-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UwBYpYEg6mnmdj1aIr86EMbifnt0XwN53zCEXTWmKRbcMvxEpAbieGDS124Rf0Co 0ZF4YKYa53OLp6dYtV8htQ== 0000914039-96-000149.txt : 19960613 0000914039-96-000149.hdr.sgml : 19960613 ACCESSION NUMBER: 0000914039-96-000149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZURICH REINSURANCE CENTRE HOLDINGS INC CENTRAL INDEX KEY: 0000898612 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 133703575 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11868 FILM NUMBER: 96563783 BUSINESS ADDRESS: STREET 1: ONE CHASE MANHATTAN PLAZA STREET 2: 43RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2128985000 MAIL ADDRESS: STREET 1: ONE CANTERBURY GREEN CITY: STAMFORD STATE: CT ZIP: 06901 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-11868 ZURICH REINSURANCE CENTRE HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 13-3703575 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Chase Manhattan Plaza, 43rd Floor New York, New York 10005 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (212) 898-5000 Former name, former address and former fiscal year, if changed since last report: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock: (Class) (Outstanding at May 1, 1996) Common Stock, $.01 par value 26,126,040 Shares 2 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No Item 1 - Consolidated Financial Statements Independent Accountants' Review Report 3 Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 4 Consolidated Statements of Operations - Three months ended March 31, 1996 and 1995 5 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 13 Signatures 14 -2- 3 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Shareholders Zurich Reinsurance Centre Holdings, Inc. We have reviewed the accompanying consolidated balance sheet of Zurich Reinsurance Centre Holdings, Inc. and Subsidiaries as of March 31, 1996, and the related consolidated statements of operations and cash flows for the three-month periods ended March 31, 1996 and 1995. These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making 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, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Zurich Reinsurance Centre Holdings, Inc. and Subsidiaries as of December 31, 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended (but not presented herein) and in our report dated February 12, 1996, we expressed an unqualified opinion on those consolidated financial statements. /s/ ERNST & YOUNG LLP Stamford, Connecticut May 7, 1996 -3- 4 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
MARCH 31, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) ASSETS Fixed maturities available-for-sale (amortized cost: 3/31/96 $1,029,830; 12/31/95 $1,096,903) $ 1,027,519 $ 1,122,822 Equity securities available-for-sale (cost: 3/31/96 $107,143; 12/31/95 $105,542) 128,604 124,543 Investment in affiliate (cost: 3/31/96 $9,327; 12/31/95 $3,973) 9,327 3,973 Short-term investments, at cost, which approximates market 86,624 54,063 Cash and cash equivalents 274,237 206,699 ----------- ----------- Total cash and invested assets 1,526,311 1,512,100 ----------- ----------- Accrued investment income 13,081 15,734 Premiums receivable 228,472 205,410 Reinsurance recoverables: Paid losses 1,829 1,312 Unpaid losses 33,780 30,981 Prepaid reinsurance premiums 3,943 7,126 Deferred policy acquisition costs 73,731 72,200 Deferred federal income taxes 44,057 31,369 Other assets 95,503 47,432 ----------- ----------- Total assets $ 2,020,707 $ 1,923,664 =========== =========== LIABILITIES Losses and loss adjustment expenses $ 770,879 $ 689,609 Unearned premiums 271,759 272,132 7 1/8% Senior Notes due 2023 198,399 198,394 Other liabilities 109,570 81,959 ----------- ----------- Total liabilities 1,350,607 1,242,094 ----------- ----------- SHAREHOLDERS' EQUITY Preferred stock ($.10 par value, 20,000,000 shares authorized; no shares outstanding) Common stock ($.01 par value, 50,000,000 shares authorized; 26,197,541 and 26,197,541 shares issued at 3/31/96 and 12/31/95, respectively) 262 262 Paid-in capital 624,097 624,068 Unrealized appreciation of investments (net of deferred taxes of $6,725 and $15,776 at 3/31/96 and 12/31/95, respectively) 12,425 29,144 Retained earnings 35,502 28,096 Treasury stock, at cost (72,901 and 0 shares at 3/31/96 and 12/31/95, respectively) (2,186) ----------- ----------- Total shareholders' equity 670,100 681,570 ----------- ----------- Total liabilities and shareholders' equity $ 2,020,707 $ 1,923,664 =========== ===========
