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FORM 10-K
BANCINSURANCE CORP
(Annual Report (Regulation S-K, item 405))
Filed 3/20/1997 For Period Ending 12/31/
Address 250 EAST BROAD STREET 10TH FLOOR
COLUMBUS, Ohio 43215
Telephone 614-228-
CIK 0000276400
Industry Insurance (Prop. & Casualty)
Sector Financial
Fiscal Year 12/
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
BANCINSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
Registrant's telephone number including area code (614) 228-
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Based upon the closing price reported on the Nasdaq National Market on February 14, 1997, the aggregate market value of the Common Stock
of Registrant held by non-affiliates on that date was $8,048,850.
As of February 14, 1997, the Registrant had 5,767,257 Common Shares, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1996 are incorporated by reference in Part II.
For the fiscal year ended 0-
December 31, 1996 Commission File Number
Ohio 31-
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
20 East Broad Street, Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
Name of Each Exchange on Title of Each Class Which Registered
NONE NONE
BANCINSURANCE CORPORATION AND SUBSIDIARIES
1996 FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business................................................... 3 Item 2. Properties................................................. 7 Item 3. Legal Proceedings.......................................... 7 Item 4. Submission of Matters to a Vote of Security Holders........ 7
PART II
Item 5. Market for the Company's Common Stock and Related Security Holder Matters................................ 7 Item 6. Selected Consolidated Financial Data....................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8
Item 8. Consolidated Financial Statements and Supplementary Data... 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 8
PART III
Item 10. Directors and Executive Officers of the Company............ 8 Item 11. Executive Compensation..................................... 8 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 8 Item 13. Certain Relationships and Related Transactions............. 8
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................... 9
Part I
Item 1. Business
GENERAL
The Company is an Ohio insurance holding company engaged primarily in the underwriting of specialized and niche insurance products and
related services through its wholly-owned insurance subsidiary, Ohio Indemnity Company ("Ohio Indemnity"). Ohio Indemnity is licensed to
transact business in 44 states and the District of Columbia and on a surplus lines basis in Texas. During 1993, BCIS Services, Inc. ("BCIS
Services") was incorporated in Ohio as a wholly-owned subsidiary of the Company. BCIS Services is a non-risk bearing provider of workers'
compensation administration and cost control services to employers who self-insure workers' compensation coverage.
PRODUCTS
Most of the Company's net premiums written and premiums earned are derived from two distinct lines of specialized and niche insurance
products and related services:
Ultimate Loss Insurance. Ultimate Loss Insurance, a form of physical damage blanket single interest insurance, is sold to lending institutions,
such as banks, savings and loan associations, credit unions, automobile dealers and finance companies. Ultimate Loss Insurance insures such
institutions against damage to pledged collateral in cases where the collateral is not otherwise insured. The standard policy covers physical
damage to the collateral, not to exceed the lesser of the collateral's fair market value or the outstanding loan balance. This blanket single
interest policy is generally written to cover the lending institution's complete portfolio of collateralized personal property loans, which consist
primarily of automobile loans. The Company offers supplemental coverages, at additional premium cost, for losses due to unintentional errors
in lien filings and conversion, confiscation and skip risks. Conversion risk coverage protects the lender from unauthorized and wrongful taking
of the lender's collateral. Skip risk coverage protects the lender when a delinquent debtor disappears with the loan collateral.
Since its inception in 1956, the Company has gradually expanded coverage of the program from traditional lenders such as banks, savings and
loans and credit unions to nontraditional lenders, such as finance companies. During 1996, the Company provided Ultimate Loss Insurance
coverage to approximately 300 lending institutions.
The premiums charged for Ultimate Loss Insurance reflect claims experience, loan volumes and general market conditions.
