<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended September 30, 1996.
COMMISSION FILE NUMBER 0-27216
LASALLE RE HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CONTINENTAL BUILDING, 25 CHURCH STREET, HAMILTON HM 12, BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: 441-292-3339
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON SHARES, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS)
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. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X] (Amended by Exch
Act Rel No. 28869, eff. 5/1/91.)
The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on December 12, 1996
was approximately $441,832,719, computed upon the basis of the closing sales
price of the Common Shares on that date. For the purposes of this computation,
shares held by directors (and shares held by any entities in which they serve
as officers) and officers of the registrant have been excluded. Such exclusion
is not intended, nor shall it be deemed to be an admission that such persons
are affiliates of the registrant.
As of December 12, 1996, there were outstanding 16,517,111 Common Shares of
$1.00 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Excerpts from the Registrant's annual report to shareholders for the fiscal
year ended September 30, 1996 (the "1996 Annual Report").
2. The Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the
Registrant's fiscal year pursuant to Regulation 14A relating to the Annual
General Meeting of Shareholders scheduled to be held on February 28, 1997.
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<PAGE>
LASALLE RE HOLDINGS LIMITED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
- ---- ------
PART I
<S> <C>
1.Business................................................................. 2
2.Properties............................................................... 15
3.Legal Proceedings........................................................ 15
4.Submission of Matters to a Vote of Security Holders...................... 15
Executive Officers of the Registrant..................................... 15
</TABLE>
PART II
<TABLE>
<S> <C>
5.Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................... 16
6.Selected Financial Data................................................. 17
7.Managements' Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 18
8.Financial Statements and Supplementary Data............................. 18
9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................... 18
PART III
10.Directors and Executive Officers........................................ 18
11.Executive Compensation.................................................. 18
12.Security Ownership of Certain Beneficial Owners and Management.......... 18
13.Certain Relationships and Related Transactions.......................... 19
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 19
</TABLE>
1
<PAGE>
PART 1
NOTE ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements
are statements other than historical information or statements of current
condition. Some forward-looking statements may be identified by use of terms
such as "believes", "anticipates", "intends", or "expects". These forward-
looking statements relate to the plans and objectives of LaSalle Re Holdings
Limited ("the Company") for future operations, including the Company's
objective to seek annualized returns on shareholders' equity of 20%-25% and
the Company's policy to distribute as dividends 50%-60% of the Company's net
income from the prior fiscal year. In light of the risks and uncertainties
inherent in all future projections, the inclusion of forward-looking
statements in this report should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will
be achieved. Numerous factors could cause the Company's actual results to
differ materially from those in the forward-looking statements, including the
following: (i) the occurrence of catastrophic events with a frequency or
severity exceeding the Company's estimates; (ii) a decrease in the level of
demand for property catastrophe reinsurance; (iii) any lowering or loss of one
of the financial ratings of the Company's subsidiary, LaSalle Re Limited
("LaSalle Re"), or the Company's non-admitted status in the United States
jurisdictions; (iv) a decrease in the cession of business from CNA Financial
Corporation (together with its affiliates, "CNA") to the Company; (v) loss of
the services of any of the Company's executive officers; (vi) the termination
of any of the Company's service agreements; (vii) the passage of federal or
state legislation subjecting the Company to supervision or regulation in the
United States; (viii) challenges by insurance regulators in the United States
or the United Kingdom to the Company's claim of exemption from insurance
regulation under current laws; or (ix) a contention by the United States
Internal Revenue Service that the Company or LaSalle Re is engaged in the
conduct of a trade or business within the U.S. The foregoing review of
important factors should not be construed as exhaustive; the Company
undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
The Company writes high severity, low frequency reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. The Company primarily underwrites
property catastrophe reinsurance and also seeks to take advantage of pricing
opportunities that may occur in other lines of reinsurance. These lines
currently include property risk excess, property pro rata treaty, casualty
clash, marine, crop hail, aviation and satellite.
The Company was incorporated on September 20, 1995 under the laws of Bermuda
to act as an investment holding company. LaSalle Re was incorporated on
October 26, 1993 under the laws of Bermuda to capitalize on the opportunity
created by an imbalance between the supply of and demand for property
catastrophe reinsurance, which resulted in an increase in premiums from pre-
1993 levels. The Company believes that the decrease in supply of property
catastrophe capacity was attributable to the withdrawal, in whole or in part,
of certain reinsurers, including syndicates at Lloyd's of London ("Lloyd's"),
from the property catastrophe market. Such withdrawals followed a succession
of property catastrophe losses by those reinsurers that began in 1987 and
culminated with hurricane Andrew.
LaSalle Re has two wholly owned subsidiaries, LaSalle Re (Services) Limited
("LaSalle Re Services"), which acts as a representative office for the Company
in the UK, and LaSalle Re Corporate Capital Ltd. ("LaSalle Re Capital"), which
was formed to provide capital support to selected Lloyd's syndicates
commencing in January 1997.
In November 1995, the Company and LaSalle Re consummated an offer (the
"Exchange Offer") pursuant to which, among other things, the founding
shareholders of LaSalle Re (the "Founding Shareholders") exchanged their
capital stock of LaSalle Re for common shares of the Company (the "Common
Shares") and,
2
<PAGE>
in certain circumstances, exchangeable non-voting shares of LaSalle Re (the
"Exchangeable Non-Voting Shares"). The Exchangeable Non-Voting Shares are held
by certain Founding Shareholders who would otherwise hold, or cause another
shareholder to hold, directly, indirectly or constructively, in excess of 9.9%
of the voting power of the Company or LaSalle Re. The Exchangeable Non-Voting
Shares are exchangeable, at the option of the holder, for Common Shares on a
one-for-one basis, unless the board of directors of the Company (the "Board")
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the common shares of LaSalle Re, except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company.
On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares (the
"Offerings"). Of these shares, 2,920,500 were sold by Founding Shareholders
and 1,392,000 by the Company. The proceeds from the sale of 1,392,000 shares
sold by the Company were used to enable LaSalle Re to redeem shares of its
capital stock (the "Redemption").
Since the consummation of the Exchange Offer, the Offerings and the
Redemption, the Company owned 100% of the outstanding voting stock which
constituted approximately 63% of the outstanding capital stock of LaSalle Re.
The Exchange Offer was accounted for as if it were a pooling of interests of
combining enterprises under common control.
In December 1996, certain selling shareholders of the Company consummated a
secondary public offering of 3,910,000 Common Shares. The Company did not
receive any of the proceeds from the sale of the Common Shares. Upon
completion of the secondary offering, the Company owned approximately 73% of
the outstanding capital stock of LaSalle Re, or 100% of the outstanding voting
stock of LaSalle Re.
BUSINESS SEGMENTS
The Company writes high severity, low frequency reinsurance on a worldwide
basis through its subsidiary, LaSalle Re. The Company primarily writes
property catastrophe reinsurance and also writes selected other lines of
reinsurance when it believes that market conditions are favorable. These lines
currently include property risk excess, property pro rata treaty, casualty
clash, marine, crop hail, aviation and satellite.
The following table sets forth the Company's net premiums written and number
of contracts written by type of reinsurance for the periods indicated (dollars
in millions):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
---------------------- ----------------------
NET PREMIUMS NUMBER OF NET PREMIUMS NUMBER OF
TYPE OF REINSURANCE WRITTEN CONTRACTS WRITTEN CONTRACTS
- ------------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Property catastrophe reinsurance:
Excess of loss................. $122.4 832 $135.7 773
Pro rata....................... 42.2 10 42.8 10
Other lines of business:
Property--risk excess and pro
rata.......................... 9.7 70 5.3 59
Casualty clash................. 3.0 30 2.6 27
Marine......................... 4.6 17 3.1 4
Miscellaneous.................. 4.8 36 6.4 20
Adjustments and reinstatement
premiums...................... 3.5 -- 6.0 --
------ --- ------ ---
Total........................ $190.2 995 $201.9 893
====== === ====== ===
</TABLE>
Property Catastrophe
The largest portion of the Company's business consists of property
catastrophe excess of loss contracts. Property catastrophe excess of loss
reinsurance provides coverage when total losses and loss expenses from a
3
<PAGE>
single occurrence of a covered peril under a portfolio of primary reinsurance
contracts exceed the attachment point specified in the reinsurance contract
with the primary insurer. Some of the Company's property catastrophe excess of
loss policies limit coverage to one occurrence in a policy year, but most
policies provide for coverage of a second occurrence after the payment of a
reinstatement premium. The Company also writes a minimal amount of aggregate
property catastrophe excess of loss contracts, which cover more than one
catastrophe with one attachment point.
The Company writes pro rata of property catastrophe reinsurance treaties when
it believes that rates and volume are attractive. In such programs, the Company
assumes a specified proportion of the exposure under a portfolio of excess of
loss property catastrophe reinsurance contracts written by the ceding reinsurer
and receives an equal proportion of the premium received by the cedent. The
cedent generally receives a ceding commission, based upon the premiums ceded to
the reinsurer, and may also be entitled to receive a profit commission based on
the ratio of losses, loss expenses and the reinsurer's expenses to premiums
ceded. The Company generally requires that its pro rata of property catastrophe
contracts have aggregate exposure limits per occurrence on a zonal basis. The
Company generally obtains detailed information concerning each underlying
contract and the exposures underlying the risks it assumes and audits the
premiums associated with the cessions. However, the Company is dependent upon
the cedent's underwriting, pricing and claims administration to yield an
underwriting profit.
Other Lines of Business
The Company's property risk excess of loss contracts cover a cedent's loss on
a single "risk" in excess of the cedent's attachment point, rather than
covering multiple risks as does property catastrophe reinsurance. A "risk" in
this context might mean the insurance coverage on one building or a group of
buildings or the insurance coverage under a single policy, which the reinsured
treats as a single risk. In property pro rata reinsurance treaties, the Company
assumes a proportional part of the original premiums and losses of the
reinsured on non-catastrophe reinsurance contracts. In property pro rata
reinsurance, the reinsurer generally pays the ceding company a ceding
commission. The ceding commission generally is based on the ceding company's
cost of acquiring the business being reinsured (including commissions, premium
taxes, assessments and miscellaneous administrative expense) and also may
include a profit factor.
In addition to property risk excess of loss and pro rata, the Company also
writes other lines of reinsurance, which currently include casualty clash,
marine, crop hail, aviation and satellite. Casualty clash reinsurance protects
cedents against an aggregation of casualty losses incurred by multiple insureds
from a single event. In addition to aggregation of losses, casualty clash
coverage protects a reinsured against a single extraordinary loss caused by a
judgment in excess of the original policy limit issued (including punitive
damages) or an action by an original insured against the insurer for "bad
faith" handling of a claim (extra-contractual obligations). Marine and aviation
risks involve property damage, although they may also involve casualty
coverages arising from the same event causing the property claims. Crop hail
reinsurance provides property coverage for hail damage to crops. Satellite
reinsurance protects the reinsured primarily from losses relating to launches,
improper orbits and other losses in the early stages of the satellite's life.
The Company has formed LaSalle Re Capital to provide capital support to
selected Lloyd's syndicates commencing in January 1997. The Company expects
that such support will be provided through letters of credit or a deposit of
funds at Lloyd's. The Company is currently negotiating with three syndicates.
One of such syndicates writes direct and facultative property insurance; one
writes marine insurance and reinsurance; and one writes professional indemnity,
directors and officers' insurance and bankers blanket bond business. There can
be no assurance that any such negotiations will result in a definitive
agreement. LaSalle Re Capital's provision of capital support to Lloyd's
syndicates is subject to approval by the appropriate regulatory authorities.
Geographic Diversification
The Company seeks to diversify its property catastrophe exposures across
geographic zones in order to optimize its spread of risk. For the year ended
September 30, 1996, 41.7% of the Company's net premiums
4
<PAGE>
written represented U.S.-based risks. Within the United States, the Company's
largest exposure on a zonal basis is the West Coast, including Hawaii and
Alaska. The remaining 58.3% of net premiums written was spread in other
territories around the world. This distribution of risk is subject to change
and is dependent upon rates available in various zones. The Company intends to
continue its expansion in international writings to further diversify its
exposures. As a result of long-term relationships between the Company's
management and certain clients and brokers, the Company has developed a strong
base of regional business in the U.S. This business assists the Company in
diversifying its U.S.-based risks and makes more efficient use of its capital
by limiting multi-zone exposures. In the year ended September 30, 1996, this
regional business represented a significant component of the Company's U.S.-
based net premiums written.
The following table sets forth the percentage of the Company's net premiums
written allocated to the zone of exposure at the dates indicated (dollars in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
---------------------- ----------------------
NET PERCENTAGE OF NET PERCENTAGE OF
PREMIUMS NET PREMIUMS PREMIUMS NET PREMIUMS
GEOGRAPHIC AREA WRITTEN WRITTEN WRITTEN WRITTEN
- --------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C>
United States.................... $ 79.4 41.7% $ 91.6 45.4%
Europe (excluding the U.K.)...... 22.0 11.6 21.0 10.4
United Kingdom................... 16.3 8.6 14.1 7.0
Japan............................ 8.0 4.2 7.6 3.8
Australasia...................... 11.0 5.8 9.8 4.8
Worldwide........................ 22.0 11.6 26.9 13.3
Worldwide (excluding the
U.S.)(1)........................ 11.5 6.0 8.8 4.4
Other(2)......................... 16.5 8.6 16.1 8.0
Adjustments and reinstatements... 3.5 1.9 6.0 2.9
------ ----- ------ -----
Total........................ $190.2 100.0% $201.9 100.0%
====== ===== ====== =====
</TABLE>
- --------
(1) The category "Worldwide (excluding the U.S.)" consists of contracts that
cover more than one zone (none of which is in the U.S.). The exposure in
this category for business written to date is predominantly from Europe and
Japan.
(2) Other relates to other lines of reinsurance, including casualty clash,
marine, crop hail, aviation and satellite.
Program Limits
The following table sets forth the number of the Company's property
catastrophe excess of loss programs written in the year ended September 30,
1996 by aggregate excess of loss program limits:
<TABLE>
<CAPTION>
NUMBER OF
PROGRAMS
---------
<S> <C>
Greater than $15 million but less than $20 million.............. 2
$10-15 million.................................................. 15
$7.5-10 million................................................. 18
$5-7.5 million.................................................. 36
$2.5-5 million.................................................. 70
Less than $2.5 million.......................................... 209
---
Total....................................................... 350
===
</TABLE>
UNDERWRITING
The Company's principal underwriting strategy is to underwrite property
catastrophe exposures within clearly defined parameters that permit thorough
analysis and appropriate pricing of each of the Company's
5
<PAGE>
reinsurance contracts. Underwriting decisions are made following analysis of
each reinsurance contract based on the expected incremental return on equity
in relation to the Company's overall portfolio of reinsurance contracts.
The Underwriting/Actuarial Committee of the Company's Board has set limits
on the Company's aggregate exposure. The Company uses various methods to
evaluate and monitor its exposure to loss. The Company diversifies its
property catastrophe exposures worldwide and within each geographic zone and
also maintains exposure limits within each geographic zone. Aggregate
exposures also are controlled and monitored on a real-time basis using
computer-based rating and control systems. The Company imposes attachment
points in its contracts at a level that is expected to exceed frequency of
loss and limits aggregate risk exposure. In addition, the Company regularly
reevaluates its pricing to ensure that general market conditions remain
attractive.
The Company obtains information from brokers, potential cedents and other
sources, as appropriate, in order to make informed underwriting decisions. A
potential cedent generally is not accepted without a thorough examination of
its historical record, management, business strategy, underwriting policies
and risk management systems. The Company also seeks to select clients with
disciplined catastrophe management programs. The Company seeks to build long-
term relationships with its clients because the Company believes that it can
underwrite renewal business with greater precision.
The Company uses computer-based modeling systems to estimate exposure to
loss and evaluate pricing adequacy of its reinsurance programs. These models
are also used in the analysis of projected return on equity and the monitoring
of aggregate exposures within geographic zones.
For U.S.-based risks, the Company has developed a proprietary model called
L-CAM(TM) (LaSalle Catastrophe Analysis Model). L-CAM(TM) incorporates
commercially available catastrophe simulation models and the Company's
internally-generated models. The commercially available models include (i)
CATMAP(TM), which uses market share data derived from zip code and/or country
aggregate data to develop individual contract and portfolio loss statistics
and (ii) IRAS(TM), which derives loss statistics based on hypothetical risk
location determined from the most detailed information provided by the primary
insurer. Models developed by the Company and used in L-CAM(TM) include (i) the
Modified Historical Event Model, which fits a Pareto loss distribution to over
45 years of catastrophe loss data, adjusted for inflation and demographic
shifts, (ii) the Market Loss Pricing Model, which uses underwriting-zone
market share information to develop attachment and exhaustion probabilities
from which pricing input is determined and (iii) the Industry Peer Model,
which is a portfolio management tool selecting treaties in force with similar
characteristics for pricing considerations.
For non-U.S. based property catastrophe risks, the Company uses modeling
techniques which incorporate Pareto loss distributions with exposure rating
based on aggregate liabilities per geographic zone. The Company also examines
experience ratings of adjusted historical loss events and, for some non-U.S.
territories, uses a commercially available software program produced by EQECAT
International, which utilizes probabilistic and deterministic loss
calculations.
For the other lines of reinsurance, the Company uses internal rating
techniques that incorporate, among other things, exposure and experience
ratings and thorough analysis of loss ratios and underwriting expenses
associated with the business to be reinsured. The Company carefully structures
the terms and conditions of its contracts to restrict coverage to the specific
perils intended.
The results of these analyses are measured against the Company's current
portfolio and other known treaties in the market and combined with
management's knowledge of the client and the current reinsurance market
environment. Pricing and participation decisions are then made based on the
estimated exposure of losses and the potential impact of each contract on
incremental return on equity.
Underwriting services are provided to the Company by CNA (Bermuda) Services
Ltd. ("CNA Bermuda") pursuant to an underwriting services agreement. A staff
of five professionals with extensive experience in the
6
<PAGE>
reinsurance industry currently serve as the Company's underwriting team in
Bermuda. The Company also has access to the reinsurance expertise of CNA in
terms of underwriting databases and technology, a staff of specialized
professionals and a worldwide network of contacts in the reinsurance market.
In addition, the underwriting of all new exposures is reviewed by the Chief
Executive Officer or Chief Underwriting Officer of the Company.
MARKETING
The Company markets its reinsurance products worldwide primarily through
reinsurance brokers. By marketing its products primarily through the broker
network, the Company avoids the expense of establishing and maintaining
worldwide offices and marketing operations. The Company believes that its
broker relationships permit it to obtain business and monitor developments in
various lines of reinsurance in order to increase its writings when market
conditions in those lines are favorable.
The Company maintains an office in London, England through LaSalle Re
Services. LaSalle Re Services introduces prospective customers to the Company
and provides an important liaison with brokers in the London Market, assisting
in the distribution of marketing literature and collecting information for
LaSalle Re on demand and developments in the London reinsurance market
generally. In addition, LaSalle Re Services plays a key role in the Company's
marketing efforts in Europe.
