**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
|   | (Mark One) |
|--------|------------|

 
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|

 

**For the quarterly period endedSeptember 30, 2001**

 

**OR**

 
| **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 001-14673**

 

**MEEMICHoldings, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Michigan**                                                             |   | **38-3436541**                        |
|--------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization)         |   | (I.R.S. Employer  Identification No.) |
|                                                                     |   |                                  |
| **691  North Squirrel Road, Suite 100  Auburn Hills, Michigan**          |   | **48321**                             |
| (Address of  principal executive offices)                                |   | (Zip Code)                            |
|                                                                     |   |                                  |
|                                                                     |
| Registrant's  telephone number, including area code: **(888)  463-3642** |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   Yes  ý   No  o

 

The number ofshares outstanding of the registrant’s common stock, no par value per share, asof November 9, 2001 was 6,674,335.

 

 

TABLE OF CONTENTS

 
| PART I.  | FINANCIAL INFORMATION |
|----------|-----------------------|
|     |                  |   |
|     | Item 1                | Financial Statements |
|     |                  |   |
|     |                  | Condensed  Consolidated Balance Sheets at September 30, 2001 (Unaudited) and December  31, 2000 |
|     |                  |   |
|     |                  | Condensed  Consolidated Statements of Income for the Three Months and Nine Months Ended  September 30, 2001 and 2000 (Unaudited) |
|     |                  |   |
|     |                  | Condensed  Consolidated Statements of Comprehensive Income for the Three Months and Nine  Months Ended September 30, 2001 and 2000 (Unaudited) |
|     |                  |   |
|     |                  | Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended September 30,  2001 and 2000 (Unaudited) |
|     |                  |   |
|     |                  | Notes  to Condensed Consolidated Financial Statements (Unaudited) |
|     |                  |   |
|     | Item  2.              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|     |                  |   |
|     | Item  3.              | Quantitative  and Qualitative Disclosures About Market Risk |
|     |                  |   |
| Part II. | OTHER INFORMATION     |
|     |                  |   |
|     | Item 6.               | Exhibits and  Reports on Form 8-K |
|     |                  |
|     | Signatures            |

 

**PART I.     FINANCIAL INFORMATION**

 

# **Item 1.  Financial Statements**

 

**MEEMIC Holdings, Inc.and Subsidiaries**

**CONDENSED CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                                                                                                               |   | **September  30, 2001**                |                  |                       |          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------------------|----------------------------|---------------|
|                                                                                                                                                                               |   | **(Unaudited)**                        |                  | **December  31, 2000**     |          |
|                                                                                                                                                                               |   | **(In  thousands, except share data)** |                  |
| **ASSETS**                                                                                                                                                                         |   |                                   |                  |                       |          |
| Investments:                                                                                                                                                                       |   |                                   |                  |                       |          |
| Fixed maturities available for sale, at fair value (amortized cost of  $180,559 and $166,179 in 2001 and 2000, respectively)                                                       |   | $                                      |  188,157         |                  | $             |  167,866 |     |
| Short-term investments, at cost,  which approximates fair value                                                                                                                    |   | 3,904                                  |                  | 6,859                      |          |
| Real estate, at cost                                                                                                                                                               |   | 2,300                                  |                  | 2,300                      |          |
| Total investments                                                                                                                                                                  |   | 194,361                                |                  | 177,025                    |          |
| Cash and cash equivalents                                                                                                                                                          |   | 26,278                                 |                  | 21,093                     |          |
| Premiums due from policyholders                                                                                                                                                    |   | 8,323                                  |                  | 5,859                      |          |
| Amounts recoverable from reinsurers                                                                                                                                                |   | 48,391                                 |                  | 50,472                     |          |
| Amounts recoverable from reinsurers,  related party                                                                                                                                |   | 5,810                                  |                  | 7,263                      |          |
| Accrued investment income                                                                                                                                                          |   | 2,508                                  |                  | 2,462                      |          |
| Deferred federal income taxes                                                                                                                                                      |   | 2,315                                  |                  | 3,610                      |          |
| Property and equipment, at cost, net  of accumulated depreciation                                                                                                                  |   | 3,417                                  |                  | 3,922                      |          |
| Deferred policy acquisition costs                                                                                                                                                  |   | 3,188                                  |                  | 2,784                      |          |
| Intangible assets, net of  amortization                                                                                                                                            |   | 31,227                                 |                  | 33,420                     |          |
| Federal income taxes recoverable                                                                                                                                                   |   | -                                      |                  | 761                        |          |
| Other assets                                                                                                                                                                       |   | 935                                    |                  | 803                        |          |
| Total assets                                                                                                                                                                       |   | $                                      | 326,753               |                       | $             | 309,474 |   |
|                                                                                                                                                                               |   |                                   |                  |                       |          |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                                                                           |   |                                   |                  |                       |          |
| Liabilities:                                                                                                                                                                       |   |                                   |                  |                       |          |
| Loss and loss adjustment expense  reserves                                                                                                                                         |   | $                                      | 108,173               |                       | $             | 107,256 |   |
| Unearned premiums                                                                                                                                                                  |   | 40,686                                 |                  | 36,755                     |          |
| Payable related to acquisition                                                                                                                                                     |   | -                                      |                  | 1,040                      |          |
| Accrued expenses and other  liabilities                                                                                                                                            |   | 11,862                                 |                  | 11,512                     |          |
| Accrued expenses and other  liabilities, related party                                                                                                                             |   | 916                                    |                  | 141                        |          |
| Premiums ceded payable                                                                                                                                                             |   | 3,505                                  |                  | 6,163                      |          |
| Federal income taxes payable                                                                                                                                                       |   | 2,505                                  |                  | -                          |          |
| Total liabilities                                                                                                                                                                  |   | 167,647                                |                  | 162,867                    |          |
| Shareholders' equity:                                                                                                                                                              |   |                                   |                  |                       |          |
| Common stock, no par value;  10,000,000 shares authorized; 6,674,335 and 6,655,500 shares issued and  outstanding in 2001 and 2000, respectively                                   |   | 66,043                                 |             | 65,855                     |     |
| Additional paid-in capital                                                                                                                                                         |   | 46                                     |                  | 225                        |          |
| Retained earnings                                                                                                                                                                  |   | 88,078                                 |                  | 79,430                     |          |
| Accumulated other comprehensive income:  Net unrealized appreciation on investments, net of deferred  federal income taxes of $2,659 and $ 590 in 2001 and 2000, respectively |   | 4,939                                  |        |     1,097   |
| Total shareholders' equity                                                                                                                                                         |   | 159,106                                |                  | 146,607                    |          |
| Total liabilities and shareholders'  equity                                                                                                                                        |   | $                                      | 326,753               |                       | $             | 309,474 |   |

