 2,056 2,982
Other assets 562 529
---------------- -----------------
Total assets $ 237,339 $ 239,486
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 115,509 $ 115,314
Unearned premiums 39,392 43,239
Accounts payable and accrued expenses 2,373 2,353
Capitalized lease obligation 1,639 1,701
Other liabilities 2,463 2,828
---------------- -----------------
Total liabilities 161,376 165,435
---------------- -----------------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,000,000 shares;
None issued -- --
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 2001 and 2000, 10,116,984 and 10,076,025 shares, respectively;
outstanding 2001 and 2000, 7,616,984 and 7,576,025 shares, respectively 101 101
Additional paid-in capital 70,522 70,164
Accumulated other comprehensive loss (379) (811)
Retained earnings 30,747 29,583
Treasury stock, 2,500,000 shares in 2001 and 2000 at cost (24,161) (24,161)
Officers' stock loans (655) (546)
Unearned compensation from restricted stock awards (212) (279)
---------------- -----------------
Total stockholders' equity 75,963 74,051
---------------- -----------------
Total liabilities and stockholders' equity $ 237,339 $ 239,486
================ =================
Page 3
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the three and six months ended June 30, 2001 and 2000
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- --------------- -------------
Revenues
Premiums earned $ 22,206 $ 22,479 $45,248 $44,026
Net investment income 2,815 2,460 5,665 4,860
Net realized investment loss (334) (16) (232) (29)
-------------- ------------- --------------- -------------
Total revenues 24,687 24,923 50,681 48,857
-------------- ------------- --------------- -------------
Losses and expenses
Losses and loss adjustment expenses 15,453 17,994 32,187 31,899
Amortization of deferred policy acquisition costs 6,007 6,473 12,231 12,712
Other underwriting expenses 1,684 1,487 3,218 2,917
Corporate expenses 189 235 351 455
Interest expense 40 36 80 73
-------------- ------------- --------------- -------------
Total losses and expenses 23,373 26,225 48,067 48,056
-------------- ------------- --------------- -------------
Income (loss) before income tax 1,314 (1,302) 2,614 801
Income tax expense (benefit) 320 (640) 653 (120)
-------------- -------------------------------- -------------
Net income (loss) $ 994 $ (662) $ 1,961 921
============== ============= =============== =============
Net income (loss) per share, basic and diluted $ 0.13 $ (0.09) $ 0.26 $ 0.12
Cash dividends per share $ 0.0525 $ 0.0525 $ 0.105 $ 0.105
Page 4
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the six months ended June 30, 2001
(In thousands, except per share data)
Unearned
Compensation
Accumulated From
Additional Other Officers' Restricted Total
Common Paid-In Comprehensive Retained Treasury Stock Stock Stockholders'
Stock Capital Income (Loss) Earnings Stock Loans Awards Equity
--------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 101 $ 70,164 $ ( 811) $ 29,583 $ (24,161) $ (546) $ (279) $ 74,051
Net income -- -- -- 1,961 -- -- -- 1,961
Other comprehensive income:
unrealized gains on
investments, net of tax
and reclassification
adjustment -- -- 432 -- -- -- -- 432
----------
Comprehensive income 2,393
----------
Issuance of common stock -- 358 -- -- -- -- -- 358
Officers' stock loans -- -- -- -- -- (109) -- (109)
Amortization of compensation
expense from restricted
stock awards issued -- -- -- -- -- -- 67 67
Cash dividends paid
($0.0525 per share) -- -- -- (797) -- -- -- (797)
----------------------------------------------------------------------------------------------
Balance at June 30, 2001 $ 101 $ 70,522 $ (379) $ 30,747 $ (24,161) $ (655) $ (212) $ 75,963
==============================================================================================
Page 5
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended June 30, 2001 and 2000
(In thousands)
Six months ended June 30,
-------------------------------------
2001 2000
--------------- ---------------
Cash flows from operating activities:
Net income $ 1,961 $ 921
Adjustments to reconcile net income to net cash provided (used) by Operating
activities:
Amortization and depreciation expense 18 324
