-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cBE6E7fWc6plWhQa9pGCRaDZNqtWtbizH4uavGjrUjSIDVRrEKDbXt8ufB7npZ51 8XtD3x+Q3p8eaAxg/7odGw== 0000798363-94-000011.txt : 19950608 0000798363-94-000011.hdr.sgml : 19950608 ACCESSION NUMBER: 0000798363-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOR US CORP CENTRAL INDEX KEY: 0000798363 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 751791342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09940 FILM NUMBER: 94559223 BUSINESS ADDRESS: STREET 1: 110 WILLIAM ST STE 1800 STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2129788200 MAIL ADDRESS: STREET 1: 110 WILLIAM STREET STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038 10-Q 1 3RD QUARTER 1994 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) ( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission file no. 0-15176 SCOR U.S. CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-1791342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 William Street, Suite 1800 New York, New York 10038-3995 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 978-8200 Indicate by check mark whether the registrant (1) has filed all reports 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[ ] At November 11, 1994, there were 18,196,512 shares of Common Stock, $.30 par value, outstanding. FORM 10-Q SCOR U.S. CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1.Financial Statements Independent Auditors' Report 3 Consolidated Balance Sheets September 30, 1994 and December 31, 1993 4-5 Consolidated Statements of Operations Three Months and Nine Months ended September 30, 1994 and 1993 6-7 Consolidated Statements of Stockholders' Equity Nine Months ended September 30, 1994 and 1993 8 Consolidated Statements of Cash Flows Three Months and Nine Months Ended September 30, 1994 and 1993 9-10 Notes to Consolidated Financial Statements 11-14 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 15-24 PART II. OTHER INFORMATION Item 1. Legal Proceedings 25 Item 6. Exhibits And Reports On Form 8-K 25 Signatures 25 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors SCOR U.S. Corporation: We have reviewed the consolidated balance sheet of SCOR U.S. Corporation and subsidiaries (the Company) as of September 30, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for the three month and nine month periods ended September 30, 1994 and 1993. These consolidated financial statements are the responsibility of the Company's management. We conducted our review 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 inquiries 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, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the 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 SCOR U.S. Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 1, 1994, except for Note 15, as to which the date was February 10, 1994, we expressed an unqualified opinion on those consolidated financial statements. As discussed in Note 3 to the consolidated financial statements for the three month and nine month periods ended September 30, 1994, the Company changed its method of accounting for multiple year retrospectively rated reinsurance contracts and for the adoption of the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 113,"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," in 1993. KPMG Peat Marwick LLP (Signature) New York, New York October 27, 1994 3 SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands)
September 30, December 31, 1994 1993 ASSETS Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $596,961 and $558,882) $ 575,584 $ 581,104 Held to maturity, at amortized cost (fair value: $23,373 and $27,109) 23,484 24,876 Equity securities, at fair value (cost: $15,655 and $15,581) 16,465 18,951 Short-term investments, at cost 53,864 90,642 Other long-term investments 1,166 1,081 670,563 716,654 Cash 9,079 17,096 Accrued investment income 10,429 10,169 Premiums receivable 85,036 80,319 Reinsurance recoverable on paid losses: Affiliates 15,889 9,498 Other 50,819 27,329 Reinsurance recoverable on unpaid losses: Affiliates 119,340 134,154 Other 97,676 87,689 Prepaid reinsurance premiums: Affiliates 10,794 14,578 Other 10,849 11,839 Deferred policy acquisition costs 25,645 24,140 Deferred Federal income tax benefits 40,172 11,894 Investment in affiliates 11,260 10,789 Other assets 44,415 37,963 $ 1,201,966 $ 1,194,111 See notes to consolidated financial statements.
4 SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands)
September 30, December 31, 1994 1993 LIABILITIES Losses and loss expenses $ 606,950 $ 562,209 Unearned premiums 121,085 114,376 Funds held under reinsurance treaties: Affiliates 3,671 21,777 Other 19,212 17,825 Reinsurance balances payable: Affiliates 12,570 18,196 Other 61,399 42,037 Convertible subordinated debentures 86,250 86,250 Notes payable 20,000 20,000 Commercial paper 11,099 10,721 Other liabilities 14,208 10,031 956,444 903,422 STOCKHOLDERS' EQUITY Preferred stock, no par value, 5,000 shares authorized; no shares issued -0- -0- Common stock, $0.30 par value, 50,000 shares authorized; 18,356 and 18,299 shares issued 5,507 5,490 Additional paid-in capital 113,442 112,670 Unrealized appreciation (depreciation) of investments (13,368) 16,634 Foreign currency translation adjustment 164 12 Retained earnings 141,261 157,532 Treasury stock, at cost (160 and 190 shares) (1,484) (1,649) 245,522 290,689 $ 1,201,966 $ 1,194,111 See notes to consolidated financial statements.