The Company strives to develop strong relationships with its brokers and
clients. Retention of clients permits the Company to use experience regarding
a client's underwriting practices and risk management systems to underwrite
its own business with greater precision. The Company also targets brokers and
clients that it believes will enhance the risk/return composition of its
portfolio, are capable of supplying detailed and accurate underwriting data
and can potentially add diversification to the Company's book of business.
Additionally, the Company believes that its level of capital and surplus
offers financial security and demonstrates to brokers and clients a high level
of commitment to property catastrophe reinsurance.
The Company focuses on providing high quality service by promptly responding
to underwriting submissions, designing customized programs and offering lead
terms when circumstances warrant and paying valid claims within an average of
five days. The Company believes that it has established a reputation with its
brokers and clients for high quality service.
The Company received approximately 3,423 contract submissions in the year
ended September 30, 1996 as compared to 3,667 in the year ended September 30,
1995. The Company is highly selective in accepting risks, extending coverage
on only 995 contracts, or 29.1% of the program submissions received, in the
year ended September 30, 1996. Subsidiaries and affiliates of Aon Corporation
(together with its affiliates, "Aon") were brokers for approximately 12.4%,
10.6% and 11.9% of the Company's net written premiums in the years ended
September 30, 1996, 1995 and the period ended September 30,1994 respectively.
Guy Carpenter & Company, Inc., together with its affiliates, generated 16.6%,
21.1% and 20.3% of the Company's net premiums written for the years ended
September 30, 1996, 1995 and the period ended September 30, 1994. No other
broker accounted for more than 10% of the Company's net premiums written for
the years ended September 30, 1996, 1995 or the period ended September 30,
1994.
Consistent with its emphasis on disciplined underwriting practices, the
Company is not obligated to accept any business from any intermediary,
including Aon, CNA or LaSalle Re Services. No intermediary has the authority
to bind the Company on any business.
RESERVES
The Company establishes loss reserves for the ultimate settlement costs of
all losses and loss expenses incurred with respect to business written by it.
Generally accepted accounting principles ("GAAP") does not
7
<PAGE>
permit the Company to establish reserves with respect to its property
catastrophe reinsurance until an event occurs that may give rise to a claim.
As a result, only loss reserves applicable to losses incurred up to the
reporting date may be set aside, with no allowance for the provision of a
contingency reserve to account for expected future losses.
The derivation of loss reserves involves the actuarial and statistical
projection at any given time of the Company's expectations of the ultimate
settlement of loss and loss expenses. These loss projections become necessary,
in large part, as a result of time lags associated with reinsurance loss
reporting. These lags are principally attributable both to claimant delays in
reporting to the primary carrier as well as primary and reinsurance company
delays in gathering statistics and subsequently reporting cession details to
the Company. As a result, in addition to the loss estimates reported by
primary insurers on known claims, actuarially projected estimates of reserves
applicable to both the development (growth) of known claims as well as the
emergence of new claims reports related to losses events which have been
incurred but not reported ("IBNR losses") prior to the evaluation date must be
developed. In addition to the impact of reporting lags upon the accuracy of
estimated loss liabilities, other factors have tremendous impact upon the
ultimate settlement of insured losses, including loss cost inflation, trends
in the amount of insurance purchased to the full value of insured properties
and trends in the size and demographics of insured populations. The loss
reserve estimates are not precise in that they necessarily involve an attempt
to predict the ultimate outcome of future loss reporting and settlement
activities.
To establish appropriate loss reserves, the Company uses a combination of
data sources and commercially available catastrophe models. These models are
employed upon the occurrence of an event to arrive at estimates of losses to
the Company. In addition, grouped and individual contract data illustrating
the loss development history for prior similar events, as well as actual loss
emergence experience of the underlying insurers, are analyzed to assist in the
determination of suitable loss reserves. The data derived from the industry
sources, and supplemented with the client specific information, are then used
to arrive at estimates of loss emergence patterns and initial estimates of
ultimate loss rates. These parameters are then applied, on a contract by
contract basis, to arrive at estimates of ultimate losses. These loss
estimates are then supplemented with the results derived from the catastrophe
models, and final loss estimates are selected and reduced for losses reported
to the Company to arrive at IBNR losses as of the date of evaluation.
The reserves are reviewed regularly by the Company's actuaries and executive
officers and the Board of Directors of LaSalle Re, and to the extent they
develop upward or downward, the results are reflected in the net income in the
period in which the reserve deficiency or redundancy is evaluated. There can
be no assurance that the final loss settlements will not exceed the Company's
loss reserve and have a material adverse effect upon the Company's financial
condition and results of operations in a particular period.
The Company determines its reserves with the assistance of actuarial staff
provided by Aon Risk Consultants (Bermuda) Ltd. ("Aon Bermuda") pursuant to an
administrative services agreement (the "Administrative Services Agreement").
INVESTMENTS
Composition of Portfolio
The Board has implemented a set of investment guidelines designed to meet
the Company's liquidity requirements and return objectives. The guidelines are
intended to be conservative, stressing preservation of principal, yield
enhancement through the identification of value and market inefficiencies,
market liquidity and risk reduction. The primary objective of the investment
portfolio, as set forth in the guidelines, is to maximize investment returns
consistent with these policies. The Company's investment guidelines are
reviewed periodically and are subject to change at the discretion of the
Board.
8
<PAGE>
The following table summarizes the composition of the Company's investment
portfolio as of September 30, 1996, 1995 and 1994 (dollars in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------
1996 1995
------------- ------------
FAIR % OF FAIR % OF
TYPE OF INVESTMENT VALUE TOTAL VALUE TOTAL
------------------ ------- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities:
Non-U.S. government bonds and agencies..... $ 75.3 14.0% $ 63.3 12.1%
U.S. government bonds and agencies......... 90.1 16.8 4.9 0.9
Corporate bonds............................ 325.1 60.5 371.8 71.2
Short-term investments..................... 0.0 0.0 0.0 0.0
------- ----- ------ -----
Subtotal................................. 490.5 91.3 440.0 84.2
Cash and cash equivalents.................. 47.0 8.7 82.4 15.8
------- ----- ------ -----
Total investments........................ $ 537.5 100.0% $522.4 100.0%
======= ===== ====== =====
</TABLE>
Quality of Portfolio
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 15% of the total portfolio, and only
10% of the total portfolio can be invested in "BBB" grade rating. In addition,
the guidelines restrict investments in a single issuer to no greater than 5%
of the market value of the portfolio (except for U.S. and U.K. Government
issues) and, with respect to country of issue, to no greater than 25% of the
market value of the portfolio, except for U.S. and supernational borrowers.
The following table summarizes the composition of the Company's fixed
maturity portfolio by rating as assigned by S&P or Moody's as of September 30,
1996 and 1995 (dollars in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995
------------- -------------
FAIR % OF FAIR % OF
RATING VALUE TOTAL VALUE TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
AAA......................................... $310.5 63.3% $305.4 69.4%
AA.......................................... 126.1 25.7 134.6 30.6
A........................................... 53.9 11.0 -- --
------ ------ ------ ------
$490.5 100.0% $440.0 100.0%
====== ====== ====== ======
</TABLE>
Maturity and Duration of Portfolio
The Company's investment guidelines specify a one to four year duration for
the Company's investment portfolio, reflecting the need to maintain a liquid,
short duration portfolio to assure the Company's ability to pay claims on a
timely basis. The Company currently has a target duration for the portfolio of
three years and at September 30, 1996, the modified average duration of the
portfolio was 2.57 years. The Company expects to periodically reevaluate the
target duration in light of market conditions, including the level of interest
rates, and estimates of the duration of its liabilities.
The following table summarizes the contractual maturities of the Company's
fixed maturity portfolio as of September 30, 1996 and 1995 (dollars in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C> <C> <C>
Due in less than one year..................... $ 99.8 20.4% $ 45.1 10.3%
Due in one to five years...................... 331.8 67.6 353.3 80.3
Due in five to ten years...................... 58.9 12.0 41.6 9.4
Greater than 10 years......................... -- -- -- --
------ ----- ------ -----
$490.5 100.0% $440.0 100.0%
====== ===== ====== =====
</TABLE>
9
<PAGE>
Equity Securities/Real Estate
Pursuant to the Company's investment guidelines, the Company's investment
portfolio may not contain any direct investments in real estate, mortgage loans
or equity securities.
Foreign Currency Exposures
At present, the Company's fixed maturity portfolio is composed only of
securities denominated in U.S. dollars. In the future, the Company's investment
managers may be instructed to invest some of the fixed maturity portfolio in
securities denominated in currencies other than U.S. dollars based upon the
business the Company anticipates writing, the exposures and claims reserves on
the Company's books and the local currency outlook compared to that of the U.S.
dollar. The primary risk exposures and premiums receivable are denominated in
U.S. dollars, European currencies, Japanese yen and Australian dollars.
In an effort to manage its exposure to foreign currency exchange rate
fluctuations, the Company from time to time enters into foreign exchange
contracts. These contracts generally involve the exchange of one currency for
U.S. dollars at some future date. At September 30, 1996, the Company has a
notional principal amount outstanding of approximately $25.2 million in foreign
exchange contracts as compared to $6.1 million at September 30, 1995. The
carrying value of these contracts at September 30, 1996 approximated their fair
value. Realized and unrealized gains or losses on these contracts are recorded
as an income item in the Company's consolidated statement of operations.
Foreign exchange contracts at September 30, 1996 generally had maturities of
six months or less and related to major Western currencies.
Diversification and Liquidity
Pursuant to the investment guidelines of the Company, no more than 25% of the
fair market value of the Company's investment portfolio may be invested in the
securities of any sovereign government or agency issuing in its own currency
(except for the U.S. and supernational entities). Additionally, no more than 5%
of the fair market value of the investment portfolio may be invested in
securities issued by any single issuer.
Investment Manager
LaSalle Re has entered into an investment management agreement (the
"Investment Management Agreement") with Aon Advisors (UK) Limited ("Aon
Advisors"). Pursuant to the terms of the Investment Management Agreement, the
Company pays Aon Advisors a fee equal to 0.35% per annum of the first $100
million of assets under management, 0.25% per annum of the next $100 million of
assets under management in excess of $100 million and 0.15% per annum of any
additional assets under management in excess of $200 million. The terms of the
Investment Management Agreement were determined in arm's length commercial
negotiations. The performance of, and the fees paid to, Aon Advisors under the
Investment Management Agreement are reviewed periodically by the Board.
COMPETITION
The property catastrophe reinsurance industry is highly competitive. The
Company competes, and will continue to compete, with major U.S. and non-U.S.
insurers and property catastrophe reinsurers, including other Bermuda based
property catastrophe reinsurers and CNA, some of which have greater financial
and organizational resources than the Company. There may be established
companies or new companies of which the Company is not aware which may be
planning to enter the property catastrophe reinsurance market or existing
reinsurers which may be planning to raise additional capital. In addition,
Lloyd's began to allow capital from corporate investors in 1994. Competition in
the types of reinsurance business that the Company underwrites is based on many
factors, including rates and other terms and conditions offered, services
provided, ratings assigned by independent rating agencies, speed of claims
payment and reputation, the perceived financial strength and experience of the
reinsurer in the line of reinsurance to be written.
10
<PAGE>
In April 1996, LaSalle Re received an initial rating from A.M. Best Company,
Inc. ("A.M. Best") of "A-" (Excellent). Prior to that time, LaSalle Re was not
rated by any rating agency. The rating received by LaSalle Re represents the
fourth highest in the rating scale used by A.M. Best. In October 1996, LaSalle
Re received an initial rating of its claims paying ability from Standard &
Poor's Corporation ("S&P") of "A" (Good). The rating received by LaSalle Re
represents the sixth highest in the rating scale used by S&P. Such ratings are
based on factors of concern to cedents and brokers and are not directed toward
the protection of investors. Such ratings are neither a rating of securities
nor a recommendation to buy, hold or sell such securities. While the Company
believes that its new ratings will not be a major competitive advantage or
disadvantage, some of the Company's principal competitors have higher ratings
than the Company. Insurance ratings are one factor used by brokers and cedents
as a means of assessing the financial strength and quality of reinsurers. In
addition, a cedent's own rating may be adversely affected by the lack of a
rating of its reinsurer. Therefore, a cedent may elect to reinsure with a
competitor of the Company that has a higher insurance rating. Similarly, the
lowering or loss of a rating in the future could adversely affect the
Company's ability to compete.
The Company is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda and has no plans to become so licensed or admitted;
however, LaSalle Re Capital may become a corporate member of a Lloyd's
syndicate. Because jurisdictions in the United States do not permit insurance
companies to take credit for reinsurance obtained from unlicensed or non-
admitted insurers on their statutory financial statements unless security is
posted, the Company's reinsurance contracts generally require it to post a
letter of credit or provide other security for outstanding claims and/or
unearned premiums. In order to post these letters of credit, the Company
generally is required to provide the issuing banks with collateral equal to
such amounts. As a result of the size of the Company's capitalization, the
Company does not believe that its non-admitted status in any jurisdiction has,
or should have, a material adverse effect on its ability to compete or obtain
business in the property catastrophe reinsurance market in which it operates,
principally because many of the Company's competitors are not admitted or
licensed in United States jurisdictions. However, there can be no assurance
that increased competitive pressure from current reinsurers and future market
entrants or the Company's non-admitted status will not adversely affect the
Company.
EMPLOYEES
The Company has three employees, which are Mr. Blake, Chairman, Chief
Executive Officer and President of the Company, Mr. Cook, Chief Financial
Officer and Treasurer of the Company and the Company's Investor Relations
Manager. In addition to their activities, the Company's day-to-day operations
are performed by affiliates of Aon and CNA pursuant to certain service
agreements. Under these agreements, 31 employees of Aon and CNA are currently
dedicated to the Company. The Company believes that its employee relations are
satisfactory. None of the Company's employees are subject to collective
bargaining agreements, and the Company knows of no current efforts to
implement such agreements at the Company.
REGULATION
Bermuda
The Insurance Act 1978, as amended, and Related Regulations (the "Insurance
Act"). As a holding company, the Company is not subject to Bermuda insurance
regulations. However, the Insurance Act, which regulates the insurance
business of LaSalle Re, provides that no person shall carry on an insurance
business in or from within Bermuda unless registered as an insurer under the
Insurance Act by the Minister of Finance (the "Minister"). The Minister, in
deciding whether to grant registration, has broad discretion to act as he
thinks fit in the public interest. The Minister is required by the Insurance
Act to determine whether the applicant is a fit and proper body to be engaged
in the insurance business and, in particular, whether it has, or has available
to it, adequate knowledge and expertise. The registration of an applicant as
an insurer is subject to its complying with the terms of its registration and
such other conditions as the Minister may impose at any time.
11
<PAGE>
An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions, and sub-committees
thereof supervise and review the law and practice of insurance in Bermuda,
including reviews of accounting and administrative procedures.
The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Other significant aspects of the Bermuda insurance
regulatory framework are set forth below.
Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister after consultation with the
Insurance Advisory Committee, the insurer has not been carrying on business in
accordance with sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, both of
which, in the case of LaSalle Re, are required to be filed annually with the
Registrar of Companies (the "Registrar"), who is the chief administrative
officer under the Insurance Act. The independent auditor of the insurer must be
approved by the Minister and may be the same person or firm which audits the
insurer's financial statements and reports for presentation to its
shareholders.
Loss Reserve Specialist. LaSalle Re is registered as a Class 4 insurer. Every
Class 4 insurer is required to submit an annual loss reserve opinion when
filing the Annual Statutory Financial Return. This opinion must be issued by a
Loss Reserve Specialist. The Loss Reserve Specialist, who will normally be a
qualified casualty actuary, must be approved by the Minister.
Statutory Financial Statements. An insurer must prepare Annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation
and substance of such Statutory Financial Statements (which include, in
statutory form, a balance sheet, income statement, statement of capital and
surplus and detailed notes thereto). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda, which financial statements may be prepared in accordance with GAAP.
LaSalle Re is required to submit the Annual Statutory Financial Statements as
part of the Annual Statutory Financial Return.
Minimum Solvency Margin. The Insurance Act provides that the statutory assets
of an insurer must exceed its statutory liabilities by an amount greater than
the prescribed minimum solvency margin which varies with the type of business
and class of registration of the insurer and the insurer's net premiums written
and loss reserve level. As a registered Class 4 insurer, LaSalle Re is required
to maintain a minimum solvency margin equal to the greatest of $100 million,
50% of its net premiums written and 15% of its loss and other certain insurance
reserves. At September 30, 1996, LaSalle Re's actual statutory capital and
surplus was $475.6 million, compared to its minimum solvency margin requirement
of $100 million.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity ratio
for general business. An insurer engaged in general business is required to
maintain the value of its relevant assets at not less than 75% of the amount of
its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable and
reinsurance balances receivable. There are certain categories of assets which,
unless specifically permitted by the Minister, do not automatically qualify as
relevant assets, such as unquoted equity securities, investments in and
advances to affiliates, real estate and collateral loans. The relevant
liabilities are total general business insurance reserves and total other
liabilities less deferred income tax and sundry liabilities (by interpretation,
those not specifically defined).
12
<PAGE>
Annual Statutory Financial Return. LaSalle Re is required to file with the
Registrar an Annual Statutory Financial Return no later than four months after
its financial year end (unless specifically extended). The Annual Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Annual Statutory Financial Statements of the
insurer; a declaration of the statutory ratios; a solvency certificate; the
Annual Statutory Financial Statements themselves; the opinion of the approved
Loss Reserve Specialist and certain details concerning ceded reinsurance. The
solvency certificate and the declaration of the statutory ratios must be
signed by the principal representative and at least two directors of the
insurer who are required to state (among other matters) whether the Minimum
Solvency Margin and, in the case of the solvency certificate, the Minimum
Liquidity Ratio have been met, and the independent approved auditor is
required to state whether in its opinion it was reasonable for them to so
state and whether the declaration of the statutory ratios complies with the
requirements of the Insurance Act. The Statutory Financial Return must include
the opinion of the Loss Reserve Specialist in respect of the loss and loss
expense provisions of LaSalle Re. Where an insurer's accounts have been
audited for any purpose other than compliance with the Insurance Act, a
statement to that effect must be filed with the Statutory Financial Return.
Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if
the Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer becoming
insolvent or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may (among other matters) direct
the insurer not to take on any new insurance business; not to vary any
insurance contract if the effect would be to increase the insurer's
liabilities; not to make certain investments; to realize certain investments;
to maintain in Bermuda, or transfer to the custody of a specified bank,
certain assets; not to declare or pay any dividends or other distributions or
to restrict the making of such payments; and/or to limit its premium income.
Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of LaSalle
Re is at the Company's offices at 25 Church Street, Hamilton HM FX Bermuda,
and Andrew Cook is the principal representative of LaSalle Re. Without a
reason acceptable to the Minister, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such, unless 30 days' notice in writing to the
Minister is given of the intention to do so. It is the duty of the principal
representative, within 30 days of his reaching the view that there is a
likelihood of the insurer for which he acts becoming insolvent or its coming
to his knowledge, or his having reason to believe, that an "event" has
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. Examples of such an "event"
include failure by the reinsurer to comply substantially with a condition
imposed upon the reinsurer by the Minister relating to a solvency margin or a
liquidity or other ratio.
Class 4 Insurer. LaSalle Re is registered as a Class 4 insurer and, as such:
(i) is required to maintain a minimum statutory capital and surplus equal to
the greatest of $100 million, 50% of its net premiums written and 15% of its
loss and other insurance reserves; (ii) is required to file annually within
four months following the end of the relevant financial year with the
Registrar a Statutory Financial Return together with a copy of its Annual
Statutory Financial Statements and an opinion of a Loss Reserve Specialist in
respect of its loss and loss expense provisions; (iii) is prohibited from
declaring or paying any dividends during any financial year if it is in breach
of its minimum solvency margin or minimum liquidity ratio or if the
declaration or payment of such dividends would cause it to fail to meet such
margin or ratio (if it has failed to meet its minimum solvency margin or
minimum liquidity ratio on the last day of any financial year, LaSalle Re will
be prohibited, without the approval of the Minister, from declaring or paying
any dividends during the next financial year); (iv) is prohibited from
declaring or paying in any financial year dividends of more than 25% of its
total statutory capital and surplus (as shown on its previous financial year's
statutory balance sheet) unless it files with the Registrar an affidavit
stating that it will continue to meet the required margins; (v) is prohibited,
without the approval of
13
<PAGE>
the Minister, from reducing by 15% or more its total statutory capital, as set
out in its previous year's financial statements; and (vi) is required, at any
time it fails to meet its solvency margin, within 30 days (45 days where total
statutory capital and surplus falls to $75 million or less) after becoming
aware of that failure or having reason to believe that such failure has
occurred to file with the Minister a written report containing certain
information.
Certain Other Considerations. As "exempted" companies, the Company and
LaSalle Re may not, without the express authorization of the Bermuda
legislature or a license granted by a Minister, participate in certain business
transactions, including: (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy
agreement for a term not exceeding 21 years); (ii) the taking of mortgages on
land in Bermuda in excess of $50,000; or (iii) the carrying on of business of
any kind in Bermuda, except in furtherance of the business of the Company
carried on outside Bermuda.
The Bermuda government actively encourages foreign investment in "exempted"
entities like the Company that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, the Company and LaSalle Re are not currently
subject to taxes on their incomeor dividends or to any foreign exchange
controls in Bermuda. In addition, there currently is no capital gains tax in
Bermuda, and profits can be accumulated by the Company and LaSalle Re, as
required, without limitation.
United States, United Kingdom and Other
LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda. LaSalle Re is not admitted or authorized to do business
in any jurisdiction except Bermuda. The insurance laws of each state of the
United States do not directly regulate the sale of reinsurance within their
jurisdictions by alien insurers, such as LaSalle Re. Nevertheless, the sale of
reinsurance by alien reinsurers, such as LaSalle Re, to insurance companies
domiciled or licensed in United States jurisdictions is indirectly regulated by
state "credit for reinsurance" laws that operate to deny financial statement
credit to ceding insurers unless the non-admitted alien reinsurer posts
acceptable security for ceded liabilities and agrees to certain contract
provisions (e.g., insolvency and intermediary clauses). Although the insurance
laws of United States jurisdictions generally exempt the business of
reinsurance from "doing business" laws, the Company conducts its business at
its principal offices in Bermuda and does not maintain an office in the United
States, and its personnel do not solicit, advertise, settle claims or conduct
other insurance activities in the United States. All policies are issued and
delivered and premiums are received outside the United States. The Company does
not believe that it is subject to the insurance laws of any state in the United
States.
From time to time, there have been congressional and other initiatives in the
United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers. While
none of these proposals has been adopted to date on either the federal or state
level, there can be no assurance that federal or state legislation will not be
enacted subjecting the Company to supervision and regulation in the United
States, which could have a material adverse effect on the Company. In addition,
no assurance can be given that if the Company were to become subject to any
laws of the United States or any state thereof or of any other country at any
time in the future, it would be in compliance with such laws.
LaSalle Re does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in any jurisdiction other
than Bermuda where the conduct of such activities would require that LaSalle Re
be so admitted. Consistent with this policy, LaSalle Re established LaSalle Re
Services as a subsidiary in the United Kingdom to operate a London "contact
office" at the London Underwriting Center. LaSalle Re Services is not
registered as an insurer in England or in any other jurisdiction. The Company
believes that LaSalle Re Services is not required to be registered as an
insurance company in the United Kingdom, and that the activities of LaSalle Re
Services do not cause the Company to be subject to regulation as an insurance
company in the United Kingdom.
The Company has formed LaSalle Re Capital to provide capital support to
selected Lloyd's syndicates commencing in January 1997. LaSalle Re Capital may
become a corporate member of Lloyd's in the course of
14
<PAGE>
December 1996 and underwrite as a member of Lloyd's syndicates as from January
1 1997, at which point it will become subject to various Lloyd's regulations.
ITEM 2. PROPERTIES
The Company is provided office space in Bermuda and London by Aon Bermuda
pursuant to the Administrative Services Agreement.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of the Company during the
fourth fiscal quarter of the fiscal year ended September 30, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and certain other information
concerning the current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Victor H. Blake 61 Chief Executive Officer and President
Guy D. Hengesbaugh 37 Executive Vice President and
Chief Underwriting Officer
Andrew Cook 34 Chief Financial Officer and Treasurer
Terry J. Alfuth 51 Senior Vice President
</TABLE>
Victor H. Blake has been Chairman, Chief Executive Officer and President of
the Company since its organization in September 1995 and Chairman and Chief
Executive Officer of LaSalle Re, since May 1994. Mr. Blake has 37 years
experience in the insurance industry, concentrating primarily in reinsurance.
Mr. Blake served as Chairman and Chief Executive Officer of CNA International
Reinsurance Company Ltd. ("CNA Re"), a leading property and casualty insurer
operating in the London market, from its formation in 1976 until October 1995.
In addition, he acted as the chairman and chief executive officer of CNA
Reinsurance Group, from its formation in April 1994 until October 1995. CNA
Reinsurance Group includes CNA Re and the United States reinsurance operations
of CNA. Mr. Blake is the non-executive chairman of CNA Reinsurance Group. Mr.
Blake is also founder Chairman of the LUC Holdings Ltd, the shareholders of the
London Underwriting Centre, a marketplace housing many of the London market
insurers and reinsurers. He also served as a member of the Council of the
London Insurance and Reinsurance Market Association and its predecessor bodies
from 1977 to 1996.
Guy D. Hengesbaugh has been Executive Vice President and Chief Underwriting
Officer of the Company since its organization in September 1995 and Executive
Vice President and Chief Underwriting Officer of LaSalle Re since its
organization in October 1993. Mr. Hengesbaugh has ten years experience in
underwriting management with CNA in Chicago and London. Mr. Hengesbaugh is a
Vice President of Continental Casualty Company and an employee of CNA Bermuda
and his services are made available to the Company pursuant to an underwriting
services agreement.
Andrew Cook, a chartered accountant, has been Chief Financial Officer and
Treasurer of the Company since its organization in September 1995 and Chief
Financial Officer and Treasurer of LaSalle Re since its organization in October
1993. Mr. Cook was an employee of Aon from 1993 until October 1995. Mr. Cook
was employed by Becher and Carlson Risk Management Limited, a subsidiary of
American Re-Insurance Company, from
15
<PAGE>
November 1990 to October 1993, where he was a Vice President responsible for a
portfolio of captive insurance companies. From December 1987 to October 1990,
Mr. Cook was an audit manager with Ernst & Young in Bermuda specializing in the
audit of insurance and reinsurance companies.
Terry J. Alfuth has been Senior Vice President, responsible for actuarial,
claims, human resources, and information services, of the Company and LaSalle
Re since September 1996. He joined LaSalle in September 1996 after eight years
with one of the Winterthur US Regional companies as Vice President/Risk
Management during which time he was instrumental in establishing a commercial
lines division. Mr. Alfuth has 29 years of experience in the property and
casualty insurance industry. He is a Fellow of the Casualty Actuarial Society,
a member of the American Academy of Actuaries and a graduate of the PMD program
at Harvard Graduate School of Business
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Shares were initially offered to the public on November 20, 1995
at a price of $19.25 per share. The Common Shares are quoted on the NASDAQ
National Market under the symbol "LSREF."
The following table sets forth, for the periods indicated, the high and low
sale prices for the Common Shares as reported by the NASDAQ National Market.
Such prices reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Quarter ended December 31, 1995 (from November 20, 1995). $23.250 $19.500
Quarter ended March 31, 1996............................. 23.625 21.000
Quarter ended June 30, 1996.............................. 22.750 19.750
Quarter ended September 30, 1995......................... 25.500 21.000
Quarter ended December 31, 1996 (through December 12,
1996)................................................... 29.500 22.375
</TABLE>
As of December 12, 1996, there were 58 holders of record of the Common Shares.
In April, July and October 1996, the Company paid dividends of $0.25, $0.25
and $0.25 per share to holders of its Common Shares. In October 1996, the
Company adopted a dividend policy pursuant to which it intends to distribute in
each fiscal year 50% to 60% of the Company's net income from the prior fiscal
year, if any, on a quarterly basis. The actual amount and timing of any future
dividends is at the discretion of the Board and is dependent upon the profits
and financial requirements of the Company as well as loss experience, business
opportunities and any other factors that the Board deems relevant. In addition,
if the Company has funds available for distribution, it may nevertheless
determine that such funds should be retained for the purposes of replenishing
capital, expanding premium writings or other purposes. In order for the Company
to pay dividends in excess of 50% of net income, the Company will have to
renegotiate certain terms of its credit facility. The Company is a holding
company whose principal source of income is cash dividends and other permitted
payments from LaSalle Re. The payment of dividends by LaSalle Re to the Company
is restricted under Bermuda law and regulation, including Bermuda insurance
law. Under the Insurance Act, LaSalle Re is prohibited from paying dividends of
more than 25% of its opening statutory capital and surplus unless it files an
affidavit stating that it will continue to meet the required solvency margin
and minimum liquidity ratio requirements and from declaring or paying any
dividends without the approval of the Minister of Finance if it failed to meet
its required margins in the previous fiscal year. The Insurance Act also
requires LaSalle Re to maintain a minimum solvency margin and minimum liquidity
ratio and prohibits dividends which would result in a breach of these
requirements. In addition, LaSalle Re is prohibited under the Insurance Act
from reducing its opening total statutory capital by more than 15% without the
approval of the Minister of Finance. As a result of these factors, there can be
no assurance that the Company's dividend policy will not change or that the
Company will declare or pay any dividends.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The historical consolidated financial data presented below as of and for each
of the periods ended September 30, 1996, 1995 and 1994 were derived from the
Company's consolidated financial statements incorporated from the Company's
1996 Annual Report. The selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" also contained in the 1996 Annual Report.
<TABLE>
<CAPTION>
PERIOD
OCTOBER 26,
YEAR ENDED YEAR ENDED 1993 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995(1) 1994(1)
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA
Net premiums written............... $ 190,151 $ 201,916 $ 133,327
Net premiums earned................ 195,141 170,370 76,989
Net investment income (net of
realized losses).................. 26,428 25,066 15,739
Loss and loss expenses incurred.... 51,477 60,397 49,801
Underwriting expenses.............. 27,268 22,988 8,686
Operating expenses (2)............. 13,373 7,603 4,342
Income before minority interest.... 129,451 104,448 29,899
Minority interest (3).............. 47,966 38,774 10,958
Net income......................... 81,485 65,674 18,941
Net income per share (4)........... $ 5.40 $ 4.51 $ 1.31
Weighted average shares outstanding
(5)............................... 23,967,870 23,170,680 22,852,910
Dividend per Common Share (6)...... $ 1.85 $ 4.62 --
OTHER DATA
Loss and loss expense ratio (7).... 26.4% 35.5% 64.7%
Expense ratio (7).................. 19.6% 17.1% 16.6%
Combined ratio (7)................. 46.0% 52.6% 81.3%
Return on average Combined Equity
(8)............................... 29.2% 26.6% 9.3%
Total statutory capital and surplus
(9)............................... $ 475,580 $ 390,683 $ 376,414
BALANCE SHEET DATA (AT END OF PERIOD)
Total investments and cash......... $ 537,504 $ 522,425 $ 409,738
Reinsurance balances receivable.... 70,625 86,146 50,307
Total assets....................... 634,374 636,547 481,424
Reserve for losses and loss
expenses.......................... 49,875 66,654 37,789
Reserve for unearned premiums...... 82,894 87,885 56,338
Minority interest (3).............. 179,470 147,389 140,838
Total shareholders' equity......... 307,448 253,422 243,446
Book value per share (10).......... $ 21.42 $ 17.64 $ 16.91
</TABLE>
- --------
(1) In October 1995, LaSalle Re changed its fiscal year end from December 31,
to September 30, effective September 30, 1995. All prior periods have been
adjusted to reflect a fiscal year end of September 30.
(2) Includes operating expenses, corporate expenses, interest payable and
foreign exchange gains and losses. For a discussion of foreign exchange
gains and losses, see "Management's Discussion of Financial Condition and
Results of Operations".
(3) Minority interest represents those shares in LaSalle Re that are held as
Exchangeable Non-Voting Shares and constitute approximately 37% of the
capital stock of LaSalle Re. The Exchangeable Non-Voting Shares are held by
certain Founding Shareholders and are exchangeable, at the option of the
holder, for Common Shares on a one-for-one basis, unless the Board
determines that such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder.
(4) Net income per share equals income before minority interest divided by
weighted average shares outstanding.
17
<PAGE>
(5) Weighted average shares outstanding include Common Shares and the
Exchangeable Non-Voting Shares as common stock equivalents and the dilutive
effect of stock options and stock appreciation rights using the treasury
stock method.
(6) Dividend per Common Share is based on the outstanding Common Shares as of
September 30, 1996 of 14,397,720 (1995: 14,397,720; 1994: 14,395,710).
(7) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by net premiums earned. The expense ratio is
calculated by dividing underwriting expenses and certain operational
expenses by net premiums earned. The combined ratio is the sum of the loss
and loss expense ratio and the expense ratio.
(8) Return on average Combined Equity is calculated by dividing net income
before minority interest by the average of the opening and closing sum of
shareholders' equity and minority interest. The adjustment in respect of
minority interest reflects the exchangeable nature of the Exchangeable Non-
Voting Shares. Closing shareholders' equity and minority interest reflects
any dividends declared or paid during such periods, with the average not
adjusted to reflect the timing of dividends declared or paid.
(9) Total statutory capital and surplus is calculated in accordance with the
provisions of the Insurance Act. See "Business--Regulation."
(10) Book value per share is based on Combined Equity divided by Common Shares
and Exchangeable Non-Voting Shares of 22,727,010 (as of September 30,
1996) (1995: 22,727,010; 1994: 22,725,000).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required for this item is incorporated by reference to the
narrative contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1996 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for this item is incorporated by reference to the
consolidated financial statements of the Company contained in the Company's
1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information concerning directors required for this item is incorporated
by reference to the information contained under the captions "Election of
Directors", "Nominees", "Meetings and Committees of the Board of Directors" and
"Section 16 Reporting" in the Company's Proxy Statement for the Annual Meeting
of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference to the
information contained under the caption "Management" in the Company's Proxy
Statement for the Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated by reference to the
information contained under the caption "Beneficial Ownership of Common
Shares--Directors, Officers and Other Beneficial Owners" in the Company's Proxy
Statement for the Annual Meeting of Stockholders.
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated by reference to the
information contained under the caption "Certain Transactions" in the
Company's Proxy Statement for the Annual Meeting of Stockholders.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of LaSalle Re Holdings
Limited and the Report of Independent Auditors are incorporated by
reference to the Company's 1996 Annual Report:
Consolidated balance sheets as at September 30, 1996 and 1995
Consolidated statements of operations for the years ended September 30,
1996, 1995 and the period from October 26, 1993 to September 30, 1994
Consolidated statements of changes in shareholders' equity for the
years ended September 30, 1996, 1995 and the period from October 26,
1993 to September 30, 1994
Consolidated statements of cash flows for the years ended September 30,
1996, 1995 and the period from October 26, 1993 to September 30, 1994
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Schedule III Supplementary Insurance Information
(a) 3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
3.1 Memorandum of Association Incorporated by reference to Exhibit
3.1 to Registration Statement on Form
S-1 (No. 33-97304)
3.2 Bye-Laws Incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarterly
period ended December 31, 1995 (File
No. 0-27216)
10.1 Excess Ownership Agreement Incorporated by reference to Exhibit
dated November 27, 1995 among 10.3 to Form 10-Q for the quarterly
the Company, LaSalle Re and period ended December 31, 1995 (File
the Founding Shareholders No. 0-27216)
10.2 Amended and Restated Incorporated by reference to Exhibit
Shareholders Agreement dated 10.1 to Form 10-Q for the quarterly
November 27, 1995 among the period ended December 31, 1995 (File
Company, LaSalle Re and the No. 0-27216).
Founding Shareholders
10.3 Amended and Restated Option Incorporated by reference to Exhibit
Agreement dated November 27, 10.2 to Form 10-Q for the quarterly
1995 among the Company, period ended December 31, 1995 (File
LaSalle Re and certain of the No. 0-27216).
Founding Shareholders
10.4 Conversion Agreement dated Incorporated by reference to Exhibit
November 27, 1995 among the 10.4 to Form 10-Q for the quarterly
Company, LaSalle Re and period ended December 31, 1995 (File
holders of Exchangeable Non- No. 0-27216).
Voting Shares
10.5 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement dated 10.5 to Form 10-Q for the quarterly
October 1, 1995 between Victor period ended December 31, 1995 (File
H. Blake and LaSalle Re* No. 0-27216).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
10.6 Amended and Restated Incorporated by reference to Exhibit
Underwriting Services Agreement 10.6 to Form 10-Q for the quarterly
dated September 21, 1995 among period ended December 31, 1995 (File
the Company, LaSalle Re and CNA No. 0-27216).
Bermuda**
10.7 Amended and Restated Incorporated by reference to Exhibit
Administrative Services 10.7 to Form 10-Q for the quarterly
Agreement dated September 21, period ended December 31, 1995 (File
1995 among the Company, LaSalle No. 0-27216).
Re and Aon Bermuda
10.8 Amended and Restated Investment Incorporated by reference to
Management Agreement dated Registration Statement on Form S-1
September 21, 1995 among the (No. 333-14861)
Company, LaSalle Re and Aon
Advisors.
10.9 Claims Agreement dated December Incorporated by reference to
16, 1993 between LaSalle Re and Registration Statement on Form S-1
IRISC (No. 333-14861)
10.10 Employment Agreement dated Incorporated by reference to Exhibit
October 1, 1995 between Andrew 10.10 to Form 10-Q for the quarterly
Cook and LaSalle* period ended December 31, 1995 (File
No. 0-27216).