 

See the accompanying notes to theunaudited condensed consolidated financial statements.

 

**MEEMICHoldings, Inc.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME**

**For the Three and NineMonths Ended September 30, 2001 and 2000 (Unaudited)**

 
|                                                               |   | **Three Months Ended**                 |   | **Nine Months Ended** |   |
|--------------------------------------------------------------------|--------|----------------------------------------|--------|-----------------------|--------|
|                                                               |   | **September 30,**                      |   | **September 30,**     |   |
|                                                               |   | **2001**                               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                                               |   | **(In thousands, except share  data)** |   |
| Revenues and other income:                                         |   |                                   |   |                  |   |   |   |   |   |
| Premiums written                                                   |   | $                                      | 36,719 |                  | $      | 33,824 |   | $ | 105,745 |   | $ | 97,570 |   |
| Premiums ceded                                                     |   | (424                                   | )      | (2,445                | )      | (3,132 | ) | (6,767 | ) |
| Net premiums written                                               |   | 36,295                                 |   | 31,379                |   | 102,613 |   | 90,803 |   |
| Increase in unearned premiums, net of prepaid reinsurance premiums |   | (1,435                                 | )      | (1,217                | )      | (3,931 | ) | (2,951 | ) |
| Net premiums earned                                                |   | 34,860                                 |   | 30,162                |   | 98,682 |   | 87,852 |   |
| Net investment income                                              |   | 2,846                                  |   | 2,804                 |   | 8,414 |   | 7,855 |   |
| Net realized investment losses on  fixed maturities                |   | (4                                     | )      | (41                   | )      | (1,566 | ) | (56 | ) |
| Other income                                                       |   | 358                                    |   | 373                   |   | 1,228 |   | 1,293 |   |
| Total revenues and other income                                    |   | 38,060                                 |   | 33,298                |   | 106,758 |   | 96,944 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| Expenses:                                                          |   |                                   |   |                  |   |   |   |   |   |
| Loss and loss adjustment expenses  incurred, net                   |   | 23,131                                 |   | 17,392                |   | 68,531 |   | 55,721 |   |
| Policy acquisition and other  underwriting expenses:               |   |                                   |   |                  |   |   |   |   |   |
| Policy acquisition and underwriting  expenses                      |   | 7,890                                  |   | 7,762                 |   | 23,984 |   | 20,375 |   |
| Management fees, related party                                     |   | 90                                     |   | 70                    |   | 424 |   | 301 |   |
|                                                               |   | 7,980                                  |   | 7,832                 |   | 24,408 |   | 20,676 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| Amortization expense                                               |   | 731                                    |   | 731                   |   | 2,193 |   | 2,193 |   |
| Other expenses                                                     |   | 29                                     |   | 27                    |   | 76 |   | 58 |   |
| Total expenses                                                     |   | 31,871                                 |   | 25,982                |   | 95,208 |   | 78,648 |   |
| Income from operations before federal income taxes                 |   | 6,189                                  |   | 7,316                 |   | 11,550 |   | 18,296 |   |
| Federal income taxes                                               |   | 1,559                                  |   | 1,961                 |   | 2,901 |   | 5,326 |   |
| Net income                                                         |   | $                                      | 4,630  |                  | $      | 5,355 |   | $ | 8,649 |   | $ | 12,970 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| **Earnings per common  share - basic**                             |   |                                   |   |                  |   |   |   |   |   |
| Net income per common share - basic                                |   | $                                      | 0.69   |                  | $      | 0.81 |   | $ | 1.30 |   | $ | 1.97 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| **Earnings per common  share - assuming dilution**                 |   |                                   |   |                  |   |   |   |   |   |
| Net income per common share -  assuming dilution                   |   | $                                      | 0.68   |                  | $      | 0.80 |   | $ | 1.28 |   | $ | 1.93 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| Weighted average shares outstanding  - basic                       |   | 6,676,047                              |   | 6,599,500             |   | 6,662,680 |   | 6,599,500 |   |
|                                                               |   |                                   |   |                  |   |   |   |   |   |
| Weighted average shares outstanding  - assuming dilution           |   | 6,758,243                              |   | 6,734,426             |   | 6,772,600 |   | 6,711,797 |   |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements.