5 SCOR U.S. CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 REVENUES Net premiums earned $ 55,542 $ 59,847 $ 173,210 $ 170,329 Net investment income 10,157 10,893 30,363 31,791 Net realized investment gains 323 2,068 1,059 7,425 66,022 72,808 204,632 209,545 LOSSES AND EXPENSES Losses and loss expenses, net 39,060 40,640 152,558 112,384 Commissions, net 14,144 15,708 46,019 43,477 Other underwriting and administration expenses 6,799 6,660 19,586 19,666 Other expenses 1,590 1,011 3,065 2,939 Interest expense 2,454 2,409 6,982 5,930 64,047 66,428 228,210 184,396 Income (loss) from operations before Federal income taxes and cumulative effect of accounting changes 1,975 6,380 (23,578) 25,149 Federal income taxes (benefit) (472) 572 (12,210) 4,695 Income (loss) from operations 2,447 5,808 (11,368) 20,454 Cumulative effect of accounting changes -0- -0- -0- (2,600) Net income (loss) $ 2,447 $ 5,808 $ (11,368) $ 17,854 See notes to consolidated financial statements.
6 SCOR U.S. CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 PER SHARE DATA PRIMARY Average common and common equivalent shares outstanding 18,212 18,425 18,146 18,464 Income (loss) from operations $ 0.13 $ 0.32 $ (0.63) $ 1.11 Cumulative effect of accounting changes -0- -0- -0- (0.14) Net income (loss) $ 0.13 $ 0.32 $ (0.63) $ 0.97 FULLY DILUTED Average common and common equivalent shares outstanding 18,212 21,819 18,146 20,749 Income (loss) from operations $ 0.13 $ 0.30 $ (0.63) $ 1.06 Cumulative effect of accounting changes -0- -0- -0- (0.12) Net income (loss) $ 0.13 $ 0.30 $ (0.63) $ 0.94 See notes to consolidated financial statements.
7 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Nine Months Ended September 30, (Unaudited) (in thousands, except per share data) 1994 1993 COMMON STOCK Balance at beginning of year $ 5,490 $ 5,453 Issuance of common stock 17 37 Balance at end of period 5,507 5,490 ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 112,670 112,068 Issuance of common stock 700 1,416 Change in unpaid stock options exercised 72 (786) Balance at end of period 113,442 112,698 UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS Balance at beginning of year 16,634 11,416 Change in unrealized appreciation (30,002) 11,268 Balance at end of period (13,368) 22,684 FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at beginning of year 12 254 Change in foreign currency translation adjustment 152 (447) Balance at end of period 164 (193) RETAINED EARNINGS Balance at beginning of year 157,532 138,002 Net income (11,368) 17,854 Dividends ($.27 and $.24 per share) (4,903) (4,348) Balance at end of period 141,261 151,508 TREASURY STOCK Balance at beginning of year (1,649) (1,077) Net (purchases) reissuance of treasury stock 165 (423) Balance at end of period (1,484) (1,500) TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD $ 245,522 $ 290,687 Common stock shares Balance at beginning of year 18,299 18,176 Issuance of common stock 57 123 Balance at end of period 18,356 18,299 Treasury stock shares Balance at beginning of year 190 153 Net purchases (reissuance) of treasury stock (30) 28 Balance at end of period 160 181 See notes to consolidated financial statements. 8 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 2,447 $ 5,808 $(11,368) $ 17,854 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Cumulative effect of accounting changes -0- -0- -0- 2,600 Realized investment gains (323) (2,068) (1,059) (7,425) Changes in assets and liabilities: Accrued investment income (154) 859 (260) 579 Premium balances, net 29,185 4,164 9,019 (3,980) Prepaid reinsurance premiums 797 3,505 4,774 (2,439) Reinsurance recoverable on paid losses (10,820) (65) (29,881) 7,003 Deferred policy acquisition costs (36) 481 (1,505) (1,429) Losses and loss expenses (15,879) 648 44,741 2,265 Unearned premiums (548) (4,215) 6,709 4,863 Reinsurance recoverable on unpaid losses 7,052 3,303 4,827 (11,050) Funds held under reinsurance treaties (321) (62) (16,719) (553) Federal income taxes (472) 570 (14,010) 9,894 Other (3,967) 3,127 (3,766) 3,839 Net cash provided by (used in) operating activities 6,961 16,055 (8,498) 22,021 See notes to consolidated financial statements.