Net realized investment loss 232 29
Deferred income tax (benefit) expense (273) 14
Net increase (decrease) in premiums receivable, prepaid reinsurance
premiums
and unearned premiums (5,485) 1,904
Net increase in unpaid losses and loss adjustment expenses
and reinsurance recoverable 540 2,659
Accrued investment income 24 (85)
Deferred policy acquisition costs 1,097 (1,208)
Income tax recoverable 926 816
Other assets (109) 38
Accounts payable and accrued expenses 21 684
Other liabilities (365) (482)
--------------- ---------------
Net cash provided (used) by operating activities (1,413) 5,614
--------------- ---------------
Cash flows from investing activities:
Purchases of equity securities (2,065) (2,945)
Purchases of fixed maturities available for sale (17,547) (11,268)
Purchases of fixed maturities held to maturity -- (9,899)
Proceeds from sales of equity securities 1,375 3,674
Proceeds from sales and maturities of fixed maturities available for sale 15,865 10,812
Proceeds from maturities and calls of fixed maturities held to maturity 2,000 4,000
Change in short-term investments -- 449
--------------- ---------------
Net cash used by investing activities (372) (5,177)
--------------- ---------------
Cash flows from financing activities:
Issuance of common stock 358 456
Purchase of treasury stock -- (4,687)
Officers' stock loans (109) (491)
Principal payments on capital lease obligations (62) (60)
Dividends paid (797) (817)
--------------- ---------------
Net cash used by financing activities (610) (5,599)
--------------- ---------------
Decrease in cash (2,395) (5,162)
Cash, beginning of period 11,425 12,045
--------------- ---------------
Cash, end of period $ 9,030 $ 6,883
=============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 80 $ 73
Taxes recovered -- (950)
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Organization and Basis of Presentation
Penn-America Group, Inc. ("PAGI" or the "Company") is an insurance
holding company. Approximately 41% of the outstanding common stock of the
Company was owned by Penn Independent Corporation ("Penn Independent") at June
30, 2001. The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiary, Penn-America Insurance Company
("Penn-America") and its wholly owned subsidiary, Penn-Star Insurance Company
("Penn-Star").
Penn-America and Penn-Star underwrite commercial property and general
liability insurance and multi-peril insurance for small businesses located
primarily in small towns and suburban and rural areas. Penn-America and
Penn-Star can write business in all 50 states and the District of Columbia. The
companies write business on both an admitted and excess and surplus lines basis
in 35 states, on an admitted basis only in 3 states and on an excess and surplus
lines basis only in 12 states and the District of Columbia.
The accompanying condensed unaudited consolidated financial statements
and notes have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments) considered
necessary for a fair presentation of results for the interim periods have been
included. All significant intercompany accounts and transactions have been
eliminated in consolidation. It is suggested that these condensed unaudited
consolidated financial statements and notes be read in conjunction with the
financial statements and notes in the Company's 2000 Annual Report which was
incorporated by reference into the Company's Form 10-K for the year ended
December 31, 2000. The Company's results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire year.
Note 2 - Reinsurance
Premiums earned are presented net of amounts ceded to reinsurers of
$3.0 million and $2.9 million for the three months ended June 30, 2001 and 2000,
respectively. Losses and loss adjustment expenses are presented net of amounts
ceded to reinsurers of $700,000 and $637,000 for the three months ended June 30,
2001 and 2000, respectively.
Premiums earned are net of amounts ceded to reinsurers of $6.0 million
and $5.5 million for the six months ended June 30, 2001 and 2000, respectively.
Losses and loss adjustment expenses are net of amounts ceded to reinsurers of
$3.4 million and $2.5 million for the six months ended June 30, 2001 and 2000,
respectively.