Bonded Service Program. Bonded Service is a program in which the Company participates by bonding specific unemployment insurance
servicing commitments by a cost containment service firm. The unemployment compensation laws of each state generally permit not-for-profit
organizations, school districts and political subdivisions to opt out of the state sponsored unemployment compensation insurance system and,
instead, elect to reimburse the state for unemployment compensation claims paid by the state on their behalf. Although the reimbursing
employer can usually realize certain cost advantages through this reimbursement method, it also assumes the risk of unexpected, unbudgeted
unemployment claims. The Bonded Service program provides the risk mechanism to limit the impact of such unexpected claims costs. The cost
containment service firm operates under a service contract with the reimbursing employer by which the cost containment service firm assures
that the employer will satisfy his obligations to the state as a reimburser. From the Bonded Service fees charged by the cost containment
service firm, an aggregate loss fund account is maintained from which losses in excess of expected charges are paid up to the bond limit. The
Company controls the Bonded Service participation process.
The Company has participated in the Bonded Service program since 1989. In 1992, the Company agreed to write a similar type bond covering
groups of smaller not-for-profit entities which could realize the cost benefits of being reimbursers but could not do so on a stand-alone basis.
As of December 31, 1996, the Company services seven (7) such groups.
effectively against providers of loss limitation coverages. The cost containment service firm, on whom the Company relies for growth in bond
fees, competes with other cost containment service firm's for cost containment service contracts with not-for-profit organizations, some of
which may require loss limitation coverages.
Concerning BCIS Services, competition includes any brokers, agents, insurance companies or consultants which provide administrative
services to their clients. The major competitors are TPA's, most of which operate on a regional basis. There are approximately 51 TPA's in
California that specialize in serving employers who self-insure workers' compensation.
There can be no assurance that the Company will not face additional competition in its markets from new or existing competitors.
REINSURANCE
The Company maintains a quota share reinsurance agreement, by which Ohio Indemnity cedes a portion of its insurance to a reinsurer. This
arrangement limits the net claim liability potential arising from specific policies. This reinsurance agreement does not relieve the Company
from its obligations to policyholders. Consequently, failure of the reinsurer to honor its obligations could result in losses to the Company. The
Company currently recovers 50% of the paid losses and loss adjustment expense applicable to Automobile Physical Damage insurance policies.
As of December 31, ceded reinsurance reduced commission expense incurred by $62,147, $121,972 and $3,137,726 in 1996, 1995 and 1994,
respectively.
REGULATION
Insurance Company Regulation
Ohio Indemnity, as an Ohio property/casualty insurance company, is subject to the primary regulatory supervision of the Ohio Department of
Insurance. In addition, Ohio Indemnity is subject to regulation in each jurisdiction in which it is licensed to write insurance. In general, such
regulation is designed to protect the interests of insurance policyholders rather than the Company or the Company's shareholders.
Such regulation relates to, among other matters: licensing of insurers and their agents; authorized lines of business; capital and surplus
requirements and general standards of solvency; financial reports; reserve requirements; underwriting limitations; investment criteria;
transactions with affiliates; dividend limitations; changes in control and a variety of other financial and nonfinancial matters.
The principal source of cash available to the Company is dividends from Ohio Indemnity. The Company is subject to the Ohio Insurance
Holding Company System Regulatory Act, as amended, which requires that a 10-day notice of the proposed payment of any dividends or other
distributions by Ohio Indemnity be given to the Ohio Superintendent of Insurance. If such dividends or distributions, together with any other
dividends or distributions made within the preceding twelve months, exceed the greater of: (i) 10% of Ohio Indemnity's statutory surplus as of
the immediately preceding December 31st, or (ii) the net income of Ohio Indemnity for the immediately preceding calendar year, a 30-day
notice of such proposed dividend or distribution is required to be given to the Superintendent and the Superintendent may disapprove such
dividend or distribution within the 10-day period following receipt of such notice.
