-----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, J7VCy7bxMubueCXmtvdROiW+XezgKBBMgkkevscLsIUqns27lTdEnXf+kBvEBy4G La7g6mwrxnpA+lBHY41yiA== 0001005477-99-002318.txt : 19990517 0001005477-99-002318.hdr.sgml : 19990517 ACCESSION NUMBER: 0001005477-99-002318 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAC RE CORP CENTRAL INDEX KEY: 0000775542 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 133297840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13720 FILM NUMBER: 99621301 BUSINESS ADDRESS: STREET 1: PO BOX 2568 STREET 2: ONE GREENWICH PLAZA CITY: GREENWICH STATE: CT ZIP: 06836-2568 BUSINESS PHONE: 2036225200 MAIL ADDRESS: STREET 1: PO BOX 2568 CITY: GREENWICH STATE: CT ZIP: 06836-2568 10-Q 1 FORM 10-Q ================================================================================ - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ________________ to ________________. Commission file number 0-13891. NAC Re Corp. (Exact name of registrant as specified in its charter) Delaware 13-3297840 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Greenwich Plaza, Greenwich, CT 06836-2568 (Address of principal executive offices) (203) 622-5200 (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by a 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 There were 18,452, 660 shares outstanding of the Registrant's Common Stock, $.10 par value, as of March 31, 1999. - -------------------------------------------------------------------------------- ================================================================================ NAC RE CORP. AND SUBSIDIARIES TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. Independent Accountants' Review Report 3 Consolidated Balance Sheet - March 31, 1999 and December 31, 1998 4 Consolidated Statement of Income - Three Months Ended March 31, 1999 and 1998 5 Consolidated Statement of Stockholders' Equity - Three Months Ended March 31, 1999 and 1998 6 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 8-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-20 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 Exhibit 15 23 Exhibit 27 24-25 INDEPENDENT ACCOUNTANT'S REVIEW REPORT Board of Directors and Shareholders NAC Re Corporation We have reviewed the accompanying consolidated balance sheet of NAC Re Corporation and subsidiaries as of March 31, 1999, and the related consolidated statements of income, stockholders' equity and cash flows for the three month periods ended March 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of NAC Re Corporation as of December 31, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein) and in our report dated February 3, 1999, except for Note 15, as to which the date was February 15, 1999, we expressed an unqualified opinion on those consolidated financial statements. New York, New York ERNST & YOUNG LLP April 21, 1999, except for Note 6, as to which the date is May 11, 1999 -3- NAC RE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands)
(Unaudited) March 31, December 31, 1999 1998 ----------- ----------- ASSETS Investments: Available for sale: Fixed maturities (amortized cost: 1999, $2,122,326; 1998, $2,108,692) $ 2,179,670 $ 2,190,617 Equity securities (cost: 1999, $87,517; 1998, $108,276) 92,140 115,064 Short-term investments 136,669 146,828 ----------- ----------- TOTAL INVESTMENTS 2,408,479 2,452,509 Cash 13,042 3,915 Accrued investment income 37,318 36,270 Premiums receivable 249,875 239,674 Reinsurance recoverable balances, net 284,897 262,872 Reinsurance recoverable on unearned premiums 43,017 49,962 Deferred policy acquisition costs 101,944 98,874 Excess of cost over net assets acquired 7,861 8,013 Deferred tax asset, net 48,211 37,481 Other assets 53,657 38,062 ----------- ----------- TOTAL ASSETS $ 3,248,301 $ 3,227,632 =========== =========== LIABILITIES Claims and claims expenses $ 1,732,095 $ 1,718,237 Unearned premiums 344,133 341,443 8% Notes due 1999 100,000 100,000 7.15% Notes due 2005 99,951 99,949 5.25% Convertible Subordinated Debentures due 2002 100,000 100,000 Investment accounts payable 7,612 7,612 Revolving credit agreement 12,924 12,924 Other liabilities 98,903 96,742 ----------- ----------- TOTAL LIABILITIES 2,495,618 2,476,907 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value: 1,000 shares authorized, none issued (Includes 277.5 shares of Series A Junior Preferred Stock) -- -- Common stock, $.10 par value: 25,000 shares authorized (1999, 22,069; 1998, 21,991 shares issued) 2,207 2,199 Additional paid-in capital 271,587 268,468 Accumulated other comprehensive income 42,411 62,778 Retained earnings 535,204 516,036 Less treasury stock, at cost (1999, 3,616; 1998, 3,617 shares) (98,726) (98,756) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 752,683 750,725 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,248,301 $ 3,227,632 =========== ===========
See Notes to Consolidated Financial Statements -4- NAC RE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts)
(Unaudited) Three months ended March 31, --------------------------- 1999 1998 --------- --------- PREMIUMS AND OTHER REVENUES Net premiums written $ 142,871 $ 136,190 Increase in unearned premiums (10,206) (2,836) --------- --------- Premiums earned 132,665 133,354 Net investment income 32,905 32,085 Net investment gains 2,673 7,874 --------- --------- Total revenues 168,243 173,313 OPERATING COSTS AND EXPENSES Claims and claims expenses 84,022 88,692 Commissions and brokerage 35,980 33,443 Other operating expenses 17,966 17,126 Interest expense 5,402 5,426 --------- --------- Total operating costs and expenses 143,370 144,687 INCOME Income before income taxes 24,873 28,626 --------- --------- Federal and foreign income taxes: Current 3,793 6,684 Deferred 252 (1,064) --------- --------- Income tax expense (benefit) 4,045 5,620 --------- --------- Operating income/net income $ 20,828 $ 23,006 ========= ========= PER SHARE DATA Basic: Average shares outstanding 18,411 18,355 --------- --------- Operating income/net income $ 1.13 $ 1.25 ========= ========= Diluted (assuming conversion of dilutive convertible securities): Average shares outstanding 21,000 20,954 --------- --------- Operating income/net income $ 1.03 $ 1.14 ========= ========= Cash dividends declared per share $ 0.09 $ 0.075 ========= =========
See Notes to Consolidated Financial Statements -5- NAC RE CORP. AND SUBSIDIARIIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