Note 3 - Comprehensive Income
Accumulated other comprehensive income (loss) of the Company consists
solely of unrealized gains or losses on investment securities net of applicable
income tax expense or benefit and reclassification adjustments. Comprehensive
income was $759,000 for the three months ended June 30, 2001, compared with a
comprehensive loss of $1.1 million for the three months ended June 30, 2000.
Comprehensive income was $2.4 million and $1.2 million for the six months ended
June 30, 2001 and 2000, respectively.
Page 7
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
Note 4 - Income (Loss) Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted income (loss) per share computations:
Three months ended Six Month Ended
(in thousands, except per share data) June 30, June 30,
------------------------------------------------------------
2001 2000 2001 2000
------- ------- ------- -------
Basic per share computation:
Net income (loss) $ 994 $ (662) $ 1,961 $ 921
Weighted average common shares outstanding 7,605 7,616 7,592 7,794
------- ------- ------- -------
Basic net income (loss) per share $ 0.13 $ (0.09) $ 0.26 $ 0.12
======= ======= ======= =======
Diluted per share computation:
Net income (loss) $ 994 $ (662) 1,961 921
Weighted average common shares outstanding 7,605 7,616 7,592 7,794
Additional shares outstanding after the assumed
exercise of stock options by applying the
treasury stock method 71 * 55 46
------- ------- ------- -------
Total shares 7,676 7,616 7,647 7,840
======= ======= ======= =======
Diluted net income (loss) per share $ 0.13 $ (0.09) $ 0.26 $ 0.12
======= ======= ======= =======
*The potential impact of common stock purchase options is not considered as the
impact is anti-dilutive.
Page 8
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
Note 5- Segment Information
The Company has two reportable segments: non-standard personal
automobile and commercial lines. The Company announced in April 1999 that it
would run-off its remaining personal lines automobile business, which was
underwritten through a single agent in California. This followed a decision
earlier in 1999 to eliminate the Company's non-standard personal automobile
business in nine other states. The Company will continue to report on this
segment separately until the amounts relating to the non-standard personal
automobile business become immaterial to the financial statements presented.
These segments are managed separately because they have different customers,
pricing and expense structures. The Company does not allocate assets between
segments because assets are reviewed in total by management for decision-making
purposes.
The accounting policies of the segments are the same as those more
fully described in the summary of significant accounting policies in Note 1 of
the Company's 2000 Annual Report, which was incorporated by reference into the
Company's 2000 Form 10-K. The Company evaluates segment profit based on profit
or loss from operating activities. Segment profits or losses from operations are
pre-tax and do not include unallocated expenses but do include investment income
attributable to insurance transactions. Segment profit or loss therefore
excludes federal income taxes, unallocated expenses and investment income
attributable to equity as opposed to investment income attributable to insurance
transactions.