Most states have insurance laws requiring that rate schedules and other information be filed with the state's regulatory authority, either directly
or through a rating organization with which the insurer is affiliated. The regulatory authority may disapprove a rate filing if it finds that the
rates are inadequate, excessive or unfairly discriminatory. Rates vary by class of business, hazard assumed and size of risk, and are not
necessarily uniform for all insurers. Many states have recently adopted laws which limit the ability of insurance companies to effect rate
increases. To date, such limitations have had a limited impact on the Company, and the Company has no knowledge of any such limitations
that may affect its future results of operations, although there can be no assurance that such limitations will not adversely affect the Company's
results of operations in the future.
All insurance companies must file annual statements in states where they are authorized to do business and are subject to regular and special
examinations by the regulatory agencies of those states. On August 9, 1994, the Ohio Department of Insurance issued its triennial examination
report on Ohio Indemnity for the three-year period ended December 31, 1993. The examiners reported that the financial statements set forth in
the report reflected the financial condition of Ohio Indemnity. Management is not aware of any recommendations by regulatory authorities
which, if implemented, would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or results of
operations. The next triennial review of the Company will be conducted by the Ohio Superintendent of Insurance in 1997 for the three-year
period ending December 31, 1996.
Numerous states routinely require deposits of assets by insurance companies to protect policyholders. As of December 31, 1996, securities with
a market value of approximately $3,531,856 had been deposited by the Company with eleven state insurance departments. Such deposits must
consist of securities which comply with standards established by the particular state's insurance department. The deposits, typically required by
a state's insurance department on admission to do insurance business in such state, may be increased periodically as mandated by applicable
statutory or regulatory requirements.
Insurance Holding Company System Regulation
The Company is subject to certain provisions of the Ohio Insurance Holding Company System Regulatory Act, as amended, which governs any
direct or indirect change in control of the Company and certain affiliated-party transactions involving the Company or its assets. No person
may acquire, directly or indirectly, 10% or more of the outstanding voting securities of Ohio Indemnity, unless the Ohio Superintendent of
Insurance has approved such acquisition. The determination of whether to approve any such acquisition is based on a variety of factors,
including an evaluation of the acquirer's financial condition, the competence of its management and whether competition in Ohio would be
reduced. In addition, certain material transactions involving the Company and Ohio Indemnity must be disclosed to the Ohio Superintendent of
Insurance not less than 30 days prior to the effective date of the transaction. Such transaction can be disapproved by the Superintendent within
such 30-day period if it does not meet certain standards. Transactions requiring such approval include, but are not limited to: sales, purchases or
exchanges of assets; loans and extensions of credit; and investments not in compliance with statutory guidelines. Ohio Indemnity is also
required to file periodic and updated statements reflecting the current status of its holding company system, the existence of any related-party
transactions and certain financial information relating to any person who directly or indirectly controls (presumed to exist with 10% voting
control) Ohio Indemnity. The Company believes that it is in compliance with the Ohio Insurance Holding Company System Regulatory Act
and the regulations promulgated thereunder.
The National Association of Insurance Commissioners
All states have adopted the financial reporting form of NAIC, which is typically referred to as the NAIC "annual statement," and most states,
including Ohio, generally defer to NAIC with respect to statutory accounting practices and procedures. In this regard, NAIC has a substantial
degree of practical influence and is able to accomplish certain quasi-legislative initiatives through amendments to the NAIC annual statement
and applicable statutory accounting practices and procedures. For example, in recent years, NAIC has required all insurance companies to have
an annual statutory financial audit and actuarial certification as to loss reserves by including such requirements in the annual statement
instructions.
During 1993, the NAIC adopted a Risk Based Capital (RBC) test applicable to property and casualty insurers as of December 31, 1994. The
RBC calculation serves as a benchmark of insurance enterprises' solvency by state insurance regulators by establishing statutory surplus targets
which will require certain Company level or regulatory level actions. Based on the Company's analysis, it appears that the Company's total
adjusted capital is in excess of all required action levels and that no corrective action will be necessary. These RBC provisions have not been
enacted into the Ohio Revised Code.
