-----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, EnKSkqFoyW/qzCwc96UFhUSrmvBC6IljCp5Ru4sciv0PT1xmFI6Yfc5QaU4YEMVP C5L6+dtrhyoYrRxM00CiSw== 0000914039-96-000279.txt : 19960816 0000914039-96-000279.hdr.sgml : 19960816 ACCESSION NUMBER: 0000914039-96-000279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96613654 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 JUNE 30, 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 August 1, 1996) Common Stock, $.01 par value 26,176,440 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 - June 30, 1996 and December 31, 1995 4 Consolidated Statements of Operations - Three and six months ended June 30, 1996 and 1995 5 Consolidated Statements of Cash Flows - Six months ended June 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 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 June 30, 1996, and the related consolidated statements of operations for the three-month and six-month periods ended June 30, 1996 and 1995 and the consolidated statements of cash flows for the six-month periods ended June 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 August 1, 1996 -3- 4 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
JUNE 30, DECEMBER 31, 1996 1995 ----------- ----------- (Unaudited) ASSETS Fixed maturities available-for-sale (amortized cost: 6/30/96 $1,094,553; 12/31/95 $1,096,903) $1,086,620 $1,122,822 Equity securities available-for-sale (cost: 6/30/96 $111,412; 12/31/95 $105,542) 132,465 124,543 Investment in affiliate (cost: 6/30/96 $9,769; 12/31/95 $3,973) 9,769 3,973 Short-term investments, at cost, which approximates market 35,293 54,063 Cash and cash equivalents 380,780 206,699 ---------- ---------- Total cash and invested assets 1,644,927 1,512,100 ---------- ---------- Accrued investment income 16,925 15,734 Premiums receivable 244,901 205,410 Reinsurance recoverables: Paid losses 996 1,312 Unpaid losses 37,063 30,981 Prepaid reinsurance premiums 3,044 7,126 Deferred policy acquisition costs 80,731 72,200 Deferred federal income taxes 47,276 31,369 Other assets 67,190 47,432 ---------- ---------- Total assets $2,143,053 $1,923,664 ========== ========== LIABILITIES Losses and loss adjustment expenses $ 833,051 $ 689,609 Unearned premiums 294,252 272,132 7 1/8% Senior Notes due 2023 198,403 198,394 Other liabilities 146,656 81,959 ---------- ---------- Total liabilities 1,472,362 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 and outstanding at 6/30/96 and 12/31/95, respectively) 262 262 Paid-in capital 623,602 624,068 Unrealized appreciation of investments (net of deferred taxes of $4,608 and $15,776 at 6/30/96 and 12/31/95, respectively) 8,512 29,144 Retained earnings 38,315 28,096 ---------- ---------- Total shareholders' equity 670,691 681,570 ---------- ---------- Total liabilities and shareholders' equity $2,143,053 $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 FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------- ------------------------ 1996 1995 1996 1995 ----------- ----------- ---------- ----------- (UNAUDITED) (UNAUDITED) REVENUES Net premiums written (net of premiums ceded of $2,418 and $2,026 for the three months and $2,674 and $3,153 for the six months ended June 30, 1996 and 1995, respectively) $188,210 $129,102 $364,832 $244,725 Increase in unearned premiums 23,392 11,857 26,202 36,481 -------- -------- -------- -------- Net premiums earned (net of premiums ceded of $3,318 and $2,404 for the three months and $6,756 and $3,252 for the six months ended June 30, 1996 and 1995, respectively) 164,818 117,245 338,630 208,244 Net investment income 22,385 20,620 43,967 37,342 Realized capital gains (losses) (6,844) 12,654 (5,423) 6,758 Other income (loss) 27 (93) 331 461 -------- -------- -------- -------- Total revenues 180,386 150,426 377,505 252,805 -------- -------- -------- -------- EXPENSES Loss and loss adjustment expenses (net of reinsurance recoveries of $4,715 and $1,447 for the three months and $8,554 and $1,746 for the six months ended June 30, 1996 and 1995, respectively) 115,335 88,817 241,612 156,490 Commissions 46,143 28,846 90,756 50,659 Other operating costs and expenses 11,572 10,686 23,395 21,023 Interest and amortization 3,841 4,268 7,685 7,792 -------- -------- -------- -------- Total expenses 176,891 132,617 363,448 235,964 -------- -------- -------- -------- Income before income taxes 3,495 17,809 14,057 16,841 Federal income tax expense (benefit) 682 (1,507) 3,838 118 -------- -------- -------- -------- NET INCOME $ 2,813 $ 19,316 $ 10,219 $ 16,723 ======== ======== ======== ======== PER SHARE DATA Weighted average shares outstanding (in 000's) 26,161 26,169 26,147 26,145 ======== ======== ======== ======== Net income $ 0.11 $ 0.74 $ 0.39 $ 0.64 ======== ======== ======== ========
