<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
COMMISSION FILE NUMBER 1-12823
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
<S> <C>
Common Shares, par value $1.00 per
share The New York Stock Exchange, Inc.
Series A Preferred Shares, par value
$1.00 per share The New York Stock Exchange, Inc.
</TABLE>
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. [_]
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 16, 1998
was approximately $243,181,226, 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 16, 1998, there were outstanding 15,774,067 Common Shares of
$1.00 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's annual report to shareholders for the fiscal
year ended September 30, 1998 (the "1998 Annual Report").
2. Portions of the registrant's definitive proxy statement (the "1999 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 24, 1999.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LASALLE RE HOLDINGS LIMITED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NUMBER
---- -----------
PART I
<C> <S> <C>
1. BUSINESS.................................................... 10K-2
2. PROPERTIES.................................................. 10K-17
3. LEGAL PROCEEDINGS........................................... 10K-17
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10K-17
EXECUTIVE OFFICERS OF THE COMPANY........................... 10K-18
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS........................................ 10K-19
6. SELECTED FINANCIAL DATA..................................... 10K-20
7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION......................... 10K-20
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 10K-29
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 10K-30
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 10K-54
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS............................ 10K-54
11. EXECUTIVE COMPENSATION...................................... 10K-54
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 10K-54
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 10K-54
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K........................................................ 10K-54
</TABLE>
10K-1
<PAGE>
PART I
Unless the context otherwise requires, references herein to the "Company"
include LaSalle Re Holdings Limited and its subsidiary, LaSalle Re Limited
("LaSalle Re"), and its subsidiaries LaSalle Re Corporate Capital Ltd.
("LaSalle Re Capital") and LaSalle Re (Services) Limited ("LaSalle Re
Services").
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 dividend policy pursuant to which the Company
intends to distribute as dividends to holders of common shares of the Company
("Common Shares") and exchangeable non-voting shares of LaSalle Re
("Exchangeable Non-Voting Shares") in each fiscal year 50% to 60% of the
amount by which its net income (before minority interest) from the prior
fiscal year exceeds the amount of dividends payable on preferred shares of the
Company in the current fiscal year. 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, but not limited, to the following: catastrophic events
of unanticipated frequency or severity; changes in the demand for or supply of
property catastrophe reinsurance; actions of competitors; changes in the
Company's financial ratings; changes in insurance or tax laws or regulations
or governmental interpretations thereof; changes in foreign economic
conditions including fluctuations in currency rates or global markets; a major
decrease in the cession of business from CNA Financial Corporation ("CNA");
any failure of the Company's computer systems or the computer systems of third
parties that are material to the Company's operations (such as the computer
systems of service providers, suppliers and brokers) to process correctly
information relating to dates in and after the year 2000. 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 is a property and casualty reinsurer writing worldwide
specialist products with an emphasis on catastrophe cover. Catastrophe
reinsurance contracts cover unpredictable events such as hurricanes,
windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes,
riots, floods and other man-made or natural disasters. The Company 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, satellite, terrorism
and political risk coverages.
LaSalle Re was incorporated in Bermuda in October 1993 with an initial
capitalization of $373.1 million from institutional and other investors (the
"Founding Shareholders"). It commenced operations on November 22, 1993.
LaSalle Re Holdings Limited was incorporated in Bermuda in September 1995 to
act as an investment holding company for LaSalle Re.
LaSalle Re has two wholly owned subsidiaries, LaSalle Re Services, which
acts as a representative office for the Company in the United Kingdom, and
LaSalle Re Capital, which was incorporated in Bermuda in November 1996 to
provide capital support to selected syndicates at Lloyd's. LaSalle Re Capital
was accepted as a corporate member ("Corporate Member") of Lloyd's in December
1996 and, with effect from January 1, 1997, has participated in three Lloyd's
syndicates. In November 1995, the Company and LaSalle Re consummated an offer
(the "Exchange Offer") pursuant to which, among other things, the Founding
Shareholders exchanged their capital stock in LaSalle Re for Common Shares of
the Company and, in certain circumstances, Exchangeable
10K-2
<PAGE>
Non-Voting Shares of LaSalle Re. 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 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. The holders of the
Exchangeable Non-Voting Shares constitute the minority holding in LaSalle Re.