See Notes to Consolidated Financial Statements -4- 5 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED MARCH 31, -------------------------- 1996 1995 --------- --------- (UNAUDITED) REVENUES Net premiums written (net of premiums ceded of $256 and $1,127 for the three months ended March 31, 1996 and 1995, respectively) $ 176,622 $ 115,623 Increase in unearned premiums 2,810 24,624 --------- --------- Net premiums earned (net of premiums ceded of $3,438 and $848 for the three months ended March 31, 1996 and 1995, respectively) 173,812 90,999 Net investment income 21,582 16,722 Realized capital gains (losses) 1,421 (5,896) Other income 304 554 --------- --------- Total revenues 197,119 102,379 --------- --------- EXPENSES Loss and loss adjustment expenses (net of reinsurance recoveries of $3,839 and $299 for the three months ended March 31, 1996 and 1995, respectively) 126,277 67,673 Commissions 44,613 21,813 Other operating costs and expenses 11,823 10,337 Interest and amortization 3,844 3,524 --------- --------- Total expenses 186,557 103,347 --------- --------- Income (loss) before income taxes 10,562 (968) Federal income tax expense 3,156 1,625 --------- --------- NET INCOME (LOSS) $ 7,406 $ (2,593) ========= ========= PER SHARE DATA Weighted average shares outstanding (in 000's) 26,133 26,132 ========= ========= Net income (loss) $ 0.28 $ (0.10) ========= =========
See Notes to Consolidated Financial Statements -5- 6 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, -------------------------- 1996 1995 ---- ---- (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income (loss) $ 7,406 $ (2,593) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Losses and loss adjustment expenses, net 78,471 52,940 Unearned premiums, net 2,810 24,624 Premiums receivable (23,062) (6,817) Deferred policy acquisition costs (1,531) (5,959) Current and deferred taxes (2,519) (1,124) Other assets and other liabilities 4,416 1,952 Realized capital (gains) losses (1,421) 5,896 --------- --------- Net cash provided by operating activities 64,570 68,919 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Sales of fixed maturities 864,212 542,908 Maturities or calls of fixed maturities 28,360 4,000 Purchases of fixed maturities (847,789) (472,458) Sales of equity securities 16,110 2,644 Purchases of equity securities (19,607) (61,149) Net purchases of short-term investments (32,561) (41,301) Cost of additions to property and equipment (138) (922) --------- --------- Net cash provided by (used in) investing activities 8,587 (26,278) --------- --------- CASH FLOWS USED IN FINANCING ACTIVITIES: Payment of cash dividend to shareholders (2,619) Purchase of treasury stock (3,000) --------- --------- Net cash used in financing activities (5,619) --------- --------- CHANGE IN CASH AND CASH EQUIVALENTS 67,538 42,641 Cash and cash equivalents, beginning of period 206,699 180,320 --------- --------- Cash and cash equivalents, end of period $ 274,237 $ 222,961 ========= =========
See Notes to Consolidated Financial Statements -6- 7 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ended December 31, 1996, as quarterly results may be affected by changes in the interest rate environment and catastrophic losses. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in Zurich Reinsurance Centre Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995. Financial information has been included herein related to the consolidated financial statements of Zurich Reinsurance Centre Holdings, Inc. ("ZRCH") and its wholly-owned subsidiaries, principally Zurich Reinsurance Centre, Inc. ("ZRC") and ZC Insurance Company ("ZCIC"), (together with ZRCH, the "Company"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Losses and Loss Adjustment Expenses Effective January 1, 1996, the Company adopted discounting for certain tabular workers' compensation indemnity reserves. This method is preferable as it is more representationally faithful to the economics of the underlying business and will enhance comparability of the Company's financial statements as it is the prevalent method used in the reinsurance industry. Such reserves were discounted to present value using a 5% interest rate. Since the effect of such discount as of January 1, 1996 was $0.8 million, it has been reported as a component of earnings. Discounting had no material effect on net income for the first quarter of 1996 or on the pro forma net income for the first quarter of 1995. Tabular workers' compensation indemnity reserves, net of discount, were $1.7 million as of March 31, 1996. Reclassifications The Company has reclassified the presentation of certain prior year information to conform with the current