9 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities or redemptions of fixed maturities 54,168 89,096 192,956 272,193 Sales of equity securities 207 1,863 4,723 6,816 Net sales (purchases) of short-term investments 1,792 (3,426) 38,526 (46,416) Investments in fixed maturities (66,279) (78,403) (225,947) (304,222) Investments in equity securities (1,685) (871) (3,900) (5,239) Other (381) (3,234) (3,361) (6,828) Net cash provided by (used in) investing activities (12,178) 5,025 2,997 (83,696) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (1,638) (1,449) (4,903) (4,348) Proceeds from issuance of convertible subordinated debentures -0- -0- -0- 85,172 Proceeds from issuance of commercial paper-net 3 8 30 65 Repayment of notes payable -0- (8,000) -0- (8,000) Proceeds from stock options exercised 565 (523) 610 437 Other 1,372 300 1,747 597 Net cash provided by (used in) financing activities 302 (9,664) (2,516) 73,923 Net increase (decrease) in cash (4,915) 11,416 (8,017) 12,248 Cash at beginning of period 13,994 21,210 17,096 20,378 Cash at end of period $ 9,079 $ 32,626 $ 9,079 $ 32,626 See notes to consolidated financial statements.
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL SCOR U.S. Corporation ("SCOR U.S." or "Company") is a holding company, the principal operating subsidiaries of which are SCOR Reinsurance Company ("SCOR Re"), General Security Insurance Company ("GSIC"), The Unity Fire and General Insurance Company ("Unity Fire") and General Security Indemnity Company ("GSIND"). The Company, through its subsidiaries, provides property and casualty insurance and reinsurance to primary insurance companies on both a treaty and facultative basis. SCOR Re specializes in underwriting treaties covering non-standard automobile, commercial and technical risks and provides property, casualty and special risk coverages on a facultative basis. SCOR Re writes treaty business almost exclusively through reinsurance intermediaries. SCOR Re writes facultative business directly with primary insurance companies and through reinsurance intermediaries. GSIC and Unity Fire provide property and casualty insurance on both a primary and excess basis, specializing in alternative risk market coverages. GSIND provides commercial property and casualty coverages on a surplus lines basis. The unaudited interim consolidated financial statements have been prepared on the basis of Generally Accepted Accounting Principles ("GAAP") and in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company's 1993 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 2. PER SHARE DATA Primary earnings per share are based on the weighted average number of common shares outstanding during the period and, if dilutive, common shares assumed to be outstanding which are issuable under stock option plans. Fully diluted earnings per share are based on the additional assumption that the Debentures (as defined in Note 6) are converted into common shares, if dilutive. 3. ACCOUNTING CHANGES Effective as of December 31, 1993, the Company adopted 11 Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under SFAS 115, investments are classified into three categories. Debt securities that management has the positive intent and the ability to hold to maturity are classified as "held to maturity" and reported at amortized cost. Debt and equity securities that are bought and held for the purpose of selling them in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. Debt and equity securities not classified as either of the above categories are classified as "available for sale securities" and reported at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. The adoption of SFAS 115 did not have any effect on the Company's financial position or its results from operations. The FASB's Emerging Issues Task Force ("EITF") reached a consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively-Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact on certain of the Company's retrocessional agreements. As a result of the Company's implementation of the change in accounting method, as of January 1, 1993, $2.6 million, or $0.14 per share (after-tax), is included as a reduction to income as a cumulative adjustment. The effect of this change, excluding the cumulative adjustment, for the three months and nine months ended September 30, 1993 was to increase net income by $650,000, or $0.04 per share, and $1.95 million, or $0.11 per share, respectively. In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113"). The significant provisions of SFAS 113 require grossing-up the balance sheet to eliminate the reporting of assets and liabilities relating to reinsured contracts net of the effects of reinsurance, establish the conditions for a contract to be accounted for as reinsurance, require the deferral and amortization of any gain from retroactive contracts as defined in SFAS 113, and provide guidance in assessing transfer of insurance risk in reinsurance. The adoption of SFAS 113 did not have a material effect on the Company's financial position or its results from operations. 4. INCOME TAXES The Company's effective income tax rate differs from the current statutory federal income tax rate of 35% principally due to tax-exempt interest income and dividends received deductions. 12 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes and relate principally to loss reserve discounting, unearned premiums and unrealized appreciation (depreciation) of investments. A valuation allowance is provided when it is more likely than not that some portion of the deferred income tax benefits will not be realized. Management believes that the deferred tax benefits will be fully realized in the future. 