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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
COMMISSION FILE NUMBER 1-9640
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MERCHANTS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
16-1280763
(I.R.S. Employer Identification No.)
250 MAIN STREET, BUFFALO, NEW YORK
(Address of principal executive offices)
14202
(Zip Code)
716-849-3333
(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 25, 2001: 2,411,752 SHARES OF COMMON STOCK.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERCHANTS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, March 31,
Assets 2000 2001
------ ------------- -------------
(unaudited)
Investments:
Fixed maturities:
Held to maturity at amortized cost (fair value
$13,576 in 2000 and $13,838 in 2001) $ 12,874 $ 12,892
Available for sale at fair value (amortized cost
$183,392 in 2000 and $182,945 in 2001) 183,283 184,752
Preferred stock at fair value 13,911 15,679
Other long-term investments at fair value 1,036 1,335
Short-term investments 4,550 2,960
--------- --------
Total investments 215,654 217,638
Cash 5 1
Interest due and accrued 2,816 2,246
Premiums receivable, net of allowance for doubtful
accounts of $395 in 2000 and $365 in 2001 19,843 18,176
Deferred policy acquisition costs 12,331 11,559
Ceded reinsurance balances receivable 13,089 12,373
Prepaid reinsurance premiums 4,326 3,197
Deferred income taxes 6,263 5,165
Other assets 7,537 8,227
--------- --------
Total assets $ 281,864 $278,582
========= ========
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except share amounts)
December 31, March 31,
2000 2001
------------ ----------
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Reserve for losses and loss adjustment expenses $ 145,075 $ 144,541
Unearned premiums 50,857 46,817
Payable to affiliate 608 3,261
Other liabilities 15,202 12,621
--------- ---------
Total liabilities 211,742 207,240
--------- ---------
Stockholders' equity:
Common stock, 10,000,000 shares authorized, 2,430,752 shares issued and
outstanding at December 31, 2000 and 2,418,252 shares issued and
outstanding at March 31, 2001 32 32
Additional paid in capital 35,680 35,680
Treasury stock, 811,100 shares at December 31, 2000
and 823,600 shares at March 31, 2001 (16,063) (16,297)
Accumulated other comprehensive income (loss) (875) 848
Accumulated earnings 51,348 51,079
--------- ---------
Total stockholders' equity 70,122 71,342
--------- ---------
Commitments and contingent liabilities - -
Total liabilities and stockholders' equity $ 281,864 $ 278,582
========= =========
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
Three Months
Ended March 31,
2000 2001
------- -------
(unaudited)
Revenues:
Net premiums earned $23,033 $23,353
Net investment income 3,456 3,563
Net realized investment gains - 43
Other revenues 66 137
------- -------
Total revenues 26,555 27,096
------- -------
Expenses:
Net losses and loss adjustment expenses 17,493 18,761
Amortization of deferred policy acquisition costs 6,104 6,189
Other underwriting expenses 1,686 1,815
------- -------
Total expenses 25,283 26,765
------- -------
Income before income taxes 1,272 331
Income tax provision 455 119
------- -------
Net income $ 817 $ 212
======= =======
Basic and diluted earnings per share $ .32 $ .09
======= =======
Weighted average shares outstanding:
Basic 2,560 2,423
Diluted 2,562 2,425
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
Three Months
Ended March 31,
2000 2001
------- -------
(unaudited)
Net income $ 817 $ 212
------- -------
Other comprehensive income (loss) before taxes:
Unrealized gains (losses) on securities (792) 2,835
Reclassification adjustment
for gains and losses included
in net income - (43)
------- -------
Other comprehensive income (loss) before taxes (792) 2,792
Income tax provision (benefit) related to items
of other comprehensive income (loss) (369) 1,069
------- -------
Other comprehensive income (loss) (423) 1,723
------- -------
Comprehensive income $ 394 $ 1,935
======= =======
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Three Months
Ended March 31,
2000 2001
-------- --------
(unaudited)
Common stock, beginning and end $ 32 $ 32
-------- --------
Additional paid in capital, beginning and end: 35,680 35,680
-------- --------
Treasury stock:
Beginning of period (13,139) (16,063)
Purchase of treasury shares (1,431) (234)
-------- --------
End of period (14,570) (16,297)
-------- --------
Accumulated other comprehensive income (loss):
Beginning of period (1,188) (875)
