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, 2002
OR
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the transition period from to
--------------- ---------------
COMMISSION FILE NUMBER 1-13154
AMERICAN MEDICAL SECURITY GROUP, INC.
(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1431799
(State of Incorporation) (I.R.S. Employer Identification No.)
3100 AMS BOULEVARD
GREEN BAY, WISCONSIN 54313
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 661-1111
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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, outstanding as of October 31, 2002: 12,889,898
shares
AMERICAN MEDICAL SECURITY GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 2002 and December 31, 2001........................3
Condensed Consolidated Statements of Operations
Three months ended September 30, 2002 and 2001;
Nine months ended September 30, 2002 and 2001...................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001..................5
Notes to Condensed Consolidated Financial Statements
September 30, 2002..............................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........16
Item 4. Controls and Procedures.............................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................17
Item 6. Exhibits and Reports on Form 8-K....................................18
Signatures....................................................................19
Certifications................................................................20
Exhibit Index...............................................................EX-1
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(THOUSANDS, EXCEPT SHARE DATA) 2002 2001
-----------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities $ 276,601 $ 269,753
Equity securities-preferred - 722
Fixed maturity securities held to maturity, at amortized cost 4,297 4,286
Trading securities, at fair value 786 517
-----------------------------------------------------------------------------------------------------------------
Total investments 281,684 275,278
Cash and cash equivalents 17,629 24,975
Property and equipment, net 34,347 33,381
Goodwill, net 32,846 100,343
Other intangibles, net 3,043 3,591
Other assets 44,141 35,447
-----------------------------------------------------------------------------------------------------------------
Total assets $ 413,690 $ 473,015
-----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Medical and other benefits payable $ 134,178 $ 135,504
Advance premiums 16,743 16,737
Payables and accrued expenses 27,850 28,032
Notes payable 34,158 40,058
Other liabilities 24,221 23,284
-----------------------------------------------------------------------------------------------------------------
Total liabilities 237,150 243,615
Shareholders' equity:
Common stock (no par value, $1 stated value, 50,000,000 shares authorized,
16,654,315 issued and 12,889,898 outstanding at September 30, 2002,
16,654,315 issued and 13,955,439 outstanding at December 31, 2001) 16,654 16,654
Paid-in capital 189,738 187,927
Retained earnings (deficit) (3,219) 40,470
Accumulated other comprehensive income (net of tax expense of
$4,121 at September 30, 2002 and $1,024 at December 31, 2001) 7,655 1,903
Treasury stock (3,764,417 shares at September 30, 2002
and 2,698,876 shares at December 31, 2001, at cost) (34,288) (17,554)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 176,540 229,400
-----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 413,690 $ 473,015
-----------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
(THOUSANDS, EXCEPT PER COMMON SHARE DATA) 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------
REVENUES
Insurance premiums $ 187,135 $ 204,399 $ 572,323 $ 640,514
Net investment income 3,591 4,280 11,314 13,199
Net realized investment gains (losses) 39 (660) 101 (839)
Other revenue 4,945 5,369 15,288 16,078
----------------------------------------------------------------------------------------------------------
Total revenues 195,710 213,388 599,026 668,952
EXPENSES
Medical and other benefits 124,699 144,000 385,690 466,754
Selling, general and administrative 60,972 61,513 184,024 195,797
Interest expense 460 687 1,417 2,307
Amortization of goodwill and intangibles 183 906 548 2,720
----------------------------------------------------------------------------------------------------------
Total expenses 186,314 207,106 571,679 667,578
----------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of a change in accounting principle 9,396 6,282 27,347 1,374
Income tax expense 3,658 2,778 10,938 1,544
----------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of a change in accounting principle 5,738 3,504 16,409 (170)
Cumulative effect of a change in accounting
principle - - (60,098) -
----------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,738 $ 3,504 $ (43,689) $ (170)
----------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - basic:
Income (loss) before cumulative effect of a
change in accounting principle $ 0.45 $ 0.25 $ 1.25 $ (0.01)
Cumulative effect of a change in accounting
principle - - (4.59) -
----------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.45 $ 0.25 $ (3.34) $ (0.01)
----------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - diluted:
Income (loss) before cumulative effect of a
change in accounting principle $ 0.42 $ 0.25 $ 1.18 $ (0.01)
Cumulative effect of a change in accounting
principle - - (4.31) -
----------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.42 $ 0.25 $ (3.13) $ (0.01)
----------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
-------------------------------
(THOUSANDS) 2002 2001
-------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (43,689) $ (170)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of a change in accounting principle 60,098 -
Depreciation and amortization 6,683 7,757
Net realized investment (gains) losses (101) 839
Increase in trading securities (269) (128)
Deferred income tax benefit (10,586) (702)
Changes in operating accounts:
Other assets 6,384 2,186
Medical and other benefits payable (1,326) (13,282)
Advance premiums 6 (1,433)
Payables and accrued expenses (182) 4,456
Other liabilities 2,467 949
-------------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,485 472
INVESTING ACTIVITIES
Purchases of available for sale securities (141,287) (87,078)
Proceeds from sale of available for sale securities 139,899 93,594
Proceeds from maturity of available for sale securities 3,350 8,030
Purchases of held to maturity securities (1,925) -
Proceeds from maturity of held to maturity securities 1,925 -
Purchases of property and equipment (6,257) (4,349)
Proceeds from sale of property and equipment 7 8
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (4,288) 10,205
FINANCING ACTIVITIES
Issuance of common stock 2,897 26
Purchase of treasury stock (19,540) (2,102)
Repayment of notes payable (5,900) (900)
-------------------------------------------------------------------------------------------------
Net cash used in financing activities (22,543) (2,976)
-------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Net increase (decrease) (7,346) 7,701
Balance at beginning of year 24,975 15,606
-------------------------------------------------------------------------------------------------
Balance at end of period $ 17,629 $ 23,307
-------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States ("GAAP") for complete financial statements.