(Unaudited) ------------------------------------------------------------------------------------------ Accumulated Other Total Common Paid-in Comprehensive Retained Treasury Comprehensive Stockholders' Stock Capital Income Earnings Stock Income Equity ----- ------- ------ -------- ----- ------ ------ Balance, At December 31, 1998 $2,199 $268,468 $516,036 ($98,756) $62,778 $750,725 Comprehensive income: Net income $20,828 20,828 20,828 Other comprehensive income, net of tax: Unrealized depreciation of investments (17,382) (17,382) Currency translation adjustments (2,985) (2,985) ------- Other comprehensive income (20,367) (20,367) ------- Total comprehensive income $461 ======= Issuance of shares 8 3,119 3,127 Dividends declared on common stock (1,660) (1,660) Reissuance of treasury shares 30 30 ------------------- ------------------------------------------------------ Balance at March 31, 1999 $2,207 $271,587 $535,204 ($98,726) $42,411 $752,683 =================== ====================================================== (Unaudited) ------------------------------------------------------------------------------------------ Accumulated Other Total Common Paid-in Comprehensive Retained Treasury Comprehensive Stockholders' Stock Capital Income Earnings Stock Income Equity ----- ------- ------ -------- ----- ------ ------ Balance, At December 31, 1997 $2,171 $255,424 $426,309 ($87,832) $60,989 $657,061 Comprehensive income: Net income $23,006 23,006 23,006 Other comprehensive income, net of tax: Unrealized appreciation of investments 3,384 3,384 Currency translation adjustments 908 908 ------- Other comprehensive income 4,292 4,292 ------- Total comprehensive income $27,298 ======= Issuance of shares 7 2,482 2,489 Dividends declared on common stock (1,377) (1,377) Purchase of treasury shares, net of reissuance (2,326) (2,326) ------------------- ------------------------------------------------------ Balance at March 31, 1998 $2,178 $257,906 $447,938 ($90,158) $65,281 $683,145 =================== ======================================================
See Notes to Consolidated Financial Statements -6- NAC RE CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
(Unaudited) Three months ended March 31, --------------------------- 1999 1998 --------- --------- OPERATING ACTIVITIES Net income $ 20,828 $ 23,006 Adjustments to reconcile net income to net cash provided by operating activities: Reserve for claims and claims expenses, net (4,866) 4,929 Unearned premiums, net 10,347 2,819 Premiums receivable (11,077) (1,991) Accrued investment income (1,111) 2,848 Reinsurance balances, net 4,834 6,508 Deferred policy acquisition costs (3,233) (805) Net investment gains (2,654) (7,874) Deferred tax asset, net 231 (1,082) Other liabilities 6,787 (4,002) Other items, net (21,872) (10,455) --------- --------- NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (1,786) 13,901 --------- --------- INVESTING ACTIVITIES Sales of fixed maturity investments 230,481 310,627 Maturities of fixed maturity investments 4,237 3,522 Purchases of fixed maturity investments (253,546) (340,404) Net sales of short-term investments 8,458 21,753 Sales of equity securities 34,655 7,951 Purchases of equity securities (13,863) (14,296) Purchases of furniture and equipment (691) (1,799) --------- --------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 9,731 (12,646) --------- --------- FINANCING ACTIVITIES Issuance of shares 2,780 2,309 Net reissuance (purchase) of treasury shares 30 (2,326) Cash dividends paid to stockholders (1,652) (1,372) --------- --------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,158 (1,389) --------- --------- Effects of exchange rate changes on cash 24 142 --------- --------- Increase in cash 9,127 8 Cash - beginning of year 3,915 8,430 --------- --------- Cash - end of period $ 13,042 $ 8,438 ========= =========
See Notes to Consolidated Financial Statements -7- Notes to Consolidated Financial Statements 1. General The accompanying consolidated financial statements have been prepared on the basis of generally accepted accounting principles and in the opinion of management, reflect all adjustments necessary (consisting of normal recurring accruals) for a fair presentation of results for such periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report to Shareholders. 2. Per Share Data Basic earnings per share is based on weighted average common shares and excludes any dilutive effects of options and convertible securities. Diluted earnings per share assumes the conversion of dilutive convertible securities and the exercise of all dilutive stock options. All earnings per share amounts for all periods have been presented to conform to the Statement No. 128 requirements.
(In Thousands) Three Months Ended March 31, --------------------------- 1999 1998 ------- ------- Basic Earnings Per Share: Net income $20,828 $23,006 Weighted average shares 18,411 18,355 Basic earnings per share $ 1.13 $ 1.25 Diluted Earnings Per Share: Net income $20,828 $23,006 Add back after-tax interest on convertible debentures 876 876 ------- ------- Adjusted net income $21,704 $23,882 Weighted average shares 18,411 18,355 Assumed exercise of dilutive stock options (1) 569 579 Assumed conversion of convertible debentures (2) 2,020 2,020 ------- ------- Weighted average shares and dilutive securities 21,000 20,954 Diluted earnings per share $ 1.03 $ 1.14
(1) Computed utilizing the average market price of Common Stock for the period. (2) Reflects the assumed conversion of the Company's 5.25% Convertible Subordinated Debentures due 2002. -8- 3. Retrocession The Company's balance sheet as of March 31, 1999 and December 31, 1998 reflect reinsurance recoverable balances as assets, the components of which are stated in the table below. (In Thousands) Reinsurance Recoverable Balances, Net -------------------------------------- March 31, 1999 December 31, 1998 -------------- ----------------- Paid Claims $ 22,639 $ 20,168 Unpaid Claims and Claims Expenses 314,698 292,256 Ceded Balances Payable (51,166) (48,590) Funds Held Liability (1,274) (962) -------------- ----------------- Net $ 284,897 $ 262,872 ============== ================= The effect of retrocessional activity on premiums written, premiums earned and claims expenses is as follows: (In Thousands) Three months ended March 31, ---------------------------- 1999 1998 ---------------------------- Ceded premiums written $38,234 $29,178 Ceded premiums earned $45,281 $27,919 Ceded claims and claims expenses $41,936 $16,858 4. Comprehensive Income Comprehensive income includes all changes in equity during a period resulting from transactions and other events from nonowner sources. Accumulated other comprehensive income, net of tax, for the Company includes unrealized appreciation of investments of $40.3 million and foreign currency translation adjustments of $2.1 million at March 31, 1999. 5. Segment Information At December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement requires that companies report certain information about their operating segments in the interim and annual financial statements. The Statement defines operating segments based on internal management reporting and management's decisions about assessing performance and allocating resources. The Company's operations are conducted in three reportable segments: domestic reinsurance, domestic primary insurance and the international operation. The domestic reinsurance segment generally writes property, casualty, fidelity/surety and ocean marine business through reinsurance brokers. The domestic primary insurance segment operates through managing and general agents and writes certain specialty classes such as auto warranty business. The primary operation consists of business generated by Greenwich Insurance Company ("Greenwich") and Indian Harbor Insurance Company ("Indian Harbor"). The international operation primarily writes non-U.S. property and casualty reinsurance business. The Company's international subsidiary, Stonebridge Underwriting, Ltd. ("Stonebridge"), which is participating as a corporate capital vehicle on a Lloyd's syndicate is included in the international operation segment. -9- The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes, excluding gains and losses on the Company's investment portfolio. Segment information is reviewed on a statutory accounting basis.