Other comprehensive income (loss) (423) 1,723
-------- --------
End of period (1,611) 848
-------- --------
Accumulated earnings:
Beginning of period 48,002 51,348
Net income 817 212
Cash dividends (507) (481)
-------- --------
End of period 48,312 51,079
-------- --------
Total stockholders' equity $ 67,843 $ 71,342
======== ========
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
2000 2001
--------- ---------
(unaudited)
Cash flows from operations:
Collection of premiums $ 22,216 $ 21,659
Payment of losses and loss adjustment expenses (16,513) (18,580)
Payment of other underwriting expenses (9,882) (9,998)
Investment income received 3,340 3,967
Investment expenses paid (106) (142)
Income taxes paid (217) (78)
Other (6) 134
-------- --------
Net cash used in operations (1,168) (3,038)
-------- --------
Cash flows from investing activities:
Proceeds from fixed maturities sold or matured 10,299 27,365
Purchase of fixed maturities (3,170) (26,110)
Net increase in preferred stock (330) (1,431)
Net increase in other long-term investments (210) (318)
Net (increase) decrease in short-term investments (4,126) 1,590
-------- --------
Net cash provided by investing activities 2,463 1,096
-------- --------
Cash flows from financing activities:
Settlement of affiliate balances 968 2,653
Decrease in demand loan, net (325) -
Purchase of treasury stock (1,431) (234)
Cash dividends (507) (481)
-------- --------
Net cash provided by (used in) financing activities (1,295) 1,938
-------- --------
Increase (decrease) in cash - (4)
Cash:
Beginning of period 2 5
-------- --------
End of period $ 2 $ 1
======== ========
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
(in thousands)
Three Months
Ended March 31,
2000 2001
-------- --------
(unaudited)
Net income $ 817 $ 212
Adjustments:
Accretion (98) (247)
Realized investment gains - (43)
(Increase) decrease in assets:
Interest due and accrued (124) 570
Premiums receivable 944 1,667
Deferred policy acquisition costs 386 772
Ceded reinsurance balances receivable (925) 716
Prepaid reinsurance premiums (11) 1,129
Deferred income taxes (50) 31
Other assets 245 (690)
Increase (decrease) in liabilities:
Reserve for losses and loss adjustment expenses 1,533 (534)
Unearned premiums (1,446) (4,040)
Other liabilities (2,439) (2,581)
------- -------
Net cash used in operations $(1,168) $(3,038)
======= =======
See Notes to the Consolidated Financial Statements
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MERCHANTS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated balance sheet as of March 31, 2001 and the related consolidated
statements of operations, of comprehensive income, of changes in stockholders'
equity and of cash flows for the three months ended March 31, 2000 and 2001,
respectively, are unaudited. In the opinion of management, the interim financial
statements reflect all adjustments necessary for a fair presentation of
financial position and results of operations. Such adjustments consist only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
The consolidated financial statements include the accounts of Merchants Group,
Inc. (the Company), its wholly-owned subsidiary, Merchants Insurance Company of
New Hampshire, Inc. (MNH), and M.F.C. of New York, Inc., an inactive premium
finance company which is a wholly-owned subsidiary of MNH. The accompanying
consolidated financial statements should be read in conjunction with the
following notes and the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) which differ in some respects
from those followed in reports to insurance regulatory authorities. All
significant intercompany balances and transactions have been eliminated.
2. Related Party Transactions
--------------------------
The Company and MNH have no paid employees. Under a management agreement dated
September 26, 1986 (the Management Agreement), Merchants Mutual Insurance
Company (Mutual), which owned 10.5% of the Company's common stock at March 31,
2001, provides the Company and MNH with the facilities, management and personnel
required to manage their day-to-day business. All underwriting, administrative,
claims and investment expenses incurred on behalf of Mutual and MNH are shared
on an allocated cost basis, determined as follows: for underwriting and
administrative expenses, the respective share of total direct premiums written
for Mutual and MNH serves as the basis of allocation; for claims expenses, the
average number of outstanding claims is used; investment expenses are shared
based on each company's share of total invested assets.