Certain reclassifications have been made to the 2001 financial information to
conform to the 2002 presentation. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the American
Medical Security Group, Inc. (the "Company") annual report on Form 10-K for the
year ended December 31, 2001.
2. NEW ACCOUNTING STANDARD
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement 142").
Statement 142 impacts the Company in two ways. First, goodwill is no longer
amortized. Second, goodwill is subject to an initial impairment test in
accordance with Statement 142, and any remaining balance of goodwill will be
subject to future impairment testing. The Company completed the initial goodwill
impairment test during the second quarter of 2002 with the assistance of outside
valuation consultants. As a result of this impairment test, the Company
recognized a non-cash goodwill impairment charge of approximately $60.1 million.
The impairment charge is recorded as a cumulative effect of a change in
accounting principle as of January 1, 2002, and therefore impacts the results
for the first quarter of 2002 and results for the nine months ended September
30, 2002. Subsequent impairment tests will be performed at least annually, and
future goodwill impairments, if any, will be classified as operating expenses in
the Company's statement of operations.
The following table illustrates net income (loss) and net income (loss) per
share adjusted to exclude the effects of amortizing goodwill:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------
(THOUSANDS, EXCEPT PER COMMON SHARE DATA) 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------
Reported net income (loss) $ 5,738 $ 3,504 $ (43,689) $ (170)
Add back: goodwill amortization - 671 - 2,013
-----------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 5,738 $ 4,175 $ (43,689) $ 1,843
-----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share:
Reported net income (loss) $ 0.45 $ 0.25 $ (3.34) $ (0.01)
Goodwill amortization - 0.05 - 0.14
-----------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 0.45 $ 0.30 $ (3.34) $ 0.13
-----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share:
Reported net income (loss) $ 0.42 $ 0.25 $ (3.13) $ (0.01)
Goodwill amortization - 0.05 - 0.14
-----------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 0.42 $ 0.30 $ (3.13) $ 0.13
-----------------------------------------------------------------------------------------------------------------
6
3. EARNINGS (LOSS) PER COMMON SHARE ("EPS")
Basic EPS are computed by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted EPS are computed by dividing net
income (loss) by the weighted average number of common shares outstanding,
adjusted for the effect of dilutive stock options.
The following table illustrates the computation of EPS for income (loss) from
continuing operations and provides a reconciliation of the number of weighted
average basic and diluted shares outstanding:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
(THOUSANDS, EXCEPT PER COMMON SHARE DATA) 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------
Numerator:
Income (loss) before cumulative effect
of a change in accounting principle $ 5,738 $ 3,504 $ 16,409 $ (170)
----------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic EPS 12,890 13,992 13,099 14,081
Effect of dilutive employee stock options 824 71 855 -
----------------------------------------------------------------------------------------------------------------
Denominator for diluted EPS 13,714 14,063 13,954 14,081
----------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share
before cumulative effect of a change
in accounting principle:
Basic $ 0.45 $ 0.25 $ 1.25 $ (0.01)
Diluted $ 0.42 $ 0.25 $ 1.18 $ (0.01)
----------------------------------------------------------------------------------------------------------------
The effect of dilutive securities was excluded from the diluted earnings
(loss) per common share computation for the nine months ended September 30, 2001
because the Company had a net loss for this period; therefore, their inclusion
would have been antidilutive. Certain options to purchase shares were not
included in the computation of diluted earnings (loss) per common share because
the options' exercise prices were greater than the average market price of the
outstanding common shares for the period.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as net income (loss) plus or minus other
comprehensive income (loss). For the Company, under existing accounting
standards, other comprehensive income (loss) includes unrealized gains and
losses, net of income tax effects, on certain investments in debt and equity
securities. Comprehensive income (loss) for the Company is calculated as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
(THOUSANDS) 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,738 $ 3,504 $ (43,689) $ (170)
Unrealized gain on available
for sale securities 4,604 4,944 5,752 7,932
----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 10,342 $ 8,448 $ (37,937) $ 7,762
----------------------------------------------------------------------------------------------------------------
7
5. CREDIT AGREEMENT
At September 30, 2002, the Company maintained a revolving bank line of credit
agreement with an outstanding balance and maximum commitment of $30.2 million.
