-----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, owkKu7dIargLa0PX6rKg1pFOjyAEAd2LvjiaZrdlmJwTu8d+CukORqKsF3JbrhrS w4qzYdIXHEEILuF35IiAFA== 0000798363-95-000009.txt : 19950517 0000798363-95-000009.hdr.sgml : 19950516 ACCESSION NUMBER: 0000798363-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOR US CORP CENTRAL INDEX KEY: 0000798363 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [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: 95537937 BUSINESS ADDRESS: STREET 1: 110 WILLIAM ST STE 1800 STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038-3995 BUSINESS PHONE: 2129788200 MAIL ADDRESS: STREET 1: 110 WILLIAM STREET STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038 10-Q 1 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 March 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)t 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 May 12, 1995, there were 18,164,620 shares of Common Stock, $.30 par value, outstanding. INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Independent Auditors' Review Report 3 Consolidated Balance Sheets March 31, 1995 and December 31, 1994 4-5 Consolidated Statements of Operations Three Months ended March 31, 1995 and 1994 6-7 Consolidated Statements of Stockholders' Equity Three Months ended March 31, 1995 and 1994 8-9 Consolidated Statements of Cash Flows Three Months Ended March 31, 1995 and 1994 10-11 Notes to Consolidated Financial Statements 12-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 6. Exhibits And Reports On Form 8-K 21 Signatures 21 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 March 31, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the three month periods ended March 31, 1995 and 1994. 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 review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit 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, 1994, 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 2, 1995 we expressed an unqualified opinion on those consolidated financial statements. KPMG Peat Marwick LLP May 2, 1995 3 SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 1995 1994 (Unaudited) ASSETS Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $603,339 and $596,791) $ 590,352 $ 563,656 Held to maturity, at amortized cost (fair value: $23,584 and $22,274) 23,713 22,871 Equity securities, at fair value (cost: $259 and $1,897) 494 1,738 Short-term investments, at cost 83,620 83,303 Other long-term investments 1,395 1,225 -------- -------- 699,574 672,793 Cash 8,085 4,763 Accrued investment income 10,473 10,339 Premiums receivable 87,153 72,018 Reinsurance recoverable on paid losses Affiliates 5,850 4,399 Other 7,615 19,356 Reinsurance recoverable on unpaid losses Affiliates 124,430 127,096 Other 98,536 95,576 Prepaid reinsurance premiums Affiliates 9,179 10,504 Other 7,887 8,803 Deferred policy acquisition costs 23,393 22,844 Deferred Federal income tax benefits 29,762 34,818 Investment in affiliates 11,783 11,532 Other assets 43,854 48,874 --------- --------- $1,167,574 $ 1,143,715 ========= ========= See notes to consolidated financial statements. 4 SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 1995 1994 LIABILITIES Losses and loss expenses $ 614,315 $ 604,787 Unearned premiums 110,774 110,082 Funds held under reinsurance treaties Affiliates 1,405 3,654 Other 18,020 17,104 Reinsurance balances payable Affiliates 17,638 15,328 Other 16,717 28,357 Convertible subordinated debentures 76,450 82,350 Notes payable 25,000 20,000 Commercial paper 20,004 11,310 Other liabilities 10,910 11,348 ------- ------- 911,233 904,320 ------- ------- STOCKHOLDERS' EQUITY Preferred stock, no par value, 5,000 shares authorized; no shares issued Common stock, $0.30 par value, 50,000 shares authorized; 18,356 and 18,356 shares issued 5,507 5,507 Additional paid-in capital 114,563 114,556 Unrealized depreciation of investments, net of deferred tax effect (8,288) (21,640) Foreign currency translation adjustment (305) (414) Retained earnings 146,638 143,153 Treasury stock, at cost(193 and 192 shares) (1,774) (1,767) --------- --------- 256,341 239,395 --------- --------- $ 1,167,574 $ 1,143,715 ========= ========= See notes to consolidated financial statements. 5 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, (Unaudited) (in thousands, except per share data) 1995 1994 REVENUES Net premiums earned $70,597 $ 62,685 Net investment income 10,978 9,998 Net realized investment gains (losses) (112) 323 ------ ------ 81,463 73,006 ------ ------ LOSSES AND EXPENSES Losses and loss expenses, net 47,109 70,507 Commissions, net 19,420 17,519 Other underwriting and administration expenses 7,321 6,807 Other expenses 699 413 Interest expense 2,404 2,324 ------ ------ 76,953 97,570 ------ ------ Income (loss) from operations before Federal income taxes (benefit) 4,510 (24,564) Federal income taxes (benefit) 634 (10,146) ------ ------ Income (loss) from operations 3,876 (14,418) Extraordinary gain on redemption of debentures, net of tax 517 -0- ------ ------ Net income (loss) $ 4,393 $ (14,418) ====== ====== See notes to consolidated financial statements. 