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 SIX MONTHS ENDED JUNE 30, --------------------- 1996 1995 ------ ------ (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income $ 10,219 $ 16,723 Adjustments to reconcile net income to net cash provided by operating activities: Losses and loss adjustment expenses, net 137,360 99,972 Unearned premiums, net 26,202 36,481 Premiums receivable (39,491) (9,937) Deferred policy acquisition costs (8,531) (9,334) Current and deferred taxes (17,138) (11,243) Other assets and other liabilities 3,350 3,124 Realized capital (gains) losses 5,423 (6,758) --------- --------- Net cash provided by operating activities 117,394 119,028 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Sales of fixed maturities 1,223,434 893,742 Maturities or calls of fixed maturities 50,104 11,004 Purchases of fixed maturities (1,219,733) (969,847) Sales of equity securities 30,760 18,008 Purchases of equity securities (37,417) (82,108) Net (purchases) sales of short-term investments 18,770 (110,115) Purchase of Re Capital Corporation, net of cash acquired -- 20,563 Cost of additions to property and equipment (2,533) (1,004) --------- --------- Net cash provided by (used in) investing activities 63,385 (219,757) --------- --------- CASH FLOWS USED IN FINANCING ACTIVITIES: Payment of cash dividend to shareholders (2,619) -- Purchase of treasury stock (3,000) -- Conversion of Re Capital Debentures (1,079) (5,113) --------- --------- Net cash used in financing activities (6,698) (5,113) --------- --------- CHANGE IN CASH AND CASH EQUIVALENTS 174,081 (105,842) Cash and cash equivalents, beginning of period 206,699 180,320 --------- --------- Cash and cash equivalents, end of period $ 380,780 $ 74,478 ========= =========
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 three and six months ended June 30, 1996 or on the pro forma net income for the three and six months ended June 30, 1995. Tabular workers' compensation indemnity reserves, net of discount, were $2.3 million as of June 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 authorized an initial grant of options covering 503,575 shares of the Company's common stock, effective January 1, 1996. For the six months ended June 30, 1996, the Company expensed $0.2 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 six months ended June 30, 1996 of 19.5% and 27.3%, respectively, had both operating and realized capital loss components. The effective tax rate on operating income was 29.8% and 29.5% for the three and six months ended June 30, 1996, respectively. The effective tax rate on operating income 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 losses approximated the federal statutory rate for the three and six months ended June 30, 1996. The Company's overall effective tax rate (benefit) for the three and six months ended June 30, 1995 was (8.5)% and 0.7%, respectively. The effective tax rate on operating income was 29.2% and 31.0% for the three and six months ended June 30, 1995, respectively, and differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. The effective tax rate (benefit) on realized capital gains was (23.8)% and (44.6)% for the three months and six months ended June 30, 1995, respectively, 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 100.6% to $10.3 million in the second quarter of 1996, compared to $5.2 million for the second quarter of 1995. The Company's pre-tax operating income increased 93.2% to $19.5 million for the six months ended June 30, 1996, compared to $10.1 million for the six months ended June 30, 1995. The increase is due primarily to growth in net investment income and improving underwriting results. NET INCOME Net income was $2.8 million for the second quarter of 1996, compared to $19.3 million for the corresponding period of 1995, due to a $20.1 million decline in after-tax realized capital gain (loss) activity offset by a $3.6 million increase in after-tax operating income. Net income was $10.2 million for the six months ended June 30, 1996, compared to $16.7 million for the corresponding period in 1995, due to a $13.3 million decline in after-tax realized capital gain (loss) activity offset by a $6.8 million increase in after-tax operating income. PREMIUMS Gross premiums written for the three and six months ended June 30, 1996 were $190.6 million and $367.5 million, respectively, representing a 45.4% and 48.3% increase, respectively, over the comparable 1995 periods. Net premiums written for the three and six months ended June 30, 1996 were $188.2 million and $364.8 million, respectively, representing a 45.8% and 49.1% 