At December 31, 2001, the outstanding balance and maximum commitment under the
credit agreement was $35.2 million. The credit agreement contains customary
covenants which, among other matters, require the Company to achieve minimum
financial results and restrict the Company's ability to incur additional debt,
pay future cash dividends and dispose of assets outside the ordinary course of
business. The Company was in compliance with all such covenants at September 30,
2002 and anticipates continued compliance in the foreseeable future. The
Company's obligations under the credit agreement are guaranteed by its
subsidiary, American Medical Security Holdings, Inc. ("AMS Holdings"), and
secured by pledges of stock of AMS Holdings and United Wisconsin Life Insurance
Company ("UWLIC"), the Company's principal insurance subsidiary.
6. CONTINGENCIES
In February 2000, a class action lawsuit was filed against the Company in the
state of Florida alleging the Company did not follow Florida law when it
discontinued writing certain health insurance policies and offered new policies
in 1998. Plaintiffs claim the Company wrongfully terminated coverage, improperly
notified insureds of conversion rights and charged improper premiums for new
coverage. Plaintiffs also alleged that the Company's renewal rating methodology
violates Florida law. On April 24, 2002, a Circuit Court Judge ruled against the
Company and ordered the question of damages be tried at a later date. Plaintiffs
are seeking damages unspecified in the complaint. A new judge has been assigned
to the case and a trial date for the damages portion of the lawsuit has not yet
been rescheduled.
In a separate administrative proceeding involving substantially similar issues,
the Florida Department of Insurance issued an administrative complaint against
the Company in May 2001, challenging the Company's rating and other practices in
Florida relating to the Company's MedOneSM products for individuals and
families. MedOneSM products sold by the Company in Florida are written pursuant
to a group master policy issued to an association domiciled in another state. In
a recommended order entered April 25, 2002, the Administrative Law Judge held
that the evidence presented by the Florida Department of Insurance did not
support a conclusion that the Company had violated any provisions of Florida
law. The Administrative Law Judge recommended that all counts of the
administrative complaint be dismissed. The recommended order was sent to the
Commissioner of the Florida Department of Insurance for entry of a final order.
On July 24, 2002, the Florida Department of Insurance issued a final order
affirming the recommendations from the Administrative Law Judge with respect to
six of eight counts. Among other things, the final order affirmed that the
policy issued to the association was exempt from most Florida rating
requirements. However, the Department reversed the Administrative Law Judge's
finding that tier rating does not violate state law applicable to policies
issued out of state, and ordered the suspension of the Company's license to sell
new business in Florida for one year. The Department's order specifically
permits the Company to continue to renew its existing business in Florida. On
July 29, 2002, the First District Court of Appeals for the State of Florida
stayed the order of the Florida Department of Insurance. The stay is effective
until the Court of Appeals rules on the Company's request to overturn the order.
The Company anticipates a reversal of the final order on appeal. The Company has
voluntarily implemented a block rating system for its MedOneSM business in
Florida effective November 1, 2002, and has discontinued its tier rating system
in that state.
The Company is involved in various other legal and regulatory actions occurring
in the normal course of business. These actions include threatened and actual
challenges to the Company's rating methodology. Based on current information,
including consultation with outside counsel, management believes any ultimate
liability that may arise from the above-mentioned and all other legal and
regulatory actions would not materially affect the Company's consolidated
financial position or results of operations. However, management's evaluation of
the likely impact of these actions could change in the future and an unfavorable
outcome could have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flow of a future period.
8
7. SEGMENT INFORMATION
The Company has two reportable segments: 1) health insurance products; and 2)
life insurance products. The Company's health insurance products consist of the
following coverages related to preferred provider organization products:
MedOneSM (for individuals and families) and small group medical, self funded
medical, dental and short-term disability. Life products consist primarily of
group term-life insurance. The "All Other" category includes operations not
directly related to the business segments and unallocated corporate items (i.e.,
corporate investment income, interest expense on corporate debt, amortization of
goodwill and intangibles and unallocated overhead expenses). The reportable
segments are managed separately because they differ in the nature of the
products offered and in profit margins.
The Company evaluates segment performance based on income or loss before income
taxes, excluding gains and losses on the Company's investment portfolio. The
accounting policies of the reportable segments are the same as those used to
report the Company's consolidated financial statements. Intercompany
transactions have been eliminated prior to reporting segment information.