presentation. -7- 8 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INCOME TAXES The Company's overall effective tax rates of 29.9% and (167.9)% for the three months ended March 31, 1996 and 1995, respectively, had both operating and realized capital gains components. The effective tax rates on operating income of 29.1% and 33.0% for the three months ended March 31, 1996 and 1995 differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. For the three months ended March 31, 1996, the effective tax rate on realized capital gains approximated the federal statutory rate. For the three months ended March 31, 1995, the Company established a valuation allowance to offset potential tax benefits from realized capital losses and, accordingly, the effective tax rate on realized capital losses was 0%. -8- 9 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OPERATING INCOME The Company's pre-tax operating income (excluding realized capital gains) for the first quarter of 1996 was $9.1 million compared to $4.9 million for the first quarter of 1995. The increase is primarily due to growth in net investment income as discussed below. NET INCOME (LOSS) Net income for the first quarter of 1996 was $7.4 million compared to net loss of $2.6 million for the first quarter of 1995. The increase is due to the $6.8 million increase in after-tax realized capital gain (loss) activity and the increase in after-tax operating income of $3.2 million. PREMIUMS Gross premiums written for the first quarter of 1996 increased 51.5% to $176.9 million, compared with $116.8 million in the first quarter of 1995 (net premiums written exhibited similar growth increasing to $176.6 million, or 52.8% from $115.6 million for the first quarter of 1995 as there were no significant changes in the Company's retention levels or retrocessional programs during the first quarter of 1996). Net premiums earned increased to $173.8 million or 91.0% over the comparable period of 1995. Premiums written increased less on a percentage basis than premiums earned due to the maturing of, and changes in, the Company's mix of business. The premium growth is due to a domestic whole account quota share treaty with members of the Zurich American Insurance Group ("Zurich American") which contributed $52.4 million, $50.7 million and $39.3 million to first quarter gross premiums written, net premiums written and net premiums earned, respectively, and an increasing proportion of renewal business as well as new bound business. LOSS AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expenses for the first quarter of 1996 were $126.3 million, a 86.6% increase over the comparable 1995 period, due to the significant growth in earned premiums as discussed above. The GAAP loss ratio, however, decreased 1.7 percentage points to 72.7% in the first quarter of 1996 from the 74.4% in the comparable 1995 period due to changes in the Company's mix of business as discussed below. There were no significant catastrophe losses in either the first quarter of 1996 or 1995. COMMISSIONS Commissions in the first quarter of 1996 were $44.6 million, compared to $21.8 million in the corresponding period of 1995. The GAAP commission ratio was 25.7% in the first quarter of 1996 compared to 24.0% in the corresponding 1995 period. Changes in the commission ratio are primarily attributable to an increase in pro rata treaty premiums earned in 1996 relative to excess of loss premiums. Pro rata treaties generally have higher commission rates than excess of loss treaties. -9- 10 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses were $11.8 million in the first quarter of 1996 compared to $10.3 million in the corresponding period of 1995. The GAAP expense ratio decreased 2.2 percentage points to 6.7% from 8.9% due to the normalization of operating expenses and the growth in the Company's written premium volume. STATUTORY COMBINED RATIOS ZRC's statutory combined ratio for the first quarter of 1996 was 103.9%, compared with 107.2% for the corresponding 1995 period. ZRC's statutory combined ratio for the three months ended March 31, 1996 decreased due to a 2.1 percentage point decline in the other underwriting expense ratio and a 1.2 percentage point decline in the loss and commission ratio. ZRC's statutory combined ratios differ from the Company's GAAP combined ratios of 105.1% and 107.3%, respectively, primarily due to the deferral of certain acquisition costs and the inclusion of certain holding company expenses, each of which is considered in the Company's GAAP combined ratio. NET INVESTMENT INCOME Net investment income for the three months ended March 31, 1996 