3. Earnings Per Share
------------------
Basic and diluted earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during each
period, increased by the assumed exercise of 8,000 shares of common stock
options in 2001 and 2000, which would have resulted in 1,844 and 1,825
additional shares outstanding, respectively, assuming the proceeds to the
Company from exercise were used to purchase shares of the Company's common stock
at its average market value per share during the quarter.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Three Months Ended March 31, 2001 As Compared to
------------------------------------------------------------------------------
the Three Months Ended March 31, 2000
-------------------------------------
Total revenues for the three months ended March 31, 2001 were $27,096,000, an
increase of $541,000 or 2%, from $26,555,000 for the three months ended March
31, 2000.
Direct premiums written for the three months ended March 31, 2001 were
$22,242,000, a decrease of $1,227,000, or 5%, from $23,469,000 for the three
months ended March 31, 2000. Voluntary direct premiums written for the three
months ended March 31, 2001 were $21,723,000, a decrease of $1,490,000 or 6%,
from $23,213,000 for the three months ended March 31, 2000.
Voluntary personal lines direct premiums written for the three months ended
March 31, 2001 were $8,513,000, an increase of $49,000, or 1%, from $8,464,000
for the three months ended March 31, 2000. Private passenger automobile (PPA)
direct premiums written, which represented 77% and 78% of total voluntary
personal lines direct premiums written for the three months ended March 31, 2001
and 2000, respectively, decreased 1% from the year earlier period. Homeowners
direct premiums written for the three months ended March 31, 2001 increased 6%
compared to the three months ended March 31, 2000.
The Company has and continues to experience higher loss frequency for certain of
its commercial lines of business not adequately covered by premiums collected
from those lines of business. As a response to these higher losses, the Company
has filed for and received approval of rate increases in certain lines of
business, revised its underwriting guidelines, and removed discretionary pricing
credits where warranted. As a consequence of these actions, voluntary commercial
lines direct premiums written for the three months ended March 31, 2001
decreased $1,538,000, or 10%, to $13,211,000 from $14,749,000 for the three
months ended March 31, 2000. Direct premiums written for virtually all of the
Company's commercial lines of business decreased in the three months ended March
31, 2001, compared to the three months ended March 31, 2000. This decrease in
commercial lines direct premiums written was primarily attributable to a 7%
decrease in commercial lines policies in force at March 31, 2001 compared to
commercial lines policies in force at March 31, 2000.
Involuntary direct premiums written, primarily PPA insurance, which comprised 2%
and 1% of all direct premiums written during the three months ended March 31,
2001 and 2000, respectively, increased by $262,000, or 102%, to $518,000 in the
three months ended March 31, 2001 from $256,000 for the three months ended March
31, 2000. The Company believes it is likely that, due to a decrease in the
willingness of several major competitors to insure non-standard business
voluntarily, the number of policies written by the New York Automobile Insurance
Plan (NYAIP) will continue to increase and therefore the amount the Company's
involuntary direct written premiums will also continue to increase. However, the
Company is unable to predict the volume of future assignments from the NYAIP.
Net premiums written decreased $1,136,000, or 5%, to $20,441,000 for the three
months ended March 31, 2001 from $21,577,000 for the three months ended March
31, 2000, due to the 5% decrease in direct premiums written.
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Net premiums earned for the three months ended March 31, 2001 were $23,353,000,
an increase of 1% from $23,033,000 for the three months ended March 31, 2000.
This increase is attributable to the fact that the unearned premium reserve at
December 31, 2000, contributed more to earned premiums in the three months ended
March 31, 2000 than the unearned premium reserve at December 31, 1999,
contributed to earned premiums in the three months ended March 31, 2000.
Net investment income was $3,563,000 for the three months ended March 31, 2001,
an increase of 3% from $3,456,000 for the three months ended March 31, 2000. The
average pre-tax yield associated with the investment portfolio increased 21
basis points to 6.86% for the three months ended March 31, 2001. Average
invested assets for the three months ended March 31, 2001 increased 2% compared
to the year earlier period.