(In Thousands) Three months ended March 31, 1999 ------------------------------------------------------------------------ Domestic ----------------------------------------- Int'l Total Reinsurance Primary* Total Operations Segments ----------- -------- --------- ---------- --------- Net premiums written - external $ 93,177 $ 25,166 $ 118,343 $24,528 $ 142,871 Net intersegment premiums 20,962 (21,390) (428) 428 -- ----------- -------- --------- ---------- --------- Total net premiums written 114,139 3,776 117,915 24,956 142,871 Net investment income 27,099 868 27,967 3,625 31,592 Pretax income (loss) excluding realized gains 24,153 (359) 23,794 165 23,959 Realized gains (losses) 1,325 (6) 1,319 1,379 2,698 ----------- -------- --------- ---------- --------- Total segment pretax income (loss) 25,478 (365) 25,113 1,544 26,657 Total segment assets 2,382,047 82,480 2,464,527 308,709 2,773,236 (In Thousands) Three months ended March 31, 1998 -------------------------------------------------------------------------- Domestic ----------------------------------------- Int'l Total Reinsurance Primary* Total Operations Segments ----------- -------- --------- ---------- --------- Net premiums written - external $ 97,414 $ 22,460 $ 119,874 $16,316 $ 136,190 Net intersegment premiums 20,517 (19,094) 1,423 (1,423) -- ----------- -------- --------- ---------- --------- Total net premiums written 117,931 3,366 121,297 14,893 136,190 Net investment income 27,147 739 27,886 3,759 31,645 Pretax income (loss) excluding realized gains 24,145 (60) 24,085 1,892 25,977 Realized gains (losses) 6,668 (4) 6,664 1,218 7,882 ----------- -------- --------- ---------- --------- Total segment pretax income (loss) 30,813 (64) 30,749 3,110 33,859 Total segment assets 2,348,795 76,366 2,425,161 270,723 2,695,884
* The domestic primary segment ceded approximately 85% of all underwriting activity to the domestic reinsurance segment pursuant to a quota share reinsurance arrangement. (In Thousands) Three months ended March 31, ---------------------------- 1999 1998 ----------- ----------- Net Investment Income: Total segment net investment income $ 31,592 $ 31,645 GAAP adjustments (61) 9 Parent Co./other investment income 1,374 431 ----------- ----------- Total consolidated net investment income $ 32,905 $ 32,085 =========== =========== Income or Loss: Total segment pretax income $ 26,657 $ 33,859 Segment income taxes (5,667) (8,642) GAAP adjustments 3,360 1,743 Parent Co./other net loss (3,522) (3,954) ----------- ----------- Total consolidated net income $ 20,828 $ 23,006 =========== =========== March 31, December 31, 1999 1998 ----------- ----------- Assets: Total segment assets $ 2,773,236 $ 2,795,859 GAAP adjustments 588,811 580,769 Parent Co./other assets 1,099,208 1,090,991 Intercompany elimination (1,212,954) (1,239,987) ----------- ----------- Total consolidated assets $ 3,248,301 $ 3,227,632 =========== =========== -10- 6. Subsequent Events On April 23, 1999, the Board of Directors of NAC Re Corp approved the expansion of the Company's stock repurchase program. The Board authorized the Company to repurchase up to an additional two million shares of its Common Stock. During 1999, the Company has repurchased over 1,385,000 shares of Common Stock at a cost of $75.7 million or at an average cost of $54.65 per share. The repurchases were all made between April 5 and May 11, 1999. Since the inception of the Company's stock repurchase program in 1988, approximately 5.0 million shares have been repurchased. Under the repurchase program approximately 1.0 million shares remain authorized for repurchase. On April 26, 1999, the Board of Directors of NAC Re and XL Capital Ltd. ("XL") approved an amendment to the Merger Agreement, as set forth in the Form 8-K filed on April 30, 1999. The Proxy Statement/Prospectus with respect to the Special Meeting of Stockholders to be held on May 26, 1999 to vote on the merger was distributed to the stockholders on April 28, 1999. Subject to stockholder and regulatory approvals, the Company expects the merger with a subsidiary of XL to be completed in the second quarter of 1999. Effective May 3, 1999, NAC Re reinstated to $50 million its borrowing capacity under its revolving credit facility. Outstanding borrowings as of March 31, 1999 were $12.9 million and were principally used to finance the Company's periodic repurchase of Common Stock. The facility will be reduced on a quarterly basis beginning in July 1999. On May 11, 1999, NAC Re entered into an agreement with Mellon Bank, N.A. to obtain additional credit facilities in the aggregate amount of $200 million. The facilities will be available to NAC Re to refinance certain of its existing indebtedness and working capital needs on a short-term basis. Mellon Bank is acting as an agent for lenders of the revolving credit facilities and will also provide up to one-third of the $200 million principal. Effective May 11, 1999, NAC Re obtained its first $100 million facility and is expected to obtain its second $100 million facility on June 14, 1999. A commitment fee of 12.5 basis points per year will be paid on the unused credit line. -11- Management's Discussion and Analysis of Financial Condition and Results of Operations NAC Re Corporation ("NAC Re") is the holding company for NAC Reinsurance Corporation ("NAC") and its wholly owned insurance and reinsurance domestic and foreign subsidiaries. NAC Re and its subsidiaries are collectively referred to as the Company. Recent Developments On February 15, 1999, NAC Re entered into an Agreement and Plan of Merger (the "Merger Agreement") with XL Capital Ltd. ("XL") pursuant to which NAC Re will merge into a wholly-owned subsidiary of XL in an all stock transaction. NAC Re shareholders will received 0.915 of an XL Class A voting ordinary share for each share of NAC Re Common Stock in a tax-free exchange of shares. XL plans to account for the merger as a "pooling-of-interests" under U.S. generally accepted accounting principles ("GAAP"). The transaction is subject to approval by NAC Re's shareholders, receipt of insurance regulatory approvals and other customary closing conditions. In connection with the Merger Agreement, NAC Re granted XL the option to purchase, under certain circumstances, up to 1,860,215 shares of NAC Re Common Stock at a purchase price of $45.3125 per share. The option is exercisable upon certain circumstances, including if NAC Re recommends or proposes a different transaction or if any other person commences a tender or exchange offer to acquire 10% or more of NAC Re's Common Stock. Detailed information regarding the proposed transaction and XL has been filed with the Securities and Exchange Commission and has been disseminated to NAC Re's stockholders in connection with the solicitation of stockholder approval of the Merger Agreement. Results of Operations The Company's net operating earnings, excluding realized investment gains for the 1999 first quarter was $19.1 million or $.95 per diluted share. This represents an increase of 5.6% over the $.90 per diluted share that was reported in the comparable quarter of 1998. Net income, including investment gains, was $20.8 million or $1.03 per diluted share for the 1999 first quarter, compared to $23.0 million or $1.14 per diluted share for the 1998 first quarter. Realized investment gains, net of tax, were $1.7 million or $.08 per diluted share for the 1999 first quarter, compared to $5.1 million or $.24 per diluted share for the 1998 first quarter. Premium Revenues The Company's premium revenue for its domestic and international operations is as follows:
(In Millions) (In Millions) Gross Premiums Written Net Premiums Written Three Months Ended March 31, Three Months Ended March 31, ----------------------------------- ---------------------------------- (Dollars in millions) 1999 1998 Chg 1999 1998 Chg -------- -------- -------- -------- -------- -------- Domestic: Reinsurance $ 111.5 $ 113.8 (2.1)% $ 114.1 $ 117.9 (3.2)% Primary 38.9 35.0 11.3 3.8 3.4 12.2 -------- -------- -------- -------- -------- -------- Total Domestic 150.4 148.8 1.1 117.9 121.3 (2.8) International: 30.3 18.0 68.3 25.0 14.9 67.6 -------- -------- -------- -------- -------- -------- Total International 30.3 18.0 68.3 25.0 14.9 67.6 Intercompany transactions: 0.4 (1.4) N/M -- -- -- -------- -------- -------- -------- -------- -------- Total $ 181.1 $ 165.4 9.5% $ 142.9 $ 136.2 4.9% ======== ======== ======== ======== ======== ========
The Company's worldwide gross premiums written for the 1999 first quarter totaled $181.1 million, an increase of 9.5% over the 1998 first quarter. Worldwide net premiums written for the 1999 first quarter were $142.9 million, an increase of 4.9% over the 1998 first quarter. Overall, the increase in net premiums written was generated primarily from the domestic primary operations and international operations. The increase was partially offset by the cost of additional retrocessional coverages purchased to limit the Company's net retention and to supplement its core protections. The Company adopted SFAS No. 131 "Disclosures about Segment of an Enterprise and Related Information" at December 31, 1998. The Company has three reportable segments; domestic reinsurance, domestic primary insurance and international operations. See Note 5 of the Notes to Consolidated Financial Statements for further details. -12- Domestic Reinsurance Operations The domestic reinsurance segment represents the reinsurance of property, casualty, and specialty lines of business, including general liability, professional liability, automobile and workers' compensation, and commercial and personal property risks, including fidelity/surety and ocean marine. The Company's domestic operation includes business written in the United States and Canada. The Company principally conducts its business through reinsurance brokers, however, facultative business is handled through direct placement. Gross Premiums Written Three Months Ended March 31, ---------------------------- (Dollars in millions) 1999 1998 Chg ------- ------- ------ Casualty $73.5 $67.1 9.5% Property 29.7 32.9 (9.6) Specialty/Other 8.3 13.8 (40.4) ------- ------- ------ Total Domestic Reinsurance $111.5 $113.8 (2.1)% Domestic reinsurance gross premiums written declined to $111.5 million for the 1999 first quarter compared to $113.8 million in the 1998 first quarter. The decline in 1999 reflects the competitive market conditions that the reinsurance industry has been experiencing. The decrease was partially offset by growth in our casualty business generated from new contracts written in our treaty operation. Domestic Primary Operations The Company's primary revenues consist of business generated from Greenwich and Indian Harbor. Greenwich, licensed to write property/casualty insurance throughout the United States, distributes its products through a network of managing general agents and general agents who write specialized products with an emphasis on domestic casualty products. Indian Harbor, an excess and surplus lines carrier licensed in North Dakota, writes primary business on a non-admitted basis in selected states. Its focus is on seasoned profitable program business. The principal lines of primary business written include automobile, auto warranty, aviation, multiple peril and inland marine. Gross Premiums Written Three Months Ended March 31, ------------------------- (Dollars in millions) 1999 1998 Chg ------- ------- ------- Casualty $4.1 $4.9 (16.0)% Property 12.3 13.0 (4.9) Specialty/Other 22.5 17.1 31.3 ------- ------- ------- Total Domestic Primary $38.9 $35.0 11.3 % Domestic primary gross premiums written for the 1999 first quarter increased to $38.9 million or 11.3% over the comparable 1998 first quarter. The increase is primarily attributable to growth in our ocean marine and auto warranty business, partly offset by declines principally from our aviation programs. International Operations NAC Reinsurance International commenced writing non-U.S. property and casualty treaty business in 1994, subsequently building a facultative operation starting in 1996. Clients are also serviced through a branch operation in Sydney, Australia and a contact office in Madrid, Spain. The international reinsurance segment writes non-U.S. property and casualty reinsurance business. In 1998, the Company acquired Denham Syndicate Management Limited, the Lloyd's managing agency that manages Denham Syndicate 990. Denham underwrites a specialized book of international business, concentrating on long-tail casualty lines and non-marine physical damage. In 1997, the Company formed Stonebridge Underwriting Ltd., a subsidiary of NAC Reinsurance International, which is a corporate capital vehicle participating on the Denham Syndicate. -13- Gross Premiums Written Three Months Ended March 31, ------------------------ (Dollars in millions) 1999 1998 Chg ------ ------ ------ Casualty $11.2 $7.2 56.6% Property 8.7 8.3 2.9 Stonebridge 10.4 2.5 325.6 ------ ------ ------ Total International Operations $30.3 $18.0 68.3% Gross premiums written from international operations were $30.3 million, representing an increase of 68.3% over the comparable 1998 period. The increase reflects premium growth in the casualty business resulting from new business opportunities coupled with approximately $8.0 million of increased premiums generated from Stonebridge Underwriting Ltd compared to prior year. Operating Costs and Expenses Generally, claims and claims expenses represent the Company's most significant and uncertain costs. These expenses are only estimates at a given point in time of what the insurer or reinsurer expects the ultimate settlement and administration of claims to cost based on facts and circumstances then known. The Company would generally expect to refine such estimates in subsequent accounting periods with adjustments possible in either direction as additional information becomes known. One traditional means of measuring the underwriting performance of a property/casualty insurer is the statutory composite ratio. The composite ratio, based upon statutory accounting practices which differ from generally accepted accounting principles in several respects, reflects underwriting experience, but does not reflect income from investments. A composite ratio under 100% indicates underwriting profitability while a composite ratio exceeding 100% indicates an underwriting loss. The following charts set forth statutory composite ratios for the Company's operating segments:
Statutory Composite Ratio -------------------------------------------- March 31, December 31, -------------------------------------------- 1999 1998 1998 ------------ ------------ ------------ Domestic Reinsurance Claims and claims expenses 62.5% 65.6% 64.8% Commissions and brokerage 28.3% 26.6% 27.7% Other operating expenses 10.7% 10.4% 10.5% ------------ ------------ ------------ Total 101.5% 102.6% 103.0% Domestic Primary: Claims and claims expenses 92.3% 84.0% 101.3% Commissions and brokerage 10.6% 0.7% (1.6)% Other operating expenses 28.8% 35.2% 26.9% ------------ ------------ ------------ Total 131.7% 119.9% 126.6% Total Domestic: Claims and claims expenses 63.4% 66.0% 65.7% Commissions and brokerage 27.7% 25.8% 26.8% Other operating expenses 11.3% 11.0% 11.0% ------------ ------------ ------------ Total 102.4% 102.8% 103.5% International: Claims and claims expenses 65.7% 71.8% 73.3% Commissions and brokerage 26.0% 19.5% 19.7% Other operating expenses 12.4% 17.6% 18.2% ------------ ------------ ------------ Total 104.1% 108.9% 111.2%
-14- The Company's domestic statutory composite ratio for the 1999 first quarter was 102.4% compared with 102.8% for the 1998 first quarter ratio and 103.5% for the year ended December 1998. The 1999 first quarter composite ratio reflects a slight decrease compared to the prior year period, reflecting favorable development on business written prior to 1982 partly offset by increases in the commission and expense ratios. The composite ratio of 103.5% for the full year 1998 reflects approximately 1.2 percentage points related to property catastrophes recorded in the 1998 third quarter. The international composite ratio was 104.1% for the 1999 first quarter compared to 108.9% for the 1998 first quarter and 111.2% for the year ended December 31, 1998. This decline in the first quarter is primarily attributable to better than expected claim development, partly offset by increases in the commission ratio. Premiums generated from Lloyd's generally have a higher commission ratio. The international composite ratio of 111.2% for the 1998 full year reflects approximately 2.5 percentage points related to property catastrophes incurred from Hurricane Georges. The Company experienced net favorable claim development for business written since 1982. This favorable development is driven by several factors, some of which are interdependent. A principal factor is the strength of the actuarial assumptions underlying the business written, particularly with respect to social and economic inflation. These actuarial assumptions are utilized to establish the initial expected target loss ratio employed in the actuarial methodologies from which the reserves for claims and claims expenses are derived. Such loss ratios are periodically adjusted to reflect comparisons of actuarially-computed expected claims to actual claims and claims expense development, inflation and other considerations. The pricing of the Company's reinsurance contracts contemplates many factors, including exposure to claims and expenses of the client and broker. The Company's actuaries and underwriters evaluate the adequacy of premium revenue net of these expenses, thereby mitigating the effect of variations in these expenses to overall underwriting results. Investments Cash and invested assets totaled $2.4 billion, excluding net investment payables of $7.6 million at March 31, 1999, no change from December 31, 1998. Pretax net investment income for the 1999 first quarter was $32.9 million, an increase of 2.6% over the 1998 comparable period. On an after-tax basis, net investment income for the 1999 first quarter was $26.5 million or $1.26 per diluted share, an increase of 3.4% over the comparable 1998 period. The increase is primarily attributable to the higher invested asset base coupled with the increase in the Company's investment in tax-exempt securities. The Company's pretax investment yield was 5.6% for the 1999 first quarter, compared to 5.7% for the 1998 first quarter. The after-tax investment yield for the 1999 first quarter was 4.5% which is the same yield for the comparable prior year period. Net investment gains, net of tax for the 1999 first quarter were $1.7 million or $.08 per diluted share, compared to net investment gains of $5.1 million or $.24 per diluted share for the 1998 first quarter. Gains and losses on the sale of investments are recognized as a component of operating income, but the timing and recognition of such gains and losses are unpredictable and are not indicative of future operating results. The Company's investment strategy is focused principally on income predictability and asset value stability. The Company's emphasis on high quality fixed maturity investments reflects this strategy. Tactical shifts between taxable and tax-exempt bonds may occur in order to maximize after-tax investment returns without compromising balance sheet integrity. At March 31, 1999, our fixed maturity investments amounted to $2.2 billion, which approximates 90% of cash and invested assets, and 94.4% of such investments are rated investment grade by Moody's Investor Services, Inc. or Standard & Poor's. The balance of the Company's investment portfolio at March 31, 1999, consisting of cash, short-term investments and equity securities, amounted to $241.8 million. As of March 31, 1999, the Company held approximately $92 million or 4% of cash and invested assets in equity securities which represented about 12.6% of statutory surplus. -15- Uncertainties exist regarding interest rates and inflation and their potential impact on the market values of the Company's fixed income securities. The Company actively considers the risks and financial rewards associated with the maturity distribution of its fixed income portfolio. In this regard, the Company takes into consideration the pattern of expected claim payments and the Company's future cash flow projections in evaluating its investment opportunities. As of March 31, 1999, the Company's fixed maturity investment securities had an average duration of 5.6 years. Liquidity and Capital Resources NAC Re is a holding company and has no revenue producing operations of its own. Cash flow within