 

 

**MEEMICHoldings, Inc.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME**

**For the Three and Nine Months Ended September 30, 2001and 2000 (Unaudited)**

 
|                                                                                                                                                                                                                                                             |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                             |   | **September 30,**      |   | **September 30,**     |   |
|                                                                                                                                                                                                                                                             |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                                                                                                                                                                                                                                             |   | **(In thousands)**     |   |
| Comprehensive income                                                                                                                                                                                                                                             |   |                   |   |                  |   |   |   |   |   |
| Net income                                                                                                                                                                                                                                                       |   | $                      | 4,630  |                  | $      | 5,355 |   | $ | 8,649 |   | $ | 12,970 |   |
| Net unrealized appreciation on investments, net of reclassification  adjustment and net of deferred federal income taxes of $1,492 and $592 for  three months in 2001 and 2000, respectively and $2,069 and $648 for nine  months in 2001 and 2000, respectively |   | 2,773                  |   | 1,099                 |   | 3,842 |   | 1,282 |   |
| Comprehensive income                                                                                                                                                                                                                                             |   | $                      | 7,403  |                  | $      | 6,454 |   | $ | 12,491 |   | $ | 14,252 |   |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements.

 

 

**MEEMIC Holdings, Inc.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**For the Nine Months Ended September 30, 2001 and 2000(Unaudited)**

 
|                                                                                                                       |   | **2001**                              |   | **2000**      |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------|--------|
|                                                                                                                       |   | **(In thousands except  share data)** |   |
| Cash flows from operating  activities:                                                                                     |   |                                  |   |          |   |
| Net income                                                                                                                 |   | $                                     | 8,649  |          | $      | 12,970 |   |
| Adjustments to reconcile net income  to net cash provided by operating activities:                                         |   |                                  |   |          |   |
| Depreciation and amortization                                                                                              |   | 3,490                                 |   | 3,249         |   |
| Realized losses on investments                                                                                             |   | 1,566                                 |   | 56            |   |
| Net (accretion of discount)  amortization of premium on investments                                                        |   | (57                                   | )      | 1             |   |
| Deferred federal income taxes                                                                                              |   | (774                                  | )      | (327          | )      |
| Changes in assets and liabilities:                                                                                         |   |                                  |   |          |   |
| Premiums due from policyholders                                                                                            |   | (2,464                                | )      | (2,350        | )      |
| Amounts due from reinsurers                                                                                                |   | 876                                   |   | (9,562        | )      |
| Accrued investment income                                                                                                  |   | (46                                   | )      | (212          | )      |
| Deferred policy acquisition costs                                                                                          |   | (404                                  | )      | (320          | )      |
| Other assets                                                                                                               |   | (132                                  | )      | 191           |   |
| Loss and loss adjustment expense  reserves                                                                                 |   | 917                                   |   | 10,949        |   |
| Unearned premiums                                                                                                          |   | 3,931                                 |   | 2,950         |   |
| Accrued expenses and other  liabilities                                                                                    |   | 707                                   |   | 3,910         |   |
| Federal income taxes  payable/recoverable                                                                                  |   | 3,692                                 |   | (733          | )      |
|                                                                                                                       |   |                                  |   |          |   |
| Net cash provided by operating  activities                                                                                 |   | 19,951                                |   | 20,772        |   |
|                                                                                                                       |   |                                  |   |          |   |
| Cash flows from investing  activities:                                                                                     |   |                                  |   |          |   |
| Proceeds from sale or maturity of  short-term investments                                                                  |   | 15,757                                |   | -             |   |
| Purchases of short-term investments                                                                                        |   | (12,802                               | )      | (8,096        | )      |
| Proceeds from maturity of securities  available for sale                                                                   |   | 18,010                                |   | 19,095        |   |
| Purchases of securities available  for sale                                                                                |   | (33,899                               | )      | (30,666       | )      |
| Proceeds from sales of property and  equipment                                                                             |   | 135                                   |   | 19            |   |
| Purchases of property and equipment                                                                                        |   | (927                                  | )      | (2,188        | )      |
|                                                                                                                       |   |                                  |   |          |   |
| Net cash used in investing  activities                                                                                     |   | (13,726                               | )      | (21,836       | )      |
|                                                                                                                       |   |                                  |   |          |   |
| Cash flows from financing  activities:                                                                                     |   |                                  |   |          |   |
| Payment on payable related to  acquisition                                                                                 |   | (1,040                                | )      | (26           | )      |
|                                                                                                                       |   |                                  |   |          |   |
| Net cash used in financing  activities                                                                                     |   | (1,040                                | )      | (26           | )      |
|                                                                                                                       |   |                                  |   |          |   |
| Net increase (decrease) in cash and  cash equivalents                                                                      |   | 5,185                                 |   | (1,090        | )      |
| Cash and cash equivalents, beginning  of year                                                                              |   | 21,093                                |   | 8,779         |   |
|                                                                                                                       |   |                                  |   |          |   |
| Cash and cash equivalents, end of  period                                                                                  |   | 26,278                                |   | $             | 7,689  |   |
|                                                                                                                       |   |                                  |   |          |   |
| Supplemental disclosure of cash flow  information:                                                                         |   |                                  |   |          |   |
| Federal income taxes paid                                                                                                  |   | $                                     | 2,481  |          | $      | 6,059 |   |
|                                                                                                                       |   |                                  |   |          |   |
| Supplemental disclosure of noncash  financing activities:                                                                  |   |                                  |   |          |   |
| Common stock issued in cashless exercise of employee stock options and  net of 4,410 shares surrendered in incentive plans |   | $                                     | 239    |     | $      |  - |     |