5. REINSURANCE The effect of ceded reinsurance on the Statement of Operations for the three and nine months ended September 30, 1994 and 1993 are as follows (in thousands): THREE MONTHS ENDED SEPTEMBER 30, 1994 Loss and Loss Premium Premium Expenses Written Earned Incurred Direct $ 5,183 $ 3,395 $ 2,108 Assumed 70,142 72,478 42,679 Ceded- affiliate (8,131) (7,912) 1,218 Ceded - other (11,403) (12,419) (6,945) Net $ 55,791 $ 55,542 $ 39,060 THREE MONTHS ENDED SEPTEMBER 30, 1993 Direct $ 3,187 $ 1,975 $ 628 Assumed 77,906 83,333 47,956 Ceded - affiliate (12,643) (12,238) (12,014) Ceded - other (9,313) (13,223) 4,070 Net $ 59,137 $ 59,847 $ 40,640 13 NINE MONTHS ENDED SEPTEMBER 30, 1994 Loss and Loss Premiums Premiums Expenses Written Earned Incurred Direct $ 11,138 $ 10,218 $ 7,744 Assumed 228,128 222,339 205,724 Ceded - affiliate (25,061) (28,845) (24,461) Ceded - other (29,512) (30,502) (36,449) Net $ 184,693 $ 173,210 $ 152,558 NINE MONTHS ENDED SEPTEMBER 30, 1993 Direct $ 8,020 $ 6,132 $ 6,772 Assumed 233,733 230,760 158,757 Ceded - affiliate (34,682) (33,258) (35,095) Ceded - other (34,320) (33,305) (18,050) Net $ 172,751 $ 170,329 $ 112,384 6. CONVERTIBLE SUBORDINATED DEBENTURES On March 29, 1993, SCOR U.S. sold at par $86.25 million of 5.25% Convertible Subordinated Debentures due April 1, 2000 ("Debentures") through a private offering. The Debentures are not redeemable by the Company prior to April 3, 1996 and are convertible into approximately 3.4 million shares of SCOR U.S. common stock at a conversion price of $25.375 per share. Expenses incurred in the offering of approximately $1.8 million were deferred and are being amortized over the life of the Debentures. The Company contributed $50 million of the net proceeds to SCOR Re. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL SCOR U.S. Corporation ("SCOR U.S." or the "Company") is a holding company, the principal operating subsidiaries of which are SCOR Reinsurance Company ("SCOR Re"), General Security Insurance Company ("GSIC"), The Unity Fire and General Insurance Company ("Unity Fire") and General Security Indemnity Company ("GSIND"). The Company, through its subsidiaries, provides property and casualty insurance and reinsurance to primary insurance companies on both a treaty and facultative basis. SCOR Re specializes in underwriting treaties covering non-standard automobile, commercial and technical risks and provides property, casualty and special risk coverages on a facultative basis. SCOR Re writes treaty business almost exclusively through reinsurance intermediaries. SCOR Re writes facultative business directly with primary insurance companies and through reinsurance intermediaries. GSIC and Unity Fire provide property and casualty insurance on both a primary and excess basis, specializing in alternative risk market coverages. GSIND provides commercial property and casualty coverages on a surplus lines basis. The operating results of the property and casualty insurance and reinsurance industry are subject to significant fluctuations due to competition, catastrophic events, general economic conditions, interest rates and other factors such as changes in tax laws and regulations. The operating results of SCOR U.S. have been influenced by these cycles. UNDERWRITING RESULTS The underwriting results of a property and casualty insurer or reinsurer are discussed frequently by reference to its loss ratio, underwriting expense ratio and combined ratio. The loss ratio is the result of dividing losses and loss expenses incurred by net premiums earned. The underwriting expense ratio is the result of dividing underwriting expenses by net premiums written for purposes of Statutory Accounting Practices ("SAP") and net premiums earned for purposes of Generally Accepted Accounting Principles ("GAAP"). The combined ratio is the sum of the loss ratio and the underwriting expense ratio. A combined ratio under 100% generally indicates underwriting profits and a combined ratio exceeding 100% generally indicates underwriting losses. Underwriting profit is only one element of overall profitability, 15 which also includes investment results, interest expense and the effects of income taxation. Accordingly, the combined ratio alone should not be used to measure overall profitability. Except as indicated, the ratios discussed below have been calculated on a GAAP basis. The following table sets forth the Company's GAAP combined ratios and the components thereof for the periods indicated, and the SAP combined ratio for the Company's insurance and reinsurance subsidiaries. The GAAP ratios include the operating expenses of the holding company and the non-insurance subsidiaries, in addition to the operating expenses of the insurance and reinsurance subsidiaries. The SAP expense ratios include only the operating expenses of the insurance and reinsurance subsidiaries. In addition, the GAAP loss ratio takes into consideration recoveries under certain retrocessional agreements with SCOR S.A., the Company's majority shareholder, whereas these recoveries are included in other income for SAP purposes. Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 GAAP RATIOS (Total Company) Loss ratio 70.3% 67.9% 88.1% 66.0% Commission ratio 25.5% 26.2% 26.6% 25.5% U/W, admin. and other expense ratio 15.1% 12.8% 13.1% 13.3% Expense ratio 40.6% 39.0% 39.7% 38.8% Combined ratio 110.9% 106.9% 127.8% 104.8% SAP RATIOS Combined ratio 107.2% 104.1% 122.8% 105.8% * Reinsurance and insurance subsidiaries only. COMPARISON OF THIRD QUARTER RESULTS FOR 1994 WITH 1993 Gross premiums written for 1994 decreased 7% to $75.3 million from $81.1 million in 1993. Net premiums written for 1994 decreased 6% to $55.8 million from $59.1 million for 1993. The decrease in premium volume was attributable principally to the continued withdrawal from certain property and casualty 16 lines of business where the Company believes rates and/or conditions are inadequate. More specifically, throughout 1994 the Company has been reducing its property business written on a pro rata basis. A combination of an acceleration in the reduction of this business and fewer attractive opportunities in targeted lines of business caused the reduction in 1994 premium volume. Net losses and loss expenses incurred decreased 4% in 1994 to $39.1 million from $40.6 million in 1993. The loss ratio was 70.3% for 1994 as compared with 67.9% for 1993. During 1994 the Company incurred $2.3 million of net losses ($2.0 million of gross losses) resulting from property catastrophe events, most of which was due to adverse claims development from the winter freezes in early 1994. Losses incurred relating to property catastrophe events adversely affected the 1994 loss ratio by 3.9 points. During 1993, the Company incurred $3.3 million of net losses ($2.9 million of gross losses) resulting from property catastrophe events, primarily the flood claims arising from Midwest storms in mid-1993, which adversely affected the loss ratio by 5.6 points. During 1994 and 1993, the Company ceded $20.3 million and $25.5 million of earned premiums, respectively. The Company recovered from retrocessionnaires $5.7 million and $7.9 million of losses during 1994 and 1993, respectively. Commission expenses decreased 10% to $14.1 million in 1994 from $15.7 million in 1993. The commission ratio was 25.5% for 1994, compared with 26.2% for 1993. Underwriting, administration and other expenses increased 9% in 1994 to $8.4 million from $7.7 million in 1993. The underwriting and other expense ratio was 15.1% for 1994 as compared with 12.8% for 1993. The combined ratio was 110.9% for 1994, compared with 106.9% for 1993. The effect of property catastrophe events on the 1994 and 1993 combined ratios was 3.8 points and 5.6 points, respectively. Net investment income for 1994 decreased 7% to $10.2 million from $10.9 million in 1993. Net investment income (pre- tax) has been affected adversely by the high level of claim payments made since mid-1992 related to catastrophic events. Offsetting the above factor was an increase in investment income related to the proceeds of the issuance by the Company in March, 1993 of $86.25 million of 5.25% Convertible Subordinated Debentures due April 1, 2000 ("Debentures") (see Liquidity and Capital Resources). On an after-tax basis, net investment income decreased 3% to $7.8 million for 1994, compared with $8.1 million in 1993. Net realized investment gains for 1994 were $300,000 17 compared with $2.1 million for 1993. Interest expense increased 2% to $2.5 million in 1994 from $2.4 million in 1993. The Company's net income for 1994 was $2.4, or $0.13 per share, on a primary basis, compared with $5.8 million, or $0.32 per share, for 1993. The 1994 results were affected by after-tax charges to operations, net of reinsurance, of $1.4 million, or $0.08 per share for property catastrophe events, while the 1993 results were affected by after-tax charges to operations, net of reinsurance, of $2.2 million, or $0.12 per share for property catastrophe events. Average common and common equivalent shares outstanding (on a primary basis) for 1994 were 18.2 million, compared with 18.4 million for 1993. COMPARISON OF YEAR TO DATE RESULTS FOR 1994 WITH 1993 Gross premiums written for 1994 decreased 1% to $239.3 million from $241.8 million in 1993. Net premiums written for 1994 increased 7% to $184.7 million from $172.8 million for 1993. Gross premiums written and net premiums written for 1994 were increased by $1.0 million and reduced by $5.0 million, respectively, of additional premiums to reinstate catastrophe reinsurance protections primarily related to the January 1994 Northridge earthquake. Excluding these reinstatement premiums, gross premiums written for 1994 decreased by 1% and net premiums written increased by 10%, compared with 1993. The decrease in premium volume was attributable principally to the Company's continued withdrawal from certain property and casualty lines of business where the Company believes rates and/or conditions are inadequate. Net premiums written increased in 1994 due to generally higher retention levels on the Company's current mix of business, including the attachment point of the Company's catastrophe protection. Net losses and loss expenses incurred increased 36% in 1994 to $152.6 million from $112.4 million in 1993. The loss ratio was 88.1% for 1994 as compared with 66.0% for 1993. During 1994 the Company incurred $33.7 million of net losses ($63.0 million of gross losses) resulting from property catastrophe events, which added 21.4 points to the loss ratio. Of these amounts, the January 1994 Northridge, California earthquake accounted for $26.1 million of net incurred losses and $54.8 million of gross incurred losses. During 1993 the Company incurred $12.8 million of net losses ($14.6 million of gross losses) resulting from property catastrophe events, primarily the World Trade Center bombing, the East Coast blizzard, and the floods caused by Midwest storms which adversely affected the loss ratio by 7.5 points. 