NAC Re consists of investment income, operating and interest expenses, dividends to stockholders, rental income, and dividends and tax reimbursements from NAC. These dividends from NAC are subject to statutory restrictions. The statutory surplus of the reinsurance subsidiary, NAC Reinsurance Corporation was $732.9 million at March 31, 1999 which ranks among the largest domestic reinsurers measured on this basis. Total assets exceeded $3.2 billion at March 31, 1999. Stockholders' equity totaled $752.7 million or $40.79 per basic share at March 31, 1999 compared to $750.7 million or $40.86 per basic share at December 31, 1998. The unrealized appreciation of investments, net of tax, which is the principal component of accumulated other comprehensive income, decreased to $40.3 million at March 31, 1999 from $57.7 million at December 31, 1998. Cash flow from operations for the 1999 first quarter was a negative $1.8 million compared to $13.9 million for the comparable 1998 period. The decline in cash flow from the prior year period is principally attributed to increased paid claim activity and retrocessional costs. On April 23, 1999, the Board of Directors of NAC Re Corp approved the expansion of the Company's stock repurchase program. The Board authorized the Company to repurchase up to an additional two million shares of its Common Stock. During 1999, the Company has repurchased over 1,385,000 shares of Common Stock at a cost of $75.7 million or at an average cost of $54.65 per share. The repurchases were all made between April 5 and May 11, 1999. Since the inception of the Company's stock repurchase program in 1988, approximately 5.0 million shares have been repurchased. Under the repurchase program approximately 1.0 million shares remain authorized for repurchase. Effective May 3, 1999, NAC Re reinstated to $50 million its borrowing capacity under its revolving credit facility. Outstanding borrowings as of March 31, 1999 were $12.9 million and were principally used to finance the Company's periodic repurchase of Common Stock. The facility will be reduced on a quarterly basis beginning in July 1999. On May 11, 1999, NAC Re entered into an agreement with Mellon Bank, N.A. to obtain additional credit facilities in the aggregate amount of $200 million. The facilities will be available to NAC Re to refinance certain of its existing indebtedness and working capital needs on a short-term basis. Mellon Bank is acting as an agent for lenders of the revolving credit facilities and will also provide up to one-third of the $200 million principal. Effective May 11, 1999, NAC Re obtained its first $100 million facility and is expected to obtain its second $100 million facility on June 14, 1999. A commitment fee of 12.5 basis points per year will be paid on the unused credit line. The Company declared a quarterly cash dividend of $.09 per share for the 1999 first quarter. -16- Market Sensitive Instruments Market Risk The Company is exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. The Company manages its market risks based on guidelines established by management. The Company does not enter into derivatives or other financial instruments for trading purposes. Since the Company's cash and invested assets exceed its long term debt, the exposure to interest rate risk relates primarily to its investment portfolio. The main objectives of managing the investment portfolio of the Company are to maximize after tax investment income in a manner consistent with the expected maturities of the liabilities the investments support and to ensure liquidity and provide income predictability. At March 31, 1999, the Company's fixed maturity portfolio totaled $2.2 billion. The Company's fixed securities are categorized as assets held for sale and have an average duration of approximately 5.6 years. Generally, the fair market value of fixed income securities will increase as interest rates fall and decrease as interest rates rise. The estimated value of the Company's fixed income securities resulting from an immediate 100 basis point adverse shift in the treasury yield curve will result in an unrealized loss of approximately $104 million. The above discussion of the Company's market risk and the estimated amounts generated from the sensitivity analyses are forward-looking statements that relate to risk and uncertainties. Actual results in the future may differ materially from those projected results in the forward-looking statements. Exchange Rate Risk The Company's exchange rate exposure results primarily from its investments in the Company's international operation in London, England. This exposure stems from transaction gain and loss risk with respect to that entities' cash flows conducted in currencies other than the functional currency. The Company's foreign subsidiaries maintain a policy of matching asset and liability risk with respect to both currency and interest rate exposure. The Company is also exposed to the extent change in currency rates affect its net investment in foreign subsidiaries. Impact of the Year 2000 Issue Information Technology Systems Readiness: The Company began assessing the impact of the Year 2000 issue on its computer hardware and software systems in 1995. The Company completed its inventory and assessment of all information technology ("IT") systems (including embedded technology) in 1998. Certain systems were identified as requiring an upgrade, and others have been designated for replacement with Year 2000-compliant versions. Plans are in place to complete these upgrades and replacements by the end of the third quarter of 1999. The Company completed verification testing of its IT infrastructure systems in 1998. Also in 1998, the Company remediated the computer code of its legacy reinsurance system. This system is currently being tested to determine if further remediation is required. Other critical systems that could be impacted by a Year 2000 issue have been scheduled for some form of testing or verification. The testing, verification, remediation, and implementation processes are expected to continue through the end of the 1999 third quarter. As of the date of this disclosure, management has not identified any hardware or software computer system with a significant Year 2000 compliance problem that it believes could have a materially adverse effect on the Company's financial condition or results of operations. To maintain the Year 2000 readiness status of its tested and remediated IT systems, the Company intends to, sometime in the future, retain an IT consulting firm to assist management in monitoring future compliance changes made by its IT vendors. -17- Critical Third-Party Constituent Readiness: The Company has contacted its critical customers, retrocessionnaires, reinsurance intermediaries, managing general agents, suppliers, and other constituents to determine the nature and extent of their Year 2000 