#### ** **

#### **Seethe accompanying notes to the unaudited condensed consolidated financialstatements.**

 

#### **Notes to CondensedConsolidated Financial Statements (Unaudited)**

#### ** **

#### **(1)           Description ofBusiness**

#### ** **

#### **MEEMICHoldings, Inc. is an insurance holding company incorporated under Michigan lawin October 1998.  MEEMIC Holdings, Inc.owns all of the issued and outstanding common stock of MEEMIC Insurance Company(“MEEMIC”) and MEEMIC Insurance Services Corp. MEEMIC is a property and casualty insurance company that operates as asingle segment writing private passenger automobile, homeowner, boat andumbrella insurance products primarily for educational employees and theirimmediate families exclusively in the State of Michigan. MEEMIC sells itsinsurance contracts through its sister company, MEEMIC Insurance ServicesCorp., d/b/a MEIA Insurance Agency, which is the exclusive distributor ofMEEMIC’s products.  MEEMIC Holdings,Inc. and its subsidiaries are sometimes referred to collectively as the“Company”.**

#### ** **

#### **(2)           Basisof Presentation**

#### ** **

#### **Theaccompanying unaudited condensed consolidated financial statements include theaccounts of MEEMIC Holdings, Inc. and its wholly-owned subsidiaries, and havebeen prepared in accordance with accounting principles generally accepted inthe United States for Form 10–Q and Rule 10–01 ofRegulation S-X financial information. Accordingly, they have not been audited and they do not include all ofthe information and footnotes required by generally accepted accountingprinciples for complete financial statements. All significant intercompanytransactions have been eliminated in consolidation. **

#### ** **

#### **In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation of financial positionand results of operations have been included. The operating results for the three and nine month periods endedSeptember 30, 2001 are not necessarily indicative of the results to be expectedfor the year ending December 31, 2001.**

#### ** **

#### **Inpreparing the financial statements, management is required to make estimatesand assumptions that affect the reported amounts of assets and liabilities asof the dates of the balance sheets and revenues and expenses for the periodsthen ended.  Actual results may differfrom those estimates.**

#### ** **

#### **The mostsignificant estimates that are susceptible to significant change in the nearterm relate to the determination of the loss and loss adjustment expensereserves.  Although considerablevariability is inherent in these estimates, management believes that thereserves are adequate.  The estimatesare reviewed regularly and adjusted as necessary.  Such adjustments are reflected in current operations.**

#### ** **

**(3)           NetIncome Per Share**

#### ** **

#### **Netincome per share is calculated by dividing net income  by the weighted-average number of common shares outstanding.  The weighted-average common shares used fordetermining basic income per common share were 6,676,047 and 6,599,500 for thethree months ended September 30, 2001 and 2000, respectively.  For the nine months ended September 30, 2001and 2000 the weighted-average common shares were 6,662,680 and 6,599,500,respectively.  The effect of dilutivestock options added 82,196 and 109,920 shares for the three and nine monthsended September 30, 2001, respectively. For the same periods in 2000, dilutive stock options added 134,926 and112,297 shares.**

#### ** **

#### **(4)           RelatedParty Transactions**

#### ** **

#### **ProNationalInsurance Company (“ProNational”), a wholly-owned subsidiary of ProfessionalsGroup, Inc., owns 84.0% of the issued and outstanding shares of  MEEMIC Holdings, Inc.  MEEMIC has an Expense Allocation Agreementwith ProNational covering indirect expenses and salaries of key companypersonnel.  Expenses related to thisagreement were $90,000 and $424,000 for the three and nine months endedSeptember 30, 2001 compared to $70,000 and $301,000 for the same periods in2000.**