In November 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares (the
"Initial Public Offering"). Of these shares, 2,920,500 were sold by Founding
Shareholders and 1,392,000 by the Company. The proceeds from the sale of the
1,392,000 shares sold by the Company were used to enable LaSalle Re to redeem
shares of its capital stock (the "Redemption"). Upon the consummation of the
Exchange Offer, the Initial Public Offering and the Redemption, the Company
owned 100% of the outstanding voting stock, which constituted 63% of the
outstanding capital stock, of LaSalle Re.
In December 1996, the Company completed a secondary offering of Common
Shares (the "Secondary Offering"). In connection with the Secondary Offering,
certain Founding Shareholders of LaSalle Re exchanged 2,119,110 of their
Exchangeable Non-Voting Shares for Common Shares. As a result of this
exchange, the Company increased its ownership of the outstanding capital stock
of LaSalle Re from 63% to 73%.
In March 1997, the Company issued 3,000,000 Series A Preferred Shares in a
public offering (the "Preferred Offering"). The Series A Preferred Shares, par
value $1.00 per share, carry a liquidation preference of $25.00 per share,
plus accrued and unpaid dividends, if any, to the date of liquidation.
Dividends on the Series A Preferred Shares are payable in an amount per share
equal to 8.75% of the liquidation preference per annum (equivalent to $2.1875
per share). Net proceeds from the Preferred Offering after underwriting
discounts and commissions were $72.6 million.
In May 1997, the Company completed a $100 million tender offer (the "Tender
Offer") whereby it purchased for cancellation 3,703,703 of its Common Shares
at a price of $27.00 per share. The Tender Offer was made to all holders of
Common Shares and Common Share equivalents, which included Exchangeable Non-
Voting Shares and options to purchase Common Shares and Exchangeable Non-
Voting Shares. Pursuant to the Tender Offer, 2,163,538 Exchangeable Non-Voting
Shares were exchanged for Common Shares and 95,679 options for Exchangeable
Non-Voting Shares were exercised and exchanged for Common Shares. As a result
of these exchanges, the Company increased its ownership of the outstanding
capital stock of LaSalle Re from 73% to 79%. The Company has continually owned
100% of the outstanding voting stock of LaSalle Re.
In order to reduce its earnings volatility, protect its capital base and
support its dividend policy, the Company purchased a multi-year excess of loss
reinsurance program. The program first incepted January 1, 1997; however, as
no losses occurred, the contract was canceled and rewritten with the Company
receiving significant return premiums on the 1997 contract. The re-written
program, effective January 1, 1998, secured better terms over the 1997
program, with three event limits and a maximum aggregate recovery of $300
million. The attachment point is triggered by losses incurred directly by the
Company. The program is secured by a company which currently holds a rating of
"A+" (Superior) from A.M. Best Company, Inc. ("A.M. Best") and a claims-paying
rating of "AAA" (Excellent) from Standard & Poor's Ratings Services ("S&P").
See "--Reinsurance Protections Purchased."
Effective July 1, 1997, the Company entered into a $100 million multi-year
Catastrophe Equity Put ("CatEPut") option program. The CatEPut option will
enable the Company to put up to $100 million of equity, through the issue of
convertible preferred shares at pre-negotiated terms, in the event of a major
catastrophe or series of large catastrophes that cause substantial losses to
the Company or its subsidiaries.
10K-3
<PAGE>
With effect from October 1, 1997, the administrative services agreement
("Administrative Services Agreement"), under which Aon Risk Consultants
(Bermuda) Ltd. ("ARC") provided the Company with actuarial and financial
reporting, accounting, office space and other administrative services, was
terminated. All of the personnel assigned to the Company by ARC became
employees of the Company and services performed by ARC were assumed by the
Company. In connection with the termination of the agreement the Company
agreed to purchase all of the fixed assets owned by ARC and utilized by the
Company for a purchase price of $1.5 million. In addition, the Company agreed
to assume the current leasing agreements.