18 During 1994 and 1993, the Company ceded $59.3 million and $66.6 million of earned premiums, respectively. The Company recovered from retrocessionnaires $60.9 million and $53.1 million of losses during 1994 and 1993, respectively. Ceded premiums in 1994 included $6.0 million of reinstatement premiums paid by the Company. Ceded losses in 1994 included $29.3 million of losses resulting from property catastrophe events. Commission expenses increased 6% to $46.0 million in 1994 from $43.5 million in 1993. The commission ratio was 26.6% for 1994, compared with 25.5% for 1993. The increase in the commission ratio for 1994 is primarily attributable to the effect of net reinstatement premiums related to the property catastrophe events, which added 0.8 points to the 1994 commission ratio. Underwriting, administration and other expenses in 1994 were $22.7 million, virtually unchanged from 1993. The underwriting and other expense ratio was 13.1% for 1994 as compared with 13.3% for 1993. The effect of net reinstatement premiums related to the property catastrophe events added 0.4 points to the 1994 ratio. The combined ratio was 127.8% for 1994, compared with 104.8% for 1993. The effect of property catastrophe events on the 1994 and 1993 combined ratio was 22.6 points and 7.5 points, respectively. Net investment income for 1994 decreased 4% to $30.4 million from $31.8 million in 1993. Net investment income (pre- tax) has been affected adversely by the high level of claim payments made since mid-1992 related to catastrophic events and the Company's managed shift toward a greater percentage of tax- exempt securities. Offsetting the above factors was an increase in investment income related to the proceeds of the issuance by the Company in March, 1993 of the Debentures. On an after-tax basis net investment income decreased 1% in 1994 to $23.9 million from $24.2 million in 1993. Net realized investment gains for 1994 were $1.1 million compared with $7.4 million for 1993. Interest expense increased 18% to $7.0 million in 1994 from $5.9 million in 1993. The increase was principally attributable to nine months of interest expense recognized on the Debentures in 1994 compared with six months of interest expense in 1993. The Company's net loss for 1994 was $11.4 million, or $0.63 per share, on a primary basis, compared with net income of $17.9 million, or $0.97 per share, for 1993. The 1994 results were affected by after-tax charges to operations, net of reinsurance, of $25.2 million, or $1.39 per share for property catastrophe events. The 1993 results were affected by after-tax charges to operations, net of reinsurance, of $8.3 million, or $0.45 per share for property catastrophe events. Average common and common 19 equivalent shares outstanding (on a primary basis) for 1994 were 18.1 million, compared with 18.5 million for 1993. INCOME TAXES Statement of Financial Accounting Standards No. 109 requires the establishment of a valuation allowance for deferred income tax benefits where it is more likely than not that some portion of the deferred income tax benefits will not be realized. Management believes, based on the Company's historical record of generating taxable income and its expectations of future earnings, that the Company's taxable income in future periods will be sufficient to realize the net deferred income tax benefits reflected on its consolidated balance sheet as of September 30, 1994. The Company also has the ability to recover certain income taxes paid on capital gains if capital losses were to be realized. In addition, management believes certain tax planning strategies exist, including its ability to alter the mix of its investment portfolio to taxable investments from tax-exempt investments, which could be implemented if necessary to ensure sufficient taxable income to realize fully its net deferred income tax benefits. Accordingly, SCOR U.S. has not established a valuation allowance with respect to its net deferred income tax benefits. LIQUIDITY AND CAPITAL RESOURCES SCOR U.S. is a holding company. Its principal sources of cash are cash dividends from its operating subsidiaries, borrowings, and the issuance of equity securities. Generally, dividends that can be paid, without prior approval of the New York Insurance Superintendent, by insurers domiciled in New York State, including SCOR Re, are limited for any twelve-month period to the lesser of 10% of statutory surplus or adjusted net investment income (as defined by New York Insurance Law) for the previous twelve months. During the twelve months ended September 30, 1994, $18.4 million of dividends were declared to SCOR U.S. At September 30, 1994, the aggregate statutory surplus of the SCOR U.S. operating subsidiaries was $239.3 million. On March 29, 1993, SCOR U.S. sold at par $86.25 million of 5.25% Convertible Subordinated Debentures due April 1, 2000 through a private offering. The Debentures are not redeemable by the Company prior to April 3, 1996 and are convertible into approximately 3.4 million shares of SCOR U.S. common stock at a conversion price of $25.375 per share. Expenses incurred in the offering of approximately $1.8 million were deferred and are being amortized over the life of the Debentures. The Company contributed $50 million of the net proceeds to SCOR Re. On October 1, 1990 SCOR U.S. renewed a $20.0 million note which was payable on that date. The new note is due and payable 20 on October 3, 1995 and bears interest at a fixed annual rate of 9.575%. The Company has entered into an interest rate swap agreement on this note with a commercial bank. The swap agreement has a maturity date of October 1, 1995 and provides for the Company to make floating rate payments in exchange for the fixed rate payments due on the loan. The floating rate, which resets every six months and is capped at 12 3/8%, was 11% as of October 1, 1994. SCOR U.S. has established a commercial paper program which allows it to raise up to $50.0 million. At September 30, 1994, $11.1 million of commercial paper was outstanding. SCOR U.S. has a $30.0 million revolving line of credit with a bank which serves as a backstop for its commercial paper program. No borrowings have been made under this facility. At September 30, 1994, the amount remaining under the Company's existing stock repurchase program is approximately $1.4 million, which may be utilized as market conditions