-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WcKPowMWOUREXkbuE7usxjHdTjQ7D9c09z5RTIdsRMkxAdujiqB5vTnbjWQ1V6YY nq6DuEY3oqrWyeaXt05Vig== 0000317745-98-000001.txt : 19980518 0000317745-98-000001.hdr.sgml : 19980518 ACCESSION NUMBER: 0000317745-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL RE CORP CENTRAL INDEX KEY: 0000317745 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061026471 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08026 FILM NUMBER: 98624219 BUSINESS ADDRESS: STREET 1: FINANCIAL CENTRE P O BOX 10351 STREET 2: 695 EAST MAIN STREET CITY: STAMFORD STATE: CT ZIP: 06904-2351 BUSINESS PHONE: 2033285000 MAIL ADDRESS: STREET 1: FINANCIAL CENTRE STREET 2: P O BOX 10350 CITY: STAMFORD STATE: CT ZIP: 06904-2350 10-Q 1 FIRST QUARTER 1998 10-Q [OBJECT OMITTED] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 ------------------------------- Commission file number 1-8026 ------------------------------- [OBJECT OMITTED] GENERAL RE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1026471 ------------ ------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Financial Centre, P.O. Box 10350 Stamford, Connecticut 06904-2350 --------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, with area code (203) 328-5000 ---------------- None (Former name, former address and former fiscal year, if changed since last report) 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. Class Outstanding at March 31, 1998 Common Stock, $.50 par value 76,510,211 Shares - --------------------------------------- -------------------------------- [OBJECT OMITTED] GENERAL RE CORPORATION FORM 10-Q INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Income Three months ended March 31, 1998 and 1997 3 Consolidated Statements of Comprehensive Income Three months ended March 31, 1998 and 1997 4 Consolidated Balance Sheets March 31, 1998 and December 31, 1997 5 Consolidated Statements of Common Shareowners' Equity Three months ended March 31, 1998 and 1997 6 Consolidated Statements of Cash Flows Three months ended March 31, 1998 and 1997 7 Notes to Consolidated Interim Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Reports on Form 8-K (none) 19 Exhibit 27 - Financial Data Schedules 21 GENERAL RE CORPORATION Consolidated Statements of Income (in millions, except share data) (Unaudited) ----------- Three months ended March 31, --------- 1998 1997 ---- ---- Premiums and other revenues Net premiums written Property/casualty $1,087 $1,263 Life/health 324 298 ------ ------- Total net premiums written $1,411 $1,561 ====== ====== Net premiums earned Property/casualty $1,167 $1,370 Life/health 307 286 ------ ------- Total net premiums earned 1,474 1,656 Investment income 322 318 Other revenues 93 87 Net realized gains 37 11 ------- ------- Total revenues 1,926 2,072 ----- ----- Expenses Claims and claim expenses 782 967 Life/health benefits 223 200 Acquisition costs 344 354 Other operating costs and expenses 185 206 Goodwill amortization 7 7 ------- ------- Total expenses 1,541 1,734 ----- ----- Income before income taxes and minority interest 385 338 Income tax expense 96 81 ------ ------ Income before minority interest 289 257 Minority interest 17 13 ------ ------ Net income $272 $244 ==== ==== Share data: Net income per common share: Basic $3.49 $2.97 ===== ===== Diluted $3.40 $2.91 ===== ===== Average common shares outstanding: Basic 76,993,544 81,098,094 ========== ========== Diluted 79,689,665 83,463,222 ========== ========== Dividend per share to common shareowners $ .59 $ .55 ===== ===== See notes to the consolidated interim financial statements. 3 GENERAL RE CORPORATION Consolidated Statements of Comprehensive Income (in millions, except share data) (Unaudited) ----------- Three months ended March 31, --------- 1998 1997 ---- ---- Net income $272 $244 Unrealized appreciation (depreciation) of investments, after tax: Common equities 253 53 Preferred equities 4 1 Fixed maturities (7) (107) Less: Reclassification for prior periods' appreciation included in current period's realized gains (33) - Foreign currency translation gains (losses) (18) 38 ----- ----- Comprehensive income $471 $229 ==== ==== Share data: Comprehensive income per diluted common share $5.90 $2.73 ===== ===== See notes to the consolidated interim financial statements. 4 GENERAL RE CORPORATION Consolidated Balance Sheets (in millions, except share data) March 31, Dec. 31, 1998 1997 Assets Insurance investments: Fixed maturities, available-for-sale (cost: $15,597 in 1998; $15,859 in 1997) $16,602 $16,847 Preferred equities, at fair value (cost: $921 in 1998; $980 in 1997) 986 1,041 Common equities, at fair value (cost: $2,155 in 1998; $2,098 in 1997) 5,201 4,748 Short-term investments, at amortized cost which approximates fair value 1,178 1,172 Other invested assets 760 768 -------- -------- Total insurance investments 24,727 24,576 Cash 204 193 Accrued investment income 291 358 Accounts receivable 1,983 1,858 Funds held by reinsured companies 474 488 Reinsurance recoverable 2,575 2,706 Deferred acquisition costs 457 476 Goodwill 956 968 Other assets 735 962 Financial services assets: Investment securities, at fair value (cost: $1,103 in 1998; $790 in 1997) 1,107 792 Trading securities, at fair value (cost: $2,146 in 1998; $1,908 in 1997) 2,110 1,859 Short-term investments, at fair value 268 129 Cash 88 159 Trading account assets 4,601 4,313 Securities purchased under agreements to resell 838 903 Other assets 791 719 -------- --------- Total assets $42,205 $41,459 ======= ======= Liabilities Claims and claim expenses $15,719 $15,797 Policy benefits for life/health contracts 944 907 Unearned premiums 1,756 1,874 Other reinsurance balances 2,432 2,948 Commercial paper 150 - Notes payable 