Losses and loss adjustment expenses (LAE) were $18,761,000 for the three months
ended March 31, 2001, an increase of $1,268,000, or 7%, from $17,493,000 for the
three months ended March 31, 2000. The loss and LAE ratio increased to 80.3% for
the three months ended March 31, 2001 from 75.9% for the three months ended
March 31, 2000. The increase in losses and LAE resulted from an increase in
claims frequency and severity experienced in the first quarter of 2001,
primarily for private passenger automobile, commercial automobile and workers'
compensation policies.
The ratio of amortized deferred policy acquisition costs and other underwriting
expenses to net premiums earned increased to 34.3% for the three months ended
March 31, 2001 from 33.8% for the three months ended March 31, 2000.
Commissions, premium taxes and other state assessments that vary directly with
the Company's premium volume represented 22.0% of net premiums earned in the
three months ended March 31, 2001 and in the three months ended March 31, 2000.
The Company's effective income tax rate for the three months ended March 31,
2000 was 36.0%. This rate was calculated based upon the Company's estimate of
its effective income tax rate for all of 2001. Non-taxable investment income
reduced the Company's effective tax rate by approximately four percentage
points.
Liquidity and Capital Resources
-------------------------------
In developing its investment strategy, the Company determines a level of cash
and short-term investments which, when combined with expected cash flow, is
estimated to be adequate to meet expected cash obligations. Historically, the
excess of premiums collected over payments on claims, combined with cash income
from investments, has provided the Company with short-term funds in excess of
normal operating demands for cash.
The Company's objectives with respect to its investment portfolio include
maximizing total return while protecting stockholders' equity and maintaining
flexibility. Like other property and casualty insurers, the Company relies on
premiums as a major source of cash, and therefore liquidity. Cash flows from the
Company's investment portfolio, either in the form of interest or principal
payments, are an additional source of liquidity. Because the duration of the
Company's investment portfolio relative to the duration of its liabilities are
closely managed, increases or decreases in market interest rates are not
expected to have a material effect on the Company's liquidity, or its results of
operations.
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The Company generally designates newly acquired fixed maturity investments as
available for sale and carries these investments at fair value. Unrealized gains
and losses related to these investments are recorded as a component of
accumulated other comprehensive income within stockholders' equity. At March 31,
2001, the Company had recorded $848,000 of unrealized gains, net of taxes,
associated with its investments classified as "available for sale" as
accumulated other comprehensive income. During the three months ended March 31,
2001 the Company recorded $1,723,000 of unrealized gains, net of taxes,
associated with its available for sale investments.
At March 31, 2001, the Company's portfolio of fixed maturities represented 90.8%
of invested assets. Management believes that this level of bond holdings is
consistent with the Company's liquidity needs because it anticipates that cash
receipts from net premiums written and investment income will enable the Company
to satisfy its cash obligations. Furthermore, a portion of the Company's bond
portfolio is invested in mortgage-backed and other asset-backed securities
which, in addition to interest income, provide monthly paydowns of bond
principal.
At March 31, 2001, $90,831,000, or 46.0%, of the Company's fixed maturity
portfolio was invested in mortgage-backed and other-asset backed securities. The
Company invests in a variety of collateralized mortgage obligation (CMO)
products but has not invested in the derivative type of CMO products such as
interest only, principal only or inverse floating rate securities. All of the
Company's CMO investments have an active secondary market and their effect on
the Company's liquidity does not differ from that of other fixed maturity
investments. The Company does not own any other derivative financial
instruments.
At March 31, 2001 $9,433,000, or 4.3%, of the Company's investment portfolio was
invested in non-investment grade securities compared to $9,656,000, or 4.6%, at
March 31, 2000. All of the Company's non-investment grade securities are
currently performing to the Company's purchase expectations.
During the three months ended March 31, 2001, the Company repurchased 12,500
shares of its common stock at an average price per share of $18.72. The Company
was holding 823,600 shares of its common stock in treasury at March 31, 2001.