A reconciliation of segment income (loss) before income taxes and cumulative
effect of a change in accounting principle to consolidated income (loss) before
income taxes is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
(THOUSANDS) 2002 2001 2002 2001
----------------------------------------------------------------------------------------------------------------
Health segment $ 8,488 $ 5,788 $ 24,940 $ (1,397)
Life segment 1,521 1,615 4,456 4,963
All other (613) (1,121) (2,049) (2,192)
----------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect $ 9,396 $ 6,282 $ 27,347 $ 1,374
of a change in accounting principle
----------------------------------------------------------------------------------------------------------------
9
Operating results and statistics for each of the Company's segments are as
follows:
Three Months Ended Nine Months Ended
HEALTH SEGMENT September 30, September 30,
----------------------------------------------------------
(THOUSANDS) 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------
REVENUES
Insurance premiums $ 183,752 $ 200,256 $ 561,786 $ 626,354
Net investment income 1,484 2,299 5,227 7,014
Other revenue 4,115 4,370 12,638 12,957
------------------------------------------------------------------------------------------------------------------
Total revenues 189,351 206,925 579,651 646,325
EXPENSES
Medical and other benefits 123,792 142,766 382,541 461,944
Selling, general and administrative 57,071 58,371 172,170 185,778
------------------------------------------------------------------------------------------------------------------
Total expenses 180,863 201,137 554,711 647,722
------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 8,488 $ 5,788 $ 24,940 $ (1,397)
------------------------------------------------------------------------------------------------------------------
Loss ratio 67.4% 71.3% 68.1% 73.8%
Expense ratio 28.8% 27.0% 28.4% 27.6%
------------------------------------------------------------------------------------------------------------------
Combined ratio 96.2% 98.3% 96.5% 101.4%
------------------------------------------------------------------------------------------------------------------
Health membership at end of period:
Fully insured medical 309,980 363,922
Self funded medical 43,426 45,180
Dental 235,454 257,970
---------------------------------------------------------------------------------
Total health membership 588,860 667,072
---------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
LIFE SEGMENT September 30, September 30,
----------------------------------------------------------
(THOUSANDS) 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------
REVENUES
Insurance premiums $ 3,383 $ 4,135 $ 10,534 $ 13,581
Net investment income 141 160 444 496
Other revenue 27 38 88 120
------------------------------------------------------------------------------------------------------------------
Total revenues 3,551 4,333 11,066 14,197
EXPENSES
Medical and other benefits 907 1,356 3,142 5,038
Selling, general and administrative 1,123 1,362 3,468 4,196
------------------------------------------------------------------------------------------------------------------
Total expenses 2,030 2,718 6,610 9,234
------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 1,521 $ 1,615 $ 4,456 $ 4,963
------------------------------------------------------------------------------------------------------------------
Loss ratio 26.8% 32.8% 29.8% 37.1%
Expense ratio 32.4% 32.0% 32.1% 30.0%
------------------------------------------------------------------------------------------------------------------
Combined ratio 59.2% 64.8% 61.9% 67.1%
-------------------------------------------------------------------------------------------------------------------
Life membership at end of period 158,343 196,035
---------------------------------------------------------------------------------
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
American Medical Security Group, Inc., together with its subsidiary companies
(the "Company"), is a provider of individual and small employer group insurance
products. The Company's principal product offerings are health insurance for
small employer groups and health insurance products marketed to individuals and
families ("MedOneSM"). The Company also offers dental, life, prescription drug,
disability and accidental death insurance, and provides self funded benefit
administration. The Company markets its products in 32 states and the District
of Columbia through independent agents. The Company has approximately 75 sales
managers located in sales offices throughout the United States to support the
independent agents. The Company's products generally provide discounts to
insureds that utilize preferred provider organizations ("PPOs"). The Company
owns a preferred provider network and also contracts with other networks to
ensure cost-effective health care choices to its members.
RESULTS OF OPERATIONS
The Company reported net income of $5.7 million or $0.42 per diluted share for
the third quarter of 2002, compared to net income of $3.5 million or $0.25 per
diluted share for the third quarter of 2001. The third quarter of 2002
represents the Company's eighth consecutive quarter of improved earnings per
share, excluding non-recurring items. For the nine month period ended September
30, 2002, the Company reported a net loss of $43.7 million or $3.13 per diluted
share, including a $60.1 million write-down of goodwill during the first quarter
of 2002, resulting from the implementation of a new accounting principle. Income
before cumulative effect of a change in accounting principle was $16.4 million
for the nine months ended September 30, 2002, compared with a net loss of $0.2
million for the same period of the prior year.
The improvement in profitability from the prior year emanates principally from a
lower MedOneSM and small employer group loss ratio as premiums per member per
month continue to increase faster than claims per member per month. The
improvement in the loss ratio is primarily attributed to management's strategic
actions including increased premium rates on new and renewal business, focused
marketing efforts for small employer group products in markets with the best
prospects for profitability and future growth, and redesigned products to meet
the changing needs of today's insurance consumers. The elimination of goodwill
amortization due to a change in accounting for goodwill and other intangible
assets contributed approximately $0.05 per diluted share to third quarter 2002
earnings and $0.14 per diluted share for the nine months ended September 30,
2002. See the table in Note 2 to the Company's condensed consolidated financial
statements for an illustration of the impact of the accounting method change.
Effective January 1, 2002, the Company adopted new rules on accounting for
goodwill and other intangible assets. The new rules impact the Company in two
ways. First, goodwill is no longer amortized. Second, goodwill is subject to an
initial impairment test in accordance with the new rules, and any remaining
balance of goodwill will be subject to future impairment testing. The Company
completed the initial goodwill impairment test during the second quarter of 2002
with the assistance of outside valuation consultants. As a result of this
impairment test, the Company recognized a non-cash goodwill impairment charge of
approximately $60.1 million, which is classified as a cumulative effect of a
change in accounting principle as of January 1, 2002. The impairment charge has
no impact on cash flows or the statutory-basis capital and surplus of the
Company's insurance subsidiaries. Subsequent impairment tests will be performed
at least annually, and future goodwill impairments, if any, will be classified
as operating expenses in the Company's statement of operations.