Effective on October 1, 1998, the underwriting services agreement (the
"Underwriting Services Agreement") under which CNA (Bermuda) Services Limited
("CNA Bermuda") had provided the Company with underwriting services, was
terminated. On that date, all of the personnel assigned to the Company by CNA
Bermuda became employees of the Company and the underwriting function formerly
performed by CNA Bermuda was assumed by the Company directly. In connection
with the termination of the Underwriting Services Agreement, the Company
entered into an underwriting support services agreement (the "Underwriting
Support Services Agreement") with CNA Re Services Company ("CRSC") and CNA
Bermuda. Under the Underwriting Support Services Agreement, CRSC and CNA
Bermuda provide the Company with various support services upon request,
including (i) underwriting personnel to assist the Company's underwriting
staff on a temporary basis, (ii) assistance with actuarial, financial and
statistical analysis and reporting, (iii) support on data processing and other
technical matters, (iv) access to the CNA reinsurance underwriting database
and technology as pertinent to the Company's business, (v) advice on insurance
industry customs and practices and (vi) advice to the Company's human
resources department.
BUSINESS SEGMENTS
The Company writes property and casualty reinsurance on a worldwide basis
through its subsidiary, LaSalle Re. The Company 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, satellite, terrorism and
political risk coverages.
The following table sets forth the Company's net premiums written and number
of contracts written by type of reinsurance for the years indicated (dollars
in millions):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------- ----------------------
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................. $ 82.7 719 $110.4 802
Pro rata....................... 21.6 10 34.4 10
Other lines of business:
LaSalle Re Capital............. 21.0 -- 14.1 --
Property--risk excess and pro
rata.......................... 10.5 76 9.0 80
Casualty....................... 5.7 28 4.0 36
Marine......................... 3.0 32 3.7 23
Miscellaneous.................. 10.7 72 6.1 49
Adjustments, reinstatement
premiums and no claims bonuses.. 0.1 -- (10.3) --
------ --- ------ -----
Total........................ $155.3 937 $171.4 1,000
====== === ====== =====
</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
single occurrence of a covered peril under a portfolio of primary reinsurance
contracts exceed the attachment
10K-4
<PAGE>
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 that 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, as appropriate, 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 formed LaSalle Re Capital to provide capital support on an
underwriting year basis to selected Lloyd's syndicates. The Company has
provided capital support to three syndicates for both the 1997 and 1998
underwriting years of approximately $27.4 million ((Pounds)16.3 million) and
$28.2 million ((Pounds)16.8 million) respectively. Through this support, for
the year ended September 30, 1998, the Company has written gross premiums of
approximately $3.0 million for the 1997 underwriting year and approximately
$18.0 million for the 1998 underwriting year. These syndicates individually
write the following lines of business: direct and facultative property
insurance; marine insurance and reinsurance; and professional indemnity,
directors and officers' insurance and bankers blanket bond business. LaSalle
Re Capital provides capital support to the syndicates through letters of
credit totaling (Pounds)9.8 million ($16.6 million).
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 expenses) 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, marine,
crop, aviation, satellite and political risk. The Company's underwriting
strategy with respect to these lines of business is to target those classes of
business which demonstrate relatively low historical levels of attritional
loss. Excess of loss contracts are written above a significant attachment
point, such contracts would be expected to respond only to large market losses
such as the destruction of an oil drilling platform (marine coverage) or an
airline disaster (aviation coverage). With proportional contracts, the Company
would expect the results of such contracts to be impacted by large market
losses, along with the cedents expected loss ratio. Claims on these contracts
will arise from physical damage, casualty and major political and trade
crises.
Casualty excess of loss reinsurance protects cedents from a clash of
exposures from multiple insureds or from one large severe event. The Company
does not write casualty excess of loss business at a level where frequency of
loss is anticipated. Marine and aviation coverages can be triggered by
physical damage perils and
10K-5
<PAGE>
may also entail casualty coverages arising from the same loss event. Crop
reinsurance provides hail and other defined property coverage for growing
crops. Satellite reinsurance protects the reinsured primarily for losses
arising from launch failure and in-orbit breakdown. Political risk includes
coverages for losses arising from contract frustration, confiscation,
repatriation and international trade credit transactions.