285 285 Income taxes 1,308 1,104 Other liabilities 940 997 Minority interest 1,038 1,032 Financial services liabilities: Securities sold under agreements to repurchase, at contract value 1,047 1,030 Securities sold but not yet purchased, at market value 1,020 1,190 Trading account liabilities 4,187 3,664 Commercial paper 640 689 Notes payable 1,176 746 Other liabilities 1,192 1,032 ------- ------- Total liabilities 33,834 33,295 ------ ------ Cumulative convertible preferred stock (shares issued: 1,696,257 in 1998 and 1,700,231 in 1997; no par value) 145 145 Loan to employee savings and stock ownership plan (142) (142) ------- ------- 3 3 -------- --------- Common shareowners' equity Common stock (102,827,344 shares issued in 1998 and 1997; par value $.50) 51 51 Paid-in capital 1,128 1,109 Accumulated other comprehensive income, net of deferred income taxes 2,617 2,418 Retained earnings 7,716 7,492 Less common stock in treasury, at cost (shares held: 26,317,133 in 1998 and 25,393,840 in 1997) (3,144) (2,909) -------- -------- Total common shareowners' equity 8,368 8,161 -------- ------- Total liabilities, cumulative convertible preferred stock and common shareowners' equity $42,205 $41,459 ======= ======= See notes to the consolidated interim financial statements. 5 GENERAL RE CORPORATION Consolidated Statements of Common Shareowners' Equity (in millions) (Unaudited) ----------- Three months ended March 31, --------- 1998 1997 ---- ---- Common stock: Beginning of period $51 $51 Change for the period - - --- --- End of period 51 51 -- -- Paid-in capital: Beginning of period 1,109 1,041 Stock issued under stock option and other incentive arrangements 14 13 Other 5 6 ------ ----- End of period 1,128 1,060 ----- ----- Accumulated other comprehensive income net of deferred income taxes: Unrealized appreciation of investments, net of adjustment for appreciation (depreciation) related to realized gains included in net income Beginning of period 2,460 1,625 Change for the period 337 (68) Deferred income taxes (120) 15 ------ ------- End of period 2,677 1,572 ----- ----- Currency translation adjustments Beginning of period (42) (53) Change for the period (34) 36 Deferred income taxes 16 3 ---- ---- End of period (60) (14) --- --- Accumulated other comprehensive income Beginning of period 2,418 1,572 Change for the period 303 (32) Deferred income taxes (104) 18 ------ ------- End of period 2,617 1,558 ----- ----- Retained earnings: Beginning of period 7,492 6,708 Net income 272 244 Dividends on common stock (45) (44) Dividends on preferred stock, net of income taxes (3) (3) ------- ------- End of period 7,716 6,905 ----- ----- Common stock in treasury: Beginning of period (2,909) (2,046) Cost of shares acquired during period (230) (167) Stock issued under stock option and other incentive arrangements (5) 4 ------- ------ End of period (3,144) (2,209) ------ ------ Total common shareowners' equity $8,368 $7,365 ====== ====== See notes to the consolidated interim financial statements. 6 GENERAL RE CORPORATION Consolidated Statements of Cash Flows (in millions) (Unaudited) ----------- Three months ended March 31, --------- 1998 1997 ---- ---- Cash flows from operating activities: Net income $272 $244 Adjustments to reconcile net income to net cash provided by operating activities: Change in claim and claim expense liabilities (78) 138 Increase in policy benefits for life/health contracts 37 33 Change in reinsurance recoverable 131 (24) Change in unearned premiums (118) (110) Amortization of acquisition costs 344 354 Acquisition costs deferred (325) (343) Trading account activities: Change in trading account securities (587) (80) Securities purchased under agreements to resell 65 (476) Securities sold under agreements to repurchase 17 556 Change in other trading balances 366 (374) Other changes in assets and liabilities 232 44 Net realized gains on investments (37) (11) --- ---- Net cash from (used in) operating activities 319 (49) --- ---- Cash flows from investing activities: Fixed maturities: available-for-sale Purchases (1,251) (1,709) Calls and maturities 144 116 Sales 986 2,007 Equity securities Purchases (355) (418) Sales 307 126 Net sales (purchases) of short-term investments 8 (203) Net purchases of other invested assets (3) (16) ---- ------- Net cash used in investing activities (164) (97) ---- ------- Cash flows from financing activities: Issuance of structured notes 410 - Commercial paper borrowing, net 101 310 Change in contract deposits (449) 1 Dividends paid to common shareowners (45) (44) Acquisition of treasury stock (218) (172) Other (14) 18 --- -- Net cash from (used in)financing activities (215) 113 ---- --- Change in cash (60) (33) Cash, beginning of period 352 365 --- --- Cash, end of period $292 $332 ==== ==== See notes to the consolidated interim financial statements. 7 GENERAL RE CORPORATION NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. General - The interim financial statements of General Re Corporation and its subsidiaries ("General Re") have been prepared on the basis of generally accepted accounting principles and, in the opinion of management, reflect all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements and related notes should be read in conjunction with the financial statements and related notes in General Re's 1997 Annual Report filed on Form 10-K. Certain reclassifications have been made to 1997 balances to conform to the 1998 presentation. The operating results of General Re's international reinsurance operations are reported on a one quarter lag. 2. Income Taxes - General Re's effective income tax rate differs from current statutory rates principally due to tax-exempt interest income and dividends received deductions. General Re paid income taxes of $23 million and $69 million in the first three months of 1998 and 1997, respectively. 