The following is a summary of the Company's segment revenues, expenses
and profit:
(in thousands) Three months ended June 30, 2001
--------------------------------
Personal
Commercial Automobile Total
----------------------------------------------
Premiums earned $ 22,200 $ 6 $ 22,206
Net investment income from insurance operations 1,568 71 1,639
----------------------------------------------
Total segment revenues 23,768 77 23,845
----------------------------------------------
Segment losses and loss adjustment expenses 15,750 (297) 15,453
Segment expenses 6,558 5 6,563
----------------------------------------------
Total segment expenses 22,308 (292) 22,016
----------------------------------------------
Segment income $1,460 $369 $1,829
----------------------------------------------
Unallocated items:
Net investment income from equity 842
Unallocated expenses (1,357)
Income tax expense (320)
-----------
Net income $ 994
===========
Page 9
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(continued)
Note 5- Segment Information (Continued)
(in thousands) Three months ended June 30, 2000
--------------------------------
Commercial Personal
Automobile Total
----------------------------------------------
Premiums earned $ 21,090 $ 1,389 $ 22,479
Net investment income from insurance operations 1,304 146 1,450
----------------------------------------------
Total segment revenues 22,394 1,535 23,929
----------------------------------------------
Segment losses and loss adjustment expenses 16,935 1,059 17,994
Segment expenses 6,481 497 6,977
----------------------------------------------
Total segment expenses 23,416 1,556 24,971
----------------------------------------------
Segment income $ (1,022) $ (20) $ (1,042)
----------------------------------------------
Unallocated items:
Net investment income from equity 994
Unallocated expenses
(1,254)
Income tax benefit 640
-----------
Net income $ (662)
===========
(in thousands) Six months ended June 30, 2001
------------------------------
Commercial Personal
Automobile Total
----------------------------------------------
Premiums earned $ 45,226 $ 22 $ 45,248
Net investment income from insurance operations 3,434 155 3,589
----------------------------------------------
Total segment revenues 48,660 177 48,837
----------------------------------------------
Segment losses and loss adjustment expenses 33,680 (1,493) 32,187
Segment expenses 13,149 10 13,159
----------------------------------------------
Total segment expenses 46,829 (1,483) 45,346
----------------------------------------------
Segment income $ 1,831 $ 1,660 $ 3,491
----------------------------------------------
Unallocated items:
Net investment income from equity 1,844
Unallocated expenses
(2,721)
Income tax expense (653)
-----------
Net income $ 1,961
===========
Page 10
(in thousands) Six months ended June 30, 2000
------------------------------
Commercial Personal
Automobile Total
----------------------------------------------
Premiums earned $ 40,867 $ 3,159 $44,026
Net investment income from insurance operations 2,501 302 2,803
----------------------------------------------
Total segment revenues 43,368 3,461 46,829
----------------------------------------------
Segment losses and loss adjustment expenses 29,688 2,211 31,899
Segment expenses 12,535 1,142 13,677
----------------------------------------------
Total segment expenses 42,223 3,353 45,576
----------------------------------------------
Segment income $ 1,145 $ 108 $ 1,253
----------------------------------------------
Unallocated items:
Net investment income from equity 2,028
Unallocated expenses
(2,480)
Income tax benefit 120
-----------
Net income $ 921
===========
Page 11
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended June 30, 2001 and 2000
Premiums earned decreased 1.2% to $22.2 million for the three months
ended June 30, 2001 from $22.5 million for the three months ended June 30, 2000,
due to a decline in non-standard personal automobile earned premiums. The
Company announced in 1999 that it is running off its non-standard personal
automobile business.
Gross written premiums decreased 16.7% for the three months ended June
30, 2001 to $23.6 million compared to $28.3 million for the three months ended
June 30, 2000, due to a 13.7% decrease in commercial gross written premiums and
a 100% decline in non-standard personal automobile premiums. The commercial
gross written premium decline resulted primarily from our decision in October
2000 to exit the commercial automobile line of business.
Net written premiums decreased 16.6% for the three months ended June
30, 2001 to $20.9 million compared to $25.0 million for the three months ended
June 30, 2000, due to a 13.2% decrease in commercial net written premiums and a
100% decline in non-standard personal automobile business.
Net investment income increased 14.4% to $2.8 million for the three
months ended June 30, 2001, from $2.5 million for the three months ended June
30, 2000. This increase resulted principally from an increase in the investment
yield of the fixed income investment portfolio and the growth in invested
assets.
Losses and loss adjustment expenses decreased 14.1% to $15.5 million
for the three months ended June 30, 2001, from $18.0 million for the three
months ended June 30, 2000.
Amortization of deferred policy acquisition costs ("DAC") decreased
7.2% to $6.0 million for the three months ended June 30, 2001, from $6.5 million
for the three months ended June 30, 2000 due to a reduction in commission rates
and decreased earned premium.
Other underwriting expenses increased 13.2% to $1.7 million for the
three months ended June 30, 2001, from $1.5 million for the three months ended
June 30, 2000.