#### ** **

#### **On June27, 2001 Professionals Group, Inc. and Medical Assurance, Inc. completed  a consolidation of the two companies byforming a new holding company, ProAssurance Corporation, that owns all of thestock of Medical Assurance, Inc. and Professionals Group, Inc.  The stock of ProAssurance began trading onthe  New York Stock Exchange on June 28,2001 under the symbol “PRA”.  MedicalAssurance, Inc., ProNational and MEEMIC continue to serve policyholders underthe umbrella of the new ProAssurance holding company.**

#### ** **

#### **(5)           RevenueInformation**

#### ** **

#### **TheCompany operates as a single segment offering four insurance products -personal automobile, homeowners, and as of March 1, 2000, boat and umbrellapolicies.  Revenue is from unaffiliatedcustomers.  Net premiums written and netpremiums earned from each of these products is as follows:**

 

 
|                  |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|-----------------------|--------|------------------------|--------|-----------------------|--------|
|                  |   | **September 30,**      |   | **September 30,**     |   |
|                  |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                  |   | **(In thousands)**     |   |
| Net premiums written: |   |                   |   |                  |   |   |   |   |   |
| Personal automobile   |   | $                      | 30,702 |                  | $      | 28,207 |   | $ | 88,844 |   | $ | 83,305 |   |
| Homeowners            |   | 5,464                  |   | 3,089                 |   | 13,441 |   | 7,326 |   |
| Boat                  |   | 128                    |   | 82                    |   | 324 |   | 169 |   |
| Umbrella              |   | 1                      |   | 1                     |   | 4 |   | 3 |   |
| Total                 |   | $                      | 36,295 |                  | $      | 31,379 |   | $ | 102,613 |   | $ | 90,803 |   |
|                  |   |                   |   |                  |   |   |   |   |   |
| Net premiums earned:  |   |                   |   |                  |   |   |   |   |   |
| Personal automobile   |   | $                      | 30,639 |                  | $      | 28,123 |   | $ | 86,781 |   | $ | 82,048 |   |
| Homeowners            |   | 4,137                  |   | 2,002                 |   | 11,707 |   | 5,754 |   |
| Boat                  |   | 83                     |   | 36                    |   | 191 |   | 48 |   |
| Umbrella              |   | 1                      |   | 1                     |   | 3 |   | 2 |   |
| Total                 |   | $                      | 34,860 |                  | $      | 30,162 |   | $ | 98,682 |   | $ | 87,852 |   |

#### ** **

**(6)           NewAccounting Pronouncement**

 

#### **TheFinancial Accounting Standards Board has also issued SFAS No. 142 “Goodwill andOther Intangible Assets” which supersedes Opinion 17 "IntangibleAssets," and is effective for fiscal years beginning after December 15,2001.  SFAS No. 142 addresses howgoodwill and other intangible assets should be accounted for in financialstatements upon acquisition and how these items should be accounted forsubsequent to acquisition.  Contrary toOpinion 17, SFAS No. 142 does not presume that goodwill and all otherintangible assets are wasting assets requiring amortization.  Instead, goodwill and intangible assets thathave indefinite useful lives will be tested at least annually for impairment.  If goodwill and intangible assets are deemedto be impaired, the change will be charged through the Statement ofOperations.  SFAS No. 142 requiresadditional disclosure of information about goodwill and other intangible assetsin the years subsequent to their acquisition. Intangible assets were $31.2 million at September 30, 2001 and theCompany determined there are currently no impaired intangible assets.  Thus, adopting SFAS No. 142 would not affectthe current results of operations with any additional charges for impairment,but would eliminate current annual amortization expense of $2.9 million.**

#### ** **

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

#### ** **

#### **The following discussion and analysis should be readin conjunction with the condensed consolidated financial statements and thenotes thereto included elsewhere in this document and in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2000.  The following discussion of our financialcondition and results of operations contains certain forward-looking statementsrelating to our anticipated future financial condition and operating resultsand our current business plans.  Theseforward-looking statements represent our outlook only as of the date of thisreport.  While we believe anyforward-looking statements we have made are reasonable, actual results coulddiffer materially since the statements are based on our current expectationsand are subject to risks and uncertainties. These risks and uncertainties are detailed from time to time in reportsfiled by the Company with the Securities and Exchange Commission.  See, for example, the disclosures in theCompany’s Annual Report on Form 10-K “Item 1 – Business – Forward-Looking Statements”.  Other factors not currently anticipated bymanagement may also materially and adversely affect the Company’s results ofoperations.  The Company does notundertake, and expressly disclaims any obligation, to update or alter itsforward-looking statements whether as a result of new information, futureevents or otherwise, except as required by applicable law.**

#### ** **

#### **Overview**

#### ** **

#### **Weprovide private passenger automobile, homeowners, boat and umbrella insuranceprimarily to educational employees and their immediate families in the State ofMichigan through our MEEMIC subsidiary. We sell our insurance contracts through over 95 sales representativesassociated with our insurance agency subsidiary, which is the exclusive distributorof our products.  As of September 30,2001, we had 140,893 policies in force, representing 173,406 insured vehicles,46,893 homes, 1,989 boats and 668 personal umbrella policies.**