6 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, (Unaudited) (in thousands, except per share data) 1995 1994 PER SHARE DATA PRIMARY Average common and common equivalent shares outstanding 18,164 18,221 ====== ====== Income (loss) from operations $ 0.21 $ (0.79) Extraordinary item 0.03 -0- ------ ------ Net income (loss) $ 0.24 $ (0.79) ====== ====== FULLY DILUTED Average common and common equivalent shares outstanding 18,164 18,221 ====== ====== Income (loss) from operations $ 0.21 $ (0.79) Extraordinary item 0.03 -0- ------ ------ Net income (loss) $ 0.24 $ (0.79) ====== ====== See notes to consolidated financial statements. 7 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three Months Ended March 31, (Unaudited) (in thousands, except per share data) 1995 1994 COMMON STOCK Balance at beginning of year $ 5,507 $ 5,490 Issuance of common stock -0- -0- ------- ------- Balance at end of period 5,507 5,490 ------- ------- ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 114,556 112,670 Issuance of common stock -0- 179 Change in unpaid stock options exercised 7 21 ------- ------- Balance at end of period 114,563 112,870 ------- ------- UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS Balance at beginning of year (21,640) 16,634 Unrealized appreciation (depreciation) for period 13,352 (20,802) ------- ------- Balance at end of period (8,288) (4,168) ------- ------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at beginning of year (414) 12 Change in foreign currency translation adjustment 109 (306) ------- ------- Balance at end of period (305) (294) ------- ------- RETAINED EARNINGS Balance at beginning of year 143,153 157,532 Net income (loss) 4,393 (14,418) Dividends ($.05 and $.09 per share) (908) (1,633) ------- ------- Balance at end of period 146,638 141,481 ------- ------- See notes to consolidated financial statements. 8 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three Months Ended March 31, (Unaudited) (in thousands, except per share data) 1995 1994 TREASURY STOCK Balance at beginning of year (1,767) (1,649) Net (purchases) reissuance of treasury stock (7) 182 ------- ------- Balance at end of period (1,774) (1,467) ------- ------- TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD $ 256,341 $ 253,912 ======= ======= Common stock shares Balance at beginning of year 18,356 18,299 Issuance of common stock -0- -0- ------- ------- Balance at end of period 18,356 18,299 ======= ======= Treasury stock shares Balance at beginning of year 192 190 Net purchases (reissuance) of treasury stock 1 (32) ------ ------ Balance at end of period 193 158 ====== ====== See notes to consolidated financial statements. 9 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, (Unaudited) (in thousands) 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 4,393 $ (14,418) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary gain on redemption of debentures (517) -0- Realized investment (gains) losses 112 (323) Changes in assets and liabilities: Accrued investment income (134) 56 Premium balances, net (24,465) 3,218 Prepaid reinsurance premiums 2,241 1,682 Reinsurance recoverable on paid losses 10,290 (13,392) Deferred policy acquisition costs (549) (1,418) Losses and loss expenses 9,528 53,167 Unearned premiums 692 8,446 Reinsurance recoverable on unpaid losses (294) (8,600) Funds held under reinsurance treaties (1,333) (16,521) Federal income taxes 634 (11,946) Other 5,774 (230) ------ ------ Net cash provided by (used in) operating activities 6,372 (279) ------ ------ See notes to consolidated financial statements. 10 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, (Unaudited) (in thousands) 1995 1994 CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities or redemptions of fixed maturities 19,803 39,926 Sales of equity securities 1,215 2,371 Net sales of short-term investments 801 44,254 Investments in fixed maturities (28,706) (78,803) Investments in equity securities -0- (1,729) Other (306) (1,172) ------ ------ Net cash provided by (used in) investing activities (7,193) 4,847 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (908) (1,633) Redemption of convertible subordinated debentures (8,462) -0- Proceeds of notes payable 5,000 -0- Proceeds from issuance of commercial paper-net 8,468 21 Proceeds from stock options exercised 7 18 Other 38 93 ------ ------ Net cash provided by (used in) financing activities 4,143 (1,501) ------ ------ Net increase in cash 3,322 3,067 Cash at beginning of period 4,763 17,096 ------ ------ Cash at end of period $ 8,085 $ 20,163 ====== ====== See notes to consolidated financial statements. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL SCOR U.S. Corporation ("SCOR U.S." or, collectively with its subsidiaries, the "Company") is a holding company, the principal operating subsidiary of which is SCOR Reinsurance Company ("SCOR Re"). The Company also operates through SCOR Re's wholly owned subsidiaries, General Security Insurance Company ("GSIC"), The Unity Fire and General Insurance Company ("Unity Fire") and General Security Indemnity Company ("GSIND"). (SCOR Re, GSIC, Unity Fire and GSIND are collectively referred to as the "Operating Subsidiaries"). The Company, through its subsidiaries, provides property and casualty insurance and reinsurance. Reinsurance is provided 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 and writes facultative business directly with primary insurance companies and through reinsurance intermediaries. GSIC and Unity Fire provide commercial property and casualty insurance on both a primary and excess basis and underwrite 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 1994 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 Company's Convertible Subordinated Debentures are converted into common shares, if dilutive. 3. 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 12 interest income and dividends received deductions. 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. 4. REINSURANCE The effect of ceded reinsurance on the Statement of Operations for the three months ended March 31, 1995 and 1994 are as follows (in thousands): Loss and Loss Premiums Premiums Expenses Written Earned Incurred March 31, 1995 Direct $ 4,822 $ 6,069 $ 10,537 Assumed 87,849 85,911 50,786 Ceded - affiliate (7,723) (9,275) (5,705) Ceded - other (11,418) (12,108) (8,509) -------- -------- ------- Net $ 73,530 $ 70,597 $ 47,109 ======== ======== ======= March 31, 1994 Direct $ 3,590 $ 3,806 $ 3,100 Assumed 91,153 82,491 119,413 Ceded- affiliate (10,878) (13,647) (23,359) Ceded - other (11,052) (9,965) (28,647) ---------- ---------- --------- Net $ 72,813 $ 62,685 $ 70,507 ========== ========== ========= 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL SCOR U.S. Corporation ("SCOR U.S." or, collectively with its subsidiaries, the "Company") is a holding company, the principal operating subsidiary of which is SCOR Reinsurance Company ("SCOR Re"). The Company also operates through SCOR Re's wholly owned subsidiaries, General Security Insurance Company ("GSIC"), The Unity Fire and General Insurance Company ("Unity Fire") and General Security Indemnity Company ("GSIND"). (SCOR Re, GSIC, Unity Fire and GSIND are collectively referred to as the "Operating Subsidiaries"). The Company, through its subsidiaries, provides property and casualty insurance and reinsurance. Reinsurance is provided 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 and writes facultative business directly with primary insurance companies and through reinsurance intermediaries. GSIC and Unity Fire provide commercial property and casualty insurance on both a primary and excess basis and underwrite 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. historically 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, 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. 14 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 operations of 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 March 31, 1995 1994 GAAP RATIOS (Total Company) Loss ratio 66.7% 112.5% ----- ----- Commission ratio 27.5 27.9 U/W, admin. and other expense ratio 11.4 11.5 ----- ------ Expense ratio 38.9 39.4 ----- ------ Combined ratio 105.6% 151.9% ===== ===== SAP COMBINED RATIOS* Combined ratio 104.0% 144.1% ===== ===== * Reinsurance and insurance subsidiaries only. COMPARISON OF FIRST QUARTER RESULTS FOR 1995 WITH 1994 Gross premiums written for 1995 decreased 2% to $92.7 million from $94.7 million in 1994. Net premiums written for 1995 increased 1% to $73.5 million from $72.8 million for 1994. Gross premiums written and net premiums written for 1994 were increased by $800,000 and reduced by $5.6 million, respectively, for additional premiums to reinstate catastrophe reinsurance protections primarily related to the January 1994 Northridge earthquake. Excluding these reinstatement premiums, gross premiums written and net premiums written for 1995 decreased by 2% and 7%, respectively, compared with 1994. The Company's premium volume was adversely affected by its continued withdrawal from certain property and casualty lines of business where the Company believes rates and/or conditions are inadequate. 