The overall statutory combined ratio for the Company decreased to 104.3
for the three months ended June 30, 2001, from 114.7 for the three months ended
June 30, 2000, primarily due to the decrease in the loss ratio to 69.6 in 2001,
compared to 80.0 in 2000. The expense ratio was 34.7 for the three months ended
June 30, 2001 and the three months ended June 30, 2000.
As a result of the factors described above, net income for the three
months ended June 30, 2001 was $1.0 million or $0.13 per share (basic and
diluted), compared to net loss of $.7 million or $0.09 per share (basic and
diluted) for the three months ended June 30, 2000.
Page 12
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Six Months Ended June 30, 2001 and 2000
Premiums earned increased 2.8% to $45.2 million for the six months
ended June 30, 2001 from $44.0 million for the six months ended June 30, 2000,
due to a 10.7% increase in commercial earned premiums, partially offset by a
99.3% decline in non-standard personal automobile earned premiums. The Company
announced in 1999 that it is running off its non-standard personal automobile
business.
Gross written premiums decreased 13.2% for the six months ended June
30, 2001 to $47.4 million compared to $54.6 million for the six months ended
June 30, 2000, due to a 9.1% decrease in commercial gross written premiums and a
100% decline in non-standard personal automobile premiums. The commercial gross
written premium decline resulted primarily from our decision in October 2000 to
exit the commercial automobile line of business.
Net written premiums decreased 13.4% for the six months ended June 30,
2001 to $41.9 million compared to $48.4 million for the six months ended June
30, 2000, due to a 8.8% decrease in commercial net written premiums and a 99.9%
decline in non-standard personal automobile business.
Net investment income increased 16.6% to $5.7 million for the six
months ended June 30, 2001, from $4.9 million for the six months ended June 30,
2000. This increase resulted principally from an increase in the investment
yield of the fixed income investment portfolio and the growth in invested
assets.
Losses and loss adjustment expenses increased 0.9% to $32.2 million for
the six months ended June 30, 2001, from $31.9 million for the six months ended
June 30, 2000.
Amortization of deferred policy acquisition costs ("DAC") decreased
3.8% to $12.2 million for the six months ended June 30, 2001 compared to $12.7
million in 2000 due to a reduction in commission rates.
Other underwriting expenses increased 10.3% to $3.2 million for the six
months ended June 30, 2001, from $2.9 million for the six months ended June 30,
2000.
The overall statutory combined ratio for the Company decreased to 105.6
for the six months ended June 30, 2001, from 107.5 for the six months ended June
30, 2000, primarily due to the decrease in the loss ratio to 71.1 in 2001,
compared to 72.5 in 2000. The expense ratio decreased to 34.5 for the six months
ended June 30, 2001, compared to 35.0 for the six months ended June 30, 2000,
due in part to the aforementioned commission reduction.
As a result of the factors described above, net income for the six
months ended June 30, 2001 was $2.0 million or $0.26 per share (basic and
diluted), compared to net income of $0.9 million or $0.12 per share (basic and
diluted) for the six months ended June 30, 2000.
Page 13
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Liquidity and Capital Resources
PAGI is a holding company, the principal asset of which is the common
stock of Penn-America. The principal source of cash for the payment of dividends
to PAGI's stockholders, PAGI operating expenses and repurchase of PAGI stock is
dividends from Penn-America and Penn-Star. Penn-America's principal sources of
funds are operations, investment income and proceeds from sales and redemptions
of investments. Funds are used by Penn-America and Penn-Star principally to pay
claims and operating expenses, to purchase investments and to make dividend and
other payments to PAGI.