3. Reinsurance Ceded - General Re utilizes reinsurance to reduce its exposure to large losses. The income statement amounts for premiums written, premiums earned, claims and claim expenses incurred and life/health benefits are reported net of reinsurance. Direct, assumed, ceded and net amounts for the first three months of 1998 and 1997 were as follows (in millions): Property/Casualty Life/Health Claims and Life/Health Written Earned Written Earned Claim Expenses Benefits 1998 Direct $ 127 $ 127 - - $ 69 - Assumed 1,144 1,258 $359 $342 830 $245 Ceded (184) (218) (35) (35) (117) (22) ------ ------ ---- ---- ---- ---- Net $1,087 $1,167 $324 $307 $782 $223 ====== ====== ==== ==== ==== ==== 1997 Direct $ 123 $ 126 - - $104 - Assumed 1,340 1,456 $352 $323 969 $221 Ceded (200) (212) (54) (37) (106) (21) ------ ------ ---- ---- ---- ---- Net $1,263 $1,370 $298 $286 $967 $200 ====== ====== ==== ==== ==== ==== 8 GENERAL RE CORPORATION NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued) 4. Per Common Share Data - Basic earnings per common share were based on earnings less preferred dividends, divided by the weighted average common shares outstanding during each period. Diluted earnings per share assume the conversion of all outstanding convertible preferred stock and the maximum dilutive effect of common stock equivalents. The following is a reconciliation of the numerators and denominators used in the basic and diluted earnings per share calculations for the first quarter of 1998 and 1997. Three Months Ended Three Months Ended March 31, 1998 March 31, 1997 Income Shares Per share Income Shares Per share (in millions, except per share information) Net income $ 272 $244 Less: preferred dividends (3) (3) ---- ---- Basic earnings 269 77.0 $ 3.49 241 81.1 $ 2.97 ====== ====== Effect of dilutive securities Stock options -- 1.0 -- 0.7 Conversion of preferred stock 3 1.7 3 1.7 Conversion expense (1) -- (1) -- ---- -- ---- -- Diluted earnings $ 271 79.7 $ 3.40 $ 243 83.5 $ 2.91 ==== ==== ====== ==== ===== ====== 5. New Accounting Standards - In June 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that companies report certain information about their operating segments in their interim and annual financial statements, including information about the products and services from which revenues are derived, the geographic areas of operation, and information about major customers. The statement defines operating segments based on internal management reporting and management's method of allocating resources and assessing performance. The statement is effective for year end 1998 and is not expected to change the four segments now reported by General Re. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED Income from operations, excluding after-tax realized gains and losses, was $3.12 per diluted share in the first quarter of 1998, an increase of 9.9 percent from the $2.84 per diluted share earned in the comparable period in 1997. Net income for the first quarter of 1998 was $3.40 per diluted share, compared with $2.91 per diluted share in 1997. Net income for the first quarter of 1998 included after-tax realized gains of $0.28 per share, compared with $0.07 per share in the first quarter of 1997. The improved results in the first quarter of 1998 were primarily due to improved international property/casualty underwriting results and growth in North American property/casualty investment income. As required by Financial Accounting Statement No. 130, Reporting Comprehensive Income, General Re's financial statements for the first quarter of 1998 include a statement of comprehensive income. Comprehensive income consists of net income, unrealized changes in investment appreciation and foreign currency translation gains or losses. Comprehensive income for the first quarter of 1998 was $471 million, or $5.90 per diluted share, compared with $229 million, or $2.73 per diluted share for the same period in 1997. The difference between comprehensive income and net income in the first quarter of 1998 was primarily due to unrealized appreciation in the equity portfolio. Consolidated net premiums written for the first quarter of 1998 were $1,411 million, a decrease of 9.6 percent from $1,561 million in 1997. The consolidated underwriting combined ratio was 100.3 percent in the first quarter of 1998, compared with 101.0 percent for the first quarter of 1997. Consolidated pretax investment income was $322 million in the first quarter of 1998, compared with $318 million in the same period of 1997. The 1.4 percent increase in consolidated pretax investment income in the first quarter of 1998 was due to higher invested assets partially offset by the effect of a decline in global interest rates and the strengthening of the U.S. dollar, principally against the German mark. The consolidated effective tax rate was 24.9 percent for the first quarter of 1998, compared with 24.1 percent in the first quarter of 1997 and 22.9% for the full year 1997. The increase in the consolidated effective tax rate was principally the result of an increase in earnings from the international subsidiaries in higher tax rate jurisdictions. Excluding the financial services operations, consolidated net cash flow from operations was $462 million in the first quarter of 1998, compared to $345 million in the same period in 1997. The increase in the first quarter of 1998 was principally due to lower paid claims reduced by the effect of the strengthening U.S. dollar which decreased reported international cash flow. At March 31, 1998, insurance investments of $24,727 million increased $151 million from $24,576 million at December 31, 1997, primarily due to unrealized appreciation in the equity portfolio, partly offset by common stock repurchases and dividend payments. The financial service operations had $3,485 million of invested assets at March 31, 1998, an increase of $705 million compared to December 31, 1997. The increase in financial services invested assets results from changes in the hedging needs and activities of General Re Financial Products Corporation ("GRFP"). 