15 More specifically, the Company has been reducing its treaty property business written on a pro rata basis. However, the Company's increased premium writings in targeted market segments, such as nonstandard automobile, offset most of the decline in property pro rata business. Net losses and loss expenses incurred decreased 33% in 1995 to $47.1 million from $70.5 million in 1994. The loss ratio was 66.7% for 1995 as compared with 112.5% for 1994. During 1994 the Company incurred $31.8 million of net losses resulting from property catastrophe events, primarily the Northridge earthquake and the early 1994 winter freeze, which added 55.9 points to the loss ratio. Of these amounts, the Northridge earthquake accounted for $26.1 million of net incurred losses and $54.8 million of gross incurred losses. During 1995 the Company experienced $1.1 million of net favorable development ($3.0 million gross) resulting from pre 1995 property catastrophe events, which reduced the loss ratio by 2.1 points. During 1995 and 1994, the Company ceded $21.4 million and $23.6 million of earned premiums, respectively. The Company recovered from retrocessionnaires $14.2 million and $52.0 million of losses during 1995 and 1994, respectively. Ceded premiums in 1994 included $6.4 million of reinstatement premiums incurred by the Company primarily relating to the Northridge earthquake. Ceded losses in 1994 included $28.7 million of losses relating to the Northridge earthquake. Commission expenses increased 11% to $19.4 million in 1995 from $17.5 million in 1994. The commission ratio was 27.5% for 1995, compared with 27.9% for 1994. The effect of net reinstatement premiums primarily related to the Northridge earthquake added 2.2 points to the 1994 commission ratio. The increase in the commission ratio for 1995 compared with the 1994 commission ratio, excluding the effect of catastrophe events, is primarily attributable to the effect of adjustable commissions that are based upon the results of reinsurance contracts. Underwriting, administration and other expenses increased 11% in 1995 to $8.0 million from $7.2 million in 1994. The underwriting and other expense ratio was 11.4% for 1995 as compared with 11.5% for 1994. The effect of net reinstatement premiums related primarily to the Northridge earthquake added 0.9 points to the 1994 ratio. The increase in underwriting, administration and other expenses in 1995 was principally caused by increased amortization and depreciation resulting from recent capital expenditures primarily related to the development of information systems. The combined ratio was 105.6% for 1995, compared with 151.9% for 1994. The effect of property catastrophe events on the 1995 and 1994 combined ratio was (2.5) points and 59.0 points, respectively. Net investment income increased 10% to $11.0 million for 1995 compared with $10.0 million for 1994. The increase in net investment income (pre- tax) primarily resulted from an increase in the proportion of taxable investments in the Company's portfolio and positive operating cash flow over the past twelve months. On an after-tax basis, net investment income 16 increased 1% to $8.2 million for 1995, compared with $8.1 million in 1994. Net realized investment losses for 1995 were $100,000, compared with net realized investment gains of $300,000 for 1994. Interest expense increased 3% to $2.4 million in 1995 from $2.3 million in 1994. During 1995 the Company repurchased in the open market $5.9 million in principal amount of its Subordinated Convertible Debentures (the "Debentures")and recognized an extraordinary gain of $517,000 or $0.03 per share, net of tax. The Company's net income for 1995 was $4.4 million, or $0.24 per share, on a primary basis, compared with a net loss of $14.4 million, or $0.79 per share, on a primary basis, for 1994. The 1994 results were affected by after-tax charges to operations, net of reinsurance, of $24.3 million, or $1.34 per share, for property catastrophe events. The 1995 results include an after-tax benefit to operations of $1.1 million, or $0.06 per share, for net favorable development on pre-1995 property catastrophe events. Average common and common equivalent shares outstanding (on a primary basis) for 1995 were 18.2 million, compared with 18.2 million for 1994. 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 March 31, 1995. 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. Management also believes that the Company's net deferred income tax benefits related to unrealized depreciation of fixed maturity investments is recoverable through its ability to hold these investments to maturity. 