permit. The Company has not repurchased any shares under this program during 1994. The primary sources of liquidity for the SCOR U.S. insurance and reinsurance subsidiaries are net cash flow from operating activities, the maturity or sale of investments, and capital contributions from SCOR U.S. Net cash used in operating activities was $8.5 million for the 1994 nine month period compared with cash provided by operations of $22.0 million for the 1993 nine month period. Cash flow from operating activities during 1994 was adversely affected by continued property catastrophe paid loss activity as well as the payment of several large previously reserved casualty claims. The Company has not suffered any adverse effect due to the recent catastrophe activity in the timing of recoveries or credit worthiness of retrocessionnaires. Loss payments associated with the recent catastrophe activity are not expected to have an adverse material effect on the Company's short-term or long-term liquidity. During 1993, the Company incurred $9.4 million of capital expenditures, which primarily related to the development of information systems. At September 30, 1994, the Company had no significant commitments for capital expenditures. Effective January 1, 1991, SCOR Re and certain of the Company's other operating subsidiaries operate under a reinsurance pooling agreement pursuant to which the net amounts under all new and renewal business written by each such company are pooled. The net balances of the pool are then distributed to each company in accordance with established proportions. At September 30, 1994, total investments and cash at 21 carrying value were $679.6 million compared with $733.8 million at December 31, 1993. The decreased level of investments and cash is primarily attributable to the decrease during the period in the fair value of investments carried at fair value and the negative cash flow from operations during the period. SCOR U.S. fixed maturity investments are substantially all investment grade, liquid securities with a weighted average maturity of 7 years. Approximately 98% of the fixed maturity portfolio is rated A or better. SCOR U.S. does not have any investment in real estate or high yield bonds. At September 30, 1994, the Company did not have any non-income producing investments. SCOR U.S. believes that cash and short-term investments are maintained at an adequate level for payment of claims and expenses as they become due. In addition, SCOR U.S. maintains a maturity distribution profile of fixed maturity investments sufficient to fund anticipated loss and loss expense obligations as they become due. The Company's long-term obligations primarily consist of the Debentures and the claims liabilities of the principal operating subsidiaries, which at September 30, 1994 averaged approximately 4.5 years. The Company may be subject to gains and losses resulting from currency fluctuations because some of its investments are denominated in currencies other than United States dollars, as are some of its net loss reserve liabilities. The Company makes investments denominated in foreign currencies to mitigate, in part, the effects of currency fluctuations on its results of operations. Investments denominated in foreign currencies do not constitute a material portion of the Company's investment portfolio and, in the opinion of management, are sufficient to meet its foreign currency obligations. Net losses resulting from foreign currency transactions during the nine month periods ended September 30, 1994 and 1993 were $200,000 and $300,000, respectively. Stockholders' equity at September 30, 1994 was $245.5 million, a decrease of $45.2 million compared with December 31, 1993. This decrease resulted primarily from the net loss of $11.4 million for the period, unrealized depreciation of investments carried at fair value, net of tax effect, of $30.0 million, and cash dividends declared of $4.9 million. The ratio of net premiums written to surplus, sometimes referred to as "insurance exposure", relates to the amount of risk to which an insurer's statutory capital and surplus can be exposed, as measured by the amount of premiums written in relation to such surplus. Insurance practice and regulatory guidelines suggest that property and casualty insurance companies maintain a net premiums written to surplus ratio of less than 3 to 1. For the reinsurance industry, a ratio of 2 to 1 or less is generally considered prudent. SCOR U.S.'s net premiums written 22 to surplus ratios were 1.03 to 1 and 0.85 to 1 for 1994 and 1993, respectively. REGULATORY MATTERS The National Association of Insurance Commissioners ("NAIC"), an organization that assists state insurance regulators in achieving regulatory objectives, established minimum capital requirements, referred to as risk based capital, by adopting a risk-based capital formula for property and casualty companies in December 1993. The risk based capital formula will be applied to statutory financial statements beginning for the year ending December 31, 1994. The essential elements of these requirements focus on a company's types of business, historical loss development patterns and asset quality. Based on the preliminary assessment of the requirements, SCOR U.S. believes that the statutory surplus of each of its operating subsidiaries will be sufficient to meet these risk based capital requirements and to conduct its respective operations. The NAIC is currently developing an Investments of Insurers Model Act, which, if adopted by state regulatory authorities, would establish uniform limitations upon the type and amounts of investments insurers may hold. Based upon the current proposals of this Model Act, which are subject to review and change, the Company does not believe a uniform standard