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The consolidated gross liability for claims and claim expenses for the property/casualty operations was $15,719 million at March 31, 1998, substantially unchanged from the year-end 1997 liability. Reinsurance recoverable on unpaid claims was $2,236 million at March 31, 1998, compared to $2,356 million at December 31, 1997. At March 31, 1998, the gross liability for claims and claim expenses and the related asset for reinsurance recoverables included $2,072 million and $613 million, respectively, for environmental and latent injury claims. These amounts include provisions for both reported and incurred but not reported claims. Common shareowners' equity at March 31, 1998 was $8,368 million, an increase of 2.5 percent from the $8,161 million at December 31, 1997. The increase in common shareowners' equity during the first quarter of 1998 was principally the result of net income of $272 million, an increase in after-tax unrealized investment gains of $217 million, partially offset by common share repurchases of $230 million and common and preferred stock dividends of $48 million. On a per share basis, common shareowners' equity was $109.38 at March 31, 1998, an increase of 3.8 percent from $105.40 at December 31, 1997. During the first quarter of 1998, General Re paid common dividends of $0.59 per share. General Re repurchased 1,073,600 shares of common stock during the first quarter of 1998 for aggregate consideration of $230 million. In addition to specific repurchase authorizations, General Re has standing authority to repurchase shares in anticipation of share issuances under various compensation plans. Since the inception of the repurchase program in 1987, General Re has repurchased 32,899,400 common shares for total consideration of $3.4 billion. General Re periodically issues commercial paper to meet the short-term financing needs of its various operations. Commercial paper offered by General Re has been rated A1+ by Standard & Poor's and Prime 1 by Moody's. At March 31, 1998, General Re had $790 million of commercial paper outstanding, $640 million of which was used to support liquidity needs for GRFP and $150 million was used by General Reinsurance Corporation for its liquidity needs. General Re has $1.8 billion in available lines of credit that provide General Re with additional financial flexibility and support the commercial paper program. The credit lines consist of a five-year credit facility of $1.0 billion and a 364-day facility for the remaining $0.8 billion. The credit agreements with the banks require General Re to maintain a minimum consolidated tangible net worth, as defined, of $2.7 billion. To date, General Re has not drawn against its corporate credit facilities. Pretax income discussed in the segment sections that follow is before minority interest deductions and goodwill amortization, both of which are deemed corporate expenses that have not been allocated to the segments. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) NORTH AMERICAN PROPERTY/CASUALTY (in millions) First Quarter ------------- 1998 1997 ---- ---- Income before income taxes and realized gains $220 $205 Net premiums written 672 795 Net underwriting income 5 6 Loss ratio 66.8% 67.9% Expense ratio 32.5 31.3 ---- ---- Underwriting combined ratio 99.3% 99.2% Investment income $206 $199 Other income 10 - Operating cash flow 295 117 For the first quarter of 1998, pretax income for the North American property/casualty operations, excluding realized gains/losses, increased 7.3 percent over the comparable quarter of 1997. The growth in pretax income was primarily due to increased investment income resulting from operating cash flow during the prior year and lower operating expenses. The underwriting results were substantially unchanged for the quarter. Net premiums written for the North American property/casualty operations of $672 million in the first quarter of 1998, decreased 15.4 percent. The decline in premium reflects the current competitive market and General Re's adherence to underwriting discipline. The wholesale nature of reinsurance transactions periodically results in somewhat volatile premium trends between quarters and years. The addition or loss of a large contract may significantly affect General Re's premium growth, although large contracts generally have a smaller effect on earnings than on premium trends. General Re's largest treaty, which had annualized premiums written of approximately $250 million in 1997 and contributed approximately one half of one percent of General Re's 1997 net income, was terminated as of September 30, 1997 and thus impacts premium comparisons, since premiums from this contract were included in the first quarter of 1997, but were not in the first quarter of 1998. Excluding this contract, General Re's North American premiums written declined 8.2 percent for the quarter. Based on current estimates of premium inforce, General Re expects North American property/casualty net premiums, excluding this contract, to decline in the mid-single digets. The General Star companies, which primarily write excess, surplus and specialty insurance, increased net premiums written by 5.7 percent for the quarter. This growth was primarily due