Item 6. Selected Financial Data
The information required by this item is included under the caption "Selected Financial Data" in the Company's Annual Report and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is included under the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report and is incorporated herein by reference.
Item 8. Consolidated Financial Statements and Supplementary Data
The Company's consolidated balance sheets as of December 31, 1996 and 1995, and the consolidated statements of income, shareholders'
equity and cash flows for each of the three years ended December 31, 1996, 1995 and 1994 and the notes to the financial statements, together
with the independent auditors' report thereon appear in the Company's Annual Report and are incorporated herein by reference.
The Company's Financial Statement Schedules and Independent Auditors' Report on Financial Statement Schedules are included in response to
Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
The information required by this item is included under the captions "Election of Directors," "Executive Officers of the Corporation" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement (the "Proxy Statement") relating to the
Company's 1997 Annual Meeting of Stockholders to be held on June 3, 1997, and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is included under the captions "Compensation of Directors" and "Executive Compensation" in the Proxy
Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included under the caption "Ownership of Voting Stock" in the Proxy Statement and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included under the caption "Certain Relationships and Related Transactions" in the Proxy Statement
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) The following financial statements appearing in the Company's Annual Report are incorporated herein by reference:
Consolidated Balance Sheets as of December 31, 1996 and
Consolidated Statements of Income for the three years ended December 31, 1996.
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996.
Consolidated Statements of Cash Flows for the three years ended December 31, 1996.
Notes to the Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedules
Included in Part IV of this Report:
Schedule I -- Summary of investments - other than investments in related parties Schedule II -- Condensed financial information of Bancinsurance Corporation (Parent Company Only)
Independent Auditors' Report on Financial Statement Schedules
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto.
(3) Exhibits
3(a) Amended Articles of Incorporation (reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
3(b) Amended Code of Regulations (reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
10(a) Amended Tax Allocation Agreement (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference).
10(b) Private Passenger Automobile Physical Damage Quota Share Reinsurance Agreement between Ohio Indemnity Company and North American Reinsurance Corporation (reference is made to Exhibit 10(d) of Form 10-K/A for the fiscal year ended December 31, 1992 (file number 0-8738), which is incorporated herein by reference).
10(c) Amended and Restated Unemployment Compensation Administration Agreement Between Ohio Indemnity Company and The Gibbens Co., Inc. (The Company has requested that portions of this Exhibit be given confidential treatment.) (reference is made to Exhibit
No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996.
(c) Exhibits
The exhibits to this report begin on page 18.
(d) Financial Statement Schedules
The financial statement schedules and the independent auditors' report thereon are included on the following pages.
(THIS SPACE INTENTIONALLY LEFT BLANK)
The following are management contracts and compensatory plans and arrangements in which directors or executive officers participate:
10(d) Employee Profit Sharing Plan (reference is made to Exhibit 10(a) of Form 10-K for the fiscal year ended December 31, 1986 (file number 0-8738), which is incorporated herein by reference).
10(e) 1984 Stock Option Plan (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
10(f) 1994 Stock Option Plan - (reference is made to Exhibit 10(f) of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is incorporated herein by reference).
13.1 Annual Report to Shareholders for the year ended December 31, 1996.
21 Subsidiaries of the Company as of December 31, 1996.
23 Consents of independent accountants to incorporation of their opinions by reference in Registration Statement on Form S-8.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Board of Directors and Shareholders
Bancinsurance Corporation:
In connection with our audits of the consolidated financial statements of Bancinsurance Corporation and Subsidiaries as of December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996, which financial statements are included in the Company's
Annual Report, we have also audited the financial statment schedules listed in Item 14. herein.