Adjustment premiums, reinstatement premiums and no claims bonuses
Due to the changing nature of a reinsurer's exposure under an excess of loss
contract, certain contracts contain adjustable premium clauses. The reinsurer
receives an initial deposit premium, with the final premium calculated at the
end of the contract period using a pre-negotiated percentage of the ceding
company's gross net annual premium income. The adjustment premium is the
difference between the initial deposit and the revised premium and can be
either an additional or return premium.
In addition, the Company experiences adjustment premiums on its pro rata of
property catastrophe reinsurance treaties. The Company estimates premiums
written using reports received from ceding companies adjusted for previous
years' experiences of actual premiums against estimated premiums. These
estimates are revised during the contract period as more information as to
actual premiums written by the ceding companies is received. Any differences
between the estimate and the revised information are booked as adjustments
during the period the revised information is received.
Certain excess of loss contracts contain a no claims bonus clause. Where no
claim is made under the contract, the ceding company is entitled to a pre-
determined return premium, which is referred to as a "no claims bonus". A
liability for the "no claims bonus" is established at the same time the gross
written premium is recorded. If a loss occurs, the no claims bonus is reversed
in the period in which the loss is notified to the Company.
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, 1998, excluding the premiums written by LaSalle Re Capital,
adjustment premiums, reinstatement premiums and no claims bonuses, 48% of the
Company's net premiums 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 52% of net premiums written were
spread in other territories around the world. This distribution of risk is
subject to change and is dependent upon rates available in various zones. 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, 1998, this regional
business represented a significant component of the Company's U.S.-based net
premiums written.
10K-6
<PAGE>
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, 1998 SEPTEMBER 30, 1997
------------------ -------------------
PERCENTAGE PERCENTAGE
NET OF NET NET OF NET
PREMIUMS PREMIUMS PREMIUMS PREMIUMS
GEOGRAPHIC AREA WRITTEN WRITTEN WRITTEN WRITTEN
- --------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
United States.......................... $ 64.4 48.0% $ 75.3 44.9%
Europe (excluding the U.K.)............ 14.4 10.7 18.6 11.1
United Kingdom......................... 11.7 8.7 15.2 9.1
Japan.................................. 3.2 2.4 7.0 4.2
Australasia............................ 3.3 2.5 6.4 3.8
Worldwide(1)........................... 21.8 16.2 20.9 12.5
Worldwide (excluding the U.S.)(2)...... 7.5 5.6 12.6 7.5
Other.................................. 7.9 5.9 11.6 6.9
------ ----- ------ -----
134.2 100.0% 167.6 100.0%
===== =====
LaSalle Re Corporate Capital........... 21.0 14.1
Adjustments, reinstatement premiums and
no claims bonuses..................... 0.1 (10.3)
------ ------
Total.............................. $155.3 $171.4
====== ======
</TABLE>
- --------
(1) The category "Worldwide" consists of contracts that cover more than one
zone, at least one of which is in the U.S.
(2) 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.
Program Limits
Property catastrophe reinsurance is usually arranged in a series of layers,
which form an individual program. The Company may write one or more of these
layers with each layer constituting a separate contract. The following table
sets forth the number of the Company's property catastrophe excess of loss
programs written in the year ended September 30, 1998 by aggregate excess of
loss program limits:
<TABLE>
<CAPTION>
NUMBER
OF
PROGRAMS
--------
<S> <C>
Greater than $25 million but less than $30 million............... 1
$20-25 million................................................... 2
$15-20 million................................................... 7
$10-15 million................................................... 15
$7.5-10 million.................................................. 13
$5-7.5 million................................................... 39
$2.5-5 million................................................... 75
Less than $2.5 million........................................... 152
---
Total........................................................ 304
===
</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 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.
10K-7
<PAGE>
The Underwriting/Actuarial Committee of the 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 the
output of 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 county 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. In addition, the underwriting of all new
exposures is reviewed by the Chief Executive Officer or Chief Operating
Officer of the Company.