10.11 Credit Agreement dated as of Incorporated by reference to Exhibit
December 1, 1995 among the 10.9 to Form 10-Q for the quarterly
Company, several banks and period ended December 31, 1995 (File
Chemical Bank, as No. 0-27216).
administrative agent
10.12 First Amendment, dated Incorporated by reference to
September 25, 1996, among the Registration Statement on Form S-1
Company, several banks and (No. 333-14861)
Chase Manhattan Bank as
administrative agent, to Credit
Agreement dated as of December
1, 1995 among Holdings, several
banks and Chemical Bank, as
administrative agent
10.13 Long-Term Incentive Plan.* Incorporated by reference to
Registration Statement on Form S-1
(No. 333-14861)
10.14 Employee Stock Purchase Plan.* Incorporated by reference to
Registration Statement on Form S-1
(No. 333-14861)
10.15 First Amendment dated July 1, Incorporated by reference to
1996 to Amended and Restated Registration Statement on Form S-1
Underwriting Services Agreement (No. 333-14861)
dated as of September 21, 1995
between CNA (Bermuda) Services
Limited and LaSalle Re
10.16 First Amendment dated July 1, Incorporated by reference to
1996 to Amended and Restated Registration Statement on Form S-1
Administrative Services (No. 333-14861)
Agreement dated as of September
21, 1995 between Aon Risk
Consultants (Bermuda) Limited
and LaSalle Re
10.17 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1994 underwriting
year of account (London office).
10.18 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1995 underwriting
year of account (London office).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
10.19 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1996 underwriting
year of account (London office).
10.20 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1994 underwriting
year of account (Amsterdam
office).
10.21 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1995 underwriting
year of account (Amsterdam
office).
10.22 Quota Share Treaty between CNA Incorporated by reference to
International Reinsurance Registration Statement on Form S-1
Company Limited and LaSalle Re (No. 333-14861)
in respect of 1996 underwriting
year of account (Amsterdam
office).
10.23 LMX Quota Share Retrocessional Incorporated by reference to
Agreement between Continental Registration Statement on Form S-1
Casualty Company and LaSalle Re (No. 333-14861)
for the 1995 underwriting year
of account.
10.24 LMX Quota Share Retrocessional Incorporated by reference to
Agreement between Continental Registration Statement on Form S-1
Casualty Company and LaSalle Re (No. 333-14861)
for the 1996 underwriting year
of account.
10.25 Amendment of Amended and Incorporated by reference to
Restated Employment Agreement Registration Statement on Form S-1
dated as of October 1, 1996 (No. 333-14861)
between Victor H. Blake and the
Company*
10.26 Amendment of Amended and Incorporated by reference to
Restated Employment Agreement Registration Statement on Form S-1
dated as of October 1, 1996 (No. 333-14861)
between Andrew Cook and the
Company*
11.1 Statement re computation of per Incorporated by reference to
share earnings Registration Statement on Form S-1
(No. 333-14861)
13.1 Annual Report to shareholders Filed with this document
for the fiscal year ended
September 30, 1996
21.1 Subsidiaries of the Registrant Incorporated by reference to
Registration Statement on Form S-1
(No. 333-14861)
27.1 Financial Data Schedule Incorporated by reference to
Registration Statement on Form S-1
(No. 333-14861)
</TABLE>
- --------
*Management contract or compensatory plan.
**Pursuant to this services agreement, the services of Mr. Hengesbaugh are
provided to the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth fiscal quarter of
Fiscal 1996.
21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
BERMUDA, ON THE 20TH DAY OF DECEMBER, 1996.
LaSalle Re Holdings Limited
/s/ Andrew Cook
By: _________________________________
Andrew Cook
Chief Financial Officer and
Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED AND ON THE 20TH DAY OF DECEMBER,
1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Victor H. Blake Chairman, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer)
Victor H. Blake
/s/ Andrew Cook Chief Financial Officer and Treasurer
___________________________________________ (Principal Financial Officer)
Andrew Cook
/s/ Steven Given Controller (Principal Accounting Officer)
___________________________________________
Steven Given
/s/ William J. Adamson, Jr. Director
___________________________________________
William J. Adamson, Jr.
/s/ Andrew Africk Director
___________________________________________
Andrew Africk
/s/ Ivan P. Berk Director
___________________________________________
Ivan P. Berk
/s/ Joseph Haviv Director
___________________________________________
Joseph Haviv
/s/ Jonathan H. Kagan Director
___________________________________________
Jonathan H. Kagan
/s/ Donald P. Koziol, Jr. Director
___________________________________________
Donald P. Koziol, Jr.
/s/ Lester Pollack Director
___________________________________________
Lester Pollack
/s/ Peter J. Rackley Director
___________________________________________
Peter J. Rackley
/s/ Scott A. Schoen Director
___________________________________________
Scott A. Schoen
/s/ Harvey G. Simons Director
___________________________________________
Harvey G. Simons
/s/ David A. Stockman Director
___________________________________________
David A. Stockman
/s/ Paul J. Zepf Director
___________________________________________
Paul J. Zepf
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
LaSalle Re Holdings Limited
Under date of October 19, 1996 we reported on the consolidated balance
sheets of LaSalle Re Holdings Limited and subsidiaries as of September 30,
1996 and 1995 and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the years ended September 30, 1996
and 1995 and the period from October 26, 1993 (date of incorporation) to
September 30, 1994, as contained in the 1996 annual report to the
shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in this annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedules as listed in Item 14 (a) 2 of this Form 10-K. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
Hamilton, Bermuda
October 19, 1996
Chartered Accountants
23
<PAGE>
SCHEDULE III
LASALLE RE HOLDINGS LIMITED
SUPPLEMENTARY INSURANCE INFORMATION
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
FUTURE POLICY
BENEFITS,
DEFERRED LOSSES, OTHER POLICY
ACQUISITION CLAIMS AND LOSS UNEARNED CLAIMS AND PREMIUM
SEGMENT COST EXPENSES PREMIUMS BENEFITS PAYABLE REVENUE
- ------- ----------- --------------- --------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
1996: Property &
Similar................ 10,464 49,875 82,894 NIL 195,141
1995: Property &
Similar................ 10,708 66,654 87,885 NIL 170,370
1994: Property &
Similar................ 6,809 37,789 56,338 NIL 76,989
<CAPTION>
BENEFITS,
CLAIMS AMORTIZATION OF
NET LOSSES AND DEFERRED
INVESTMENT SETTLEMENT ACQUISITION OTHER OPERATING PREMIUMS
SEGMENT INCOME EXPENSES COSTS EXPENSES WRITTEN
- ------- ----------- --------------- --------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
1996: Property &
Similar................ 26,846 51,477 27,268 13,373 190,151
1995: Property &
Similar................ 25,091 60,397 22,988 7,603 201,916
1994: Property &
Similar................ 15,758 49,801 8,686 4,342 133,327
</TABLE>
24
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
3.1 Memorandum of Association Incorporated by reference to Exhibit
3.1 to Registration Statement on Form
S-1
(No. 33-97304)
3.2 Bye-Laws Incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarterly pe-
riod ended December 31, 1995 (File No.
0-27216)
10.1 Excess Ownership Agreement Incorporated by reference to Exhibit
dated November 27, 1995 10.3 to Form 10-Q for the quarterly
among the Company, LaSalle period ended December 31, 1995 (File
Re and the Founding Share- No. 0-27216)
holders
10.2 Amended and Restated Share- Incorporated by reference to Exhibit
holders Agreement dated No- 10.1 to Form 10-Q for the quarterly
vember 27, 1995 among the period ended December 31, 1995 (File
Company, LaSalle Re and the No. 0-27216).
Founding Shareholders
10.3 Amended and Restated Option Incorporated by reference to Exhibit
Agreement dated November 10.2 to Form 10-Q for the quarterly
27, 1995 among the Company, period ended December 31, 1995 (File
LaSalle Re and certain of No. 0-27216).
the Founding Shareholders
10.4 Conversion Agreement dated Incorporated by reference to Exhibit
November 27, 1995 among the 10.4 to Form 10-Q for the quarterly
Company, LaSalle Re and period ended December 31, 1995 (File
holders of Exchangeable No. 0-27216).
Non-Voting Shares
10.5 Amended and Restated Em- Incorporated by reference to Exhibit
ployment Agreement dated 10.5 to Form 10-Q for the quarterly
October 1, 1995 between period ended December 31, 1995 (File
Victor H. Blake and LaSalle No. 0-27216).
Re*
10.6 Amended and Restated Under- Incorporated by reference to Exhibit
writing Services Agreement 10.6 to Form 10-Q for the quarterly
dated September 21, 1995 period ended December 31, 1995 (File
among the Company, LaSalle No. 0-27216).
Re and CNA Bermuda**
10.7 Amended and Restated Admin- Incorporated by reference to Exhibit
istrative Services Agree- 10.7 to Form 10-Q for the quarterly
ment dated September 21, period ended December 31, 1995 (File
1995 among the Company, No. 0-27216).
LaSalle Re and Aon Bermuda
10.8 Amended and Restated In- Incorporated by reference to Registra-
vestment Management Agree- tion Statement on Form S-1 (No. 333-
ment dated September 21, 14861)
1995 among the Company,
LaSalle Re and Aon Advi-
sors.
10.9 Claims Agreement dated De- Incorporated by reference to Registra-
cember 16, 1993 between tion Statement on Form S-1 (No. 333-
LaSalle Re and IRISC 14861)
10.10 Employment Agreement dated Incorporated by reference to Exhibit
October 1, 1995 between An- 10.10 to Form 10-Q for the quarterly
drew Cook and LaSalle* period ended December 31, 1995 (File
No. 0-27216).
10.11 Credit Agreement dated as Incorporated by reference to Exhibit
of December 1, 1995 among 10.9 to Form 10-Q for the quarterly
the Company, several banks period ended December 31, 1995 (File
and Chemical Bank, as ad- No. 0-27216).
ministrative agent
10.12 First Amendment, dated Sep- Incorporated by reference to Registra-
tember 25, 1996, among the tion Statement on Form S-1 (No. 333-
Company, several banks and 14861)
Chase Manhattan Bank as ad-
ministrative agent, to
Credit Agreement dated as
of December 1, 1995 among
Holdings, several banks and
Chemical Bank, as adminis-
trative agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
10.13 Long-Term Incentive Plan* Incorporated by reference to Registra-
tion Statement on Form S-1 (No. 333-
14861)
10.14 Employee Stock Purchase Incorporated by reference to Registra-
Plan* tion Statement on Form S-1 (No. 333-
14861)
10.15 First Amendment dated July Incorporated by reference to Registra-
1, 1996 to Amended and Re- tion Statement on Form S-1 (No. 333-
stated Underwriting Serv- 14861)
ices Agreement dated as of
September 21, 1995 between
CNA (Bermuda) Services Lim-
ited and LaSalle Re
10.16 First Amendment dated July Incorporated by reference to Registra-
1, 1996 to Amended and Re- tion Statement on Form S-1 (No. 333-
stated Administrative Serv- 14861)
ices Agreement dated as of
September 21, 1995 between
Aon Risk Consultants (Ber-
muda) Limited and LaSalle
Re
10.17 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1994 underwriting year of
account (London office)
10.18 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1995 underwriting year of
account (London office)
10.19 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1996 underwriting year of
account (London office)
10.20 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1994 underwriting year of
account (Amsterdam office)
10.21 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1995 underwriting year of
account (Amsterdam office)
10.22 Quota Share Treaty between Incorporated by reference to Registra-
CNA International Reinsur- tion Statement on Form S-1 (No. 333-
ance Company Limited and 14861)
LaSalle Re in respect of
1996 underwriting year of
account (Amsterdam office)
10.23 LMX Quota Share Incorporated by reference to Registra-
Retrocessional Agreement tion Statement on Form S-1 (No. 333-
between Continental Casu- 14861)
alty Company and LaSalle Re
for the 1995 underwriting
year of account
10.24 LMX Quota Share Incorporated by reference to Registra-
Retrocessional Agreement tion Statement on Form S-1 (No. 333-
between Continental Casu- 14861)
alty Company and LaSalle Re
for the 1996 underwriting
year of account
10.25 Amendment of Amended and Incorporated by reference to Registra-
Restated Employment Agree- tion Statement on Form S-1 (No. 333-
ment dated as of October 1, 14861)
1996 between Victor H.
Blake and the Company*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<C> <S> <C>
10.26 Amendment of Amended and Incorporated by reference to Registra-
Restated Employment Agree- tion Statement on Form S-1 (No. 333-
ment dated as of October 1, 14861)
1996 between Andrew Cook
and the Company*
11.1 Statement re computation of Incorporated by reference to Registra-
per share earnings tion Statement on Form S-1 (No. 333-
14861)
13.1 Annual Report to sharehold- Filed with this document
ers for the fiscal year
ended September 30, 1996
21.1 Subsidiaries of the Regis- Incorporated by reference to Registra-
trant tion Statement on Form S-1 (No. 333-
14861)
27.1 Financial Data Schedule Incorporated by reference to Registra-
tion Statement on Form S-1 (No. 333-
14861)
</TABLE>
- --------
*Management contract or compensatory plan.
**Pursuant to this services agreement, the services of Mr. Hengesbaugh are
provided to the Company.
<PAGE>
LaSalle Re Holdings Limited
Annual Report 1996
<PAGE>
LaSalle Re Holdings Limited ("Holdings"), through its operating company, LaSalle
Re Limited ("LaSalle Re") and together with Holdings ("The Company"), writes
high severity, low frequency reinsurance, primarily property catastrophe
reinsurance, on a worldwide basis.
The Company is headquartered in Bermuda, and began operations in October, 1993.
Common Shares of LaSalle Re Holdings Limited were listed on the Nasdaq Stock
Market in November, 1995, and trade under the symbol "LSREF".
LaSalle's mission is:
. to protect insurance companies from losses caused by natural events such as
climatic or seismographic conditions, or from the financial consequences of
man-made disasters
. by assuming such risks, to introduce an important element of stability into
insurance company balance sheets
. to provide this support on a financially secure basis, underpinned by a strong
capital commitment.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Highlights 2
Financial summary 3
Chairman's statement 4
CEO interview 6
Management's discussion and analysis of
financial condition and results of operations 10
Note on forward-looking statements 19
Consolidated balance sheets 20
Consolidated statements of operations 21
Consolidated statements of changes in shareholders' equity 22
Consolidated statements of cash flows 23
Notes to consolidated financial statements 24
Independent auditors' report 38
Financial and investor information 39
Directors and officers 40
Company information 41
</TABLE>
1
<PAGE>
HIGHLIGHTS
LaSalle's first year as a public company was one of continued growth and
profitability, in the face of downward pressure on rates paid for our key
product, property catastrophe reinsurance.
We credit this success to our conservative underwriting practices, our policy of
further limiting risk by spreading our exposures internationally, and our
participation in other lines of reinsurance.
. LaSalle achieved record financial results for the fiscal year ended September
30, 1996. Net income rose 24% to $129.5 million. Earnings per share were $5.40
and fully-diluted book value per share reached $20.20.
. Premiums written rose to $190.2 million and premiums earned to $195.1 million.
. Shareholders' equity and minority interest was $487 million, an increase of
21.5%. Return on average shareholder's equity and minority interest was 29.2%,
well above the company's goal of 20% to 25%.
. Statutory capital and surplus for LaSalle Re Limited, our operating
subsidiary, rose 22% to $475.6 million.
. A new dividend policy, designed to return excess capital to our shareholders,
was adopted.
. We received an "A-" (Excellent) rating from A.M. Best Company, Inc. and,
shortly after year-end, an "A" (Good) rating from Standard & Poor's
Corporation.
. We applied for corporate membership in Lloyd's of London, as a first step in
direct participation in that market.
. We further refined and trademark registered our L-CAM(TM) proprietary computer
software model, which we use to assess insurance risks.
<TABLE>
<CAPTION>
<S> <C>
Worldwide ex-USA 6% Adjustments & reinstatement premiums 1.8%
Adjustments & reinstatements 1.9% Casualty clash 1.6%
Others 8.6% Property catastrophe reinsurance excess of loss 64.4%
Japan 4.2% Miscellaneous 2.5%
USA 41.7% Marine 2.4%
Australasia 5.8% Property catastrophe reinsurance pro rata 22.2%
Europe 11.6% Property-risk excess & pro rata 5.1%
Worldwide 11.6% *LINES OF BUSINESS
UK 8.6%
*GEOGRAPHIC DISTRIBUTION OF BUSINESS
*For premiums written in the year ended September 30, 1996
</TABLE>
2
<PAGE>
FINANCIAL SUMMARY
LASALLE RE HOLDINGS LIMITED AND SUBSIDIARIES
(Expressed in thousands of United States Dollars, except per share and
operational data)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED OCTOBER 26, 1993 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994
<S> <C> <C> <C>
OPERATIONAL DATA
Premiums written $190,151 $201,916 $133,327
Total revenues 221,569 195,436 92,728
Net income before minority interest 129,451 104,448 29,899
Cash and investments 537,504 522,425 409,738
Total assets 634,734 636,547 481,424
Total shareholders' equity
and minority interest 486,918 400,811 384,284
LaSalle Re statutory capital and surplus 475,580 390,683 376,414
Return on average shareholders' equity
and minority interest 29.2% 26.6% 9.3%
PER SHARE DATA
Net income $ 5.40 $ 4.51 $ 1.31
Book value 21.42 17.64 16.91
Dividends declared 1.85 4.62 0.00
OPERATIONAL RATIOS
Loss ratio 26.4% 35.5% 64.7%
Expense ratio 19.6% 17.1% 16.6%
Combined ratio 46.0% 52.6% 81.3%
</TABLE>
SHARE PRICE -- QUARTERLY HIGH STATUTORY CAPITAL & SURPLUS
December 1995 $23.25 1994 $376,414,000
March 1996 $23.63 1995 $390,683,000
June 1996 $22.75 1996 $475,580,000
September 1996 $25.50
3
<PAGE>
CHAIRMAN'S STATEMENT
[PHOTO]
Victor H. Blake
Chairman, President & CEO
TO OUR SHAREHOLDERS
We are pleased to present our third annual report. Over the last three years, we
have generated a return on capital employed well above the industry average. We
are a specialist reinsurer by choice, focusing mainly -- but not exclusively --
on property catastrophe reinsurance.
SERVICE
We serve our clients by assisting them in managing their exposures to major
catastrophic events which could severely damage their balance sheets -- or even
their ability to trade -- if not provided for. It was just such a series of
world-wide events between 1987 and 1992, culminating in Hurricane Andrew, that
originally led to the formation of your company on October 26, 1993.
In the aftermath of the devastation wrought by these events came the realisation
that premiums for catastrophe reinsurance were below technically acceptable
levels. In the light of increasingly sophisticated measurements of exposure, a
200% price increase was mandated.