to increased property business. General Star continues to experience significant levels of competition from standard companies for business that was previously written in the excess and surplus lines market. For the Genesis operations, which provide direct excess coverage to companies with self-insurance programs, net premiums written increased by 14.0 percent for the quarter. Growth in Genesis premiums during 1998 was primarily due to increased liability business. Pretax investment income for the North American property/casualty operations increased 3.3 percent compared to the first quarter of 1997. Growth in investment income for the North American property/casualty operations 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) was due to operating cash flow over the last twelve months, partly offset by common dividends and share repurchases. Net other income increased $10 million in the first quarter of 1998 due to higher financial reinsurance fees and lower corporate expenses. The pretax total return on the North American property/casualty invested asset portfolio was 3.75 percent in the first quarter of 1998. Segments within the investment portfolio performed at or near their benchmarks. Operating cash flow for the North American property/casualty operations of $295 million in the first quarter of 1998 increased $178 million from $117 million in the same period of 1997. The increase was primarily due to lower net claim payments during the period. Due to the nature of General Re's reinsurance operations, paid claims may be volatile from quarter to quarter. In addition to operating cash flow, the North American property/casualty operations had cash outflows related to contract deposits that matured during the quarter of $298 million ("change in contract deposits" in the statement of cash flows). These types of contracts generally have a provision that requires most of the investment income earned on the funds held by General Re to be shared with the ceding company. Thus, the impact of the return of these funds was immaterial to investment income and earnings. North American property/casualty invested assets were $16,315 million at March 31, 1998, an increase of 2.0 percent from December 31, 1997. The increase in invested assets was primarily the result of unrealized appreciation in the equity portfolios, partly reduced by common stock dividends and repurchases of General Re's common stock. The gross liability for claims and claim expenses for the North American property/casualty operations was $10,641 million at March 31, 1998, a decrease of $43 million, or 0.4 percent; compared to the year-end 1997 liability. Reinsurance recoverable on unpaid claims was $1,681 million at March 31, 1998, compared to $1,803 million at December 31, 1997. INTERNATIONAL PROPERTY/CASUALTY (in millions) First Quarter - ------------- ------------- 1998 1997 ---- ---- Income before income taxes and realized gains $91 $71 Net premiums written 414 468 Net underwriting loss (8) (20) Loss ratio 67.2% 74.3% Expense ratio 34.3 29.2 ---- ---- Underwriting combined ratio 101.5% 103.5% Investment income $87 $93 Other income (loss) 11 (2) Operating cash flow 1 167 228 1 Also includes operating cash flows from the global life/health operations. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Income before income taxes and realized gains of the international property/casualty operations of $91 million for the first quarter of 1998, increased 27.1 percent over the 1997 period. The comparisons for the quarter were affected adversely by the strengthening of the U.S. dollar relative to the German mark (12.9 percent) and the Australian dollar (13.0 percent). The international property/casualty operation's underwriting combined ratio of 101.5 percent in the first quarter compared favorably to the 103.5 percent for the first quarter of 1997 and 102.4 percent reported for the full-year 1997. Catastrophe losses were not significant during any of these periods. The improved underwriting result was primarily due to lower property claims (1997's first quarter included two large property losses) and favorable development on previously reported case reserves. International net premiums written were $414 million in the first quarter of 1998, a decline of 11.5%. Adjusted for the effects of foreign exchange, international property/casualty premiums written were substantially unchanged from the prior period. After-tax investment income for the international property/casualty operations was $54 million for the first quarter of 1998, compared with $57 million in 1997. Investment income was lower in the quarter due to the decline in global interest rates over the past two years and the effects of foreign exchange. Adjusted for the effects of foreign exchange, after-tax investment income increased approximately 3.0 percent compared with the first quarter of 1997. Operating cash flow of the international property/casualty and global life/health operations of $167 million for the first quarter of 1998 decreased from $228 million in comparable period of 1997. The decline in operating cash flow was principally due to the effect of foreign exchange and lower underwriting cash flow. In addition to operating cash flow, the international property/casualty operations had cash outflows related to contract deposits that matured during the first quarter of $151million ("change in contract deposits" in the statement of cash flows). These types of contracts generally have a provision that require most of the investment income earned on the funds held by General Re to be shared with the ceding company. Thus, the impact of the return of these funds is not material to investment income and earnings. General Re anticipates that approximately an additional $100 million of deposit contracts will mature during the remainder of 1998. International property/casualty and life/health invested assets were $8,412 million at March 31, 1998, compared with $8,581 million at December 31, 1997. The decrease in invested assets was due to the stronger U.S. dollar which appreciated 2.1 percent against the German mark in the first quarter of 1998. The gross liability for claims and claim expenses was $5,078 million at March 31, 1998, compared with $5,113 million at December 31, 1997. Reinsurance recoverable on unpaid claims was $556 million at March 31, 1998 compared with $553 million at December 31, 1997. Excluding the effect of foreign exchange, the gross liability for claims and claim expenses would have increased by approximately 1.0 percent. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) GLOBAL LIFE/HEALTH First Quarter ------------- (in millions) 1998 1997 ---- ---- Income before income taxes and realized gains $20 $28 Net premiums written Life reinsurance 216 207 Health reinsurance 108 91 ----- ---- Total life/health net premiums written 324 298 Net underwriting income - 10 Investment income 21 18 Other income (loss) (1) 1 Income before income taxes and realized gains for the first quarter of $20 million decreased 27.7 percent from the $28 million in the comparable quarter of 1997. The decrease in first quarter was due to lower underwriting profits, principally in the health reinsurance sector. Life reinsurance net premiums written of $216 million for the first quarter increased 4.7 percent over the first quarter of 1997. Adjusted for the effects of foreign exchange, global life reinsurance premiums increased approximately 15.4 percent in the quarter. Health reinsurance premiums written increased 18.6 percent in the first quarter. This growth was primarily due to new group health business written in London and new contracts written in the United States. After-tax investment income for the global life/health operations was $12 million in the first quarter, an increase of 20.2 percent. The increase in investment income was due to the significant growth in premium volume during the last two years. The liability for policy benefits for life/health contracts was $944 million at March 31, 1998, compared with $907 million at December 31, 1997. Reinsurance recoverable on unpaid losses was $287 million at March 31, 1998, compared to $271 million at December 31, 1997. Cologne Re manages its invested assets and total assets on an aggregate basis for the life/health and property/casualty business and does not presently disaggregate these accounts by segment. The invested assets and total assets disclosures in the international property/casualty segment include the assets of the global life/health segment. FINANCIAL SERVICES (in millions) First Quarter 1998 1997 ---- ---- Income before income taxes and realized gains $25 $30 Total revenues (excluding realized gains) 84 82 Investment income 9 8 Other income 16 22 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Financial service operations include General Re's derivative products, investment management, insurance brokerage and management, reinsurance brokerage, and real estate management operations. Income before income taxes and realized gains declined 16.1 percent in the quarter primarily due to increased expenses from investments in new product initiatives. In the first quarter of 1998, financial services revenues of $84 million increased 2.6 percent. The growth in 1998 revenues was principally attributable to growth in GRFP's equity linked trades and fixed income transactions in North America. Invested assets held for trading purposes in the first quarter increased $251 million to $2,110 million at March 31, 1998. The increase primarily relates to the hedging activities of GRFP. At March 31, 1998, total assets of the financial service operations were $9,700 million, compared with $8,793 million at December 31, 1997. The amount and nature of the financial service segment's assets and liabilities are significantly affected by the risk management strategies utilized by GRFP to reduce its market risks. GRFP's market exposures arising from derivative products are managed through the purchase and sale of government securities, futures and forward contracts, or by entering into offsetting derivatives transactions. The purchase of government securities, usually financed through collateralized repurchase agreements (securities sold under agreements to repurchase), and the sale of government securities, whose proceeds are invested in reverse repurchase agreements (securities purchased under agreements to resell), are used to offset GRFP's market exposures. While the use of these instruments for risk management purposes may cause significant short-term fluctuations in GRFP's assets and liabilities, they do not have a material effect on General Re's results from operations or common shareowners' equity. MARKET RISK As a global reinsurance and financial services company, General Re is subject to market risk arising from the potential change in the value of its various financial instruments. These changes may be due to fluctuations in interest and foreign exchange rates, credit spreads and equity prices. The level of market risk is influenced by many factors, such as volatility, correlation and liquidity. Potential gains or losses from changes in market rates can be estimated through statistical models that project within a specified confidence level the "value at risk" based on historical price and volatility movements. General Re's 1997 Form 10-K provides a more detailed discussion of the market risks affecting the reinsurance and financial service