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UNITED STATES
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 September 30, 2004

o 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 0-6964

21ST CENTURY INSURANCE GROUP
(Exact name of registrant as specified in its charter)
 
Delaware
  
95-1935264
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
     
6301 Owensmouth Avenue
    
Woodland Hills, California
  
91367
(Address of principal executive offices)
  
(Zip Code)
     
(818) 704-3700
  
www.21st.com
(Registrant’s telephone number, including area code)
  
(Registrant’s web site)
 
 
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 o
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o
 
The number of shares outstanding of the registrant’s common stock as of October 12, 2004 was 85,480,312.

  
     
 

TABLE OF CONTENTS
 
Description
Page Number
Part I - Financial Information
  
Item 1. Financial Statements
2
Condensed Consolidated Balance Sheets
2
Condensed Consolidated Statements of Operations
3
Condensed Consolidated Statement of Stockholders’ Equity
4
Condensed Consolidated Statements of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
27
Item 4. Controls and Procedures
27
Part II - Other Information
28
Item 1. Legal Proceedings
28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3. Defaults Upon Senior Securities
28
Item 4. Submission of Matters to a Vote of Security Holders
28
Item 5. Other Information
28
Item 6. Exhibits
28
Signatures
29
Exhibit Index
30
31.1 Certification of President and Chief Executive Officer
  
31.2 Certification of Chief Financial Officer
  
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  

  
  1  
 

PART I - FINANCIAL INFORMATION

 
ITEM 1. FINANCIAL STATEMENTS

 
21ST CENTURY INSURANCE GROUP
          
CONDENSED CONSOLIDATED BALANCE SHEETS
          
Unaudited
          
   
September 30,
  
December 31,
  
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
  
2004
  
2003
  
Assets
          
Fixed maturity investments available-for-sale, at fair value (amortized cost: $1,305,484 and $1,183,526)
  
$
1,329,813
  
$
1,219,676
  
Equity securities available-for-sale, at fair value (cost: $39,613)
    
39,476
    
—
  
Total investments
    
1,369,289
    
1,219,676
  
Cash and cash equivalents
    
34,754
    
65,010
  
Accrued investment income
    
15,107
    
14,746
  
Premiums receivable
    
117,028
    
104,638
  
Reinsurance receivables and recoverables
    
6,975
    
12,135
  
Prepaid reinsurance premiums
    
1,769
    
1,719
  
Deferred income taxes
    
62,015
    
76,611
  
Deferred policy acquisition costs
    
58,903
    
53,079
  
Leased property under capital lease, net of deferred gain of
             
$3,511 and $4,698 and net of accumulated amortization of
             
$21,695 and $12,397
    
34,422
    
42,534
  
Property and equipment, at cost less accumulated depreciation of
              
$65,248 and $60,070
    
121,739
    
101,237
  
Other assets
    
35,846
    
46,747
  
Total assets
  
$
1,857,847
  
$
1,738,132
  
Liabilities and stockholders’ equity
              
Unpaid losses and loss adjustment expenses
  
$
486,080
  
$
438,323
  
Unearned premiums
    
341,469
    
312,254
  
Debt
    
141,200
    
149,686
  
Claim checks payable
    
40,142
    
45,702
  
Reinsurance payable
    
661
    
1,761
  
Other liabilities
    
93,939
    
89,716
  
Total liabilities
    
1,103,491
    
1,037,442
  
Stockholders’ equity:
              
Common stock, par value $0.001 per share; 110,000,000 shares authorized; shares issued and outstanding 85,478,962 and 85,435,505
    
85
    
85
  
Additional paid-in capital
    
420,052
    
419,245
  
Retained earnings
    
320,439
    
259,808
  
Accumulated other comprehensive income:
              
Net unrealized gains on available-for-sale investments, net of deferred income taxes of $8,467 and $12,653
    
15,725
    
23,497
  
Minimum pension liability in excess of unamortized prior service cost, net of deferred income taxes of $1,047 and $1,047
    
(1,945
)
  
(1,945
)
Total stockholders’ equity
    
754,356
    
700,690
  
Total liabilities and stockholders’ equity
  
$
1,857,847
  
$
1,738,132
  
 
See accompanying notes to condensed consolidated financial statements.

  
  2  
 
 
21ST CENTURY INSURANCE GROUP
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
Unaudited
  
   
   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
  
2004
  
2003
  
2004
  
2003
  
Revenues
                  
Net premiums earned
  
$
333,440
  
$
303,675
  
$
978,681
  
$
862,347
  
Net investment income
    
15,118
    
11,350
    
42,579
    
34,660
  
Other
    
—
    
—
    
—
    
14,065
  
Net realized investment (losses) gains
   
(162
)
  
836
    
8,821
    
13,116
  
Total revenues
    
348,396
    
315,861
    
1,030,081
    
924,188
  
Losses and expenses
                          
Net losses and loss adjustment expenses
    
252,359
    
240,926
    
744,429
    
722,452
  
Policy acquisition costs
    
55,866
    
49,857
    
164,338
    
143,767
  
Other operating expenses
    
8,942
    
7,234
    
25,186
    
8,567
  
Interest and fees expense
    
2,116
    
797
    
6,527
    
2,337
  
Total losses and expenses
    
319,283
    
298,814
    
940,480
    
877,123
  
Income before provision for income taxes
    
29,113
    
17,047
    
89,601
    
47,065
  
Provision for income taxes
    
4,554
    
4,338
    
23,843
    
11,918
  
Net income
  
$
24,559
  
$
12,709
  
$
65,758
  
$
35,147
  
                           
Earnings per common share
                          
Basic and diluted
  
$
0.29
  
$
0.15
  
$
0.77
  
$
0.41
  
Weighted average shares outstanding - basic
    
85,473,603
    
85,432,838
    
85,459,383
    
85,431,949