THE PROMISE DELIVERED
In our first year of operation, LaSalle Re was called upon to respond to the
Northridge, California earthquake. In our second year, Hurricanes Luis and
Marilyn laid waste to the Caribbean, and there were floods in Norway and storms
in Germany to contend with.
In the year under review, our third year of trading, a late hurricane season in
the Gulf of Mexico saw Hurricane Opal cause an estimated $2 billion in insured
damage in October 1995. The 1996 hurricane season produced an above average
number of named storms, but did not match the intensity of the previous record-
setting year. Hurricanes Bertha, Fran and Hortense, in particular, were clearly
significant events for the people and companies directly affected. But none
caused losses of sufficient magnitude to affect our business adversely.
Severe winter weather in the United Kingdom, and spring storms in the mid-
western United States produced minor losses in some lower-level catastrophe
protections we provide. There was no significant earthquake activity this year.
The first three years of our operations were therefore marked by several events
which underline the importance of the role we play, and the vital need for the
protection we offer. These events show that our business is about the willing
assumption of risk. It is about having the knowledge and the ability to manage
that risk, and in so doing to create a profitable and lasting business.
4
<PAGE>
CHAIRMAN'S STATEMENT (CONTINUED)
How successful have we been in this regard? I believe our combined ratios
illustrate the profitability of our business: 81.3% in 1994, 52.6% in 1995,
46.0% in 1996.
Our return on average shareholders' equity and minority interest rose to 29.2%,
up from 26.6% in 1995, and 9.3% in our start-up year of 1994. This is
exceptional.
SPECIALTY
The conventional wisdom is that reinsurers must be big and must provide coverage
across all lines. Alternatively, they can afford to be slightly less large
provided they have a streamlined operating structure and are highly specialized
and service-orientated. LaSalle comes under this latter category. However, we
are not a purely mono-line company. We operate in a number of different areas
where there is an undisputed need for the specialized forms of high-severity,
low-frequency protection we offer.
CLIENTS
We are very much aware of the need to be responsive, and not simply be satisfied
with the role of provider. Our aim is to establish long-term partnerships that
transcend fluctuations in price. Our core clients are aware that coverage bought
from competitors willing to operate at prices below the technical level is
dubious currency, and could impair their ability to keep their promises.
CAPITAL MANAGEMENT
Because of its greater volatility, the property catastrophe reinsurance business
requires better than average returns on equity. Balance is the key word. We need
sufficient capital and surplus to enable our clients to trade confidently with
us. At the same time, we must keep this capital employed. Unless we make better
than average returns in years when catastrophe losses are within attritional
expectations, we will not achieve the stability we need to respond in years of
high losses. The measure of our success in achieving this balance is best
demonstrated by the assessment of the rating agencies: A.M. Best has awarded us
an A- (Excellent) rating, while Standard & Poor's has rated us A (Good).
OUR PEOPLE
At LaSalle it's our people who make the difference. Even in this high-tech age,
reputation, integrity and relationships remain the crucial ingredients. I am
grateful to all our staff for their dedication to, and their belief in, the
Company.
/s/ Victor H. Blake
Chairman, President & CEO
5
<PAGE>
CEO INTERVIEW
IN THE FOLLOWING INTERVIEW VICTOR H. BLAKE -- CHAIRMAN, PRESIDENT AND CEO OF
LASALLE RE HOLDINGS -- OFFERS AN OVERVIEW OF THE CHANGES TO THE BUSINESS OF
REINSURANCE, AND OUTLINES HIS VISION OF LASALLE'S FUTURE.
WHAT IS THE CURRENT STATE OF THE REINSURANCE INDUSTRY, AND WHAT CHANGES DO YOU
FORESEE?
1996 has been described as a 'year of consolidation' for the insurance and
reinsurance industries. More and more business has been concentrated in the
hands of the strongest companies.
Companies are concentrating on core lines of business, and actively pursuing
growth through acquisition. A study by A.M. Best showed that at least 45
insurance company acquisitions were made during 1995. The trend is towards
larger and larger deals.
This pattern has continued into 1996. There have been five mega-mergers so far.
The biggest was the purchase of American Re by Munich Re for $4 billion. When it
was announced in August, this sale confirmed Munich Re as the world's largest
reinsurer.
The result of all this activity has been a widening gap between the top-rank
reinsurers and the weaker players. This gap is likely to get wider. The real
issue, however, is not size but quality.
The top-tier companies that emerge from this process of consolidation may have
large capital bases, but in the long term the strongest performers will need
more than that. If they are to meet the changing needs of primary insurers, they
must also demonstrate global capabilities, superior underwriting, and the
ability to work closely with clients -- offering value-added solutions to their
insurance problems.
To cope with the increasing risks they face, primary insurers are looking for a
high degree of expertise. They demand both strength and quality. They need
reinsurance partners who can add real value to their businesses, making them
stronger, more effective competitors.
As the flight to quality continues, specialist reinsurers who can provide not
only good security but also in-depth knowledge and control of their business
have a key role to play. Such companies tend to be more creative and more aware
of their clients' needs.
WHAT IS BEHIND THE TREND TO INTERNATIONAL EXPANSION AMONG REINSURERS?
The reinsurance industry is rapidly becoming more globalized. Munich Re's
purchase of American Re is an example of a European giant moving into the U.S.
market. But equally, market opportunities in Europe have attracted many U.S.
firms. Also the emerging markets of Latin America and Southeast Asia are seen as
new sources of profitable growth.
A key reason for the move toward global expansion is the international business
activities of the clients themselves. Primary reinsurers are writing increasing
volumes of business worldwide. So they need worldwide reinsurance.
Companies like LaSalle, with an international book of business from inception,
are in a strong position to offer the quality service this growing international
market is looking for.
6
<PAGE>
CEO INTERVIEW (CONTINUED)
WHAT SETS LASALLE APART FROM ITS COMPETITORS?
In a word: balance. We have achieved a good balance in our geographic spread of
business, in the lines of business we write, and in our approach to managing
risk and managing assets.
From day one, our goal has been to ensure a roughly equal balance between the
business we write in the United States and in other parts of the world. We are
continuing to enhance the international portion of our book of business by
reinsuring certain syndicates at Lloyd's of London.
Our newness is an asset. We are free of any problems inherited from the past.
But equally, with insurance industry giants Aon and CNA as our major sponsors,
we do not have to struggle to make ourselves credible. Our close industry ties
also allow us access to new and valuable business opportunities. From the
outset, we have been able to operate as a multi-line company, offering coverage
for other lines of business besides property catastrophe reinsurance. Writing
other lines of business is a way of balancing our exposure to risk.
In terms of risk management, we employ a conservative underwriting philosophy.
We stress pricing discipline over premium volume, and only write business which
we are confident will generate appropriate returns.
We also make use of the latest information technology available. We have created
a proprietary computer model, called L-CAM(TM) (LaSalle Catastrophe Analysis
Model), which we use to assist in assessing insurance risks. Our goal is to use
the latest technological tools to provide the best possible service to our
clients and investors.
We manage our business with a goal of achieving an average annualized return on
equity of between 20% and 25% over time. It's what we call our 'ROE discipline'.
WHAT IS YOUR LONG-TERM VISION FOR LASALLE?
LaSalle was created three years ago, when optimum conditions for the growth of a
company such as ours existed. Premium rates for property catastrophe reinsurance
were at a historic high due to an unprecedented string of natural disasters, and
disarray at Lloyd's of London made it pull back from insuring catastrophe
business.
This produced a market opportunity for LaSalle and other companies, most of whom
chose Bermuda as the domicile for their reinsurance operations. Three years
later, the Bermuda "cats" account for 30% of the world's catastrophe business.
Over the past year, however, rates for our primary product have softened
somewhat. This is a development we had anticipated right from the time we
launched our business and hence we offer a full service capability. Pricing
fluctuation will always occur depending on the presence or absence of major
losses. But we believe prices will not now return to uneconomic levels, because
both buyer and seller are only too well aware of the exposures at risk. Because
of this, our aim has always been to offer strength and quality to a worldwide
roster of clients -- but to focus more on our return on equity than on simply
generating premium income.
7
<PAGE>
CEO INTERVIEW (CONTINUED)
What we are selling to our clients is a promise to pay. We recognize financial
security as a key goal and our clients recognize it as one of our key strengths.
Our commitment to financial security is perhaps best illustrated by the level
and the quality of our assets. We have a pristine balance sheet and intend to
keep it that way.
Our long-term vision for LaSalle is to carry on with what we have achieved over
our first three years of operations. We intent to continue to maintain a
balanced geographical spread of business. We will focus on conservative
underwriting practices, and on conservative management of our assets. And we
will take advantage of opportunities to enhance our growth wherever we perceive
them.
The challenge is to manage our business through all the cycles. Writing other
low-frequency, high-severity business enables us to balance our portfolio and
maintain our commitment to profitable growth.
All of the above gives me reason for optimism. But perhaps the most encouraging
factor is the certain knowledge that we have the support of our marketing force
- -- of the brokers, and of the core clients we have attracted. Our staff are
professional, well travelled, well known and respected in the business.
Reinsurance is still a people business after all, and these qualities are
irreplaceable.
We also enjoy the sponsorship of two of the biggest names in our industry: CNA
and Aon. Taken together, all these attributes and allegiances give us ample
cause for confidence in our future.
YOU HAVE RECENTLY ANNOUNCED AN ENHANCED CAPITAL MANAGEMENT POLICY. PLEASE
EXPLAIN
We believe the efficient use of our capital is of paramount importance to both
our clients and our investors. Beginning in the 1997 fiscal year, we intend to
pay out 50% to 60% of the prior year's net income in dividends to our
shareholders. This will represent a significant increase from our current
dividend.
It also means we will retain 40% to 50% of our net income to provide for growth.
Importantly, this policy will be fair to both our existing and new shareholders
while at the same time providing for the development of the company's long term
strategy.
The enhanced policy also allows us to conduct share repurchases from time to
time.
WILL THIS DIVIDEND POLICY APPLY IN ALL CIRCUMSTANCES?
It will apply if we operate at or near our business plan. We have designed the
policy to allow us to reconsider the payout following circumstances such as a
loss or series of losses of such magnitude that the Company was presented with
an opportunity, through hardening rate levels, to retain more capital and use it
beneficially. This also provides us with the flexibility to manage our capital
prudently for the protection of our clients.
8
<PAGE>
CEO INTERVIEW (CONTINUED)
ARE YOU ACTIVELY PARTICIPATING IN LLOYD'S OF LONDON?
We have always selectively supported Lloyd's through quota-shares of certain
syndicates. Beginning in 1997 it is our intention that this support will also
take the form of becoming a member of Lloyd's through LaSalle Re Corporate
Capital Limited, a subsidiary company. This will enable us to be a part of the
Lloyd's franchise. It is part of our strategy to have representation in other
major centres as well as Bermuda. Becoming a corporate member of Lloyd's
accomplishes this, as does having our representative office in the London
Underwriting Centre. Lloyd's membership will be accomplished without having to
expend capital, so it also is effective leveraging of our capital.
DO YOU FORESEE ANY DECLINE IN THE IMPORTANCE OF THE BERMUDA MARKET?
On the contrary, we believe Bermuda is here to stay. It is home to a diverse
group of specialist reinsurers, which have collectively obtained 30% of the
market share and a lead role in worldwide business.
Bermuda is ideal for specialist companies such as LaSalle, where large risk and
premium income can be generated with a small, but highly-qualified workforce
operating in a favorable regulatory climate. Perhaps the most telling aspect of
Bermuda's economic health is the development of offices by the major insurance
brokerage houses to access fully the reinsurers located here.
Bermuda has gained acceptance and recognition throughout the world from buyers
and intermediaries and, importantly, by the insurance ratings agencies. In our
view, it has become one of the key insurance markets globally and with its many
advantages as a location can only go from strength to strength.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of the Company's results of operations and
financial position. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and related notes.
OVERVIEW
LaSalle Re was incorporated under the laws of Bermuda in October 1993 and
commenced operations on November 22, 1993. LaSalle Re was initially capitalized
with $373.1 million provided through private sales of common shares and special
non-voting shares. Holdings was incorporated in Bermuda in September 1995 as a
holding company in connection with the Company's recapitalization and initial
public offering. The Company owns 100% of the outstanding voting stock of
LaSalle Re. Certain founding shareholders hold exchangeable non-voting shares of
LaSalle Re, which are exchangeable, at the option of the holder, for Common
Shares of the Company on a one-for-one basis, unless the Companies board of
directors determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder.
If and while favorable loss experience continues and reinsurance capacity does
not diminish, the Company expects further downward pressure on rates for
property catastrophe reinsurance during 1997. If rates decline, the Company
expects net premiums written from property catastrophe reinsurance to decline in
1997. However, based on its current perception of market opportunities, the
Company expects that growth in its other lines of business would cause total net
premiums written to remain relatively stable.
Premiums written include new and renewal business, reinstatement premiums and
premium adjustments on current and prior year contracts. Renewal dates for
property catastrophe reinsurance contracts historically have been concentrated
in the January 1 to July 1 period. As a result, the Company's net premiums
written for the first six months of each calendar year generally represent a
significant portion of its net premiums written for the entire calendar year.
Premiums on property catastrophe excess of loss contracts are earned on a pro
rata basis over the period coverage is provided, which is generally 12 months.
Under pro rata of property catastrophe contracts, the risks underlying the
contracts incept throughout the policy period and premiums generally are earned
over an 18-month period. As a result, the Company's net premiums earned are not
concentrated in any interim period.
Net realized gains and losses on the Company's investment portfolio are
disclosed separately from net investment income. In accordance with generally
accepted accounting principles ("GAAP"), the Company has classified its
investments as available for sale; therefore, unrealized gains and losses on the
Company's investment portfolio are not recognized in the Company's consolidated
results of operations but are reflected as a separate component of shareholders'
equity, net of minority interest.
Losses and loss expenses incurred represent losses and loss expenses reported by
cedents and reserves established in respect of specific losses.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Underwriting expenses are composed primarily of brokerage, ceding commissions
and excise taxes. Brokerage on property catastrophe excess of loss contracts is
10% of ceded premiums. Pro rata of property catastrophe contracts have varying
rates of brokerage, ceding and profit commissions that are individually
negotiated based on the underlying risks of each contract and generally are not
dependent on geographic factors. These commissions range from 0% to 45% of ceded
premiums and averaged 10.8% of net premiums written for the year ended September
30, 1996. United States federal excise tax on premiums paid by United States
domiciled cedents is 1% of ceded premiums. In addition, underwriting expenses
include underwriting services fees and, depending upon the Company's financial
performance, underwriting profit commissions payable to CNA Services Limited
("CNA Bermuda") pursuant to the Company's Underwriting Services Agreement. Until
December 31, 1995, LaSalle Re paid CNA Bermuda underwriting fees equal to 2% for
the first $150 million of gross written and collected premiums per fiscal year
and 1.5% thereafter and, for periods during which the Company's loss ratio since
inception of LaSalle Re was 57% or less, subject to certain conditions, an
underwriting profit commission of 2.5% of the aggregate net underwriting profits
of LaSalle Re. Effective January 1, 1996, these fees equalled 1.5% of gross
written and collected premiums per fiscal year and, subject to the same loss
ratio test and conditions, an underwriting profit commission of 4.0% of the
aggregate net underwriting profits of LaSalle Re. LaSalle Re accrued
underwriting service fees to CNA Bermuda of $3.1 million, $3.5 million and $1.5
million for the years ended September 30, 1996, 1995 and the period from October
26, 1993 to September 30, 1994, respectively. In addition, the Company incurred
$4.1 million, $2.2 million and $nil in respect of profit commissions to CNA
Bermuda for the years ended September 30, 1996, 1995 and the period from October
26, 1993 to September 30, 1994, respectively. All underwriting expenses are
charged to income on the same basis as the premiums to which they relate are
earned. The primary component of operating expenses is fees paid to Aon Risk
Consultants Bermuda ("Bermuda Ltd.") ("Aon Bermuda") pursuant to an
Administrative Services Agreement with the Company.
The Company's loss and loss expense ratio is calculated by dividing the losses
and loss expenses incurred by net premiums earned. The expense ratio is
calculated by dividing underwriting expenses and certain operational expenses by
net premiums earned. The combined ratio is the sum of the loss and loss expense
ratio and the expense ratio. The loss and loss expense ratios and the combined
ratios fluctuate based on losses and loss expenses incurred, which are not
within the control of the Company. The underwriting expense component of the
expense ratio fluctuates in proportion to earned premiums and profitability of
the Company, while the operational expenses component consists primarily of
amounts payable to Aon Bermuda pursuant to the Administrative Services Agreement
and executive compensation.
The Company's financial statements are reported in U.S. dollars. The Company
writes a significant amount of business in currencies other than U.S. dollars
and therefore is exposed to risks relating to fluctuations in foreign currency
exchange rates. These risks include exposure to changes in net cash inflows on
non-U.S. dollar denominated insurance premiums and exposure to reinsurance
losses denominated in non-U.S. currencies. The Company may from time to time
experience significant exchange gains or losses as a result of fluctuations in
foreign currency exchange rates, which will affect the Company's statement of
operations. In an effort to manage its exposure to foreign currency exchange
rate fluctuations, the Company from time to time enters into foreign exchange
contracts.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net premiums written decreased 5.8% to $190.2 million for the year ended
September 30, 1996 from $201.9 million for the year ended September 30, 1995, as
a result of a reduction in United States property catastrophe excess of loss
premiums and adjustments on current and prior years' premium estimates. The
overall decrease was mitigated by a 26.4% increase in premiums written in other
lines of business to $22.1 million for the year ended September 30, 1996 from
$17.4 million for the year ended September 30, 1995. Of the net premiums written
for the years ended September 30, 1996 and 1995, $164.6 million and $178.5
million, respectively, were attributable to property catastrophe excess of loss
and pro rata of property catastrophe reinsurance. The total number of contracts
bound by the Company increased from 893 for the year ended September 30, 1995 to
995 for the year ended September 30, 1996. Reinstatement premiums for the year
ended September 30, 1996 totalled $5.5 million and related to a variety of
worldwide events. In the year ended September 30, 1995, reinstatement premiums
were $5.9 million, of which approximately 50% related to Hurricanes Luis and
Marilyn.
[PREMIUMS EARNED BAR GRAPH APPEARS HERE]
Net premiums earned increased 14.5% to $195.1 million for the year ended
September 30, 1996 from $170.4 million for the year ended September 30, 1995.
The magnitude of this increase was primarily due to the overall increase in
premiums written in the third and fourth quarters of fiscal 1995 compared with
fiscal 1994, which had a subsequent impact on net premiums earned in fiscal 1996
and fiscal 1995, respectively.
Net investment income increased 6.8% to $26.8 million for the year ended
September 30, 1996 from $25.1 million for the year ended September 30, 1995.
This increase was primarily attributable to a larger average investment base in
the year ended September 30, 1996 compared to the year ended September 30, 1995.
Investment income as a percentage of the average market value of invested assets
was 5.44% for the year ended September 30, 1996 compared to 5.38% for the year
ended September 30, 1995.