was $21.6 million, or 29.1% greater than the comparable 1995 period. The growth in net investment income was driven by an increased invested asset base resulting from cash flows from operations and assets acquired through the purchase of Re Capital Corporation during April 1995. Reflective of general investment market conditions, the after-tax annualized net investment income yield declined to 4.0% for the three months ended March 31, 1996 from 4.2% for the three months ended March 31, 1995. REALIZED CAPITAL GAINS (LOSSES) Pre-tax realized capital gains for the first quarter of 1996 were $1.4 million, compared to pre-tax realized capital losses of $5.9 million in the first quarter of 1995. The 1996 and 1995 realized capital gain (loss) activity is reflective of current investment market conditions and is consistent with the Company's investment philosophy, whereby realized capital gains or losses are taken to maximize the total investment return. INTEREST AND AMORTIZATION Interest and amortization expense for the three months ended March 31, 1996 was $3.8 million, compared to $3.5 million for the corresponding period of 1995. Interest expense of $3.5 million in the first quarter of 1996 and 1995 is attributable to the Company's 7 1/8% Senior Notes, due 2023. Amortization expense of $0.3 million in 1996 results from the acquisition of Re Capital Corporation during April 1995. -10- 11 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TAX EXPENSE The Company's overall effective tax rates of 29.9% and (167.9)% for the three months ended March 31, 1996 and 1995, respectively, had both operating and realized capital gains components. The effective tax rates on operating income of 29.1% and 33.0% for the three months ended March 31, 1996 and 1995 differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. For the three months ended March 31, 1996, the effective tax rate on realized capital gains approximated the federal statutory rate. For the three months ended March 31, 1995, the Company established a valuation allowance to offset potential tax benefits from realized capital losses and, accordingly, the effective tax rate on realized capital losses was 0%. FINANCIAL CONDITION CASH AND INVESTED ASSETS During the first three months of 1996, the Company's cash and invested assets increased $14.2 million to $1,526.3 million at March 31, 1996. The increase is principally due to cash flows from operations, offset by a decrease in the market value of the Company's investment portfolio. As of March 31, 1996, approximately 67% of the Company's cash and investment portfolio was invested in fixed maturity securities, 9% in equity securities and 24% in short-term investments and cash and cash equivalents, compared to 74%, 9% and 17%, respectively, as of December 31, 1995. Approximately 83% and 84% of the fixed maturity portfolio at March 31, 1996 and December 31, 1995, respectively, was invested in U.S. government obligations or securities rated "triple-A" by Moody's Investors Service or Standard & Poor's Corporation. The balance of the fixed maturity portfolio was invested in other investment-grade fixed maturities. The duration of the Company's fixed maturity portfolio of 4.2 years as of March 31, 1996 was relatively consistent with the 4.3 years duration at December 31, 1995. LOSS RESERVES Liabilities for gross losses and loss adjustment expenses (together, "loss reserves") were $770.9 million as of March 31, 1996, a $81.3 million increase from December 31, 1995. The increase in loss reserves is principally due to significant growth in premium volume during 1996. SHAREHOLDERS' EQUITY Shareholders' equity at March 31, 1996 was $670.1 million, a decrease of $11.5 million, or 1.7% from December 31, 1995. The decrease is primarily due to the after-tax decrease in the market value of available-for-sale securities held by the Company of $16.7 million, offset by net income for 1996 of $7.4 million. -11- 12 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents and short-term investments increased to 24% of the Company's March 31, 1996 cash and invested assets from 17% at December 31, 1995 as a result of sector shifts consistent with the Company's investment strategy. Net cash provided by operating activities for the three months ended March 31, 1996 of $64.6 million was relatively consistent with the $68.9 million for the three months ended March 31, 1995. The cash flows for both periods are primarily attributable to underwriting operations and net investment income. Net cash used in financing activities for the three months ended March 31, 1996 was $5.6 million and resulted from the Company's stock repurchase program and dividend payment. There was no net cash provided by or used in financing activities during the quarter ended March 31, 1995. -12- 13 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Index