The Company has arranged for a $2,000,000 unsecured credit facility from a bank
in the form of a master grid note. Any borrowings under this facility are
payable on demand and carry an interest rate which can be fixed or variable and
is negotiated at the time of each advance. This facility is available for
general working capital purposes and for repurchases of the Company's common
stock. At March 31, 2001, no amount was outstanding on this loan.
As a holding company, the Company is dependent on cash dividends from MNH to
meet its obligations, pay any cash dividends and repurchase its shares. MNH is
subject to New Hampshire insurance laws which place certain restrictions on its
ability to pay dividends without the prior approval of state regulatory
authorities. These restrictions limit dividends to those that, when added to all
other dividends paid within the preceding twelve months, would not exceed 10% of
the insurer's statutory policyholders' surplus as of the preceding December
31st. The maximum amount of dividends that MNH could pay during any twelve month
period ending in 2001 without the prior approval of the New Hampshire Insurance
Commissioner is
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$5,061,000. MNH paid $5,200,000 of dividends to the Company in 2000. Dividends
were paid in February 2000, May 2000 and September 2000, of $2,200,000,
$1,500,000 and $1,500,000, respectively. MNH paid a dividend of $2,200,000 to
the Company on February 15, 2001 and as such is restricted from paying another
dividend to the Company until May 2001. On May 2, 2001, the Board of Directors
of MNH declared a $1,334,000 cash dividend payable on May 24, 2001 to common
stockholders of record on May 24, 2001. The Company declared cash dividends to
its common stockholders of $.20 per share in the first quarter of 2001 amounting
to $481,000. This amount includes a quarterly cash dividend of $.10 per share
payable on June 1, 2001 to shareholders of record as of the close of business on
May 7, 2001.
Under the Management Agreement, Mutual provides employees, services and
facilities for MNH to conduct its insurance business on a cost reimbursed basis.
The balance in the payable to or receivable from affiliate account represents
the amount owing to or owed by Mutual to the Company for the difference between
premiums collected and payments made for losses, employees, services and
facilities by Mutual on behalf of MNH.
Industry and regulatory guidelines suggest that the ratio of a property-casualty
insurer's annual net premiums written to its statutory surplus should not exceed
3 to 1. MNH has consistently followed a business strategy that would allow it to
meet this 3 to 1 regulatory guideline. For the first three months of 2001, MNH's
ratio of net premiums written to statutory surplus, annualized for a full year,
was 1.5 to 1.
Relationship with Mutual
------------------------
The Company's and MNH's business and day-to-day operations are closely
aligned with those of Mutual. This is the result of a combination of factors.
Mutual has had a historical ownership interest in the Company and MNH. Prior to
November 1986 MNH was a wholly-owned subsidiary of Mutual. Following the
Company's initial public offering in November 1986 and until a secondary stock
offering in July 1993 the Company was a majority-owned subsidiary of Mutual.
Mutual currently owns 10.5% of the Company's common stock. Under the Management
Agreement, Mutual provides the Company and MNH with all facilities and personnel
to operate their business. The only officers of the Company or MNH who are paid
full time employees are employees of Mutual whose services are purchased under
the Management Agreement. Also, the operation of the Company's insurance
business, which offers substantially the same lines of insurance as Mutual
through the same independent insurance agents, creates a very close relationship
among the companies.
During 1998, Mutual initiated discussions with the Company concerning
proposals for the acquisition of the Company by Mutual. The Company determined
that the terms proposed by Mutual were inadequate. The Company also determined
that the Management Agreement prevents the Company's shareholders from realizing
the Company's fair value in a sale or merger, and on July 23, 1998 the Company
gave notice to Mutual of its intention to terminate the Management Agreement.
The provisions of the Management Agreement require five year's prior written
notice for its termination. The Company does not expect the notice of
termination to have any material, short-term effect on the Company's operations.