In our opinion, these financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Columbus, Ohio February 28, 1997
BANCINSURANCE CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
December 31, 1996 and 1995
Schedule II - CONDENSED FINANCIAL INFORMATION OF
BANCINSURANCE CORPORATION (PARENT COMPANY ONLY)
Assets 1996 1995
Cash $ 9,117 $ 14,
Investment in subsidiaries 20,491,962 18,398,
Other 1,143,067 1,115,
$21,644,146 $19,528, =========== ===========
Liabilities and Shareholders' Equity
Note payable to bank $ 5,600,000 $ 5,616,
Other 137,329 202,
Shareholders' equity 15,906,817 13,710,
$21,644,146 $19,528, =========== ===========
BANCINSURANCE CORPORATION AND SUBSIDIARIES
Schedule II - CONDENSED FINANCIAL INFORMATION OF
BANCINSURANCE CORPORATION (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
Dividends from Subsidiaries $ 650,000 $ 600,000 $ 600, Other income 24,777 52,236 36,
General and administrative expenses (613,491) (605,132) (761,765)
Net income (loss) before income tax benefit and equity in earnings of subsidiaries 61,286 47,104 (125,400)
Income tax benefit (205,213) (198,655) (295,236)
Net income before equity in earnings of subsidiaries 266,499 245,759 169,
Equity in undistributed earnings of subsidiaries 2,074,549 1,175,327 2,147,
Net income $ 2,341,048 $ 1,421,086 $ 2,316, =========== =========== ===========
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, which
include the Chief Executive Officer, the Chief Financial Officer and a majority of the Board of Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:
Bancinsurance Corporation (Company)
3/17/97 By Si Sokol
DATE Si Sokol Chairman of Board of Directors, President (principal executive officer)
3/17/97 Si Sokol 3/17/97 Sally Cress
DATE Si Sokol DATE Sally Cress Chairman of Board of Treasurer, Secretary
Directors, President and Chief Financial Officer Chief Executive Officer and Chief Accounting Officer
3/17/97 Daniel D. Harkins 3/17/97 Milton O. Lustnauer
DATE Daniel D. Harkins DATE Milton O. Lustnauer Director Director
3/17/97 Saul Sokol 3/17/97 James R. Davis
DATE Saul Sokol DATE James R. Davis Director Director
3/17/97 John S. Sokol
DATE John S. Sokol Director
INDEX OF EXHIBITS
The following is the Index of Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description Page No.
3(a) Amended Articles of Incorporation (reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
3(b) Amended Code of Regulations (reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
10(a) Amended Tax Allocation Agreement (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference).
10(b) Private Passenger Automobile Physical Damage Quota Share Reinsurance Agreement between Ohio Indemnity Company and North American Reinsurance Corporation (reference is made to Exhibit 10(d) of Form 10-K/A for the fiscal year ended December 31, 1992 (file number 0-8738), which is incorporated herein by reference).
10(c) Amended and Restated Unemployment Compensation Administration Agreement between Ohio Indemnity Company and The Gibbens Co., Inc. (The Company has requested that portions of this Exhibit be given confidential treatment.) (references is made to Exhibit 10(e) of Form 10-K/A for the fiscal year ended December 31, 1992 (file number 0-8738), which is incorporated herein by reference).
The following are management contracts and compensatory plans and arrangements in which directors or executive officers participate:
10(d) Employee Profit Sharing Plan (reference is made to Exhibit 10(a) of Form 10-K for the fiscal year ended December 31, 1986 (file number 0-8738), which is incorporated herein by reference).
10(e) 1984 Stock Option Plan (reference is made to exhibit 10(d) of From 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference).
10(f) 1994 Stock Option Plan - (reference is made to Exhibit 10(f) of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is incorporated herei n by reference).
13.1 Annual Report to Shareholders for the year ended December 31, 18
21 Subsidiaries of the Company as of December 31, 1996. 52
23 Consent of independent accountants to incorporation of their 53 opinion by reference in Registration Statement on Form S-8.
27 Financial Data Schedule. 54