11
INSURANCE PREMIUMS AND MEMBERSHIP
Insurance premiums for the three months ended September 30, 2002 decreased 8.5%
to $187.1 million from $204.4 million for the same period in 2001. For the nine
month period ended September 30, 2002, insurance premiums decreased 10.6% to
$572.3 million from $640.5 million for the same period in the prior year. The
decrease primarily resulted from a decline in membership. Total medical and
dental membership declined from 667,072 members at September 30, 2001 to 588,860
members at September 30, 2002. The membership decrease from the prior year is
primarily the result of the Company's efforts in terminating business in several
unprofitable markets. Premium rate increases resulting in lower new sales and
higher lapse rates on existing business also contributed to the membership
decline. Partially offsetting the effect of declining membership was the rise in
premium rates on the continuing block of business. Average fully insured medical
premium per member per month for the nine months ended September 30, 2002
increased by 12.0% to $170, compared to the same period in 2001, reflecting the
Company's continued pricing discipline. Membership at the end of the third
quarter 2002 also declined compared to membership of 597,983 at the end of the
second quarter of 2002. Management believes the membership decline in the third
quarter resulted from a reduction in new sales primarily due to negative
national publicity surrounding the Company's tier rating system and the related
legal matters in the state of Florida.
The Company is currently expanding and realigning its sales organization to
improve new member enrollment and persistency. The Company continues to analyze
its pricing posture in key states to ensure competitiveness, roll out new
products, establish regional marketing centers to expand distribution of the
Company's MedOneSM product, and implement aggressive agent recruitment and
incentive programs. Management is also continuing its focus on the Company's
small group business, which is experiencing increased new member enrollment as
well as improved profitability.
NET INVESTMENT INCOME
Net investment income was $3.6 million for the three months ended September 30,
2002, compared to $4.3 million for the same period in 2001. For the nine month
period ended September 30, 2002, net investment income decreased to $11.3
million from $13.2 million for the same period in the prior year. The decrease
in net investment income is due primarily to a decrease in the average annual
investment yield from 2001 to 2002. The average annual investment yield was 5.5%
for the first nine months of 2002 compared to 6.6% for the first nine months of
2001.
LOSS RATIO
The health loss ratio for the third quarter of 2002 was 67.4% compared to 71.3%
for the third quarter of 2001. The health loss ratio for the nine months ended
September 30, 2002 was 68.1% compared to 73.8% for the nine months ended
September 30, 2001. The third quarter 2002 health loss ratio is at its lowest
point in three years. The significant improvement was due to management's
actions and strategies to increase premium rates and combat the impact of
medical inflation. These actions included premium rate increases, claims cost
control initiatives and the exit from unprofitable small group markets. The
reduction also reflects increased sales of MedOneSM products, which are priced
for a lower loss ratio but have higher selling and administrative costs. As
anticipated, claim costs per member per month have increased slightly, but were
surpassed by increased premiums per member per month. Average premium per member
per month for the nine months ended September 30, 2002 increased 12.0% compared
to the same period in 2001. Average claims costs increased only 4.2% over the
same period. Medical and other benefits payable includes the Company's estimated
cost to settle or resolve claims-related litigation. Management closely monitors
developments in litigation and emerging trends in claims costs to determine the
adequacy and reasonableness of the Company's related reserves and adjusts such
reserves when necessary.
The life segment loss ratio for the three months ended September 30, 2002 was
26.8% compared to 32.8% for the three months ended September 30, 2001. The life
segment loss ratio may fluctuate from quarter to quarter as actual life claims
experience fluctuates. The life segment loss ratio for the nine months ended
September 30, 2002 was 29.8% compared with 37.1% for the same period in 2001.
12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO
The selling, general and administrative ("SG&A") expense ratio includes
commissions and selling expenses, administrative expenses (less other revenues),
and premium taxes and assessments. The SG&A expense ratio for health segment
products for the three months ended September 30, 2002 was 28.8%. This compares
to the third quarter of 2001 SG&A expense ratio of 27.0%. The SG&A expense ratio
has increased over the past two years. The increase largely reflects lower
premium volume and a product mix change driven by growth in the MedOneSM
business, which has higher selling and administrative costs but lower claim
costs than small employer group products.
OTHER MATTERS
In twenty-two states, the Company uses a methodology for computing renewal
premium for its MedOneSM products known as "tier rating." In ten states, the
Company uses a "block rating" methodology. In August 2002, the Company announced
that by January 1, 2003, it would implement a block rating system for all of its
MedOneSM health benefit products in all states in which it does business. This
change has been fully implemented for all business renewing on or after January
1, 2003. Management believes the change will have no material effect on future
earnings. The Company's tier rating methodology has been the subject of
significant adverse publicity and actual and threatened litigation. See Note 6
to the Company's condensed consolidated financial statements and Part II, Item
1, Legal Proceedings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow consist primarily of insurance premiums,
administrative fee revenue and investment income. The primary uses of cash
include payment of medical and other benefits, SG&A expenses and debt service
costs. Positive cash flows are invested pending future payments of benefits and
other operating expenses. The Company's investment policies are designed to
maximize yield, preserve principal and provide liquidity to meet anticipated
payment obligations.