However, the Company believes that the Management Agreement, as currently
written, creates conflicts of interest between the Company and Mutual in their
joint operations and prevents the Company's shareholders from realizing the fair
value of their shares.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
-----------
Market risk represents the potential for loss due to changes in the fair value
of financial instruments. The market risk related to the Company's financial
instruments primarily relates to its investment portfolio. The value of the
Company's investment portfolio of $217,638,000 at March 31, 2001 is subject to
changes in interest rates and to a lesser extent on credit quality. Further,
certain mortgage-backed and asset-backed securities are exposed to accelerated
prepayment risk generally caused by interest rate movements. If interest rates
were to decline, mortgage holders would be more likely to refinance existing
mortgages at lower rates. Acceleration of future repayments could adversely
affect future investment income, if reinvestment of the accelerated receipts was
made in lower yielding securities.
The following table provides information related to the Company's fixed maturity
investments at March 31, 2001. The table presents cash flows of principal
amounts and related weighted average interest rates by expected maturity dates.
The cash flows are based upon the maturity date or, in the case of
mortgage-backed and asset-backed securities, expected payment patterns. Actual
cash flows could differ from those shown in the table.
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Fixed Maturities
----------------
Expected Cash Flows of Principal Amounts ($ in 000's):
TOTAL
-----------------
Esti-
Amor- mated
There- tized Market
2001 2002 2003 2004 2005 after Cost Value
---- ---- ---- ---- ---- ----- ---- -----
Held to Maturity
----------------
Mortgage & asset backed
securities $ 0 $642 $1,644 $1,556 $1,355 $7,695 $12,892 $13,838
Average interest rate 0.0% 7.2% 7.1% 7.1% 7.1% 7.3% --- ---
------ ---- ------ ------ ------ ------- ------- -------
Total $ 0 $642 $1,644 $1,556 $1,355 $7,695 $12,892 $13,838
====== ==== ====== ====== ====== ====== ======= =======
Available for Sale
------------------
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $7,981 $ 3,827 $ 0 $ 0 $ 0 $21,495 $33,303 $34,265
Average interest rate 5.4% 6.9% 0.0% 0.0% 0.0% 7.3% --- ---
Obligations of states and
political subdivisions 5,246 1,713 5,328 0 0 150 12,437 12,617
Average interest rate 4.8% 5.6% 5.3% 0.0% 0.0% 5.3% --- ---
Corporate securities 16,099 25,414 15,609 0 0 2,443 59,565 59,931
Average interest rate 6.9% 7.2% 6.8% 0.0% 0.0% 8.0% --- ---
Mortgage & asset
backed securities 28,745 21,289 10,287 6,159 1,685 9,475 77,640 77,939
Average interest rate 6.8% 6.9% 6.9% 7.0% 7.1% 7.2% --- ---
------ ---- ------ ------ ------ ------- ------- -------
Total $58,071 $52,243 $31,224 $ 6,159 $ 1,685 $33,563 $182,945 $184,752
======= ======= ======= ======= ======= ======= ======== ========
The discussion and the estimated amounts referred to above include
forward-looking statements of market risk which involve certain assumptions as
to market interest rates and the credit quality of the fixed maturity
investments. Actual future market conditions may differ materially from such
assumptions. Accordingly, the forward-looking statements should not be
considered projections of future events by the Company.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period
for which this report is filed.
* * * * * * * *
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Quarterly Report
on Form 10-Q constitute forward-looking statements and are discussed, made or
incorporated by reference, as the case may be, pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those included in or
contemplated by the statements. These assumptions, risks and uncertainties
include, but are not limited to, those associated with factors affecting the
property-casualty insurance industry generally, including price competition,
size and frequency of claims, increasing crime rates, escalating damage awards,
natural disasters, fluctuations in interest rates and general business
conditions; the Company's dependence on investment income; the geographic
concentration of the Company's business in the Northeastern United States and in
particular in New York, New Hampshire, New Jersey, Rhode Island, Pennsylvania
and Massachusetts; the adequacy of the Company's loss reserves; government
regulation of the insurance industry; exposure to environmental claims;
dependence of the Company on its relationship with Mutual; and the other risks
and uncertainties discussed or indicated in all documents filed by the Company
with the Commission. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
date of this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCHANTS GROUP, INC.
(Registrant)
Date: May 7, 2001 By:/s/ Kenneth J. Wilson
----------------------
Kenneth J. Wilson
Chief Financial Officer and
Treasurer (duly authorized
officer of the registrant and
chief accounting officer)
17