#### ** **

#### **Financial Condition- September 30, 2001 Compared toDecember 31, 2000**

#### ** **

#### **Our totalassets increased to $326.8 million at September 30, 2001 from $309.5 million atDecember 31, 2000.  The majority of ourassets consist of investments and cash, which totaled $220.6 million atSeptember 30, 2001 and $198.1 million at December 31, 2000.  We primarily invest in high quality bondswith the objective of providing stable income while maintaining liquidity atappropriate levels for our current and long-term requirements.  The portfolio consists primarily ofgovernment bonds, municipal bonds, collateralized mortgage obligations, andinvestment grade corporate bonds.  Themodified duration of investments was 3.54 years at September 30, 2001 comparedto 3.60 years at December 31, 2000.  AtSeptember 30, 2001, the portfolio had an average Standard & Poor’s securityquality rating of AA (Excellent), and there were no securities in defaultconcerning the timely payment of interest and principal.  However, the carrying value of threepreferred stock securities issued by California electric utilities was writtendown a total of $1.5 million in the second quarter of 2001 for other thantemporary declines in fair value due to uncertainty associated with thoseutilities.  Our gross unrealized gainsand gross unrealized losses in investments in securities were $7.8 million and$0.2 million, respectively, at September 30, 2001 and $3.2 million and $1.5million, respectively, at December 31, 2000. These changes in our gross unrealized gains and losses are a result offluctuating bond market values due to volatility of interest rates in the marketplace.**

#### ** **

#### **Ourrecorded estimates of loss and loss adjustment expense reserves were $108.2million at September 30, 2001 compared to $107.3 million at December 31,2000.  The $0.9 million net increase inreserves at September 30, 2001 was due to general allowances for growth in thenumber of insured vehicles and homeowner policies in force.**

#### ** **

#### **Unearnedpremiums were $40.7 million at September 30, 2001 and $36.8 million at December31, 2000.  The increase in unearnedpremiums at September 30, 2001 compared to December 31, 2000 of 10.6% is due tothe increase in premiums written and the timing of renewals for the auto bookof business that has a concentration of 6-month renewal dates in April andOctober.**

#### ** **

#### **Otherliabilities were $18.6 million at September 30, 2001 and $18.9 million atDecember 31, 2000.  Within otherliabilities, premiums ceded payable were lower at September 30, 2001 comparedto December 31, 2000 due primarily to the cancellation of the homeowners quotashare reinsurance agreement in 2001.  Accruedexpenses and federal income taxes payable were higher at September 30, 2001compared to December 31, 2000 due to the timing of payments.**

#### ** **

#### **Our bookvalue per common share outstanding was $23.84 at September 30, 2001, comparedto $22.03 at December 31, 2000.  Shareholders’ equity increased$12.5 million to $159.1 million at September 30, 2001 from $146.6 million atDecember 31, 2000.  This increase wasdue to net income of $8.6 million and an increase in other comprehensive incomeof $3.8 million.**

#### ** **

#### **Results of Operations – Three and Nine Months EndedSeptember 30, 2001 Compared to Three and Nine Months Ended September 30, 2000**

#### ** **

#### **Netincome for the three and nine months ended September 30, 2001 was $4.6 millionand $8.6 million, respectively, compared to $5.4 million and $13.0 million forthe same periods in 2000.  Overall, ourincome from operations before taxes was $6.2 million and $11.6 million,respectively, for the three and nine months ended September 30, 2001 comparedto $7.3 million and $18.3 million for the same periods in 2000.  The decrease in income from operationsbefore taxes for the three months ended September 30, 2001 compared to 2000 wasdue to increased personal auto liability claim losses.  The decrease in income from operationsbefore taxes for the nine months ended September 30, 2001 compared to 2000 wasprimarily due to $1.7 million in expenses related to severance payments toofficers who left the company upon completion of the ProAssurance merger,increased claims losses of $3.5 million and a $1.5 million loss recognized onthree securities deemed to have other than temporary declines in fair value.**

#### ** **

#### **Ourdirect premiums written were $36.7 million and $105.7 million for the three andnine months ended September 30, 2001, respectively, an increase of 8.6% and8.4% compared to the comparable periods in 2000.  Direct premiums written for automobile coverage were $30.9million and $91.2 million for the three and nine months ended September 30,2001, respectively, an increase of 6.6% and 6.8%, respectively, compared to thecomparable periods in 2000.  Theincreases in auto premiums reflect policyholder growth and an increase in thevalue of autos being insured.  Thenumber of insured vehicles increased 3.7% to 173,406 at September 30, 2001 from167,266 at September 30, 2000.  Ourhomeowners business also continued to increase.  Direct premiums written for homeowners were $5.7 million and$14.1 million for the three and nine months ended September 30, 2001,respectively, an increase of 20.2% and 18.9%, respectively, compared to thecomparable periods in 2000.  Theincreases in homeowners premiums were due to growth in the number ofpolicyholders and an increase in the value of homes insured.  The number of homeowner policies in forceincreased 15.8% to 46,893 at September 30, 2001 from 40,489 at September 30,2000.  On March 1, 2000, we also beganoffering boat and umbrella policies, which contributed $170,000 and $437,000 todirect written premiums for the three and nine months ended September 30, 2001.**

#### ** **

Net premiums written were $36.3 million and $102.6million for the three and nine months ended September 30, 2001, respectively,an increase of 15.6% and 13.0%, respectively, compared to the comparableperiods in 2000.  Net premiums earnedwere $34.9 million and $98.7 million for the three and nine months endedSeptember 30, 2001, respectively, an increase of 15.6% and 12.3%, respectively,compared to the comparable periods in 2000. The increases in net premiums written and net premiums earned weregreater than the increase in direct premiums written due to the cancellation ofa quota share agreement in 2001, whereby 40% of our homeowners business wasceded to a reinsurance company in 2000. In 2001, we are now retaining this homeowners business.