The Company's cash provided by operations was $19.5 million for the nine months
ended September 30, 2002, already exceeding cash flow provided by operations for
the full year of 2001 of $17.6 million. Cash provided by operations was $0.5
million for the nine months ended September 30, 2001. The improvement in cash
flow primarily reflects increased profitability of the Company. Management
expects positive cash provided by operations during the fourth quarter of 2002.
The Company's investment portfolio consists primarily of investment grade bonds
and has limited exposure to equity securities. At September 30, 2002 and
December 31, 2001, greater than 99% of the Company's investment portfolio was
invested in bonds. The bond portfolio had an average quality rating of AA at
September 30, 2002 and December 31, 2001, as measured by Standard & Poor's
Corporation. The majority of the bond portfolio was classified as available for
sale. The Company has no investment in mortgage loans, non-publicly traded
securities (except for principal only strips of U.S. Government securities),
real estate held for investment or financial derivatives.
The Company's principal insurance subsidiary, UWLIC, is domiciled in Wisconsin,
which requires certain minimum levels of regulatory capital and surplus and
which may restrict dividends to UWLIC's parent company. The Wisconsin
Commissioner of Insurance may disapprove any dividend which, together with other
dividends paid in the prior 12 months, exceeds the regulatory maximum, computed
as the lesser of 10% of statutory surplus or total statutory net gain from
operations as of the end of the preceding calendar year. Based upon UWLIC's
financial statements as of December 31, 2001, as filed with the insurance
regulators, and dividends paid in 2002, UWLIC is restricted from paying
dividends in 2002 without prior regulatory approval.
The National Association of Insurance Commissioners has adopted risk-based
capital ("RBC") standards for health and life insurers designed to evaluate the
adequacy of statutory capital and surplus in relation to various business risks
faced by such insurers. The RBC formula is used by state insurance regulators as
an early warning tool to identify insurance companies that potentially are
inadequately capitalized. At December 31, 2001, each of
13
the Company's insurance subsidiaries had RBC ratios that were substantially
above the levels which would require action by the Company or a regulator.
At September 30, 2002, the Company maintained a revolving bank line of credit
agreement with an outstanding balance and maximum commitment of $30.2 million.
At December 31, 2001, the outstanding balance and maximum commitment under the
credit agreement was $35.2 million. The credit agreement contains customary
covenants which, among other matters, require the Company to achieve minimum
financial results and restrict the Company's ability to incur additional debt,
pay future cash dividends and dispose of assets outside the ordinary course of
business. The Company was in compliance with all such covenants at September 30,
2002 and anticipates continued compliance in the foreseeable future. The
Company's obligations under the credit agreement are guaranteed by its
subsidiary, American Medical Security Holdings, Inc. ("AMS Holdings"), and
secured by pledges of stock of AMS Holdings and UWLIC.
During the first quarter of 2002, the Company entered into a stock purchase
agreement with Cobalt Corporation ("Cobalt") and its wholly owned subsidiary,
Blue Cross & Blue Shield United of Wisconsin ("BCBSUW"), the Company's largest
shareholder, to repurchase 1.4 million shares of the Company's common stock
owned by BCBSUW at a total cost of $19.5 million, including related transaction
costs. In conjunction with the stock repurchase, BCBSUW completed the sale of
3,001,500 shares of the Company's common stock in an underwritten secondary
offering during the second quarter of 2002. The public offering price was $18.00
per share. As a result of these transactions, Cobalt's ownership of the Company
was reduced from approximately 45% at December 31, 2001 to approximately 15% at
the end of the second quarter of 2002. As a result of open market sales during
the third quarter, Cobalt owned approximately 13% of the Company's outstanding
common stock at September 30, 2002.
CAUTIONARY FACTORS
This report and other documents or oral presentations prepared or delivered by
and on behalf of the Company contain or may contain "forward-looking statements"
within the meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
statements based upon management's expectations at the time such statements are
made and are subject to risks and uncertainties that could cause the Company's
actual results to differ materially from those contemplated in the statements.
Readers are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral presentations, the terms
"anticipate," "believe," "estimate," "expect," "may," "objective," "plan,"
"possible," "potential," "project," "will" and similar expressions are intended
to identify forward-looking statements. In addition to the assumptions and other
factors referred to specifically in connection with such statements, factors
that could cause the Company's actual results to differ materially from those
contemplated in any forward-looking statements include, among others, the
following:
o Unexpected increases in health care costs resulting from advances in
medical technology, increased utilization of medical services and
prescription drugs resulting from bioterrorism or otherwise, possible
epidemics and natural or man-made disasters and other factors
affecting the delivery and cost of health care that are beyond the
Company's control. There are also known trends, such as the aging of
the population, that can have an uncertain effect on health care
costs.
o The Company's ability to distribute and sell its products profitably,
including its ability to retain key producing sales agents and
maintain satisfactory relationships with independent agents who sell
the Company's products, and the Company's ability to expand its
distribution network through regional marketing centers and by other
means, generate new sales, retain existing members, predict future
health care cost trends and adequately price its products, and control
expenses during a time of declining revenue and membership.