Prior to October 1, 1998, underwriting services were provided to the Company
by CNA Bermuda pursuant to the Underwriting Services Agreement. A staff of
seven professionals with extensive experience in the reinsurance industry
served as the Company's underwriting team in Bermuda. This agreement was
terminated on October 1, 1998. On that date, all of the personnel assigned to
the Company by CNA Bermuda became employees of the Company and the
underwriting function formerly performed by CNA Bermuda was assumed by the
Company directly.
10K-8
<PAGE>
In connection with the termination of the Underwriting Services Agreement,
the Company entered into an Underwriting Support Services Agreement with CRSC
and CNA Bermuda. Under the Underwriting Support Services Agreement, which
expires on September 30, 2001, CRSC provides underwriting support services to
the Company on a daily or hourly fee basis when and as requested by the
Company. The Company pays CNA Bermuda a $0.3 million annual retainer, which is
credited against CRSC's daily or hourly fees and associated travel expenses.
In recognition of the contribution made by CNA Bermuda to the development of
the Company's business, the Company has agreed, subject to certain conditions,
to pay CNA Bermuda, during the term of the Underwriting Support Services
Agreement, an underwriting profit commission of 1.67% of the aggregate net
underwriting profits of LaSalle Re for each fiscal year for which LaSalle Re's
loss ratio was 70% or less.
REINSURANCE PROTECTIONS PURCHASED
Reinsurance premiums ceded are primarily in respect of a multi-year excess
of loss reinsurance program purchased by the Company, and various reinsurance
protections purchased by LaSalle Re Capital. The excess of loss program
provides coverage of $100 million in excess of the first $100 million of
losses per occurrence for a first loss event and $100 million excess of $100
million per occurrence on the second loss event and $100 million excess of
$150 million per occurrence on the third loss event over a three-year period
ended December 31, 2000, subject to a maximum aggregate recovery of $300
million. The Company is required to pay reinstatement premiums to reinstate
the second and third loss event coverages. The Company may participate on a
co-insurance basis for the third loss event.
Coverage for the first loss is substantially funded by way of annual and
reinstatement premium obligations. Accordingly, this portion of the coverage
has been recorded as a financing arrangement whereby the consideration paid,
net of associated financing charges, is recorded as a deposit and included as
part of other assets in the consolidated balance sheet. The deposit asset is
adjusted at the balance sheet date to reflect the net present value of
expected future cash flows under that portion of the contract.
The reinsurance is provided by a company that currently holds a rating of
"A+" (Superior) from A.M. Best and a claims-paying rating of "AAA" (Excellent)
from S&P.
MARKETING
The Company markets its reinsurance products worldwide primarily through
reinsurance brokers. By marketing its products primarily through the broker
network, the Company limits 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.
10K-9
<PAGE>
The Company received 2,022 contract submissions in the year ended September
30, 1998 as compared to 2,344 in the year ended September 30, 1997. The
Company is highly selective in accepting risks, extending coverage on only 937
(1997: 1,000 contracts), or 46.3% (1997: 42.7%) of the program submissions
received, in the year ended September 30, 1998. Subsidiaries and affiliates of
Aon Corporation (together with its affiliates, "Aon") were brokers for 17.4%
and 16.6% of the Company's gross written premiums in the years ended September
30, 1998 and 1997, respectively. Guy Carpenter & Company, Inc., together with
its affiliates, generated 17.1% and 15.5% of the Company's gross premiums
written for the years ended September 30, 1998 and 1997, respectively. E.W.
Blanch accounted for 9.1% of the Company's gross written premiums for the year
ended September 30, 1998. This percentage was 11.3% for the year ended
September 30, 1997. No other broker accounted for more than 10% of the
Company's gross premiums written for the years ended September 30, 1998 and
1997.
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.
United States generally accepted accounting principles ("GAAP") do not 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,
primarily, 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 loss 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 significant 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. 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 ratios. 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 for LaSalle Re Capital are separately derived primarily from an
analysis using expected loss ratios which is supplemented, when available, by
actuarial evaluations produced for the individual syndicates.
The reserves are prepared quarterly and reviewed by the Company's executive
officers and the Board, and to the extent they develop upward or downward, the
results are reflected in the net income in the period in which
10K-10
<PAGE>
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.