readiness efforts, and whether their failure to resolve their own Year 2000 problems would have a material adverse affect on the Company's financial condition or results of operations. The majority of the critical third-party constituents reported that they were Year 2000-ready by December 31, 1998, while others expect that they will be ready at various dates in 1999. The Company resurveyed all critical third-party constituents in January 1999 to determine if the companies met, or still expect to meet, their previously reported readiness target dates. Their responses are being factored into the Company's business contingency plans. Compliance Costs: The Company's estimated total aggregate Year 2000 readiness costs are not expected to exceed $2 million. Since the Company began its project, it had incurred $409,000 through March 31, 1999, principally for consulting fees, hardware, and hardware leases. Contingency Planning: Management is currently revising its existing business continuity plans to address certain potential material internal and external Year 2000-related failures that may impact the Company's critical processes. The Company acknowledges that, among other things, Year 2000-related failures could lead to temporary reliance on manual systems to process business transactions; delayed regulatory reporting of material financial and other information; delayed receipt of premiums and payment of claims; and disruptions in the management of the Company's bank accounts and investment portfolios. At this time, the Company does not expect such worst-case Year 2000 disruptions to occur, based upon the information currently available to it. However, the Company intends to address these scenarios in its contingency plans. In addition, the contingency plans will take into account, but not be limited to, the following issues: (1) staffing requirements at year-end 1999 and early 2000; (2) retention programs for critical personnel, as deemed necessary; (3) proactive procedures and routines that can be performed to detect problems as early as possible; and (4) plans for policy issuance and claims handling in case temporary failures of our managing general agents and third-party administrator systems occur. The Company intends to test its contingency plans by the third quarter of 1999. Potential Claims Exposure: The Company is attempting, whenever possible, to avoid or otherwise limit its overall exposure to Year 2000-related risks in the context of both its assumed business and retrocessional protection; however, it may still have material exposure in its property and casualty operations to Year 2000-related claims. The Company has worked with its brokers and clients to assess potential Year 2000 exposures in both its new and existing business. If, in the Company's opinion, the Year 2000 exposure is minimal, or management believes the cedent is adequately underwriting that exposure, the Company may not exclude such exposures from its contracts. On the other hand, if the exposure is believed to be significant, or the cedent, in management's opinion, is not adequately underwriting the Year 2000 exposure, the Company will attempt to exclude those exposures or non-renew those contracts. It is not yet possible to estimate the potential financial impact on the Company of the Year 2000-related claims that may emerge in the future, or to determine whether such claims will be made against insurance or reinsurance contracts in which the Company participates, or if such claims will be held to have merit. Other Year 2000 Considerations: Significant failures of certain essential services including, but not limited to, the telecommunications, utility, banking, securities, and transportation industries, due to their own Year 2000 problems are generally beyond the Company's control and could have a material adverse impact on the Company's financial condition or results of operations. All predictions regarding the impact of the Year 2000 issue on the Company, its critical third-party constituents, and attendant costs are inherently subject to unknown risks and uncertainties. While the Company is currently unaware of any material Year 2000 problems that it believes are reasonably likely to disrupt its operations, the Company cautions that the factors and assumptions described above, as well as unknown factors, may cause the Company's actual Year 2000 readiness results, costs and impact on its business, operations, or financial condition to differ materially from those discussed above. -18- Regulatory Initiatives NAC Re and its domestic subsidiaries are subject to regulatory oversight under the insurance statutes and regulations of the jurisdictions in which they conduct business, including all states of the United States and Canada. NAC Re International is subject to the regulatory authority of the United Kingdom Department of Trade and Industry and its Australian branch office is also subject to the Australian Insurance and Supervisory Commission's solvency and regulatory authority. These regulations vary from jurisdiction to jurisdiction and are generally designed to protect ceding insurance companies and policyholders by regulating the Company's financial integrity and solvency in its business transactions and operations. Many of the insurance statutes and regulations applicable to the Company relate to reporting and disclosure standards which allow insurance regulators to closely monitor the Company's performance. Typical required reports include information concerning the Company's capital structure, ownership, financial condition, and general business operations. In 1993, the National Association of Insurance Commissioners (the "NAIC"), by adopting a model risk-based capital act, intended to provide an additional tool for regulators to evaluate the capital of property and casualty insurers and reinsurers with respect to the risks assumed by them and determine whether there is a perceived need for corrective action. The nature of the corrective action depends upon the extent of the calculated risk-based capital deficiency and ranges from requiring the Company to submit a comprehensive plan to placing the insurer under regulatory control. While the model risk-based capital act has not yet been adopted in New York, NAC's domicile, New York has issued a circular letter requiring the filing of risk-based capital reports by property and casualty insurers and reinsurers. The NAIC also adopted a proposal that requires property and casualty insurers and reinsurers to report the results of their risk-based capital calculations as part of the statutory annual statements filed with state regulatory authorities. Surplus (as calculated for statutory annual statement purposes) for each of the Company's domestic subsidiaries is well above the risk-based capital thresholds that would require either company or regulatory action. Various other legislative