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 by insurers domiciled in New York State without prior approval of the New York Insurance Superintendent are limited for any twelve-month period to the 17 lesser of 10% of statutory surplus or adjusted net investment income (as defined by The New York Insurance Law) for the previous twelve months. During the twelve months ended March 31, 1995, $10.6 million of dividends were declared to SCOR U.S. At March 31, 1995, the aggregate statutory surplus of the SCOR U.S. operating subsidiaries was $244.5 million. During 1995, the Company repurchased in the open market $5.9 million in principal amount of the Debentures and recognized an extraordinary gain of $517,000, or $0.03 per share, net of tax. These purchases, along with the December 1994 repurchase of $3.9 million in principal amount of the Debentures, were executed under a $10 million program authorized by the Board of Directors. Funding for the aggregate amount of repurchased Debentures, which purchases settled in January 1995, was provided by the issuance of the Company's commercial paper. In January 1995, the Board of Directors authorized the Company to repurchase up to an additional $20 million of Debentures in the open market, as market conditions permit. In connection with this additional authorization, SCOR U.S. has established a $20 million credit agreement with SCOR S.A., the proceeds of which are restricted to the repurchase of the Debentures or the repayment of any debt incurred to repurchase Debentures. On October 1, 1990 SCOR U.S. renewed a $20.0 million bank note which was payable on that date. This note is due and payable 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 related to 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 fixed rate payments due on the loan. The floating rate, which resets every six months and is capped at 12.380, was 11.068% as of January 1, 1995. SCOR U.S. has established a commercial paper program which allows it to raise up to $50.0 million. At March 31, 1995, $20.0 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 March 31, 1995, 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 1995. 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 provided by operating activities was $7.7 million for 1995 compared with cash used in operations of $300,000 for 1994. Cash flow from operating activities during 1994 was adversely affected by continued property catastrophe paid loss activity as well as the payment of several 18 large 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. At March 31, 1995, total investments and cash at carrying value were $707.7 million compared with $677.6 million at December 31, 1994. The increased level of investments and cash is primarily attributable to the increase during the period in the fair value of investments carried at fair value and the positive cash flow generated from operations. SCOR U.S. fixed maturity investments are substantially all investment grade, liquid securities with a weighted average maturity of 5.8 years. Approximately 99% of the fixed maturity portfolio is rated A or better. SCOR U.S. does not have any investments in real estate or high yield bonds. At March 31, 1995, 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 March 31, 1995 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 gains (losses) resulting from foreign currency transactions during the periods ending March 31, 1995 and 1994 were ($469,000) and $663,000, respectively. Stockholders' equity at March 31, 1995 was $256.3 million, an increase of $16.9 million compared with December 31, 1994. This increase resulted primarily from net income of $4.4 million for the period, unrealized appreciation of investments carried at fair value, net of tax effect, of $13.4 million, less cash dividends declared of $900,000. On March 10, 1995 the Company's Board of Directors reduced the regular quarterly dividend to $.05 per share from the previous quarterly rate of $.09 per share. 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 19 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 to surplus ratios were 1.2 to 1 and 1.2 to 1 for 1995 and 1994, respectively. RATINGS Upon issuance in 1993, the Debentures were assigned an A3 rating from Moody's Investors Service, Inc. ("Moody's") and were rated BBB-Plus by Standard & Poor's Corp. ("S&P"). The Company's commercial paper program had been rated P-1 by Moody's and A-1 by S&P since its establishment. On November 22, 1994 S&P lowered its ratings on the Debentures to BBB and on the commercial paper to A-2. S&P attributed its action to the Company's volatile earnings record and reduced surplus resulting from its past concentration in reinsuring property risks, while acknowledging that the Company maintains a good position in the brokered reinsurance market, has a sound investment strategy and benefits from its ownership by SCOR S.A. Moody's has not changed any of the Company's ratings to date. Although the Company may experience increased future borrowing costs as a result of negative ratings changes, the Company has not experienced any significant adverse effects due to S&P's action. The Company recently was notified by A.M. Best & Company, Inc., an independent insurance industry rating organization, that the rating of its principal operating companies has been reduced from A+ (Superior) to A (Excellent) for reasons similar to those noted above. The Company does not expect any significant effect as a result of this action. 