operations. Based on General Re's estimates as of March 31, 1998, no material change has occurred in its value at risk in the reinsurance operations, as compared to amounts disclosed in its 1997 Form 10-K. General Re's financial service operations are subject to market risk principally through GRFP. GRFP monitors its market risk on a daily basis across all swap and option products by calculating the effect on operating results of potential changes in market variables over a one-week period, based on historical market volatility, correlation data and informed judgment. This evaluation is performed on an individual trading book basis, against limits set by individual book, to a 95% probability level. GRFP sets market risk limits for each type of risk, and for an aggregate measure of risk, based on a 99% probability that movements in market rates will not affect the results from operations in excess of the limit over a one week period. Risk is measured primarily by Monte Carlo 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) simulations to obtain the required degree of confidence. The table below shows the highest, lowest and average value at risk, as calculated using the above methodology, by broad category of market risk to which GRFP is exposed. There was no one-week period during either 1997 or the first quarter of 1998 in which reported profit or loss exceeded the risk limit. First Quarter 1998 ------------------ Interest Foreign (in millions) Rate Exchange Rate Equity All Risks ---- ------------- ------ --------- Highest $9 $4 $4 $9 Lowest 7 3 3 6 Average 8 3 3 8 Full Year 1997 -------------- Interest Foreign (in millions) Rate Exchange Rate Equity All Risks ---- ------------- ------ --------- Highest $11 $6 $5 $13 Lowest 6 3 0 7 Average 9 4 2 10 For the first quarter of 1998, the largest weekly pretax gains and losses due to market risk were $5 million and $1 million, respectively. The largest weekly pretax gain due to market risk was $5 million and the largest weekly pretax loss due to market risk was $3 million for the full year 1997. The average effect of the change in market risk on income was a pretax gain of $1 million in the first quarter of 1998 and was neutral for the full year 1997. SAFE HARBOR DISCLOSURE In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"), General Re sets forth below cautionary statements identifying important factors that could cause its actual results to differ materially from those that might be projected, forecasted or estimated in its forward-looking statements, as defined in the Act, made by or on behalf of General Re in press releases, written statements or documents filed with the Securities and Exchange Commission, or in its communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls. Such statements may include, but are not limited to, projections of premium revenue, investment income, other revenue, losses, expenses, earnings (including earnings per share), cash flows, plans for future operations, common shareowners' equity (including book value per share), investments, financing needs, capital plans, dividends, plans relating to products or services of General Re and estimates concerning the effects of litigation or other disputes, as well as assumptions for any of the foregoing and are generally expressed with words such as "believes," "estimates," "expects," "anticipates," "plans," "projects," "forecasts," "goals," "could have," "may have" and similar expressions. General Re, as a matter of policy, does not make any specific projections as to future earnings nor does it endorse any projections regarding future performance that may be made by others. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause General Re's results to differ materially from such forward-looking statements and include, but are not limited to, the following: 1) Changes in the level of competition in the North American and international reinsurance or primary insurance markets that affect the volume or profitability of General Re's property/casualty or life/health businesses. These changes include, but are not limited to changes in the intensity of price competition, the entry of new competitors, existing competitors exiting the market, and the development of new products by new and existing competitors; 2) Changes in the demand for reinsurance, including changes in ceding companies' risk retentions, and changes in the demand for excess and surplus lines insurance coverages in North America, and changes in the demand for financial service operations' products, including derivatives offered by GRFP; 3) The ability of General Re to execute its strategies in its property/casualty, life/health and financial service operations; 4) Catastrophe losses in General Re's North American or international property/casualty businesses; 5) Adverse development on property/casualty claim and claim expense liabilities related to business written in prior years, including, but not limited to, evolving case law and its effect on environmental and other latent injury claims, changing government regulations, newly identified toxins, newly reported claims, new theories of liability, such as possible Year 2000 computer-related losses, or new insurance and reinsurance contract interpretations; 6) Changes in inflation that affect the profitability of General Re's current property/casualty and life/health businesses or the adequacy of its property/casualty claim and claim expense liabilities and life/health policy benefit liabilities related to prior years' business; 7) Changes in General Re's property/casualty and life/health businesses' retrocessional arrangements; 8) Lower than estimated retrocessional or reinsurance recoveries on unpaid losses, including, but