Prior to October 1, 1997, the Company determined its reserves with the
assistance of actuarial staff provided by ARC pursuant to 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.
The following table summarizes the composition of the Company's investment
portfolio as of September 30, 1998 and 1997 (dollars in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
------------ ------------
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............ $ 38.4 6.3% $ 71.8 13.0%
U.S. government bonds and agencies................ 141.2 23.3 88.4 16.0
Corporate bonds................................... 309.0 50.9 337.1 60.9
Mortgage-backed securities........................ 30.2 5.0 0.0 0.0
Other debt........................................ 2.7 0.4 1.0 0.2
------ ----- ------ -----
Subtotal........................................ 521.5 85.9 498.3 90.1
Cash and cash equivalents......................... 85.3 14.1 54.8 9.9
------ ----- ------ -----
Total cash and investments...................... $606.8 100.0% $553.1 100.0%
====== ===== ====== =====
</TABLE>
Quality of Portfolio
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 20% of the total portfolio, and only
10% of the total portfolio can be invested in "BBB" grade rating. During the
year, the Company amended the guidelines to allow up to $10 million to be
invested in risk based investments such as catastrophe bonds. These bonds may
carry a rating below "BBB". 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 Investors Services
Inc. ("Moody's") as of September 30, 1998 and 1997 (dollars in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
------------ ------------
FAIR % OF FAIR % OF
RATING VALUE TOTAL VALUE TOTAL
- ------ ------ ----- ------ -----
<S> <C> <C> <C> <C>
AAA................................................. $363.0 69.6% $215.3 43.2%
AA.................................................. 88.1 16.9 155.0 31.1
A................................................... 59.5 11.4 127.0 25.5
BB.................................................. 8.3 1.6 1.0 0.2
Catastrophe bonds (not rated)....................... 2.6 0.5 0.0 0.0
------ ----- ------ -----
$521.5 100.0% $498.3 100.0%
====== ===== ====== =====
</TABLE>
10K-11
<PAGE>
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, 1998, the modified average duration of the
portfolio was 3.1 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, 1998 and 1997 (dollars in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
------------ ------------
FAIR % OF FAIR % OF
RATING VALUE TOTAL VALUE TOTAL
- ------ ------ ----- ------ -----
<S> <C> <C> <C> <C>
Due in less than one year........................... $ 24.8 4.8% $ 55.2 11.1%
Due in one to five years............................ 348.9 66.9 381.9 76.6
Due in five to ten years............................ 117.6 22.6 61.2 12.3
------ ----- ------ -----
491.3 94.3 498.3 100.0
Mortgage-backed securities.......................... 30.2 5.7 0.0 0.0
------ ----- ------ -----
$521.5 100.0% $498.3 100.0%
====== ===== ====== =====
</TABLE>
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
As at September 30, 1998, all of the Company's fixed maturity portfolio
except one hedged international bond was denominated in U.S. dollars. During
the year ended September 30, 1998, the Investment Committee of the Board
amended the investment guidelines to allow up to 5% of the market value of the
portfolio at the time of purchase to be invested in hedged international
bonds. Under this type of investment the currency risk is negated through the
use of forward contracts with the Company only being exposed to the interest
rate risk on the bond purchased. At September 30, 1998 the hedged
international bond was denominated in Canadian dollars and represented 1.2% of
the total fair value of the portfolio. In connection with this investment as
at September 30, 1998 the Company had a forward contract with a notional
principal amount outstanding of $5.5 million.
In an effort to manage other areas of 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, 1998 and 1997, the Company
had no principal amounts outstanding. See "Quantitative and Qualitative
Disclosure About Market Risk."
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 flat fee equal to 0.16375% per annum of the assets
under management. Prior to July 1, 1997, the Company paid 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 Investment Committee of the Board.
10K-12
<PAGE>
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. A recent trend in the property
catastrophe reinsurance industry has been the utilization of the capital
markets in structuring reinsurance agreements using catastrophe bonds, swaps
and other types of derivative instruments. There may be established or new
companies of which the Company is not aware who may be planning to enter the
property catastrophe reinsurance market or existing reinsurers who 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.
