-----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, ExAAPfjjrlVuvzCEPIhrx/7UUPZmTdDT65P4VjcWgP5yEbngB+PD2Y5DBDqATTdU ZgvyLy6yDdryxvaFUOgq5g== 0000914039-96-000386.txt : 19961118 0000914039-96-000386.hdr.sgml : 19961118 ACCESSION NUMBER: 0000914039-96-000386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZURICH REINSURANCE CENTRE HOLDINGS INC CENTRAL INDEX KEY: 0000898612 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [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: 96665732 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 SEPTEMBER 30, 1996 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 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 offices) (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 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 November 1, 1996) Common Stock, $.01 par value 26,191,508 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 - September 30, 1996 and December 31, 1995 4 Consolidated Statements of Operations - Three and nine months ended September 30, 1996 and 1995 5 Consolidated Statements of Cash Flows - Nine months ended September 30, 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 September 30, 1996, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 1996 and 1995 and the consolidated statements of cash flows for the nine-month periods ended September 30, 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 November 6, 1996 -3- 4 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31, ------------- ------------ 1996 1995 ---- ---- (UNAUDITED) ASSETS Fixed maturities available-for-sale (amortized cost: 9/30/96 $1,235,681; 12/31/95 $1,096,903) $ 1,234,818 $1,122,822 Equity securities available-for-sale (cost: 9/30/96 $118,192; 12/31/95 $105,542) 145,978 124,543 Investment in affiliate (cost: 9/30/96 $9,769; 12/31/95 $3,973) 9,769 3,973 Short-term investments, at cost, which approximates market 72,472 54,063 Cash and cash equivalents 207,968 206,699 ----------- ---------- Total cash and invested assets 1,671,005 1,512,100 ----------- ---------- Accrued investment income 15,912 15,734 Premiums receivable 249,420 205,410 Reinsurance recoverables: Paid losses 1,383 1,312 Unpaid losses 38,950 30,981 Prepaid reinsurance premiums 2,756 7,126 Deferred policy acquisition costs 85,183 72,200 Deferred federal income taxes 40,386 31,369 Other assets 70,733 47,432 ----------- ---------- Total assets $ 2,175,728 $1,923,664 =========== ========== LIABILITIES Losses and loss adjustment expenses $ 876,846 $ 689,609 Unearned premiums 308,138 272,132 7 1/8% Senior Notes due 2023 198,408 198,394 Other liabilities 108,440 81,959 ----------- ---------- Total liabilities 1,491,832 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; 26,189,708 and 26,197,541 shares issued and outstanding at 9/30/96 and 12/31/95, respectively) 262 262 Paid-in capital 623,264 624,068 Unrealized appreciation of investments (net of deferred taxes of $9,455 and $15,776 at 9/30/96 and 12/31/95, respectively) 17,468 29,144 Retained earnings 43,129 28,096 Treasury stock, at cost (7,833 and 0 shares at 9/30/96 and 12/31/95, respectively) (227) -- ----------- ---------- Total shareholders' equity 683,896 681,570 ----------- ---------- Total liabilities and shareholders' equity $ 2,175,728 $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 FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) REVENUES Net premiums written (net of premiums ceded of $2,176 and $5,173 for the three months and $4,850 and $8,326 for the nine months ended September 30, 1996 and 1995, respectively) $ 188,599 $173,784 $ 553,431 $418,509 Increase in unearned premiums 14,174 40,640 40,376 77,121 --------- -------- --------- -------- Net premiums earned (net of premiums ceded of $2,464 and $3,000 for the three months and $9,220 and $6,252 for the nine months ended September 30, 1996 and 1995, respectively) 174,425 133,144 513,055 341,388 Net investment income 23,309 21,500 67,276 58,842 Realized capital gains (losses) (5,483) 7,772 (10,906) 14,530 Other income 518 50 849 511 --------- -------- --------- -------- Total revenues 192,769 162,466 570,274 415,271 --------- -------- --------- -------- EXPENSES Loss and loss adjustment expenses (net of reinsurance recoveries of $3,601 and $1,067 for the three months and $12,155 and $2,813 for the nine months ended September 30, 1996 and 1995, respectively) 123,001 101,687 364,613 258,177 Commissions 47,590 32,607 138,346 83,266 Other operating costs and expenses 11,834 10,914 35,229 31,937 Interest and amortization 3,917 4,177 11,602 11,969 --------- -------- --------- -------- Total expenses 186,342 149,385 549,790 385,349 --------- -------- --------- -------- Income before income taxes 6,427 13,081 20,484 29,922 Federal income tax expense 1,613 4,191 5,451 4,309 --------- -------- --------- -------- NET INCOME $ 4,814 $ 8,890 $ 15,033 $ 25,613 ========= ======== ========= ======== PER SHARE DATA Weighted average shares outstanding (in 000's) 26,185 26,182 26,157 26,158 ========= ======== ========= ======== Net income $ 0.18 $ 0.34 $ 0.57 $ 0.98 ========= ======== ========= ========