not limited to, losses due to a decline in the creditworthiness of General Re's retrocessionaires or reinsurers; 9) Increases in interest rates, which cause a reduction in the market value of General Re's fixed income investment portfolio, and its common shareowners' equity; 10) Decreases in interest rates causing a reduction of income earned on new cash flow from operations and the reinvestment of the proceeds from sales, calls or maturities of existing investments; 11) Decline in the value of General Re's common equity investments; 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 12) Changes in the composition of General Re's investment portfolio; 13) Changes in mortality or morbidity levels that affect General Re's life/health business; 14) Credit losses on General Re's investment portfolio; credit and market losses on GRFP's portfolio of derivatives and other transactions; 15) Adverse results in litigation matters, including, but not limited to, litigation related to environmental, asbestos and other potential mass tort claims; 16) Gains or losses related to changes in foreign currency exchange rates; and 17) Changes in General Re's capital needs. In addition to the factors outlined above that are directly related to General Re's businesses, General Re is also subject to general business risks, including, but not limited to, adverse state, federal or foreign legislation and regulation, adverse publicity or news coverage, changes in general economic factors and the loss of key employees. Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K - None (b) Exhibit 27.1 - Financial Data Schedule for the Period Ended March 31, 1998 Exhibit 27.2 - Restated Financial Data Schedule for the Periods Ended September 30, 1997, June 30, 1997, March 31, 1997 and December 31, 1996 Exhibit 27.3 - Restated Financial Data Schedule for the Periods Ended September 30, 1996, June 30, 1996 and March 31, 1996, December 31, 1995 and December 31, 1994 19 OTHER INFORMATION 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. GENERAL RE CORPORATION (Registrant) Date: May 14, 1998 JOSEPH P. BRANDON Joseph P. Brandon Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 14, 1998 ELIZABETH A. MONRAD Elizabeth A. Monrad Vice President and Treasurer (Principal Accounting Officer) EX-27.1 2 FDS
7 Financial Data Schedule for the Period Ended March 31, 1998 The schedule contains summary financial information extracted from General Re's consolidated balance sheets and consolidated statements of income included in Item 1 of Part I of the March 31, 1998 Form 10-Q. Reference should also be made to these financial statements and related notes. 0000317745 General Re Corporation 1,000,000 USD 3-mos Dec-31-1998 Jan-1-1998 Mar-31-1998 1 19,814 0 0 6,192 0 0 28,212 292 51 457 42,205 13,482 1,756 657 0 2,251 3 0 51 8,317 42,205 1,474 322 37 93 1,005 344 185 385 96 272 0 0 0 272 3.49 3.40 0 0 0 0 0 0 0
EX-27.2 3 FDS
7 Restated Financial Data Schedule for the Periods Ended March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1996. The schedule contains summary financial information extracted from General Re's consolidated balance sheets and consolidated statements of income. Reference should also be made to these financial statements and related notes. 0000317745 General Re Corporation 1,000,000 USD 3-mos 6-mos 9-mos 12-mos Dec-31-1997 Dec-31-1997 Dec-31-1997 Dec-31-1996 Jan-1-1997 Jan-1-1997 Jan-1-1997 Jan-1-1996 Mar-31-1997 Jun-30-1997 Sep-30-1997 Dec-31-1996 1 1 1 1 19,394 18,464 19118 20135 0 0 0 0 0 0 0 0 4794 5,362 5694 4464 0 0 0 0 0 0 0 0 26291 25,947 26878 26562 332 369 358 365 115 83 85 135 446 481 479 457 39605 39367 40940 40161 13,531 13530 13488 13405 1861 1987 1997 1957 523 597 646 523 0 0 0 0 738 288 1143 430 2 2 1 2 0 0 0 0 51 51 51 51 7314 7681 7980 7275 39605 39367 40940 40161 1656 3325 4989 6678 318 634 955 1205 11 4 7 104 87 183 271 309 1,167 2336 3519 4773 354 726 1081 1478 206 409 609 727 338 661 991 1297 81 155 230 323 244 477 721 894 0 0 0 0 0 0 0 0 0 0 0 0 244 477 721 894 2.97 5.85 8.97 11.00 2.91 5.72 8.76 10.78 0 0 0 11737 0 0 0 4023 0 0 0 (39) 0 0 0 1061 0 0 0 2052 0 0 0 13405 0 0 0 (39)
EX-27.3 4 FDS
7 Restated Financial Data Schedule for the Periods Ended March 31, 1996, June 30, 1996, September 30, 1996, December 31, 1995 and December 31, 1994. The schedule contains summary financial information extracted from General Re's consolidated balance sheets and consolidated statements of income included in Item 1 of Part I of the March 31, 1998 Form 10-Q. Reference should also be made to these financial statements and related notes. 0000317745 General Re Corporation 1,000,000 USD 3-mos 6-mos 9-mos 12-mos 12-mos Dec-31-1996 Dec-31-1996 Dec-31-1996 Dec-31-1995 Dec-31-1994 Jan-1-1996 Jan-1-1996 Jan-1-1996 Jan-1-1995 Jan-1-1994 Mar-31-1996 Jun-30-1996 Sep-30-1996 Dec-31-1995 Dec-31-1994 1 1 1 1 1 18009 18335 19272 17304 14174 0 0 0 0 0 0 0 0 0 0 3813 4035 4150 3944 2977 0 0 0 0 0 0 0 0 0 0 24423 24746 25775 23494 18898 323 407 373 258 242 144 54 111 79 78 401 439 439 434 324 34828 36109 37343 34263 28095 11802 12117 12201 11737 10317 1812 1993 2002 1913 1642 398 457 506 379 330 0 0 0 0 0 155 379 304 155 188 1 1 1 1 1 0 0 0 0 0 51 51 51 51 51 6416 6246 6438 6536 4808 34828 36109 37343 34263 28095 1539 3217 4871 5837 2788 285 573 875 1017 749 50 80 66 64 66 68 146 226 292 234 1088 2276 3490 4185 1981 355 744 1089 1345 614 148 320 501 550 446 347 667 945 1117 794 87 161 236 247 129 237 461 645 825 665 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 237 461 645 825 665 2.87 5.67 8.00 9.92 7.97 2.82 5.59 7.84 9.74 7.86 0 0 0 10317 7056 0 0 0 3666 2017 0 0 0 14 (36) 0 0 0 773 423 0 0 0 1584 1206 0 0 0 11737 7408 0 0 0 14 (36)
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