Competitive factors such as the entrance of additional competitors
into the Company's markets and competitive pricing practices also can
have an uncertain effect on the Company's sales.
o Publicity about the Company that affects or may affect the Company's
sales or its relationship with regulators.
14
o Federal and state laws adopted in recent years, currently proposed, or
that may be proposed in the future, which affect or may affect the
Company's operations, products, profitability or business prospects,
such as the Health Insurance Portability and Accountability Act of
1996 privacy rules, U.S. Department of Labor claims procedures for
employee benefit plans, proposed Patients' Bill of Rights, and state
prompt pay laws for the payment of claims. Reform laws adopted in
recent years generally limit the ability of the Company to use risk
selection as a method of controlling costs for its small employer
group business.
o Regulatory factors, including delays in regulatory approvals of rate
increases and policy forms; regulatory action resulting from market
conduct activity and general administrative compliance with state and
federal laws; restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company or its other
subsidiaries in the form of cash dividends, loans or advances without
prior approval or notification; the granting and revoking of licenses
to transact business; the amount and type of investments that the
Company may hold; minimum reserve and surplus requirements; and
risk-based capital requirements.
o Factors related to the Company's efforts to maintain an appropriate
medical loss ratio in its small employer group health and MedOneSM
health business, (including implementing significant rate increases,
terminating business in unprofitable markets, introducing redesigned
products and implementing a block rating methodology for the Company's
MedOneSM business), and the willingness of employers and individuals
to accept rate increases, premium repricing and redesigned products.
o The development of and changes in claims reserves.
o The effectiveness of the Company's strategy to expand sales of its
MedOneSM products for individuals and families, to focus its small
employer group health product sales in core markets and to grow its
ancillary products, including its dental, life, and self-funded
benefit administration business.
o The cost and other effects of legal and administrative proceedings
particularly as they relate to the Company's health insurance
business, including the expense of investigating, litigating and
settling claims or paying judgments against the Company which may
include substantial non-economic, treble or punitive damages; and the
general increase in litigation involving health insurers and the
Company's rating methodology.
o Adverse outcomes of litigation in excess of provisions made by the
Company.
o The Company's ability to continue purchasing insurance policies in
connection with its risk management program at affordable rates, with
reasonable terms and deductibles and/or adequate policy limits.
o Restrictions imposed by financing arrangements that limit the
Company's ability to incur additional debt, pay future cash dividends
and transfer assets.
o Changes in rating agency policies and practices and the ability of the
Company's insurance subsidiaries to maintain or exceed their A-
(Excellent) rating by A.M. Best.
o General economic conditions, including changes in employment, interest
rates and inflation that may impact the performance of the Company's
investment portfolio or decisions of individuals and employers to
purchase the Company's products.
o The Company's ability to maintain attractive preferred provider
networks for its insureds.
o Factors affecting the Company's ability to hire and retain key
executive, managerial, professional and technical employees.
o Changes in accounting principles and the effects related to such
changes.
15
o Other business or investment considerations that the Company may
disclose from time to time in its Securities and Exchange Commission
filings or in other publicly disseminated written documents.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk has not substantially changed from the year ended
December 31, 2001.
Item 4. Controls and Procedures
In order to ensure that the information the Company must disclose in its filings
with the Securities and Exchange Commission ("SEC") is recorded, processed,
summarized and reported on a timely basis, the Company has formalized its
disclosure controls and procedures. The Company's principal executive officer
and principal financial officer have reviewed and evaluated the Company's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this report (the "evaluation date"). Based on such evaluation,
such officers have concluded that, as of the evaluation date, the Company's
disclosure controls and procedures are effective in bringing to their attention
on a timely basis material information relating to the Company required to be
included in the Company's periodic SEC filings. Since the evaluation date, there
have not been any significant changes in the internal controls of the Company,
or in other factors that could significantly affect these controls subsequent to
the evaluation date.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following report of recent developments in previously reported legal
proceedings should be read in conjunction with Item 3, Legal Proceedings, in the
Company's annual report on Form 10-K for the fiscal year ended December 31, 2001
and Item 1, Legal Proceedings, in the Company's quarterly reports on Form 10-Q
for the quarters ended March 31, 2002 and June 30, 2002.
FLORIDA REGULATORY ACTION AND CLASS ACTION LITIGATION
A class action lawsuit was filed against two of the Company's subsidiaries,
American Medical Security, Inc. ("AMS") and United Wisconsin Life Insurance
Company ("UWLIC"), in February 2000 in the Circuit Court for Palm Beach County,
Florida, by Evelyn Addison and others alleging that the Company failed to follow
Florida law when it discontinued writing certain health insurance policies and
offering new policies in 1998, and that the Company wrongfully terminated
coverage, improperly notified insureds of conversion rights and charged improper
premiums for new coverage. Plaintiffs also alleged that UWLIC's renewal rating
methodology violates Florida law. Plaintiffs are seeking damages unspecified in
the complaint.