#### ** **

#### **Ourcombined ratio was 89.3% and 94.2% for the three and nine months endedSeptember 30, 2001, respectively, compared to 83.6% and 87.0% for the three andnine months ended September 30, 2000, respectively.  Overall, our net loss ratio for the three and nine months endedSeptember 30, 2001 was 59.5% and 61.7%, respectively, compared to 49.6% and59.2% for the three and nine months ended September 30, 2000, respectively.**

#### ** **

#### **Net lossratios for the personal automobile and homeowners products were as follows:**

 
|                          |   | **For the Three Months  Ended** |   | **For the Nine Months Ended** |   |
|-------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                          |   | **September 30,**               |   | **September 30,**             |   |
|                          |   | **2001**                        |   | **2000**                      |   | **2001** |   | **2000** |   |
| Personal auto liability       |   | 50.6                            | %      | 17.9                          | %      | 46.4 | % | 35.8 | % |
| Personal auto physical damage |   | 62.1                            | %      | 58.1                          | %      | 64.0 | % | 62.5 | % |
| Total personal auto           |   | 58.0                            | %      | 45.1                          | %      | 55.5 | % | 53.8 | % |
| Homeowners                    |   | 71.2                            | %      | 111.2                         | %      | 85.5 | % | 84.9 | % |
| Overall loss ratio            |   | 59.5                            | %      | 49.6                          | %      | 61.7 | % | 55.9 | % |

 

#### **Theincreases in net loss ratio and combined ratio for the third quarter of 2001were due to an increase in both the frequency and severity of personal autoliability claims, in addition to the increases in auto and homeowner claimsfrom the harsher winter in Michigan during the first and second quarter of2001.**

#### ** **

#### **Policyacquisition and underwriting expenses were $8.0 million and $24.4 million forthe three and nine months ended September 30, 2001, respectively, compared to$7.8 million and $20.7 million for the same periods in 2000.  Theunderwriting expenses ratios were 22.9% and 24.7% for the three and nine monthsended September 30, 2001 respectively, compared to 26.0% and 23.5% forcomparable periods in 2000.  Thedecrease for the three months ended September 30, 2001 was the result ofincreased efficiencies from maintaining level costs over increased volume ofbusiness.  However, this improvement inexpenses was more than offset during the nine months ended September 30, 2001by the $1.7 million in expenses incurred in June 2001 related to severancepayments from change of control agreements in connection with the ProAssurancemerger and increased statutory assessment fees.**

#### ** **

Net investment income, excluding realized investmentgains and losses, was $2.8 million and $8.4 million for the three and ninemonths ended September 30, 2001, respectively, compared to $2.8 million and$7.9 million for the three and nine months ended September 30, 2000,respectively. Consistent with 2000, investment income for the three and ninemonths ended September 30, 2001 was attributable primarily to interest incomeand not to realized capital gains.  Thepositive effect of a larger portfolio during the three months ended September30, 2001 compared to the comparable period in 2000 was offset by declininginterest rates.  The increase ininvestment income for the nine month period was due to increases in invested assetsas a result of positive cash flow from operations.  However, the increase for the nine month period ended September30, 2001 was partially offset by a $1.5 million loss recognized in June 2001 onthree securities issued by California electric utilities deemed to have otherthan temporary declines in fair value. The annualized tax equivalent total rate of return, which includes bothincome and changes in market value of securities, was 16.43% and 10.16% for thethree and nine months ended September 30, 2001, respectively, compared to10.97% and 8.69% for the three and nine months ended September 30, 2000,respectively.  While yields havemodestly fluctuated throughout 2001, the continued lower yields generated abond rally in the third quarter of 2001 which resulted in higher bond marketvalues.  The weighted average taxequivalent book yield of the fixed maturity portfolio was 7.02% for the ninemonths ended September 30, 2001 compared to 7.20% for the same period in 2000.