Net realized losses on investments were $0.5 million during the year ended
September 30, 1996 compared to net realized losses of $25,000 during the year
ended September 30, 1995. In accordance with GAAP, for investments classified as
available for sale, unrealized gains and losses on the Company's investment
portfolio are not recognized in the Company's consolidated results of operations
but are reflected as a separate component of shareholders' equity, net of
minority interest.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth the Company's combined ratios for the years ended
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995
<S> <C> <C>
Loss and loss expense ratio 26.4% 35.5%
Expense ratio 19.6% 17.1%
Combined ratio 46.0% 52.6%
</TABLE>
Losses and loss expenses incurred decreased 14.8% to $51.5 million for the year
ended September 30, 1996 from $60.4 million for the year ended September 30,
1995. The Company has not been affected by any significant catastrophic events
in the year ended September 30, 1996; however, additional reserves of $14.2
million were established for Hurricanes Luis and Marilyn, which occurred in
September 1995. Other losses emanate from the 1996 hurricane season and the end
of the 1995 hurricane season, winter/spring storms in the United States, the
United Kingdom and Northern Europe and satellite losses from the in-orbit
portion of coverages. Losses and loss expenses incurred in the year ended
September 30, 1995 included $27.3 million in respect of Hurricanes Luis and
Marilyn, with the balance of the losses and loss expenses relating to a variety
of worldwide incidents.
LOSS & LOSS EXPENSES
[PERFORMANCE GRAPH APPEARS HERE]
Underwriting expenses increased 18.6% to $27.3 million for the year ended
September 30, 1996 from $23.0 million for the year ended September 30, 1995,
primarily attributable to the growth in net premiums earned. As a percentage of
net premiums earned, underwriting expenses increased from 13.5% for the year
ended September 30, 1995 to 14.0% for the year ended September 30, 1996. This
increase was attributable to an increase in the level of fees accrued pursuant
to the Underwriting Services Agreement, which as a percentage of net premiums
earned were 3.7% for the year ended September 30, 1996 and 3.3% for the year
ended September 30, 1995. The Company's brokerage, ceding and profit commissions
were comparable for the years ended September 30, 1996 and 1995 at 10.3% and
10.2%, respectively.
Operational expenses increased 78.7% to $11.1 million for the year ended
September 30, 1996 from $6.2 million for the year ended September 30, 1995. This
increase was primarily due to increased staff at the executive level and
increased fees under the Administrative Services Agreement.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Interest expense was $0.2 million during the year ended September 30, 1996
compared with no expense in the year ended September 30, 1995. Interest expense
in the year September 30, 1996 related to agency fees and ongoing commitment
fees payable on the Company's credit facility. As at September 30, 1996, there
were no borrowings under this credit facility.
Foreign exchange losses in the year ended September 30, 1996 were $1.1 million
compared to $0.2 million in the year ended September 30, 1995. The losses in the
year ended September 30, 1996 were due to the weak performance of the United
States dollar against the Yen in conjunction with a strengthening of Sterling in
excess of the average foreign exchange contract rates. In the year ended
September 30, 1995, the Company experienced foreign currency losses, principally
as a result of the weakening of Sterling against the United States dollar.
Income before minority interest increased 23.9% to $129.5 million for the year
ended September 30, 1996 from $104.4 million for the year ended September 30,
1995. This increase was primarily due to an increase in net premiums earned and
a decrease in losses and loss expenses incurred.
The Company's net income per share was $5.40 for the year ended September 30,
1996 compared to $4.51 for the year ended September 30, 1995.
NET INCOME
[GRAPH APPEAR HERE]
Year Ended September 30, 1995 and Period from October 26, 1993 through September
30, 1994.
LaSalle Re was incorporated in October 1993 and commenced operations on November
22, 1993.
Net premiums written increased 51.4% to $201.9 million for the year ended
September 30, 1995 from $133.3 million for the 1994 period, primarily due to
increased writings of property catastrophe reinsurance. Of the net premiums
written for the 1995 year, $178.5 million was attributable to property
catastrophe excess of loss and pro rata property catastrophe reinsurance. The
total number of contracts bound by the Company increased from 508 for the 1994
period to 893 for the year ended September 30, 1995. Reinstatement premiums were
$5.9 million in the year ended September 30, 1995 and $8.2 million in the 1994
period. Approximately 50% of the reinstatement premiums recorded in 1995 related
to Hurricanes Luis and Marilyn. Primarily all of the 1994 reinstatement premiums
were attributable to the Northridge, California earthquake.
*Before minority interest
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net premiums earned increased 121.3% to $170.4 million for the year ended
September 30, 1995 from $77.0 million for the 1994 period. This increase was
primarily a result of the greater volume of premiums written in the year ended
September 30, 1995 together with the earnings of premiums written in the 1994
period that were unearned at September 30, 1994.
Net investment income increased 59.2% to $25.1 million for the year ended
September 30, 1995 from $15.8 million for the 1994 period. This increase was
primarily attributable to a larger investment base and an increase in yields,
particularly in the second quarter of the year ended September 30, 1995.
Investment income as a percentage of the average market value of investments and
cash was 5.4% and 4.7% for the year ended September 30, 1995 and the 1994
period, respectively.
The following table sets forth the Company's combined ratios for the year ended
September 30, 1995 and the period from October 26, 1993 through September 30,
1994:
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
Loss and loss expense ratio 35.5% 64.7%
Expense ratio 17.1% 16.6%
Combined ratio 52.6% 81.3%
Losses and loss expenses incurred increased 21.3% to $60.4 million for the year
ended September 30, 1995 from $49.8 million for the 1994 period. The main
component of losses and loss expenses incurred in the year ended September 30,
1995 were losses of $27.3 million related to Hurricanes Luis and Marilyn, which
occurred in September 1995. The balance of the losses and loss expenses relate
to a variety of worldwide incidents including property risk excess losses of
$7.9 million, development of the Northridge, California earthquake of $5.8
million and summer flooding in Norway of $4.4 million. In 1994, the Northridge,
California earthquake resulted in losses of $42.3 million, representing
approximately 85% of total losses incurred in the 1994 period.
Underwriting expenses increased 164.7% from $8.7 million for the 1994 period to
$23.0 million for the year ended September 30, 1995, primarily due to the growth
in net premiums earned. As a percentage of net premiums earned, underwriting
expenses were 13.5% for the year ended September 30, 1995 and 11.3% for the 1994
period. This increase is primarily due to the accrual of a $2.1 million
underwriting profit commission incurred pursuant to the Underwriting Services
Agreement. No underwriting profit commission was accrued in respect of the 1994
period because the conditions for earning such commission were not satisfied.
Operational expenses increased 52.9% to $6.2 million for the year ended
September 30, 1995 from $4.1 million for the 1994 period. The increase is
primarily due to increased fees of $1.7 million under the Administrative
Services Agreement.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
As a result of a relatively stable U.S. dollar and the placement of foreign
currency contracts, the Company experienced a foreign exchange loss of $0.2
million for the year end September 30, 1995 compared with a $1.6 million gain
for the 1994 period. Due to the Kobe, Japan earthquake and the potential for
loss payments in Yen, the Company did not place foreign currency contracts for
Yen balances during the year ended September 30, 1995 and sustained a loss on
this currency of $0.4 million.
Income before minority interest increased 249.3% to $104.4 million for the year
ended September 30, 1995 from the 1994 period. This increase was due primarily
to increases in net premiums earned and net investment income. The Company's net
income per share increased to $4.51 for the year ended September 30, 1995 from
$1.31 for the 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, Holdings' assets consist primarily of the outstanding
voting stock of LaSalle Re and its cash flows depend primarily on dividends and
other permitted payments from LaSalle Re.
LaSalle Re's sources of funds consist of net premiums written, investment income
and proceeds from sales and redemptions of investments. Cash is used primarily
to pay losses and loss expenses, brokerage, commissions, excise taxes,
administrative expenses and dividends. Under The Insurance Act 1978 of Bermuda
(the "Insurance Act"), LaSalle Re is prohibited from paying dividends of more
than 25% of its opening statutory capital and surplus unless it files an
affidavit stating that it will continue to meet the required solvency margin and
minimum liquidity ratio requirements and from declaring or paying any dividends
without the approval of the Bermuda Minister of Finance if it failed to meet its
required margins in the previous fiscal year. The Insurance Act also requires
LaSalle Re to maintain a minimum solvency margin and minimum liquidity ratio and
prohibits dividends which would result in a breach of these requirements. In
addition, LaSalle Re is prohibited under the Insurance Act from reducing its
total opening statutory capital by more than 15% without the approval of the
Minister of Finance. LaSalle Re currently meets these requirements. In addition,
the payment of dividends by LaSalle Re is subject to the rights of holders of
the exchangeable non-voting shares of LaSalle Re to receive a pro rata share of
any dividend and to its need to maintain shareholders' equity adequate to
support the level of LaSalle Re's insurance operations.
Operating activities provided net cash of $131.4 million for the year ended
September 30, 1996 and $130.2 million for the year ended September 30, 1995.
Cash flows from operations in future years may differ substantially from net
income. Cash flows are affected by loss payments, which, due to the nature of
the reinsurance coverage provided by LaSalle Re, are generally expected to
comprise large loss payments on a limited number of claims and can therefore
fluctuate significantly from year to year. The irregular timing of these large
loss payments can create significant variations in cash flows from operations
between periods. LaSalle Re funds such payments from cash flows from operations
and sales of investments.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
As a result of the potential for large loss payments, LaSalle Re maintains a
substantial portion of its assets in cash and marketable securities. As of
September 30, 1996, 84.7% of its total assets were held in cash and marketable
securities. To further mitigate the uncertainty surrounding the amount and
timing of potential liabilities and to minimize interest rate risk, LaSalle Re
maintains a short average duration for its investment portfolio. The modified
average duration of the portfolio was 2.57 years at September 30, 1996. At
September 30, 1996, the fair value of the Company's total investment portfolio,
including cash, was $537.5 million.
The Company has adopted the Statement of Financial Accounting Standard 115
("SFAS 115") to account for its marketable securities. In accordance with SFAS
115, all of the Company's investments are classified as "available for sale".
Under this classification, investments are recorded at fair market value and any
unrealized gains or losses are reported as a separate component of shareholders'
equity. The unrealized loss on the investment portfolio net of amounts
attributable to minority interest was $1.9 million at September 30, 1996
compared to $1.0 million at September 30, 1995.
As of September 30, 1996, all of the securities held in the Company's investment
portfolio were fixed-income securities rated "A" or better by Standard & Poor's
or Moody's Investors Services Inc. No single investment comprised more than 5%
of the overall portfolio. See Notes 3 and 8 to Consolidated Financial Statements
for additional information regarding the Company's investment portfolio.
FIXED INCOME SECURITIES
[GRAPH APPEARS HERE]
In March, October and November 1995, LaSalle Re paid cash dividends on its
capital stock in the aggregate amounts of $30 million, $75 million and $25
million, respectively. In April, July and October, 1996, the Company paid
dividends of $0.25, $0.25 and $0.25 per Common Share respectively to holders of
its capital stock. In October 1996, the Company adopted a dividend policy
pursuant to which it intends to distribute in each fiscal year 50% to 60% of the
Company's net income from the prior fiscal year, if any, on a quarterly basis.
In 1997, the Company expects to distribute 50% of its fiscal 1996 net income.
Based on the Company's net income for the year ended September 30, 1996, the
Company currently expects to declare a quarterly dividend of $0.71 per share
payable in January 1997. The actual amount and timing of any future dividends,
including the proposed quarterly dividend payable in January 1997, is at the
discretion of the Board and is dependent upon the profits and financial
requirements of the Company and other factors, including certain legal,
regulatory and other restrictions. There can be no assurance that the Company's
dividend policy will not change or that the Company will declare or pay any
dividends.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
As part of its capital management strategy, the Company currently intends to
repurchase up to $50 million of Common Shares in open market or privately
negotiated transactions from time to time depending on market conditions and the
Company's capital and liquidity requirements. The Company expects that any share
repurchases will be funded by available cash.
In accordance with the terms of certain reinsurance contracts, the Company has
posted letters of credit in the amount of $15.5 million as of September 30, 1996
as compared to $15.7 million as of September 30, 1995. These letters of credit
support outstanding loss reserves and are secured by a lien on the Company's
investment portfolio equal to 115% of the amount of the outstanding letters of
credit.
The Company made loss payments of $68.3 million during the year ended September
30, 1996 as compared to $31.5 million for the year ended September 30, 1995. The
majority of the payments made in the year ended September 30, 1995 related to
the Northridge, California earthquake, which increased as cedant paid losses
exceeded Company attachment points and loss payments were required. As of
September 30, 1996, the Company paid a total of $37.6 million, or 78.3%, of
total incurred losses of $48.0 million relating to the Northridge, California
earthquake (as compared to $29.0 million, or 60.4%, of such total incurred
losses as of September 30, 1995). The majority of loss payments in 1996 relate
to Hurricanes Luis and Marilyn, for which the Company paid a total of $33.8
million, or 81.4% of total incurred losses of $41.2 million (as compared to $0.6
million, or 1.5%, of such total incurred losses as of September 30, 1995).
At September 30, 1996, reserves for unpaid losses and loss expenses were $49.9
million. The Company has no material commitments for capital expenditures.
The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re, which in turn may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock of
LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. The line of credit contains various
covenants, including: limitations on incurring additional indebtedness;
prohibitions of dividend and other restricted payments that would cause the
Company's tangible net worth (total shareholders' equity and minority interest)
to fall below $350 million for calendar year 1996, $375 million for calendar
years 1997 and 1998, and $400 million thereafter; restriction of dividends per
fiscal quarter to 12.5% of consolidated net income of the Company for the
immediately preceding fiscal year; restrictions on the sale or lease of assets
not in the ordinary course of business; maintenance of a ratio of consolidated
total debt to consolidated tangible net worth of no more than 0.40 to 1.00;
maintenance of tangible net worth at the end of each fiscal year of the greater
of $250 million or 70% of net premiums written; maintenance of statutory capital
of LaSalle Re at the end of each fiscal year of at least $250 million; and
maintenance of a ratio of net premiums written to statutory capital at the end
of any fiscal quarter for the four fiscal quarters then ended of no more than
1.00 to 1.00 in each case. In order for Holdings to pay dividends in excess of
50% of net income, the Company would have to renegotiate certain terms of its
credit facility. As of September 30, 1996, the credit facility had not been
utilized.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company's financial condition and results of operations are influenced by
both internal and external forces. Loss payments, investment returns and
premiums may be impacted by changing rates of inflation and other economic
conditions. Cash flows from operations and the liquidity of its investment
portfolio are, in the Company's opinion, adequate to meet the Company's expected
cash requirements over the next 12 months.
NOTE ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the United States Securities Act of 1933 as amended and Section
21E of the United States Securities Exchange Act of 1934 as amended. Forward-
looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes", "anticipates", "intends", or
"expects". These statements relate to the plans of the Company for future
operations, including the Company's objective to seek average annualized returns
on shareholders' equity of 20% to 25% over time and the Company's policy to
distribute as dividends in each fiscal year 50% to 60% of the Company's net
income from the prior fiscal year, if any, on a quarterly basis. In light of the
risks and uncertainties inherent in all future projections, these statements
should not be regarded as a representation that the objectives will be achieved.
Many factors could cause actual results to differ materially from those in the
forward-looking statements, including the following:
(i) catastrophic events with a frequency or severity exceeding the Company's
estimates;
(ii) a decrease in the level of demand or increase in the supply of property
catastrophe reinsurance;
(iii) any lowering or loss of one of the Company's financial ratings or the
Company's non-admitted status in the United States jurisdictions;
(iv) a decrease in the cession of business from CNA Financial Corporation to
the Company;
(v) loss of the services of any of the Company's executive officers;
(vi) the termination of any of the Company's service agreements;
(vii) the passage of legislation subjecting the Company to supervision or
regulation in the United States;
(viii) challenges by insurance regulators in the United States or the United
Kingdom to the Company's claim of exemption from insurance regulation
under current laws; or
(ix) a contention by the United States Internal Revenue Service that the
Company or LaSalle Re is engaged in the conduct of a trade or business
within the U.S.