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 six months ended June 30, 1996 or 1995.) A quota share treaty with members of the Zurich American Insurance Group contributed $52.6 million and $51.4 million to second quarter gross and net premiums written, respectively, and $105.0 million and $102.1 million to year to date gross and net premiums written, respectively. Net premiums earned were $164.8 million and $338.6 million, respectively, representing a 40.6% and 62.6% increase, respectively, over the comparable 1995 periods. For the six months ended June 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 second quarter of 1996 increased to $115.3 million, a 29.9% increase over the comparable 1995 period. For the six months ended June 30, 1996, loss and loss adjustment expenses increased to $241.6 million, a 54.4% increase over the comparable 1995 period. There were no significant catastrophe losses in either the first six months of 1996 or 1995. Commissions for the three and six months ended June 30, 1996 were $46.1 million -9- 10 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and $90.8 million, respectively, compared to $28.8 million and $50.7 million for the three and six months ended June 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 six months ended June 30, 1996 was 98.0% and 98.2%, respectively, compared to 100.4% and 99.5% for the three and six months ended June 30, 1995, respectively. The loss and commission ratios are relatively consistent with 1995; the components have shifted due primarily 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 $11.6 million in the second quarter of 1996 compared to $10.7 million for the corresponding period of 1995. For the six months ended June 30, 1996, other operating costs and expenses were $23.4 million compared to $21.0 million for the corresponding period of 1995. The GAAP expense ratio of 6.1% for the second quarter of 1996 declined 2.2 percentage points from 8.3% in the second quarter of 1995. The GAAP expense ratio of 6.4% for the six months ended June 30, 1996 declined 2.2 percentage points from 8.6% for the six months ended June 30, 1995. The decrease in expense ratios is primarily attributable to an expanded premium base and normalization of expenses. STATUTORY COMBINED RATIOS ZRC's statutory combined ratio for the second quarter of 1996 was 102.9%, compared to 108.6% for the same period of 1995. The lower combined ratio results from a 3.7 percentage point decline in the loss and commission ratio and a 2.0 percentage point decline in the expense ratio. ZRC's statutory combined ratio for the six months ended June 30, 1996 was 103.5%, compared to 108.0% for the same period in 1995. The lower combined ratio results from a 2.5 percentage point decline in the loss and commission ratio and a 2.0 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 second quarter of 1996 was $22.4 million, an 8.6% increase over the comparable 1995 period. Net investment income for the first six months of 1996 was $44.0 million, a 17.7% 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. The after-tax annualized net investment income yield of 4.0% for the three months and six months ended June 30, 1996, was comparable to 4.2% for the three months and six months ended June 30, 1995. -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 $(6.8) million for the second quarter of 1996, compared to $12.7 million for the second quarter of 1995. For the six months ended June 30, 1996, pre-tax realized capital gains (losses) were $(5.4) million, compared to $6.8 million for the corresponding period of 1995. The 1996 and 1995 realized capital gain (loss) activity is reflective of market conditions and 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 second quarter of 1996 was $3.8 million, a 10.0% decline compared to the corresponding period of 1995. Interest and amortization expense for the first six months of 1996 was $7.7 million, a 1.4% decline from the corresponding period of 1995. The decrease in interest and amortization expense is due to the conversion of substantially all of the Company's 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 six months ended June 30, 1996 of 19.5% and 27.3%, respectively, had both operating and realized capital loss components. The effective tax rate on operating income was 29.8% and 29.5% for the three and six months ended June 30, 1996, respectively. The effective tax rate on operating income 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 losses approximated the federal statutory rate for the three and six months ended June 30, 1996. The Company's overall effective tax rate (benefit) for the three and six months ended June 30, 1995 was (8.5)% and 0.7%, respectively. The