Penn-America is required by law to maintain a certain minimum surplus
on a statutory basis and is subject to risk-based capital requirements and
regulations under which payment of dividends from statutory surplus may require
prior approval from the Pennsylvania Insurance Department. Penn-America may pay
dividends to PAGI without advance regulatory approval only from unassigned
surplus and only to the extent that all dividends in the past twelve months do
not exceed the greater of 10% of total statutory surplus, or statutory net
income for the prior year. Using this criteria, the available ordinary dividend
for 2001 is $5.5 million. No ordinary dividends were paid to PAGI in 2000. In
2000, Penn-America paid a $6.4 million return of capital to PAGI, after
receiving approval from the Pennsylvania Insurance Department, which PAGI used
to repurchase stock and to pay dividends and PAGI operating expenses.
Penn-America paid a $0.6 million dividend to PAGI on May 9, 2001.
Net cash used by operating activities was $1.4 million for the six
months ended June 30, 2001, compared to $5.6 million provided by operating
activities for the six months ended June 30, 2000.
Net cash used by investing activities was $.4 million for the six
months ended June 30, 2001, compared to $5.2 million for the six months ended
June 30, 2000.
Net cash used by financing activities was $0.6 million for the six
months ended June 30, 2001, compared to $5.6 million for the six months ended
June 30, 2000. In 2000, $4.7 million was used to purchase treasury stock, and no
such purchases were made in 2001.
Statutory surplus as of June 30, 2001 increased to $60.0 million from
$55.5 million as of December 31, 2000, due primarily to a $2.7 million net
positive impact of adopting the standard set of statutory accounting principles
known as "codification" and statutory net income of $3.0 million.
The Company believes it has sufficient liquidity to meet its
anticipated insurance obligations and operating and capital expenditure needs.
The Company's investment strategy emphasizes quality, liquidity and
diversification, as well as total return. With respect to liquidity, the Company
considers liability durations, specifically related to loss reserves, when
determining desired investment maturities. In addition, maturities have been
staggered to produce cash flows for loss payments and reinvestment
opportunities.
Page 14
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
The Company's fixed maturity portfolio of $143.6 million was 85.4% of
the total investment portfolio as of June 30, 2001. Approximately 97% of these
securities were rated "A" or better by Standard & Poor's or Moody's. The average
duration of the fixed maturity portfolio as of June 30, 2001 was approximately
3.58 years. Equity securities, the majority of which consist of preferred stocks
and exchange traded funds, were $24.6 million or 14.6% of total investments as
of June 30, 2001.
As of June 30, 2001, the investment portfolio contained $44.5 million
of mortgage/asset-backed obligations, which represents 26.4% of the total
investments as of June 30, 2001. All of these securities were "AA"-rated or
better and 72.8% were "AAA"-rated by Standard & Poor's or Moody's. These
securities, which were issued by government, government-related agencies or
publicly held corporations, are publicly traded, and have market values obtained
from an independent pricing service. Changes in estimated cash flows due to
changes in prepayment assumptions from the original purchase assumptions are
revised based on current interest rates and the economic environment. The
Company had no derivative financial instruments, real estate or mortgages in the
investment portfolio as of June 30, 2001.
Page 15
PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote by Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
On April 3, 2001, the Company filed a current report on Form 8-K
announcing the availability of annual statements of its insurance
subsidiaries, Penn-America Insurance Company and Penn-Star
Insurance Company, on the Company's website, in hard copy from the
Company, or from the Pennsylvania Insurance Department. This
filing was made relative to Regulation FD requirements only.
On May 16, 2001, the Company filed a current report on Form 8-K
announcing the availability of first quarter statements of its
insurance subsidiaries, Penn-America Insurance Company and
Penn-Star Insurance Company, on the Company's website, in hard
copy from the Company, or from the Pennsylvania Insurance
Department. This filing was made relative to Regulation FD
requirements only.
Page 16
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.
Penn-America Group, Inc.
Date: August 13, 2001 By: /s/ Jon S. Saltzman
----------------- ---------------------
Jon S. Saltzman
President and
Chief Executive Officer
By: /s/ Joseph F. Morris
--------------------
Joseph F. Morris
Senior Vice President and
Chief Financial Officer
Page 17