#### ** **

#### **Liquidity and Capital Resources**

#### ** **

#### **Ourprimary sources of cash are from premiums, investment income and proceeds frommaturities of portfolio investments. The principal uses of cash are for payments of claims, commissions,taxes, operating expenses and purchases of investments.  Cash flow and liquidity are managed in orderto meet anticipated short-term payment obligations, and to maximizeopportunities to earn interest on those funds not immediately required.**

 

#### **Cashprovided by operations for the nine months ended September 30, 2001 was $20.0million compared to $20.8 million for the nine months ended September 30,2000.  The $0.8 million decrease wasprimarily due to substantially higher loss payments from increased auto andhomeowner claims incurred in the first three quarters of 2001 compared to thesame period in 2000.  The net increasein cash overall was $5.2 million for the nine months ended September 30, 2001compared to a net decrease in cash of $1.1 million for the nine months endedSeptember 30, 2000.  The $5.2 millionincrease in cash reflects the maturity of short-term investments offset by theaforementioned higher loss payments.**

 

#### **Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

#### ** **

#### **Marketrisk is the risk of loss due to adverse changes in market rates and prices.  Our primary market risk exposure is tochanges in interest rates.  The activemanagement of interest rate risk is essential to our operations.**

#### ** **

#### **We managemarket risk through an investment committee consisting of senior officers ofthe Company, consultants and a professional investment advisor.  The committee periodically measures theimpact that an instantaneous rise in interest rates would have on the fairvalue of securities.  The committee alsomeasures the duration, or interest rate sensitivity, of a fixed income securityor portfolio.  Our investment policylimits the duration of our portfolio to a maximum of 300% of the duration ofour liabilities.**

#### ** **

#### **We arevulnerable to interest rate risk because, like other insurance companies, weinvest primarily in fixed maturity securities, which are interest-sensitiveassets.  We do not invest in fixedmaturity securities for trading purposes. Mortgage-backed securities, which make up approximately 20% of ourinvestment portfolio, are particularly susceptible to interest ratechanges.  We invest primarily in classesof mortgage-backed securities that are less subject to prepayment risk and, asa result, somewhat less susceptible to interest rate risk than other mortgage-backedsecurities.**

#### ** **

#### **Our fixedmaturity investment portfolio was valued at $188.2 million at September 30,2001 and had a duration of 3.54 years. The following table shows the effects of a change in interest rate onthe fair value and duration of our portfolio. We have assumed an immediate increase or decrease of 1% or 2% ininterest rate.  You should not considerthis assumption or the values shown in the table to be a prediction of actualfuture results.**

#### ** **

|                |   | **Portfolio**              |   | **Change**   |   | **Modified** |        |
|---------------------|--------|----------------------------|--------|--------------|--------|--------------|-------------|
| **Change in Rates** |   | **Value**                  |   | **in Value** |   | **Duration** |        |
|                |   | **(dollars in thousands)** |   |
| **+2**              | **%**  |                       | **$**  | **173,546**  |   | **$**        | **(14,611** | **)** | **4.07** |   |
| **+1**              | **%**  |                       | **$**  | **180,889**  |   | **$**        | **(7,268**  | **)** | **3.93** |   |
| **0**               | **%**  |                       | **$**  | **188,157**  |   |         |        | **3.54** |   |
| **-1**              | **%**  |                       | **$**  | **194,792**  |   | **$**        | **6,635**   |   | **3.40** |   |
| **-2**              | **%**  |                       | **$**  | **201,795**  |   | **$**        | **13,638**  |   | **3.55** |   |

 

#### **The otherfinancial instruments, which include cash, premiums due from reinsurers andaccrued investment income, do not produce a significant difference in fairvalue when included in the market risk analysis due to their short-term nature.**

#### ** **

#### **PART II.  OTHER INFORMATION**

#### ** **

#### **Item 6.  Exhibits and Reports on Form 8-K**

#### ** **

#### **(a)      Exhibits**

#### ** **

#### **3.2           Amended and restated bylaws of MEEMICHoldings, Inc. as of September 19, 2001.**

#### ** **

#### **10.20       Severance Compensation Agreement betweenProAssurance Corporation, MEEMIC Insurance Company, MEEMIC Holdings, Inc. andLynn M. Kalinowski dated June 27, 2001.**

#### ** **

#### **10.21       Severance Compensation Agreement betweenProAssurance Corporation, MEEMIC Insurance Company, MEEMIC Holdings, Inc. andChristine C. Schmitt dated June 27, 2001.**

#### ** **

#### **10.22       Severance Compensation Agreement betweenProAssurance Corporation, MEEMIC Insurance Company, MEEMIC Holdings, Inc. andWilliam P. Sabados dated June 27, 2001.**

#### ** **

#### **(b)      Reports on Form 8-K.**

#### ** **

#### **Duringthe quarter, the Company filed Current Reports on Form 8-K dated July 2, 2001,July 10, 2001 and September 27, 2001 furnishing information under Item 9.  The Company also filed a Current Report onForm 8-K dated August 7, 2001 disclosing information under Item 4.  None of these reports included any financialstatements.**

 

#### **SIGNATURES**

#### ** **

#### **Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**

#### ** **

|                          |   |   | MEEMIC Holdings, Inc.    |
|-------------------------------|--------|--------|--------------------------|
|                          |   |   |                     |
|                          |   |   |                     |
| Date:  November 14, 2001 |   |   | /s/ Christine C. Schmitt |  
 

 
 
Christine C. Schmitt 

 

 
 
Its:   Chief Financial Officer, Secretary and  Treasurer

 

 
 
(as principal financial  officer and on behalf of the registrant)

  |