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 NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1996 1995 ---- ---- (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income $ 15,033 $ 25,613 Adjustments to reconcile net income to net cash provided by operating activities: Losses and loss adjustment expenses, net 179,268 159,552 Unearned premiums, net 40,376 77,121 Premiums receivable (44,010) (53,048) Deferred policy acquisition costs (12,983) (20,424) Current and deferred taxes (18,713) (5,594) Other assets and other liabilities 29,657 12,489 Realized capital (gains) losses 10,906 (14,530) ----------- ----------- Net cash provided by operating activities 199,534 181,179 ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Sales of fixed maturities 1,722,442 1,579,579 Maturities or calls of fixed maturities 66,500 18,752 Purchases of fixed maturities (1,941,646) (1,642,473) Sales of equity securities 49,107 31,861 Purchases of equity securities (63,306) (105,743) Net purchases of short-term investments (18,409) (39,184) Purchase of Re Capital Corporation, net of cash acquired -- 18,485 Cost of additions to property and equipment (3,237) (1,321) ----------- ----------- Net cash used in investing activities (188,549) (140,044) ----------- ----------- CASH FLOWS USED IN FINANCING ACTIVITIES: Payment of cash dividend to shareholders (2,619) -- Purchase of treasury stock (5,891) -- Conversion of Re Capital Debentures (1,206) (71,929) ----------- ----------- Net cash used in financing activities (9,716) (71,929) ----------- ----------- CHANGE IN CASH AND CASH EQUIVALENTS 1,269 (30,794) Cash and cash equivalents, beginning of period 206,699 180,320 ----------- ----------- Cash and cash equivalents, end of period $ 207,968 $ 149,526 =========== ===========
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 several factors including, but not limited to, 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 it 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 three and nine months ended September 30, 1996 or on the pro forma net income for the three and nine months ended September 30, 1995. Tabular workers' compensation indemnity reserves, net of discount, were $2.8 million as of September 30, 1996. Stock-Based Compensation The Company adopted the accounting provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" in 1996. SFAS No. 123 applies a fair value-based accounting method to employee stock-based compensation arrangements. During May 1996, the Company's shareholders approved the Company's Stock Option Plan (the "Stock Option Plan"), and the Company issued an initial grant of options covering 503,575 shares of the Company's common stock, effective January 1, 1996. For the nine months ended September 30, 1996, the Company expensed $0.4 million, net of tax, related to the Stock Option Plan. -7- 8 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INCOME TAXES The Company's overall effective tax rate for the three and nine months ended September 30, 1996 was 25.1% and 26.6%, respectively. The Company's overall effective tax rate for the three and nine months ended September 30, 1995 was 32.0% and 14.4%, respectively. The overall effective tax rates for 1996 and 1995 had both operating income and realized capital gain (loss) components. For the three and nine months ended September 30, 1996, the effective tax rate on operating income was 29.7% and 29.6%, respectively. The effective tax rate on operating income was 27.5% and 29.8% for the three and nine months ended September 30, 1995, respectively. The effective tax rate on operating income for 1996 and 1995 differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. The effective tax rate on realized capital gains (losses) approximated the federal statutory rate of 35.12% for the three and nine months ended September 30, 1996 and for the three months ended September 30, 1995. The effective tax benefit on realized capital gains for the nine months ended September 30, 1995 was 1.9% and differed from the federal statutory rate of 35.12% due to the reversal of a valuation allowance that was previously established by the Company to offset potential tax benefits from realized capital losses. -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 and losses) increased 124.3% to $11.9 million in the third quarter of 1996, compared to $5.3 million for the third quarter of 1995. The Company's pre-tax operating income increased 103.9% to $31.4 million for the nine months ended September 30, 1996, compared to $15.4 million for the nine months ended September 30, 1995. The increase is primarily due to improved underwriting results and growth in net investment income. NET INCOME Net income was $4.8 million for the third quarter of 1996, compared to $8.9 million for the corresponding period of 1995, due to a $4.5 million increase in after-tax operating income offset by an $8.6 million decline in after-tax realized capital gain (loss) activity. Net income was $15.0 million for the nine months ended September 30, 1996, compared to $25.6 million for the corresponding period in 1995, due to an $11.3 million increase in after-tax operating income offset by a $21.9 million decline in after-tax realized capital gain (loss) activity. PREMIUMS Gross premiums written for the three and nine months ended September 30, 1996 were $190.8 million and $558.3 million, respectively, representing a 6.6% and 30.8% increase, respectively, over the comparable 1995 periods. The Company entered into a quota share treaty with members of the Zurich American Insurance Group (the "ZA Quota Share") during the third quarter of 1995. The