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to various lawsuits arising in the normal course of its business. The Company does not believe that any of the litigation to which it 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 10(v) SCOR U.S. Corporation Annual Incentive Plan for 1995 11 Computation of Earnings per Share 15 Letter re Unaudited Interim Financial Information 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) Jeffrey D. Cropsey Jeffrey D. Cropsey Senior Vice President and Chief Financial Officer May 12, 1995 EX-10 2 EXHIBIT 10(v) SCOR U.S. GROUP ANNUAL INCENTIVE PLAN FOR 1995 1. NAME AND PURPOSE. This Plan shall be known as the SCOR U.S. Group Annual Incentive Plan. The purpose of the Plan is to provide the officers of SCOR U.S. Corporation (the "Company"), SCOR Reinsurance Company ("SCOR Re") and other subsidiaries of the Company (hereinafter sometimes collectively referred to as the "SCOR U.S. Group") designated from time to time by the Committee (as defined in Paragraph 2) with the opportunity to receive cash awards based on the successful achievement of the operational and strategic objectives of the SCOR U.S. Group during a given fiscal year (the "Plan Year") and thereby assist the SCOR U.S. Group in attracting and retaining officers who contribute to its success. 2. PLAN ADMINISTRATION. The Plan shall be administered jointly by the Compensation Committees of the Boards of Directors of the Company and SCOR Re (the "Committee"). The Committee shall have full authority to interpret and administer the Plan and any rules and regulations relating to it. 3. ELIGIBILITY. Each Plan Year, the CEO will recommend and the Committee will approve those officers who shall be eligible as participants to receive incentive payments under the Plan. The Committee may approve the participation of officers at any time during the Plan Year. Incentive payments to participants will be based on base salary earnings (actual base salary dollars earned during the Plan Year) as an active employee during the Plan Year. Participation in any one year does not guarantee that an employee or position will participate in any following year. 4. TARGET AWARDS. The size of the incentive payments to a participant will be determined by target incentive awards expressed as a percentage of base salary earnings. At the beginning of each Plan Year, the CEO shall recommend and the Committee shall set (a) the maximum aggregate amount of incentive payments that can be paid pursuant to the Plan (the "Maximum Aggregate Payout"), and (b) the target incentive awards for each participant or class of participants during the Plan Year (the "Original Target Incentives"). 5. PERFORMANCE MEASURES. The awards generated by the Plan will be calculated as provided in Paragraph 6 below and will be based on the achievement by the SCOR U.S. Group of one or more financial targets approved by the Committee at the beginning of each Plan Year (the "Company Performance Measure"), as well as factors relating to each individual participant. In establishing the Company Performance Measure, the Committee will identify threshold, target and superior levels of achievement. Individual performance of each participant will be based upon management's evaluation of achievement of pre-set individual goals and overall performance of job responsibilities (the "Individual Performance Evaluation"). 6. CALCULATION OF AWARDS. (a) The first step in calculating the awards under this Plan for a Plan Year is to determine the Company Performance Measure as soon as possible after the consolidated financial statements of the Company for the Plan Year are available. Guidelines for any adjustments to financial results will be recommended by the Chief Financial Officer and approved by the Committee each year at the beginning of the Plan Year. In addition, the results set forth in the consolidated financial statements for purposes of this Plan may be adjusted by the Committee during or after the Plan Year to reflect (i) extraordinary, unusual or non-recurring items or events, including natural catastrophes, (ii) material differences between any significant assumptions used in establishing the Company Performance Measure target(s) and actual events or conditions experienced during the Plan Year, and (iii) comparative peer group performance during the Plan Year. (1) In the event the achievement of the Company Performance Measure is at or above the target level, as modified by the Committee as provided in the first paragraph of this Paragraph 6(a), then, subject to adjustment as provided in Paragraph 6(b) below, each participant would be eligible to receive the Original Target