In a final judgment entered April 24, 2002, the Circuit Court Judge in the class
action lawsuit found, among other things, that the policy issued by the Company
outside Florida was not exempt from any Florida rating laws and ordered that the
question of damages be tried before a jury. On September 9, 2002, the Circuit
Court Judge declared a mistrial in the damages portion of the lawsuit on the
grounds that the trial could not be completed within the time constraints of the
Court, and indicated his intention to reschedule the trial for January 2003. On
September 27, 2002, the Circuit Court Judge recused himself from the case. A new
judge has been assigned to the case and a trial date for the damages portion of
the lawsuit has not yet been rescheduled.
In a separate proceeding involving substantially similar issues, the Florida
Department of Insurance issued an administrative complaint in May 2001 against
UWLIC, a wholly owned subsidiary of the Company, challenging UWLIC's rating and
other practices in Florida relating to UWLIC's MedOneSM products for individuals
and their families. MedOneSM products sold by UWLIC in Florida are written
pursuant to a group master policy issued to an association domiciled in another
state. In a recommended order entered April 25, 2002, the Administrative Law
Judge held that the evidence presented by the Florida Department of Insurance
did not support a conclusion that UWLIC had violated any provisions of Florida
law and recommended that all counts of the Department's administrative complaint
be dismissed. The recommended order was sent to the Commissioner of the Florida
Department of Insurance for entry of a final order. On July 24, 2002, the
Florida Department of Insurance issued a final order affirming the
recommendations from the Administrative Law Judge with respect to six of eight
counts. Among other things, the final order affirmed that the policy issued to
the association was exempt from most Florida rating requirements. However, the
Department reversed the Administrative Law Judge's finding that tier rating does
not violate state law applicable to policies issued out of state, and ordered
the suspension of UWLIC's license to sell new business in Florida for one year.
The Department's order specifically permits UWLIC to continue to renew its
existing business in Florida. On July 29, 2002, the First District Court of
Appeals for the State of Florida stayed the order of the Florida Department of
Insurance. The stay is effective until the Court of Appeals rules on the
Company's request to overturn the order. The Company anticipates a reversal of
the final order on appeal. Although the Company believes tier rating is a legal
rating methodology in all the states where it is used, the Company has decided
to voluntarily replace its tier rating method with a block rating system for all
of its MedOneSM products by the end of 2002 due to adverse publicity and
misperceptions about tier rating.
17
ALABAMA LAWSUIT
On April 28, 2001, Evelyn Saucier and others filed suit in the Circuit Court of
Mobile County, Alabama against two of the Company's subsidiaries, AMS and UWLIC,
seeking damages relating to alleged misrepresentations of the rating methodology
that would be used by the Company. In February, 2002, this case was consolidated
with one other case. The complaint was later amended to add additional
plaintiffs and now involves a total of 32 plaintiffs. The Company believes that
this lawsuit is unfounded and the disputed amounts of rate increases are
immaterial to the financial condition of the Company. Nevertheless, Alabama
juries have, in the past, given large awards for emotional distress in contract
cases and have awarded punitive damages substantially higher than the level of
economic damages incurred. The Company intends to vigorously defend this action.
The Company is involved in various other legal and regulatory actions occurring
in the normal course of business. These actions include threatened and actual
challenges to the Company's rating methodology. Based on current information,
including consultation with outside counsel, management believes any ultimate
liability that may arise from the above-mentioned and all other legal and
regulatory actions would not materially affect the Company's consolidated
financial position or results of operations. However, management's evaluation of
the likely impact of these actions could change in the future and an unfavorable
outcome could have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flow of a future period.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
See the Exhibit Index following the Signature page of this report, which is
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed or submitted during the third
quarter of 2002:
o A Form 8-K dated July 24, 2002, was filed by the Company on July 31,
2002, to report recent developments in previously reported legal
proceedings.
o A Form 8-K dated September 9, 2002, was filed by the Company on
September 9, 2002, to report recent developments in a previously
reported legal proceeding.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: November 13, 2002
AMERICAN MEDICAL SECURITY GROUP, INC.
/s/ Gary D. Guengerich
Gary D. Guengerich
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Chief Accounting Officer and
duly authorized to sign on behalf of the
Registrant)
19
CERTIFICATIONS
I, Samuel V. Miller, Chief Executive Officer of American Medical Security Group,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Medical
Security Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: NOVEMBER 13, 2002 /S/ SAMUEL V. MILLER
Chief Executive Officer
20
I, Gary D. Guengerich, Chief Financial Officer of American Medical Security
Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Medical
Security Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: NOVEMBER 13, 2002 /S/ GARY D. GUENGERICH
Chief Financial Officer
21
AMERICAN MEDICAL SECURITY GROUP, INC.
(the "Registrant")
(Commission File No. 1-13154)
EXHIBIT INDEX
TO
FORM 10-Q QUARTERLY REPORT
for quarter ended September 30, 2002
EXHIBIT INCORPORATED HEREIN Filed
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
4.1 Sixth Amendment dated as of Exhibit 4.1 to the
August 1, 2002 to Credit Registrant's Form
Agreement dated as of March 24, 10-Q for the quarter
2000 among the Registrant, ended June 30, 2002
LaSalle Bank National Association
and other Lenders
10.1 Retirement Agreement dated as of X
August 1, 2002 between the Registrant
and Gary D. Guengerich
99.1 Certification Pursuant to 18 U.S.C. X
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification Pursuant to 18 U.S.C. X
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
EX-1