The Company undertakes no obligation to release publicly the results of any
future revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
Years ended September 30, 1996 and 1995
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 46,990 $ 82,360
Investments held as available for sale at fair value (Note 3 (a))
(amortized cost 1996: $493,450; 1995: $441,705) 490,514 440,065
Accrued investment income 14,211 15,803
Reinsurance balances receivable (Note 7)
(related party 1996: $11,700; 1995: $25,206) 70,625 86,146
Deferred acquisition costs 10,464 10,708
Other assets (Note 4) 1,570 1,465
- ----------------------------------------------------------------------------------------
Total assets $634,374 $636,547
========================================================================================
LIABILITIES
Reserve for losses and loss expenses (Note 9) $ 49,875 $ 66,654
Unearned premium reserve 82,894 87,885
Other liabilities (Notes 6 & 7)
(related party 1996: $6,080; 1995: $6,076) 11,087 6,197
Dividend payable 3,600 75,000
- ----------------------------------------------------------------------------------------
Total liabilities 147,456 235,736
- ----------------------------------------------------------------------------------------
MINORITY INTEREST (Note 1) $179,470 $147,389
- ----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 5) $ 14,398 $ 14,398
Additional paid in capital (Note 5) 221,968 221,968
Unrealized loss on investments (Note 3 (a)) (1,861) (1,039)
Retained earnings 72,943 18,095
- ----------------------------------------------------------------------------------------
Total shareholders' equity 307,448 253,422
- ----------------------------------------------------------------------------------------
Total liabilities, minority interest and shareholders' equity $634,374 $636,547
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
20
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Premiums written (Notes 7, 8 & 13) (related party
1996: $24,045; 1995: $28,836; 1994: $24,186) $190,151 $201,916 $133,327
Change in unearned premiums 4,990 (31,546) (56,338)
- ---------------------------------------------------------------------------------------------
Net premiums earned 195,141 170,370 76,989
- ---------------------------------------------------------------------------------------------
Net investment income (Note 3 (b)) 26,846 25,091 15,758
Net realized losses on investments (Note 3(b)) (418) (25) (19)
- ---------------------------------------------------------------------------------------------
Total revenues 221,569 195,436 92,728
=============================================================================================
EXPENSES
Losses and loss expenses incurred (Note 9) 51,477 60,397 49,801
Underwriting expenses (Note 7) (related party
1996: $10,419; 1995: $8,524; 1994: $3,183) 27,268 22,988 8,686
Operational expenses (Note 7) (related party
1996: $6,500; 1995: $4,500; 1994: $2,798) 11,114 6,218 4,066
Corporate expenses 911 1,145 1,866
Interest expense 222 0 0
Exchange loss/(gain) 1,126 240 (1,590)
- ---------------------------------------------------------------------------------------------
Total expenses 92,118 90,988 62,829
- ---------------------------------------------------------------------------------------------
Income before minority interest 129,451 104,448 29,899
Minority interest (Note 1) 47,966 38,774 10,958
=============================================================================================
Net income $ 81,485 $ 65,674 $ 18,941
=============================================================================================
Net income per common share $ 5.40 $ 4.51 $ 1.31
=============================================================================================
Weighted average number of common share
and common share equivalents outstanding 23,967,870 23,170,680 22,852,910
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
COMMON SHARES PAR VALUE $1
Balance at beginning of period $ 14,398 $ 14,396 $ 0
Issuance of shares 0 2 14,396
- ---------------------------------------------------------------------------------------
Balance at end of period $ 14,398 $ 14,398 $ 14,396
=======================================================================================
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period $221,968 $221,945 $ 0
Proceeds on issue of shares in excess of par value 0 23 221,945
- ---------------------------------------------------------------------------------------
Balance at end of period $221,968 $221,968 $221,945
=======================================================================================
UNREALIZED LOSS ON INVESTMENTS
Balance at beginning of period $ (1,039) $(11,836) $ 0
Unrealized gain/(loss) in period (822) 10,797 (11,836)
- ---------------------------------------------------------------------------------------
Balance at end of period $ (1,861) $ (1,039) $(11,836)
=======================================================================================
RETAINED EARNINGS
Balance at beginning of period $ 18,095 $ 18,941 $ 0
Net Income 81,485 65,674 18,941
Dividends (26,637) (66,520) 0
- ---------------------------------------------------------------------------------------
Balance at end of period $ 72,943 $ 18,095 $ 18,941
=======================================================================================
Total shareholders' equity $307,448 $253,422 $243,446
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,485 $ 65,674 $ 18,941
Adjustments to reconcile net income to
cash provided by operating activities:
Minority interest in net income 47,966 38,774 10,958
Amortization of investment premium 3,280 4,535 3,438
Net loss on sale of investments 418 25 19
Unrealized loss/(gain) on foreign exchange 590 (153) (1,319)
Changes in:
Accrued investment income 1,592 (2,294) (13,509)
Reinsurance balances receivable 15,412 (35,745) (48,987)
Deferred acquisition costs 244 (3,898) (6,809)
Other assets (105) (404) (1,061)
Reserve for losses and loss expenses (16,748) 28,923 37,789
Unearned premium reserve (4,991) 31,546 56,338
Other Liabilities 2,294 3,187 3,012
- ------------------------------------------------------------------------------------------
Cash provided by operating activities 131,437 130,170 58,810
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (270,287) (108,796) (381,826)
Net sales/(purchases) of short term investments 47 2,654 (42,247)
Proceeds on the sale of marketable securities 170,296 50,198 5,293
Proceeds on the maturity of marketable securities 44,500 25,000 0
- ------------------------------------------------------------------------------------------
Cash applied to investing activities (55,444) (30,944) (418,780)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (111,363) (30,003) 0
Subscription to share capital 0 39 373,068
- ------------------------------------------------------------------------------------------
Cash (applied to)/provided by financing activities (111,363) (29,964) 373,068
- ------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (35,370) 69,262 13,098
Cash and cash equivalents at beginning of period 82,360 13,098 0
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 46,990 $ 82,360 $ 13,098
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994 (Expressed in thousands of United States Dollars, except
share and per share data)
1. GENERAL
The Company was incorporated on September 20, 1995 under the laws of Bermuda
to act as an investment holding company.
LaSalle Re Limited ("LaSalle Re") was incorporated on October 26, 1993 under
the laws of Bermuda and commenced operations on November 22, 1993. The
Company is licensed under the Insurance Act, 1978 as amended by the Insurance
Amendment Act, 1995 of Bermuda to write insurance business and operates as a
multi-line reinsurance company, with emphasis on property catastrophe
business.
Property catastrophe reinsurance covers unpredictable events such as
hurricanes, windstorms, hailstorms, earthquakes, fires, industrial
explosions, freezes, riots, floods and other man-made or natural disasters.
Because the Company has large aggregate exposures to these risks, the Company
expects that its claims experience will be characterized by relatively low
frequency and high severity claims. The occurrence of claims from
catastrophic events is likely to result in substantial volatility in the
Company's financial results for any particular period. The Company endeavours
to manage its exposures to catastrophic events by limiting the amount of its
exposure in each geographic zone worldwide and requiring that its property
catastrophe contracts provide for aggregate limits and attachment points.
On August 26, 1994, LaSalle Re incorporated a subsidiary company in the
United Kingdom, LaSalle Re (Services) Limited, to act as a representative
office for the Company. In addition, on June 11, 1996, LaSalle Re
incorporated a subsidiary company in Bermuda, LaSalle Re Corporate Capital
Ltd., a member of a recognized association of underwriters, to act as a
corporate member of Lloyd's of London.
In November 1995, the Company and LaSalle Re Limited consummated an offer
(the "Exchange Offer") pursuant to which, among other things, the founding
shareholders of the Company (the "Founding Shareholders")exchanged their
capital stock of LaSalle Re for common shares of the Company (the "Common
Shares") and, in certain circumstances, exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"). The Exchangeable Non-
Voting Shares are held by certain Founding Shareholders who would otherwise
hold, or cause another shareholder to hold, directly, indirectly or
constructively, in excess of 9.9% of the voting power of the Company or
LaSalle Re. The Exchangeable Non-Voting Shares are exchangeable, at the
option of the holder, for Common Shares on a one-for-one basis, unless the
board of directors of the Company determines such exchange may cause actual
or potential adverse tax consequences to the Company or any shareholder. The
Exchangeable Non-Voting Shares will at all times rank as to assets, dividends
and in all other respects on a parity with the common shares of LaSalle Re,
except that they do not have the right to vote on any matters except as
required by Bermuda law and in connection with certain actions by the
Company.
On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares (the
"Offerings"). Of these shares, 2,920,500 were sold by Founding Shareholders
and 1,392,000 by the Company. The proceeds from the sale of 1,392,000 shares
sold by the Company were used to enable LaSalle Re to redeem shares of its
capital stock (the "Redemption").
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994 (Expressed in thousands of United States Dollars, except
share and per share data)
1. GENERAL (CONTINUED)
Since the consummation of the Exchange Offer, the Offerings and the
Redemption, the Company has owned 100% of the outstanding voting stock, which
constitutes approximately 63% of the outstanding capital stock of LaSalle Re.
The minority interest represents approximately the 37% interest in LaSalle Re
not owned by the Company.
The Exchange Offer was accounted for as if it were a pooling of interests of
combining enterprises under common control. The consolidated financial
statements include the results of the Company and the Company's share of
LaSalle Re and its subsidiaries for all periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in accordance
with United States generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported and
disclosed amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The estimates most susceptible to
significant change are those used in determining the reserve for unpaid
losses and loss expenses and ultimate premiums written.
The following are the significant accounting policies adopted by the Company:
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
LaSalle Re Holdings Limited, LaSalle Re Limited and its subsidiaries,
LaSalle Re (Services) Limited and LaSalle Re Corporate Capital Ltd. All
significant intercompany balances and transactions have been eliminated
in consolidation.
(b) PREMIUMS EARNED AND DEFERRED ACQUISITION EXPENSES
Premiums written are estimated by management based upon reports received
from ceding companies. These estimates are subject to review with
adjustments recorded in the period in which the actual amounts are
determined. Premiums on property catastrophe excess of loss contracts are
earned on a pro rata basis over the period the coverage is provided,
which is generally 12 months. Under pro rata property catastrophe
contracts, the risks underlying the contracts incept throughout the
policy period and premiums generally are earned over an 18-month period.
Unearned premiums represent the portion of premiums written which is
applicable to the unexpired terms of the policies in force.
Acquisition costs, mainly brokerage, commissions, underwriting fees and
excise taxes related to unearned premiums are deferred and amortized to
income over the period in which the premiums are earned. Future earned
premiums and anticipated losses and loss adjustment expenses related to
those premiums are considered in determining the recoverability of
deferred acquisition costs. The Company does not consider anticipated
future investment income in determining if a premium deficiency exists.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) LOSSES AND LOSS EXPENSES
The reserve for losses and loss expenses is based on reports and
individual case estimates received from ceding companies. An amount is
included for losses and loss expenses incurred but not reported on the
basis of reports received from ceding companies and an internally
produced actuarial analysis.
Given the inherent nature of major catastrophic events, considerable
uncertainty underlies the assumptions and associated estimated reserves
for losses and loss expenses. These estimates are reviewed regularly and,
as experience develops and new information becomes known, the reserves
are adjusted as necessary. Such adjustments, if any, are reflected in
results of operations in the period in which they are determined and are
accounted for as changes in estimates. Due to the inherent uncertainty in
estimating reserves for losses and loss expenses there can be no
assurance that the ultimate liability will not exceed recorded amounts,
with a resulting material effect on the Company. Based on the current
assumptions used in calculating reserves, management believes that the
Company's reserve levels are adequate to meet its future obligations.
Reserves are recorded without consideration of potential salvage or
subrogation recoveries which are estimated to be immaterial. Such
recoveries, when realized, are reflected as a reduction of losses
incurred.
(d) INVESTMENTS
The Company's investments comprise fixed interest securities and short
term investments, such as certificates of deposit or commercial paper.
All investments are considered to be available for sale under the
definition included in Statement of Financial Accounting Standards
No. 115. As such, they are reported at fair value with unrealized gains
and losses reported as a separate component of shareholders' equity, net
of amounts attributable to minority interests.
Purchases and sales of investments are accounted for on the trade date of
the transaction.
(e) INVESTMENT INCOME
Investment income, net of investment expenses, is accrued to the balance
sheet date and includes amortization of premiums and discounts relative
to fixed interest securities purchased at prices different to par value.
Realized gains or losses on sales of investments are determined on the
basis of specific identification and are included as part of net
investment income in the statements of operations.
(f) TRANSLATION OF FOREIGN CURRENCIES
The U.S. dollar is the Company's functional currency. Foreign currency
monetary assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Unearned premiums and deferred
acquisition costs are translated at historic exchange rates. Foreign
currency revenues and expenses are translated at the exchange rates in
effect at the date of the transaction. Exchange gains and losses are
included in the determination of net income.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) TRANSLATION OF FOREIGN CURRENCIES (CONTINUED)
The Company enters into foreign exchange contracts to manage the currency
risks associated with the receipt of non-U.S. dollar insurance premiums.
Realized and unrealized gains and losses on these contracts are included
in the determination of net income.
(g) FAIR VALUE OF FINANCIAL STATEMENTS
Fair value disclosures with respect to certain financial instruments are
separately included herein, where appropriate.
The carrying values of other financial instruments, including cash and
cash equivalents, reinsurance balances receivable, accrued investment
income, promissory note receivable and other liabilities approximate
their fair value due to the short term nature of the balances.
(h) CORPORATE EXPENSES
Corporate expenses are expensed as they are incurred on an accruals
basis.
(i) CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company considers
all time deposits and certificates of deposit with an original maturity
of 90 days or less as equivalent to cash.
(j) STOCK INCENTIVE COMPENSATION PLANS
The Company accounts for stock option grants in accordance with APB
opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes compensation expense for stock option grants to
the extent that the fair value of the stock exceeds the exercise price of
the option at the measurement date. Any resulting compensation expense is
recorded over the shorter of the vesting or service period.
(k) INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding during the period. The Exchangeable Non-Voting Shares in
LaSalle Re are considered common share equivalents as are stock options
and stock appreciation rights which are included in the computation of
weighted average number of common shares outstanding using the treasury
stock method. There is no material difference between primary and fully
diluted net income per common share.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
3. INVESTMENTS
(a) All fixed interest securities and short term investments are considered
available for sale. The fair values are based on quoted market prices at
the reporting date for those, or similar, investments. As at September 30,
1996 and 1995, the fair values and amortized costs of investments are as
follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. government and agencies $ 90,596 $ 221 $ (693) $ 90,124
Non U.S. government and agencies 75,863 258 (828) 75,293
Corporate 326,991 1,077 (2,971) 325,097
--------- ------ -------- --------
$493,450 $1,556 $(4,492) $490,514
========= ====== ======== ========
AMORTIZED UNREALIZED UNREALIZED FAIR
1995 COST GAINS LOSSES VALUE
U.S. government and agencies $ 4,988 $ 0 $ (57) $ 4,931
Non U.S. government and agencies 63,208 672 (589) 63,291
Corporate 373,509 2,950 (4,616) 371,843
-------- ------ -------- --------
$441,705 $3,622 $(5,262) $440,065
======== ====== ======== ========
</TABLE>
The unrealized loss on investments as shown on the consolidated balance
sheet of $1,861 (1995: $1,039) is net of the minority's interest of $1,075
(1995: $601).
Investments held at September 30, 1996 mature as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Less than 1 year $100,034 $ 99,819
1-5 years 334,252 331,808
5-10 years 59,164 58,887
-------- --------
$493,450 $490,514
======== ========
</TABLE>
The following table summarizes the composition of the fair value of
available for sale securities by ratings assigned or, with respect to non-
rated issues, as estimated by the Company's investment managers:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
AAA 63.3% 69.4%
AA 25.7% 30.6%
A 11.0% 0.0%
------ ------
100.0% 100.0%
====== ======
</TABLE>
In the normal course of reinsurance operations, the Company's bankers have
issued letters of credit totalling $15,511 (1995: $15,704) in favor of ceding
insurance companies to secure the Company's obligations under various
reinsurance contracts. At September 30, 1996, $17,837 (1995: $18,059) of
fixed interest securities have been pledged as collateral for these letters
of credit.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
3. INVESTMENTS (CONTINUED)
(B) NET INVESTMENT INCOME
Net investment income for the years ended September 30, 1996, 1995 and
the period ended September 30, 1994 is derived from the following
sources:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash and short term investments $ 1,443 $ 2,558 $ 2,379
U.S. government and agencies
fixed interest securities 1,631 107 0
Non U.S. government and agencies
fixed interest securities 4,702 3,224 1,877
Corporate fixed interest securities 20,197 20,288 12,315
Gross realized losses (418) (25) (19)
------- ------- -------
Gross investment income 27,555 26,152 16,552
Investment expenses (Note 7) (1,127) (1,086) (813)
------- ------- -------
Net investment income $26,428 $25,066 $15,739
======= ======= =======
</TABLE>
Included in gross investment income for the year ended September 30, 1996
was a charge of $3,280 (1995: $4,535; 1994: $3,438) relating to the
accretion/amortization of investment premium.
The change in net unrealized losses, net of the minority's interest, that has
been included as a separate component of shareholders' equity for the year
ended September 30, 1996 was a increase of $822 (decrease 1995: $10,797;
increase 1994: $11,836).
Proceeds received from the sale of available for sale securities in the
period ended September 30, 1996 were $170,296 (1995: $50,198; 1994: $5,293).
4. OTHER ASSETS
Included in other assets is a promissory note receivable. In connection with
the terms of the Chief Executive Officer's five year employment contract,
LaSalle Re advanced $695 to him for the purpose of purchasing a property in
Bermuda. The advance is evidenced by a promissory note which is secured upon
the title deeds of the property. The promissory note bears interest at the
rate of 8% per annum and is repayable in full at the earlier of the
termination date of the Chief Executive Officer's employment contract or the
date of sale of the property. Under the employment contract LaSalle Re will
assume any gain or loss on the disposition of the property.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
5. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
The authorized share capital of the Company is 100,000,000 Common Shares of
par value $1 each. As of September 30, 1996 and 1995, the following shares
have been issued and fully paid:
<TABLE>
<CAPTION>
1996 & 1995
<S> <C> <C> <C>
NUMBER OF SHARE ADDITIONAL
SHARES CAPITAL PAID IN
ISSUED CAPITAL
Common shares 14,397,720 $14,398 $ 221,968
========== ======= =========
</TABLE>
During the year, the Company established an Employee Stock Purchase Plan (the
"Plan"). Under the Plan, the Company is authorized to sell up to 150,000
Common Shares at a discount equivalent to 15% of the market price, to
eligible employees of the Company and its subsidiaries, and other persons
providing services to those companies. The maximum investment by an employee
is $25 per calendar year. As at September 30, 1996, no shares had been issued
in respect of the Plan.
6. SHARE PURCHASE OPTIONS AND STOCK APPRECIATION RIGHTS
(A) NON-COMPENSATORY
The Company has issued options to purchase 136,350 common shares to
certain shareholders and their affiliates. In addition, LaSalle Re has
issued options to purchase 2,199,780 Exchangeable Non-Voting shares. The
options became exerciseable on October 1, 1996 and may be exercised until
November 22, 2003.
The original exercise price of the options was $16.67 per share, which
was equal to the fair value of the Company's shares at the grant date,
minus dividend adjustments. The current exercise price is $10.45. As the
options were granted to certain of the Founding Shareholders and their
affiliates as an inducement to purchase stock in LaSalle Re, no
compensation expense has been recorded in connection with the options.
(B) [I] COMPENSATORY -- STOCK APPRECIATION RIGHTS
In consideration for entering into an employment agreement with LaSalle
Re, the Company's Chief Executive Officer was granted a total of 340,872
Stock Appreciation Rights (SARs) during 1994. Upon exercise, the SARs
entitle the Executive to a cash payment equal to the SARs value as of the
exercise date. Alternatively, at the Company's sole discretion, the SARs
will entitle the Executive to either (i) the number of common shares in
LaSalle Re Holdings Limited equal to the aggregate value of the SARs
divided by the fair value of a common share at the exercise date, or (ii)
upon payment of the base value for each SAR, the number of common shares
equal to the number of SARs exercised. Any common shares taken up through
the exercise of the SARs shall rank equally with the other common shares.
The value of each SAR equals the fair market value of a common share of
LaSalle Re Holdings less the base value on the exercise date, subject to
anti-dilution adjustments. The fair market value shall be determined by
the board of directors of the Company, but shall be based on the market
price of the common shares. The base value of each SAR was $16.67, minus
dividend adjustments. The current exercise price is $10.45.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
6. SHARE PURCHASE OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
(B) [I] COMPENSATORY -- STOCK APPRECIATION RIGHTS (CONTINUED)
A percentage of these SARs may become exerciseable on January 1 of each
of 1997, 1998 or 1999. These percentages vary depending on the internal
rate of return achieved during the period from November 22, 1993 through
to the date of exercise and ending on March 30, 2004 or, if earlier, two
years after the Chief Executive Officer's termination of employment. SARs
will not be exerciseable unless a targeted internal rate of return of at
least 18% per annum is achieved during the entire measurement period.
This is based upon the financial performance of LaSalle Re from inception
to November 27, 1995 and LaSalle Re Holdings' consolidated performance
from that date forward. At September 30, 1996, the Company's internal
rate of return has exceeded 18% and therefore the Company has charged an
expense of $909 (1995: $240; 1994: $Nil).
(B) [II] COMPENSATORY -- OPTIONS
In November 1995, the Company adopted a Long Term Incentive Plan (the
"Incentive Plan") which permits the award of various incentives to
employees of the Company, its subsidiaries and other persons providing
services to those companies.