ZA Quota Share contributed $41.0 million and $34.8 million to third quarter 1996 and 1995 gross premiums written, respectively, and $146.0 million and $34.8 million to gross premiums written for the nine months ended September 30, 1996 and 1995, respectively. Net premiums written for the three and nine months ended September 30, 1996 were $188.6 million and $553.4 million, representing a 8.5% and 32.2% increase, respectively, over the comparable 1995 periods. (The growth exhibited by net premiums written was consistent with gross premiums written since there were no significant changes in the Company's retention levels or retrocessional programs during the nine months ended September 30, 1996 or 1995.) Net premiums earned for the three and nine month periods ended September 30, 1996 were $174.4 million and $513.1 million, respectively, reflecting a 31.0% and 50.3% increase, respectively, over the comparable 1995 periods. For the three and nine months ended September 30, 1996, net premiums written increased less on a percentage basis than net premiums earned due to the maturing of the Company's book of business. LOSS AND LOSS ADJUSTMENT EXPENSES AND COMMISSIONS Loss and loss adjustment expenses for the third quarter of 1996 increased to $123.0 million, a 21.0% increase over the comparable 1995 period. For the nine months ended September 30, 1996, loss and loss adjustment expenses increased to $364.6 million, a 41.2% increase over the comparable 1995 period. There were no significant catastrophe losses in either 1996 or 1995. Commissions for the three and nine months ended September 30, 1996 were $47.6 million and -9- 10 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS $138.3 million, respectively, compared to $32.6 million and $83.3 million for the three and nine months ended September 30, 1995, respectively. The increase in both losses and commissions is due to significant growth in earned premiums as discussed above. The GAAP loss and commission ratio for the three and nine months ended September 30, 1996 was 97.8% and 98.0%, respectively, compared to 100.9% and 100.0% for the three and nine months ended September 30, 1995, respectively. The loss and commission ratio has trended downward due to refinement of the loss reserving process and a greater percentage of well performing renewal business. In addition, the components of the loss and commission ratio have shifted primarily due to a greater percentage of business written on a pro rata basis. Pro rata treaties generally have lower loss ratios but higher commission ratios than excess of loss treaties. OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses were $11.8 million in the third quarter of 1996 compared to $10.9 million for the corresponding period of 1995. For the nine months ended September 30, 1996, other operating costs and expenses were $35.2 million compared to $31.9 million for the corresponding period of 1995. The GAAP expense ratio of 6.3% for the third quarter of 1996 was consistent with the comparable quarter of 1995. The GAAP expense ratio of 6.4% for the nine months ended September 30, 1996 declined from 7.6% for the nine months ended September 30, 1995 due primarily to an expanded premium base. STATUTORY COMBINED RATIOS ZRC's statutory combined ratio for the third quarter of 1996 declined to 103.0% from 107.0% for the same period of 1995, primarily due to the lower loss and commission ratio discussed above. ZRC's statutory combined ratio for the nine months ended September 30, 1996 declined to 103.3% from 107.6% for the same period in 1995 due to a 3.0 percentage point decline in the loss and commission ratio and a 1.3 percentage point decline in the expense ratio. ZRC's statutory combined ratio differs from the Company's GAAP combined ratio 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 third quarter of 1996 was $23.3 million, an 8.4% increase over the comparable 1995 period. Net investment income for the first nine months of 1996 was $67.3 million, a 14.3% increase over the comparable 1995 period. Growth in net investment income continues as the cash and invested asset base expands due to strong cash flows, primarily attributable to underwriting operations and net investment income. The after-tax annualized net investment income yield of 4.0% and 3.9% for the three and nine months ended September 30, 1996, respectively, was comparable to 4.3% and 4.4% for the three and nine months ended September 30, 1995, respectively. -10- 11 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REALIZED CAPITAL GAINS (LOSSES) Pre-tax realized capital gains (losses) were $(5.5) million for the third quarter of 1996, compared to $7.8 million for the third quarter of 1995. For the nine months ended September 30, 1996, pre-tax realized capital gains (losses) were $(10.9) million, compared to $14.5 million for the corresponding period of 1995. The 1996 and 1995 realized capital gain (loss) activity is reflective of market conditions and is consistent with the Company's investment philosophy, whereby capital gains (losses) are realized to maximize total investment return. INTEREST AND AMORTIZATION Interest and amortization expense for the third quarter of 1996 was $3.9 million, a 6.2% decline compared to the corresponding period of 1995. Interest and amortization expense for the first nine months of 1996 was $11.6 million, a 