In April 1996, LaSalle Re received an initial rating from A.M. Best of "A-"
(Excellent). In August 1997, the rating was upgraded to "A" (Excellent). The
current 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 S&P of "A" (Good). This
rating received 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. 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.
Other than being a corporate member of selected Lloyd's syndicates, 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. 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
As of December 1, 1998, the Company employed 31 people. 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 and LaSalle Re Capital, 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
10K-13
<PAGE>
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.
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. Although LaSalle Re Capital is governed by the Insurance
Act, it is exempted from complying with most of the Act filings required by
insurance companies by section 57 of the Insurance Act. The solvency and
liquidity standards and auditing and reporting requirements of the Insurance
Act are summarized below.
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 that 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 Statutory Financial
Statements annually. 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 (the "Companies Act"), which financial statements may be prepared in
accordance with GAAP. LaSalle Re is required to submit the 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 (but may not deduct
more than 25% of gross premiums written when computing net premiums written)
or 15% of its loss and other certain insurance reserves. At September 30,
1998, LaSalle Re's actual statutory capital and surplus was $506.0 million,
compared to its minimum solvency margin requirement of $100 million.
10K-14
<PAGE>
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).
Annual Statutory Financial Return. LaSalle Re is required to file annually
with the Registrar a Statutory Financial Return no later than four months
after its financial year end (unless specifically extended). The Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Statutory Financial Statements of the insurer; a
declaration of the statutory ratios; a solvency certificate; the 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 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 (but may not
deduct more than 25% of gross premiums written when computing net premiums
written) or 15% of its loss and other insurance reserves; (ii) is required to
file annually within four months following the end of
10K-15
<PAGE>
the relevant financial year with the Registrar, inter alia, 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 (at least 7 days before payment of such dividends) with the
Registrar an affidavit stating that it will continue to meet the required
margins; (v) is prohibited, without the approval of 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, LaSalle
Re and LaSalle Re Capital 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 50 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 carried
on outside Bermuda or as permitted under the Companies Act.
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, LaSalle Re and LaSalle Re Capital
are not currently subject to taxes on their income or 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,
LaSalle Re and LaSalle Re Capital, as required, without limitation.
The Companies Act prohibits a company from declaring or paying a dividend,
or making a distribution out of contributed surplus, if there are reasonable
grounds for believing that (i) the company is, or would after the payment be,
unable to pay its liabilities as they come due; or (ii) the realizable value
of the company's assets would thereby be less than the aggregate of its
liabilities and shareholders' equity. The foregoing restriction applies to the
Company, LaSalle Re and LaSalle Re Capital as Bermuda exempted companies.
LaSalle Re Capital
LaSalle Re Capital became a Corporate Member of Lloyd's in December 1996 and
commenced underwriting effective January 1, 1997. LaSalle Re Capital is only
licensed to carry on business related to Lloyd's. As a Corporate Member,
LaSalle Re Capital is subject to the regulatory jurisdiction of the Council of
Lloyd's (the "Council"). Unlike other financial markets in the U.K., Lloyd's
is not subject to direct U.K. government regulation under The Financial
Services Act of 1986. Instead, Lloyd's is self regulating by virtue of The
Lloyd's Act of 1982, through by-laws, regulations and codes of conduct written
by the Council, which governs the market. Under the Council, there are two
boards, the Market Board and the Regulatory Board. The Market Board is led by
working members of the Council and is responsible for strategy and policy
signing. The Regulatory Board is responsible for the regulation of the market,
compliance and the protection of policyholders. Under the terms of its license
(as a "member of a recognised association of underwriters") under the
Insurance Act, LaSalle Re Capital is required to meet and maintain the
solvency requirements of Lloyd's.
As a Corporate Member of Lloyd's, LaSalle Re Capital is required to file
audited financial statements and an annual return, which is part of the annual
declaration of compliance process. The annual declaration of compliance sets
out the financial position of the Corporate Member and confirms details of its
directors and controllers. In addition, LaSalle Re Capital is required to file
an audited solvency return either confirming the
10K-16
<PAGE>
value of funds at Lloyd's ("FAL") held by the member as at the previous
December 31, or that it held no FAL at that date. Lloyd's will compare the
value of a Corporate Member's FAL derived from the solvency return with its
underwriting assets and liabilities as reported by the syndicates on which it
participates. Where a negative solvency position is disclosed, the Corporate
Member is required to provide sufficient additional funds to cover the
shortfall. As at December 14, 1998, LaSalle Re Capital had filed a solvency
return for the 1997 underwriting year.