would significantly affect the current investment mix or operations of its insurance and reinsurance subsidiaries. ACCOUNTING PRONOUNCEMENTS Effective as of December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under SFAS 115, investments are classified into three categories. Debt securities that management has the positive intent and the ability to hold to maturity are classified as "held to maturity" and reported at amortized cost. Debt and equity securities that are bought and held for the purpose of selling them in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. Debt and equity securities not classified as either of the above categories are classified as "available for sale securities" and reported at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. The adoption of SFAS 115 did not have any effect on the Company's financial position or its results from operations. 23 The FASB's Emerging Issues Task Force ("EITF") reached a consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively-Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact on certain of the Company's retrocessional agreements. As a result of the Company's implementation of the change in accounting method, as of January 1, 1993, $2.6 million, or $0.14 per share (after-tax), is included as a reduction to income as a cumulative adjustment. The effect of this change, excluding the cumulative adjustment, for the three months and nine months ended September 30, 1993 was to increase net income by $650,000, or $0.04 per share, and $1.95 million, or $0.11 per share, respectively. In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113"). The significant provisions of SFAS 113 require grossing-up the balance sheet to eliminate the reporting of assets and liabilities relating to reinsured contracts net of the effects of reinsurance, establish the conditions for a contract to be accounted for as reinsurance, require the deferral and amortization of any gain from retroactive contracts as defined in SFAS 113, and provide guidance in assessing transfer of insurance risk in reinsurance. The adoption of SFAS 113 did not have a material effect on the Company's financial position or its results from operations. 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SCOR Re, GSIC, Unity Fire and GSIND are each a party to various lawsuits arising in the normal course of their business. SCOR U.S. does not believe that any of the litigation to which SCOR Re, GSIC, Unity Fire or GSIND is currently a party will have a material adverse effect on the operating results or financial condition of SCOR U.S. and its subsidiaries. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 11 Computation of Earnings per Share 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule b) Reports on Form 8-K None. 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. SCOR U.S. Corporation (Registrant) Dated: November 11, 1994 Jeffrey D. Cropsey (Signature) Jeffrey D. Cropsey Senior Vice President and Chief Financial Officer 25 EX-11 2 SCOR U.S. CORPORATION EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
Three Months Ended, Nine Months Ended, September 30 September 30 1994 1993 1994 1993 PRIMARY Net income (loss) applicable to common stock $ 2,447 $ 5,808 $ (11,368) $ 17,854 Average number of common shares outstanding 18,168 18,195 18,146 18,182 Add: Assumed exercise of stock options 44 230 -0- 282 Common and common equivalent shares outstanding 18,212 18,425 18,146 18,464 Net income (loss) per share assuming exercise of common stock equivalents $ 0.13 $ 0.32 $ (0.63) $ 0.97 FULLY DILUTED Net income (loss) applicable to common stock $ 2,447 $ 6,588 $ (11,368) $ 19,426 Average number of common shares outstanding 18,168 18,195 18,146 18,155 Add: Assumed exercise of stock options 44 230 -0- 282 Assumed convertion of convertible bonds -0- 3,394 -0- 2,312 Common and common equivalent shares outstanding assuming full dilution 18,212 21,819 18,146 20,749 Net income (loss) per share assuming full dilution $ 0.13 $ 0.30 $ (0.63) $ 0.94
EX-15 3 EXHIBIT 15 SCOR U.S. Corporation New York, New York Gentlemen: We acknowledge our awareness that our report dated October 27, 1994 related to our review of interim financial information of SCOR U.S. Corporation for the three month and nine month periods ended September 30, 1994 and included in the quarterly report on Form 10-Q is incorporated by reference in the Company's Registration Statements on Form S-8 (Registration Nos. 33-12604, 33-44577, and 33-46753). Our report refers to the changes in the Company's methods of accounting for multiple year retrospectively rated reinsurance contracts and for the adoption of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," in 1993. Pursuant to Rule 436(c) under the Securities Act, such report is not considered a part of a Registration Statement prepared or certified by an accountant within the meaning of Section 7 and 11 of the Act. Very truly yours, KPMG Peat Marwick LLP (Signature) New York, New York October 27, 1994 EX-27 4
7 0000798363 SCOR U.S. CORPORATION 1,000 9-MOS DEC-31-1994 SEP-30-1994 0 23,484 575,584 16,465 0 0 670,563 9,079 66,708 25,645 1,201,966 389,934 99,442 73,969 22,883 117,349 5,507 0 0 240,015 1,201,966 173,210 30,363 1,059 0 152,558 46,019 22,651 (23,578) (12,210) (11,368) 0 0 0 (11,368) 0.63 0.63 340,366 163,312 (10,753) 30,525 72,466 389,934 (9,744) Reserve for losses and loss expenses at September 30, 1994 is presented net of reinsurance recoverable on unpaid losses of $217,016. Unearned premiums at September 30, 1994 is presented net of ceded unearned premiums of $21,643. Reserve for losses and loss expenses at December 31, 1993 is presented net of reinsurance recoverable on unpaid losses of $221,843.
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