Incentive; provided, however, that each such Original Target Incentive would also be subject to adjustment in accordance with Paragraph 6(c) below. (2) In the event the achievement of the Company Performance Measure is at or above the threshold level but below the target level, as modified by the Committee as provided in the first paragraph of this Paragraph 6(a), then, subject to adjustment as provided in Paragraph 6(b) below, each participant would be eligible to receive an incentive award in an amount equal to the product of the percentage of the Company Performance Measure target achieved multiplied by the participant's Original Target Incentive ("Modified Target Incentive"); provided, however, that each such Modified Target Incentive would also be subject to adjustment in accordance with Paragraph 6(c) below. (3) In the event the achievement of the Company Performance Measure is below the threshold level, as modified by the Committee as provided in the first paragraph of this Paragraph 6(a) above, then no incentive awards will be made using the Plan design; provided, however, a pool of dollars equaling up to 20% of aggregate individual Original Target Incentives calculated as of December 31 of that Plan Year could be used to make awards to selected officers, at management's discretion, subject to approval by the Committee. (b) In the event that the aggregate amount of the Original Target Incentives for all participants calculated at the end of the Plan Year as set forth in Paragraph 6(a)(1) above or the aggregate amount of the Modified Target Incentives for all participants calculated at the end of the Plan Year as set forth in Paragraph 6(a)(2) above exceeds the Maximum Aggregate Payout for that Plan Year, the Original Target Incentive or Modified Target Incentive of each participant shall be reduced by multiplying the proposed Original Target Incentive or Modified Target Incentive of each participant by a fraction the numerator of which is the Maximum Aggregate Payout for that Plan Year and the denominator of which is the aggregate amount of all Original Target Incentives or Modified Target Incentives for that Plan Year. (c) If incentive awards are generated pursuant to Paragraph 6(a), as modified in accordance with Paragraph 6(b), if necessary, the CEO shall recommend, subject to the approval of the Committee, increasing or decreasing the size of individual awards under the Plan in order to (i) adjust the opportunities for awards in recognition of the achievement of an above-target Company Performance Measure, and (ii) take into account management's Individual Performance Evaluation of the participant, assessment of the participant's contribution to the overall performance of the SCOR U.S. Group during the Plan Year, and judgment as to the criticality of the participant's role in enabling the SCOR U.S. Group to achieve its strategic objectives. (d) No award to a participant shall exceed 150% of that participant's Original Target Incentive. The aggregate amount of incentive awards to all participants shall not in any event exceed the Maximum Aggregate Payout. 7. PAYMENTS. Payments will be made no later than March 15 following the Plan Year. 8. TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT. If a participant terminates employment for any reason, other than death, disability or retirement, as defined in a Company-sponsored Plan, prior to date of payment, she or he is ineligible to receive any payment under this Plan. 9. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If a participant terminates employment due to death, disability or retirement, as defined in a Company-sponsored Plan, prior to the end of the Plan Year, and has been actively employed for a minimum of six months in that Plan Year, the employee shall be eligible for a pro rata award based on her or his base salary earnings as an active employee during the Plan Year. Payments to employees whose employment has terminated for any reason, with less than six months of service, shall be made at the sole discretion of the Committee. 10. NO IMPLIED CONTRACT. The Plan shall not be construed to constitute an employment contract between the Company or any of its subsidiaries and any participant. All participants shall remain subject to discharge to the same extent as if the Plan had not been put into effect. 11. AMENDMENTS. The Board of Directors shall have the power to amend the Plan or to suspend or terminate the Plan in whole or in part. 12. EFFECTIVE DATE. The Plan shall become effective on January 1, 1995. 