3.1% decline from the corresponding period of 1995. The decrease in interest and amortization expense is primarily due to the conversion of the Company's remaining 5 1/2% Convertible Debentures, due 2000 (the "Convertible Debentures") (assumed from Re Capital Corporation during April, 1995). TAXES The Company's overall effective tax rate for the three and nine months ended September 30, 1996 was 25.1% and 26.6%, respectively. The Company's overall effective tax rate for the three and nine months ended September 30, 1995 was 32.0% and 14.4%, respectively. The overall effective tax rates for 1996 and 1995 had both operating income and realized capital gain (loss) components. For the three and nine months ended September 30, 1996, the effective tax rate on operating income was 29.7% and 29.6%, respectively. The effective tax rate on operating income was 27.5% and 29.8% for the three and nine months ended September 30, 1995, respectively. The effective tax rate on operating income for 1996 and 1995 differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. The effective tax rate on realized capital gains (losses) approximated the federal statutory rate of 35.12% for the three and nine months ended September 30, 1996 and for the three months ended September 30, 1995. The effective tax benefit on realized capital gains for the nine months ended September 30, 1995 was 1.9% and differed from the federal statutory rate of 35.12% due to the reversal of a valuation allowance that was previously established by the Company to offset potential tax benefits from realized capital losses. -11- 12 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION CASH AND INVESTED ASSETS During the first nine months of 1996, the Company's cash and invested assets increased 10.5% to $1,671.0 million. The increase is principally due to cash flows from operations, offset somewhat by a decrease in the market value of the Company's investment portfolio. As of September 30, 1996, approximately 74% of the Company's cash and invested assets were invested in fixed maturity securities, 9% in equity securities and 17% in short-term investments and cash and cash equivalents, consistent with the allocation as of December 31, 1995. Approximately 84% of the fixed maturity portfolio at September 30, 1996 and December 31, 1995 was invested in U.S. government obligations or securities rated "triple-A" by Moody's Investors Service. 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 4.1 years as of September 30, 1996 approximated the 4.3 years duration at December 31, 1995. LOSS RESERVES Liabilities for gross losses and loss adjustment expenses (together, "loss reserves") were $876.8 million as of September 30, 1996, a $187.2 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 September 30, 1996 was $683.9 million compared to $681.6 million at December 31, 1995. The increase in shareholders' equity is due to after-tax operating income, partially offset by realized and unrealized capital losses. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents and short-term investments as of September 30, 1996 increased to $280.4 million, or 7.5% since December 31, 1995, as a result of operating cash flow and sector shifts consistent with the Company's investment strategy. Net cash provided by operating activities for the nine months ended September 30, 1996 was $199.5 million, compared to $181.2 million for the nine months ended September 30, 1995. The increase in cash flows is primarily attributable to underwriting operations and net investment income. For the nine months ended September 30, 1996, net cash used in financing activities of $9.7 million resulted from the Company's repurchase of its common stock, a dividend payment and the conversion of the Convertible Debentures. Net cash used in financing activities for the first nine months of 1995 was $71.9 million and resulted from the conversion of the Convertible Debentures. -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 27 Financial Data Schedule 16 (b) Reports on Form 8-K There were no reports filed on Form 8-K for the period ended September 30, 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 November 8, 1996 /s/ Richard E. Smith ------------------------------------------- Richard E. Smith President and Chief Executive Officer Date November 8, 1996 /s/ Karen O'Connor Rubsam ------------------------------------------- Karen O'Connor Rubsam Sr. Vice President, Chief Financial Officer and Treasurer -14- EX-15 2 EX-15 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 November 6, 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 September 30, 1996. We are also aware of the incorporation by reference in the Zurich Reinsurance Centre Holdings, Inc. Registration Statement (Form S-8 No. 33-93390) pertaining to the Zurich Reinsurance Centre, Inc. (ZRC) 401(k) Plan of our report dated November 6, 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 September 30, 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 November 6, 1996 -15- EX-27 3 EX-27
7 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 1,234,818 0 0 145,978 0 0 1,453,268 207,968 1,383 85,183 2,175,728 876,846 308,138 0 0 198,408 0 0 262 683,634 2,175,728 513,055 67,276 (10,906) 849 364,613 138,346 35,229 20,484 5,451 15,033 0 0 0 15,033 0.57 0.57 0 0 0 0 0 0 0
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