Exhibit Description Page ------- ---------------------------------------------------------- ---- 15 Letter regarding unaudited interim financial information 15 18 Letter regarding change in accounting principle 16 27 Financial Data Schedule 17
(b) Reports on Form 8-K There were no reports filed on Form 8-K for the period ended March 31, 1996. Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered. -13- 14 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. Zurich Reinsurance Centre Holdings, Inc. ---------------------------------------- (Registrant) Date May 9, 1996 /s/ Richard E. Smith ----------- --------------------------------------------------------- Richard E. Smith President and Chief Operating Officer Date May 9, 1996 /s/ Peter R. Porrino ----------- --------------------------------------------------------- Peter R. Porrino Sr. Vice President, Chief Financial Officer and Treasurer -14- EX-15 2 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION 1 Exhibit 15 Acknowledgment Letter Board of Directors and Shareholders Zurich Reinsurance Centre Holdings, Inc. We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 33-75598) pertaining to the Zurich Reinsurance Centre Holdings, Inc. 1993 Employees' Stock Purchase Plan of our report dated May 7, 1996 relating to the unaudited consolidated interim financial statements of Zurich Reinsurance Centre Holdings, Inc. which is included in its Form 10-Q for the quarter ended March 31, 1996. We are also aware of the incorporation by reference in the Zurich Reinsurance Centre Holdings, Inc.'s Registration Statement (Form S-8 No. 33-93390) pertaining to the Zurich Reinsurance Centre, Inc. (ZRC) 401(k) Plan of our report dated May 7, 1996 relating to the unaudited consolidated interim financial statements of Zurich Reinsurance Centre Holdings, Inc. which is included in its Form 10-Q for the quarter ended March 31, 1996. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part of these registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ ERNST & YOUNG LLP Stamford, Connecticut May 7, 1996 -15- EX-18 3 LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE 1 Exhibit 18 May 7, 1996 Mr. Peter R. Porrino Senior Vice President & CFO Zurich Reinsurance Centre Holdings, Inc. One Canterbury Green P.O. Box 29 Stamford, CT 06904-0029 Dear Mr. Porrino: Note 2 of Notes to the Consolidated Financial Statements of Zurich Reinsurance Centre Holdings, Inc. ("the Company") included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, describes a change in the method of accounting for certain loss reserves from reporting reserves for certain tabular workers' compensation indemnity reserves without discount to reporting such on a discounted basis. You have advised us that you believe the change is to a preferable method in your circumstances because (1) it will enhance the comparability of the Company's financial statements by changing to the prevalent method utilized in the industry and (2) anticipated investment income is a significant component of the pricing of the business as the claims are paid over extended periods and, therefore, discounting is representationally faithful to the economics of workers' compensation reinsurance. There are no authoritative criteria for determining a "preferable" method for reporting certain tabular workers' compensation indemnity reserves based on the particular circumstances; however, we conclude that the change in the method of reporting certain tabular workers' compensation indemnity reserves is to an acceptable alternative method which, based on your business judgment to make this change for the reasons cited above, is preferable in your circumstances. We have not conducted an audit in accordance with generally accepted auditing standards of any financial statements of the Company as of any date or for any period subsequent to December 31, 1995 and therefore do not express any opinion on the financial statements of Zurich Reinsurance Centre Holdings, Inc. subsequent to that date. Very truly yours, /s/ ERNST & YOUNG LLP -16- EX-27 4 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,027,519 0 0 137,931 0 0 1,252,074 274,237 1,829 73,731 2,020,707 770,879 271,759 0 0 198,399 0 0 262 669,838 2,020,707 173,812 21,582 1,421 304 126,277 44,613 11,823 10,562 3,156 7,406 0 0 0 7,406 .28 .28 0 0 0 0 0 0 0
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