13. MISCELLANEOUS. (a) Any tax required to be withheld by any governmental authority shall be deducted from each incentive payment. (b) No payout of incentives shall be subject in any manner to anticipation, alienation, pledge, transfer or assignment, except by will or the laws of descent and distribution. (c) Each payout of an incentive shall be from the general funds of the Company, SCOR Re or any other subsidiary of the Company designated by the Committee. No special or separate fund shall be established or other segregation of assets made to assure payout of any incentive. No participant shall have any interest in any identifiable property or assets of the Company or any of its subsidiaries. (d) The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of New York. EXHIBIT A TO RESOLUTION APPROVING THE ANNUAL INCENTIVE PLAN 1) Maximum Aggregate Incentive Awards In no event, shall the aggregate amount of incentive payments, after tax, generated under this Plan with respect to a Plan Year exceed an amount equal to 6% of the net income of the Company calculated in conformity with GAAP, as adopted by the Company as of the first day of the Plan Year, excluding any amounts accrued during the Plan Year with respect to the Plan, after tax, which reduce net income. 2) Individual Target Awards for 1995 TARGET AWARD POSITION LEVEL % OF BASE SALARY Senior Executives 35 Department Heads 30 Other Vice Presidents 25 Assistant Vice Presidents 20 Other Officers 15 EXHIBIT B TO RESOLUTION APPROVING THE ANNUAL INCENTIVE PLAN SCOR U. S. GROUP PERFORMANCE SCALE FOR 1995 RETURN ON EQUITY Performance Percentage ROE Superior (150%) 13.5% Target (100%) 9.0% Threshold (60%) 5.4% NOTES: (1) If the ROE falls between the percentages listed above, the performance percentage shall be determined by interpolation on a straight line basis rounded to the nearest one tenth of one percent. (2) - "Return on Equity" for any Plan Year means the result of dividing (A) the Company's Net Income for such Plan Year by (B) the Company's Average Stockholders' Equity for such Plan Year, rounded to the nearest one-tenth of one percent. - "Net Income" for any Plan Year means the total net income of the Company and its consolidated subsidiaries for such Plan Year (including all charges for any payments accrued under the Plan), as computed in conformity with generally accepted accounting principles and reported to stockholders in the Company's consolidated financial statements for such Plan Year. - "Stockholders' Equity" at the end of any calendar quarter shall be the amount set forth as stockholders' equity in the financial statements at such quarter end. - "Average Stockholders' Equity" for any Plan Year means the result of dividing (A) the sum of the Stockholders' Equity as of the end of each of the four calendar quarters in such Plan Year plus the Stockholders' Equity as of the end of the calendar quarter ending on December 31 of the year immediately preceding Plan Year, by (B) five. (3) Where appropriate, the results of peer group companies may be used by the Board to modify evaluations of results against the above goal. EX-11 3
EXHIBIT 11 SCOR U.S. CORPORATION COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data) 1995 1994 PRIMARY: Net income (loss) applicable to common stock $ 4,393 $ (14,418) ====== ======== Average number of common shares outstanding 18,164 18,221 Add: Assumed exercise of stock options -0- -0- ------ ------ Common and common equivalent shares outstanding 18,164 18,221 ====== ====== Net income (loss) per share assuming exercise of common stock equivalents $ 0.24 $ (0.79) ====== ====== FULLY DILUTED: Net income (loss) applicable to common stock $ 4,393 $ (14,418) ====== ======== Average number of common shares outstanding 18,164 18,221 Add: Assumed exercise of stock options -0- -0- ------ ------ Common and common equivalent shares outstanding assuming full dilution 18,164 18,221 ====== ====== Net income (loss) per share assuming full dilution $ 0.24 $ (0.79) ====== ======
EX-15 4 EXHIBIT 15 SCOR U.S. Corporation New York, New York Gentlemen: We acknowledge our awareness that our report dated May 2, 1995 related to our review of interim financial information for SCOR U.S. Corporation for the three month period ended March 31, 1995 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). 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 May 2, 1995 EX-27 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 0000798363 SCOR U.S. CORPORATION 1,000 QTR-1 DEC-31-1995 MAR-31-1995 0 23,713 590,352 494 0 0 699,574 8,085 13,465 23,393 1,167,574 391,349 93,708 34,355 19,425 121,454 5,507 0 0 250,834 1,167,574 70,597 10,978 (112) 0 47,109 19,420 8,020 4,510 634 3,876 0 517 0 4,393 0.24 0.24 382,115 45,557 1,552 2,120 35,755 391,349 1,552 Reserve for losses and loss expenses at March 31, 1995 is presented net of reinsurance recoverable on unpaid losses of $222,966. Unearned premiums at March 31, 1995 is presented net of ceded unearned premiums of $17,066. Reserve for losses and loss expenses at December 31, 1994 is presented net of reinsurance recoverable on unpaid losses of $222,672.
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