Under the Incentive Plan, the Company granted options for 163,218 common
shares during the year ended September 30, 1996. The options vest
rateably in five annual instalments over 5 years from the grant date. The
options can be exercised over a 10 year period, commencing on the vesting
date. As of September 30, 1996, no options were exerciseable. The
original exercise price was $19.25 per share. The current exercise price
is $18.75, as adjusted for dividends. The options were granted at the
fair value of the Company's shares at the grant date.
The Company applies APB Opinion 25 and Related Interpretations in
accounting for the Incentive Plan. Accordingly, no compensation cost has
been recognized. Had compensation cost been determined based on the fair
value at the grant date of the options consistent with the method of SFAS
Statement 123, the net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1996
Net income
As reported $81,485
Pro forma $81,465
Primary earnings per share
As reported $ 5.40
Pro forma $ 5.40
The fair value of the option grants are estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 10% per annum; expected volatility of 9%;
and a risk free interest rate of 5.2%.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
7. RELATED PARTY TRANSACTIONS
In addition to the share purchase options discussed in Note 6, LaSalle Re
has entered into the following transactions and agreements with companies
related to the Founding Shareholders:
(a) PREMIUMS WRITTEN
During the year ended September 30, 1996, LaSalle Re assumed premiums
written of approximately $24,045 (1995: $28,836; 1994: $24,186) from a
ceding company related to a shareholder of LaSalle Re. In addition,
LaSalle Re assumed premiums totalling $23,577 (1995: $22,057; 1994:
$14,163) through brokers related to a shareholder of LaSalle Re.
Brokerage fees incurred in respect of this business were approximately
$2,357 (1995: $2,206; 1994: $1,416). All such transactions were
undertaken on normal commercial terms. Reinsurance balances receivable
at the balance sheet date include $11,700 (1995: $25,206) due from such
related parties.
(b) UNDERWRITING SERVICES
LaSalle Re is party to an underwriting services agreement with CNA
(Bermuda) Services Limited ("CNA Bermuda"). Under this agreement,
LaSalle Re has granted CNA Bermuda the authority to provide underwriting
services and to underwrite all classes of insurance and reinsurance as
agents for LaSalle Re. LaSalle Re has agreed to pay fees to CNA Bermuda
as follows:
With effect from January 1, 1996:
(i) 1.5% of the gross written and collected premium per fiscal year;
and
(ii) An underwriting profit commission equal to 4.0% of the aggregate
net underwriting profits of LaSalle Re, where certain conditions
are met.
Prior to January 1, 1996:
(i) 2.0% of the gross written and collected premium per fiscal year, up
to premium of $150,000 plus 1.5% of the gross written and collected
premium in excess of $150,000; and
(ii) An underwriting profit commission equal to 2.5% of the aggregate
net underwriting profits of LaSalle Re, where certain conditions
are met.
The Company has incurred $3,081 (1995: $3,411; 1994: $1,465) for
underwriting services provided for the year ended September 30, 1996, of
which $2,482 (1995: $3,629) was payable at September 30, 1996.
The Company has incurred $4,140 (1995: $2,186; 1994: $Nil) for
underwriting profit commission for the year ended September 30, 1996, of
which $3,350 was payable at September 30, 1996 (1995: $2,186).
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
(c) ADMINISTRATIVE SERVICES
LaSalle Re is party to an agreement with Aon Risk Consultants (Bermuda)
Limited ("ARC Bermuda"). Under this agreement ARC Bermuda performs
certain actuarial and administrative services on behalf of the Company.
LaSalle Re has agreed to pay management fees to ARC Bermuda as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR
<S> <C>
1993 $548 (pro-rata basis)
1994 $3,000
1995 $5,000
1996 $7,000
</TABLE>
Beginning on January 1, 1997, the management fees payable to ARC Bermuda
will be:
(i) $3,300 per annum; and
(ii) An underwriting profit commission equal to 2.75% of the aggregate
net underwriting profit of LaSalle Re, where certain conditions
are met.
(d) INVESTMENT MANAGEMENT SERVICES
LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon
UK") to provide investment management services. LaSalle Re has agreed to
pay fees to Aon UK based on the average daily balance of the investment
portfolio of the preceding quarter, as follows:
<TABLE>
<CAPTION>
PORTFOLIO BALANCE ANNUAL FEE IN BASIS POINTS
<S> <C>
$0 through $100,000 35
Excess of $100,000 through $200,000 25
Excess of $200,000 15
</TABLE>
The Company has incurred $1,028 (1995: $987; 1994: $752) for services
provided for the year ended September 30, 1996, of which $272 (1995:
$261) was payable at September 30, 1996.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
(E) CLAIMS HANDLING SERVICES
LaSalle Re is party to an agreement with Integrated Runoff Insurance
Services Corporation ("IRISC") whereby IRISC performs certain claims
handling services for LaSalle Re. LaSalle Re has agreed to pay the
following minimum fees to IRISC:
CALENDAR YEAR
1994 $50
1995 $53
1996 $56
The agreement provides for additional fees to be payable if services
provided exceed a certain "base level". Fees in excess of this "base
level" are calculated on an hourly rate.
The Company has incurred $92 (1995: $78; 1994: $47) for services
provided for the year ended September 30, 1996, of which $Nil (1995:
$Nil) was payable at the balance sheet date.
8. CONCENTRATION OF CREDIT RISK
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 15% of the total portfolio and only
10% of the total portfolio can be invested in "BBB" grade rating. In
addition, the guidelines restrict investments in a single issuer to no
greater than 5% of the market value of the portfolio (except for U.S. and
U.K. Government issues) and, with respect to country of issue, to no greater
than 25% of the market value of the portfolio, except for U.S. and
supernational borrowers.
A broker who is unrelated to the Company arranged more than 16% of the
Company's premiums written for the year ended September 30, 1996 (1995: 21%;
1994: 20%). Another broker who is related to the Company arranged more than
12% (1995: 10%; 1994: 11%). Approximately 13% (1995: 15%; 1994: 18%) of the
gross premiums written for the year ended September 30, 1996 were ceded by
related companies.
9. RESERVE FOR LOSSES AND LOSS EXPENSES
Activity in the reserve for losses and loss expenses during the periods
ended September 30, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance as of October 1 $ 66,654 $ 37,789 $ 0
-------- -------- --------
Incurred related to:
Current year 31,910 52,587 49,801
Prior year 19,567 7,810 0
-------- -------- --------
51,477 60,397 49,801
-------- -------- --------
Paid related to:
Current year (10,222) (7,572) (12,012)
Prior year (58,034) (23,960) $ 0
-------- -------- --------
(68,256) (31,532) (12,012)
-------- -------- --------
Balance as of September 30 $ 49,875 $ 66,654 $ 37,789
======== ======== ========
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
9. RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
The amounts incurred in respect of prior year losses in 1996 relate
primarily to Hurricanes Luis and Marilyn which occurred in September 1995.
Additional information reported by ceding companies in the months following
the losses necessitated additional reserving. This impact has been mitigated
by the collection of additional reinstatement premiums. In respect of 1995,
additional losses of $5.7 million (gross of reinstatements of approximately
$1.1 million) related to development on the Northridge, California
earthquake, reflecting an increase in the market estimates of anticipated
total insured loss.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's functional currency is the U.S. dollar, however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on
non-U.S. dollar denominated insurance premiums.
To manage the Company's exposure to these risks, the Company enters into
foreign exchange contracts in the major currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. At September 30, 1996, the Company had a
notional principal amount outstanding of approximately $25,192 (1995:
$6,129) in contracts to sell foreign currencies in the future. The fair
value of these contracts, based on quoted forward rates available for the
maturity of the contracts, as at September 30, 1996 was $(571) (1995:
$(136)). A loss of $294 (1995: $756; 1994: $Nil) is included in the
Statements of Operations in respect of these contracts.
Foreign exchange contracts at September 30, 1996 generally have maturities
of six months or less and relate to major Western currencies. Counterparties
to the transactions are large financial institutions. Although the Company
is exposed to credit loss in the event of non-performance by other parties
in the contracts, such non-performance is not anticipated.
The Company may also enter into foreign exchange contracts to manage the
exposures relating to known reinsurance losses denominated in foreign
currencies. However, no such contracts had been entered into at the balance
sheet date.
11. CREDIT FACILITY
On December 1, 1995, the Company obtained a five year, $100 million
committed line of credit from a syndicate of banks, maturing on December 1,
2000. The proceeds from the facility may only be used to buy preferred
shares of LaSalle Re, which in turn may use the proceeds of such purchase to
meet current cash requirements. The facility is secured by a pledge ("legal
mortgage") of all of the capital stock of LaSalle Re held by the Company,
including any preferred shares that may be issued by LaSalle Re to the
Company. As at September 30, 1996, the facility had not been utilized.
The credit facility contains various covenants, including: limitations on
incurring additional indebtedness; prohibition of dividend payments that
would cause the Company's tangible net worth, defined as total shareholders'
equity and minority interest, to fall below $350 million in calendar 1996,
$375 million in calendar years 1997 and 1998 and thereafter $400 million;
restriction of dividends to a maximum of 50% of the consolidated net income
for the immediately preceding fiscal year; restrictions on the sale or lease
of assets not in the ordinary course of business; maintenance of a ratio of
consolidated total debt to consolidated tangible net worth of no more than
0.40 to 1.00; maintenance of tangible net worth at the end of each fiscal
year of the greater of $250 million or 70% of net premiums
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
11. CREDIT FACILITY (CONTINUED)
written; maintenance of statutory capital at the end of each fiscal year of
at least $250 million; and maintenance of a ratio of net premiums written to
statutory capital at the end of any fiscal quarter of no more than 1.00 to
1.00 in each case. At September 30, 1996, the Company was in compliance with
all covenants under the facility.
12. STATUTORY DATA
The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by LaSalle Re. Under the Insurance
Act 1978, amendments thereto and related regulations of Bermuda, LaSalle Re
is required to prepare statutory financial statements and to file in Bermuda
a statutory financial return. LaSalle Re is required to maintain certain
measures of solvency and liquidity.
The statutory capital and surplus of LaSalle Re at September 30, 1996 was
approximately $476,000 (1995: $391,000) and the minimum required statutory
capital and surplus required by its license as a Class 4 insurer, was
approximately $100,000 (1995: $100,000).
In this regard, the declaration of dividends from retained earnings and
distributions from additional paid in capital is limited to the extent that
the above requirements are met. At September 30, 1996, there were no
restrictions on distribution of retained earnings.
13. SEGMENTAL INFORMATION
The following table sets forth the Company's net premiums written and the
percentage thereof allocated to the zone of exposure for the years ended
September 30, 1996 and 1995 and the period ended September 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
PREMIUMS PREMIUMS PREMIUMS
WRITTEN % WRITTEN % WRITTEN %
<S> <C> <C> <C> <C> <C> <C>
United States $ 79,357 41.7% $ 91,561 45.4% $ 67,176 50.4%
Europe
(excluding the U.K.) 21,959 11.6 21,041 10.4 18,147 13.6
United Kingdom 16,310 8.6 14,089 7.0 8,724 6.5
Japan 7,998 4.2 7,642 3.8 4,896 3.7
Australasia 11,038 5.8 9,756 4.8 4,510 3.4
Worldwide 22,049 11.6 26,893 13.3 7,920 5.9
Worldwide
(excluding U.S.) 11,451 6.0 8,789 4.4 6,441 4.8
Other 16,433 8.6 16,128 8.0 7,241 5.5
Reinstatements and
adjustment
premiums 3,556 1.9 6,017 2.9 8,272 6.2
-------- -------- -------- -------- -------- --------
$190,151 100.0% $201,916 100.0% $133,327 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended September 30, 1996, 1995 and the period from October 26, 1993 to
September 30, 1994
(Expressed in thousands of United States Dollars, except share and per share
data)
14. TAXATION
Under current Bermuda law the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that will exempt the
Company from taxation until the year 2016 in the event of any such taxes
being imposed.
The Company does not consider itself to be engaged in a trade or business in
the United States and accordingly does not expect to be subject to United
States income taxes.
15. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net premiums earned $49,445 $53,647 $55,294 $36,755
Net investment income
(net of realized losses) 6,204 6,399 6,789 7,036
Losses and loss expenses incurred 15,882 18,354 9,954 7,287
Net income 29,400 31,332 40,818 27,901
Net income per share $ 1.23 $ 1.31 $ 1.70 $ 1.16
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net premiums earned $28,683 $45,344 $48,758 $47,585
Net investment income
(net of realized losses) 5,585 6,126 6,349 7,006
Losses and loss expenses incurred 591 13,462 10,488 35,856
Net income 28,264 31,154 35,320 9,710
Net income per share $ 1.22 $ 1.34 $ 1.49 $ 0.41
</TABLE>
16. SUBSEQUENT EVENTS
On November 25, 1996, the Company filed a registration statement with the
Securities and Exchange Commission, with 3,400,000 common shares, par value
$1.00 being offered for sale. The Company will not receive any proceeds from
the sale, as the common shares are being sold by certain founding
shareholders. In addition, 510,000 common shares may be sold if the over-
allotment option granted by the selling shareholders to the Underwriters is
exercised.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
[LETTERHEAD OF KPMG PEAT MARWICK]
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LASALLE RE HOLDINGS LIMITED
We have audited the accompanying consolidated balance sheets of LaSalle Re
Holdings Limited as at September 30, 1996 and 1995 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended September 30, 1996 and 1995 and the period from October 26, 1993
(date of incorporation) to September 30, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaSalle Re Holdings
Limited and its subsidiaries as at September 30, 1996 and 1995 and the results
of their operations, and their cash flows for the years ended September 30, 1996
and 1995 and the period from October 26, 1993 (date of incorporation) to
September 30, 1994 in conformity with United States generally accepted
accounting principles.
/s/ KPMG Peat Marwick
KPMG PEAT MARWICK
CHARTERED ACCOUNTANTS
HAMILTON, BERMUDA
OCTOBER 19, 1996
38
<PAGE>
FINANCIAL AND INVESTOR INFORMATION
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY PERSON UPON WRITTEN REQUEST A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (OTHER THAN EXHIBITS, WHICH
WILL BE FURNISHED UPON PAYMENT OF A FEE).
For general information about the Company or copies of the Annual Report,
quarterly earnings releases and forms 10-K and 10-Q, please contact:
DIANE NEWMAN
Investor Relations Manager
LaSalle Re Holdings Limited
P.O. Box HM 1502
Hamilton HM FX
Bermuda
Telephone: (441) 292 3339
Facsimile: (441) 292 1501
STOCK EXCHANGE LISTING
The Company's common stock trades on the Nasdaq Stock Market under the symbol
LSREF.
SHARE PRICE INFORMATION
The following table sets forth for the periods indicated, the high, low and
closing sale prices of the Company's common shares:
FISCAL YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW CLOSE
First Quarter* $23 1/4 $19 1/2 $22 7/8
Second Quarter $23 5/8 $21 $21 1/2
Third Quarter $22 3/4 $19 3/4 $22 1/2
Fourth Quarter $25 1/2 $21 $23 1/2
*Period from November 21 - December 31, 1995
TRANSFER AGENT AND REGISTRAR
Shareholders seeking information regarding the registration of their shares, a
change of address and other administrative share matters should contact the
Transfer Agent and Registrar as follows:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Mail Suite 4690
P.O. Box 2532
Jersey City
New Jersey 07303-2532
Telephone: (201) 222 4234
Facsimile: (201) 222 4248
39
<PAGE>
DIRECTORS & OFFICERS
BOARD OF DIRECTORS
VICTOR H. BLAKE (1, 4)
Chairman, President & Chief Executive Officer
LaSalle Re Holdings Limited
WILLIAM J. ADAMSON, JR. (1, 2, 4, 5)
Chief Executive Officer
CNA Reinsurance Group
ANDREW AFRICK
Apollo Advisors, L.P.
IVAN BERK (4, 5)
Executive Director
Aon Advisors, Inc.
JOSEPH HAVIV (3)
Vice President
EXOR America, Inc.
JONATHAN H. KAGAN (1, 2)
Managing Director
Corporate Advisors, L.P.
DONALD P. KOZIOL, JR. (1)
Executive Vice President
Aon Risk Services
PETER J. RACKLEY (1, 2, 3)
Chairman
Western International Financial Group Ltd.
SCOTT A. SCHOEN (2, 3, 4)
Managing Director
Thomas H. Lee Company
HARVEY G. SIMONS
Executive Vice President
CNA International Reinsurance Company Limited
DAVID A. STOCKMAN (1)
Senior Managing Director
Blackstone Group Holdings, L.L.C.
PAUL J. ZEPF (1, 4)
Principal
Corporate Advisors, L.P.
1. Underwriting/Actuarial Committee
2. Audit Committee
3. Compensation Committee
4. Investment Committee
5. Nominating Committee
OFFICERS
VICTOR H. BLAKE
Chairman, President & Chief Executive Officer
WILLIAM J. ADAMSON, JR.
Deputy Chairman
GUY D. HENGESBAUGH
Executive Vice President & Chief Underwriter
ANDREW COOK
Chief Financial Officer & Treasurer
TERRY J. ALFUTH
Senior Vice President, Actuarial/Claims &
Information Systems
STEVEN GIVEN
Controller
T. W. TUCKER HALL
Secretary
SENIOR STAFF
ROB LEE WOMACK, JR.
Vice President & Underwriter
U.S. Business
GRAHAM WAITE
Vice President & Underwriter
International Business
MARK STOCKTON
Vice President & Underwriter
International Business
GLENN CLINTON
Manager
Underwriting Support Services
JONATHAN GOFF
Manager
LaSalle Re (Services) Ltd., London
CLARE MORAN
Manager
Financial Reporting
40
<PAGE>
COMPANY INFORMATION
COMPANY OFFICES
HEAD OFFICE
LaSalle Re Holdings Limited
Continental Building
25 Church Street
Hamilton HM 12
P.O. Box HM 1502
Hamilton HM FX
Bermuda
Telephone: (441) 292 3339
Facsimile: (441) 292 2656
LONDON CONTACT OFFICE
Jonathan Goff
LaSalle Re (Services) Ltd.
London Underwriting Centre
Lower Ground Floor, Suite 2
3 Minster Court
Mincing Lane
London EC3R 7DD
United Kingdom
Telephone: (071) 617 6079
Facsimile: (071) 617 6074
AUDITORS
KPMG Peat Marwick
Vallis Building
P.O. Box HM 906
Hamilton HM DX
Bermuda
LEGAL COUNSEL
U.S. COUNSEL
Mayer, Brown & Platt
190 South LaSalle Street
Chicago
Illinois 60603-3441
USA
Telephone: 312 701 7007
Facsimile: 312 701 7711
BERMUDA COUNSEL
Conyers, Dill & Pearman
Clarendon House
Church Street
Hamilton HM DX
Bermuda
SECRETARY
T. W. Tucker Hall
Codan Services Limited
P.O. Box HM 1022
Clarendon House
Church Street
Hamilton HM DX
Bermuda
Telephone: (441) 295 1422
Facsimile: (441) 292 4720 or 3799
41