effective tax rate on operating income was 29.2% and 31.0% for the three and six months ended June 30, 1995, respectively, and differed from the federal statutory rate of 35.12% due principally to tax-exempt investment income and dividends. The effective tax rate (benefit) on realized capital gains was (23.8)% and (44.6)% for the three months and six months ended June 30, 1995, respectively, 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 six months of 1996, the Company's cash and invested assets increased 8.8% to $1,644.9 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 June 30, 1996, approximately 66% of the Company's cash and invested assets were invested in fixed maturity securities, 9% in equity securities and 25% 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 June 30, 1996 and December 31, 1995, respectively, 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 4.5 years as of June 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 $833.1 million as of June 30, 1996, a $143.4 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 June 30, 1996 was $670.7 million compared to $681.6 million at December 31, 1995. Shareholders' equity was affected by several factors including a $20.6 million decline in the after-tax market value of the Company's investment portfolio, after-tax operating income of $13.7 million and after-tax realized capital losses of $3.5 million. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents and short-term investments as of June 30, 1996 increased to $416.1 million, or 59.6% since December 31, 1995, as a result of sector shifts consistent with the Company's investment strategy. Net cash provided by operating activities for the six months ended June 30, 1996 of $117.4 million was consistent with the $119.0 million for the six months ended June 30, 1995. The cash flows for both periods are primarily attributable to underwriting operations and net investment income. For the six months ended June 30, 1996, net cash used in financing activities of $6.7 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 six months of 1995 was $5.1 million and resulted from the conversion of the Convertible Debentures. -12- 13 ZURICH REINSURANCE CENTRE HOLDINGS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1996 Annual Meeting of Stockholders of the Company was held on Thursday, May 23, 1996. At such meeting, each of the following individuals was elected to serve, and consented to so serve, as a Class III director of the Company (with a term expiring in 1999): Rolf Hueppi (22,063,811 shares voted for, no shares voted against, 81,156 shares abstaining), Steven M. Gluckstern (22,062,211 shares voted for, no shares voted against, 82,756 shares abstaining), Richard E. Smith (22,055,311 shares voted for, no shares voted against, 89,656 shares abstaining) and Detlef Steiner (22,063,811 shares voted for, no shares voted against, 81,156 shares abstaining). In addition, the Company's stockholders ratified the appointment of Ernst & Young LLP as independent public accountants for the Company for its fiscal year ending December 31, 1996 (22,137,633 shares voted for, 3,740 shares voted against, 3,594 shares abstaining), approved the adoption of the Company's 1995 Stock Option Plan pursuant to which officers of the Company will be eligible to receive options to acquire shares of the Company's common stock, par value $0.01 per share, (20,177,681 shares voted for, 1,385,145 shares voted against, 56,466 shares abstaining, 525,675 broker non-votes) and approved modifications to the Company's Restricted Stock Plan and increase from 250,000 to 450,000 the number of shares of the Company's common stock which may be granted under the plan (21,359,612 shares voted for, 203,731 shares voted against, 55,949 shares abstaining, 525,675 broker non-votes). 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 June 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 August 8, 1996 /s/ Richard E. Smith ---------------------------------------- Richard E. Smith President and Chief Executive Officer Date August 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 August 1, 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 June 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 August 1, 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 June 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 August 1, 1996 -15- EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 1,086,620 0 0 132,465 0 0 1,254,378 380,780 996 80,731 2,143,053 833,051 294,252 0 0 198,403 0 0 262 670,429 2,143,053 338,630 43,967 (5,423) 331 241,612 90,756 23,395 14,057 3,838 10,219 0 0 0 10,219 .39 .39 0 0 0 0 0 0 0
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