and regulatory initiatives have been proposed from time-to-time that could impact the property/casualty insurance industry. Congress is expected to consider bills targeting financial services modernization, tax reform, Year 2000 liability, Superfund and product liability reform, and natural disaster protection. The NAIC continues to refine the risk-based capital formula for property/casualty insurers as well as adopt model legislation and regulations regarding insurer investments, accounting standards, and other regulatory matters. While the Company cannot quantify the impact of any of these legislative or regulatory measures on its operations, we believe the Company is adequately positioned to compete in an environment of more stringent regulation. To the extent that federal legislation, if passed, reduces litigation costs, it would be a favorable development for the Company. Safe Harbor Disclosure for Forward-Looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"), the Company sets forth below cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those which might be projected, forecasted, or estimated or otherwise implied in the Company's forward-looking statements, as defined in the Act, made by or on behalf of the Company 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, telephone 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 shareholders' equity, financing needs, capital plans, dividends, plans relating to products or services of the Company, 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," "could have," "may have," and similar expressions. Forward-looking statements are inherently subject to risks and uncertainties. The Company cautions that factors which may cause the Company's results to differ materially from such forward-looking statements include, but are not limited to, the following: -19- o Changes in the level of competition in the reinsurance or primary insurance markets that adversely affect the volume or profitability of the Company's business. These changes include, but are not limited to, the intensification of price competition, the entry of new competitors, existing competitors exiting the market, and the development of new products by new and existing competitors; o Changes in the demand for reinsurance, including changes in ceding companies' retentions, and changes in the demand for primary and excess and surplus lines insurance coverages; o The ability of the Company to execute its business strategies; o Changes in the frequency and severity of catastrophes which could significantly impact the Company's business in terms of net income, reinsurance costs, and cash flow; o Adverse development on claims and claims 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, inflation, new theories of liability, or new insurance and reinsurance contract interpretations; o Changes in the Company's retrocessional arrangements; o Lower than estimated retrocessional or reinsurance recoveries on unpaid losses, including, but not limited to, losses due to a decline in the creditworthiness of the Company's retrocessionnaires or reinsurers; o Increases in interest rates, which cause a reduction in the market value of the Company's interest rate sensitive investments, including, but not limited to, its fixed income investment portfolio, and its common shareholders' equity and 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; o Declines in the value of the Company's common equity investments and credit losses on the Company's investment portfolio; o Gains or losses related to foreign currency exchange rate fluctuations; and o Adverse results in litigation matters including, but not limited to, litigation related to environmental, asbestos, other potential mass tort claims, and claims related to the Year 2000. In addition to the factors outlined above that are directly related to the Company's business, the Company 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. -20- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Index: Exhibit Description Page - -------------------------------------------------------------------------- 15 Letter Re: Unaudited Interim Financial Information 23 27 Financial Data Schedule 24 (b) A report on Form 8-K was filed on February 19, 1999, which stated that NAC Re Corp and XL Capital Ltd had entered into an Agreement and Plan of Merger dated as of February 15, 1999, and that in connection with the Merger Agreement, XL had entered into a Stock Option Agreement dated February 15, 1999 with NAC. The Form also stated that NAC and XL had issued a joint press release announcing the signing of the Merger Agreement. Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered. -21- 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. NAC Re CORP. ------------ (Registrant) Date: May 11, 1999 /s/ NICHOLAS M. BROWN, JR. ------------------------ ------------------------------------- Nicholas M. Brown, Jr. President and Chief Executive Officer Date: May 11, 1999 /s/ RICHARD H. MILLER ------------------------ ------------------------------------- Richard H. Miller Chief Financial Officer and Treasurer -22- EX-15 2 ACKNOWLEDGMENT LETTER EXHIBIT 15 Acknowledgment Letter To the Stockholders and Board of Directors NAC Re Corporation We are aware of the incorporation by reference in the Registration Statements (Form S-8 No. 33-25585, Form S-8 No. 33-77494 and Form S-8 No. 333-33873) pertaining to the NAC Re Corp. Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 33-27745) pertaining to the NAC Re Corp. 1989 Stock Option Plan, in the Registration Statement (Form S-8 No. 33-7813) pertaining to the NAC Re Corp. 1985 and 1986 Stock Option Plans, in the Registration Statements (Form S-8 No. 33-22841 and Form S-8 No. 333-03935) pertaining to the NAC Re Corp. Employee Savings Plan, in the Registration Statement (Form S-8 No. 33-34516) pertaining to the NAC Re Corp. Director's Stock Option Plan, in the Registration Statement (Form S-8 No. 33-77492) pertaining to the NAC Re Corp. Director's Stock Option Plan, and in the Registration Statement (Form S-8 No. 33-77114) pertaining to the NAC Re Corp. 1993 Stock Option Plan, in the Registration Statement (Form S-8 No. 333-33875) pertaining to the NAC Re Corp. 1997 Incentive and Capital Accumulation Plan, of our report dated April 21, 1999, except for Note 6, as to which the date is May 11, 1999, relating to the unaudited consolidated interim financial statements of NAC Re Corporation that is included in its Form 10-Q for the quarter ended March 31, 1999. ERNST & YOUNG LLP New York, New York April 21, 1999 -23- EX-27 3 FDS
7 3-MOS DEC-31-1999 MAR-31-1999 2,179,670 0 0 92,140 0 0 2,408,479 13,042 22,639 101,944 3,248,301 1,732,095 344,133 17,759 0 299,951 0 0 2,207 750,476 3,248,301 132,665 32,905 2,673 0 84,022 53,946 5,402 24,873 4,045 20,828 0 0 0 20,828 1.13 1.03 0 0 0 0 0 0 0
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