In addition to the above Lloyd's requirements, under the terms of its
license under the Insurance Act, LaSalle Re Capital must send to the Bermuda
Registrar of Companies within 30 days after submission of the annual solvency
return and declaration of compliance to Lloyd's a copy of such documents
together with a copy of the audited annual statements of each of the
syndicates in which LaSalle Re Capital participates. Further, LaSalle Re
Capital must also appoint and maintain a principal representative in Bermuda.
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 have
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.
ITEM 2. PROPERTIES
The Company's executive offices, which are leased, are located in Hamilton,
Bermuda. In addition, the Company leases office space in London, England.
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, 1998.
10K-17
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
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......... 63 Chairman, Chief Executive Officer and President
Guy D. Hengesbaugh...... 39 Executive Vice President and Chief Operating Officer
Andrew Cook............. 36 Senior Vice President and Chief Financial Officer
</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 shareholder 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 was 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. On September 17, 1998, Mr. Hengesbaugh was
promoted to President and Chief Operating Officer of the operating company,
LaSalle Re. Mr. Hengesbaugh has ten years experience in underwriting
management with CNA in Chicago and London and is a Vice President of
Continental Casualty Company. Up to September 30, 1998, Mr. Hengesbaugh was an
employee of CNA Bermuda and his services were made available to the Company
pursuant to the Underwriting Services Agreement. Upon termination of this
agreement, with effect from October 1, 1998, Mr. Hengesbaugh became an
employee of the Company.
Andrew Cook, a chartered accountant, was promoted to Senior Vice President
and Chief Financial Officer effective on October 1, 1997. Mr. Cook continues
to be Chief Financial Officer and Treasurer of the Company, a position he has
held since its organization in September 1995, and Chief Financial Officer and
Treasurer of LaSalle Re, a position he has held since its organization in
October 1993. Mr. Cook was an employee of Aon from 1993 until September 1995.
Mr. Cook was employed by Becher and Carlson Risk Management Limited, a
subsidiary of American Re-Insurance Company, from 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.
10K-18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Shares were quoted on the Nasdaq National Market under the symbol
"LSREF" until April 11, 1997, at which time the Common Shares were transferred
to The New York Stock Exchange under the symbol "LSH".
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
until April 11, 1997 and The New York Stock Exchange thereafter. The prices
reported by the Nasdaq National Market 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, 1997............................ $35.63 $32.00
Quarter ended March 31, 1998............................... 42.00 31.13
Quarter ended June 30, 1998................................ 42.25 34.88
Quarter ended September 30, 1998........................... 39.06 26.63
Quarter ended December 31, 1996............................ $29.25 $22.75
Quarter ended March 31, 1997............................... 29.25 26.50
Quarter ended June 30, 1997................................ 30.13 27.50
Quarter ended September 30, 1997........................... 35.50 29.75
</TABLE>
As of December 1, 1998, there were 136 holders of record of the Common
Shares.
The following table sets forth for the fiscal quarters of the two most
recent fiscal years all dividends declared during each such period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, FISCAL QUARTER DIVIDEND PER SHARE
------------------------------- -------------- ------------------
<S> <C> <C>
1998 First quarter $0.75
Second quarter $0.75
Third quarter $0.75
Fourth quarter $0.75
1997 First quarter $0.71
Second quarter $0.71
Third quarter $0.71
Fourth quarter $0.71
</TABLE>
In February 1997, in connection with the Preferred Offering, the Board
confirmed the dividend policy pursuant to which the Company intends to
distribute as dividends to holders of Common Shares and Exchangeable Non-
Voting Shares in each fiscal year, 50% to 60% of the amount by which its net
income (before minority interest) from the prior fiscal year exceeds the
amount of dividends payable on preferred shares of the Company in the current
fiscal year. 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. 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 (at least 7 days before payment of such dividends)
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 on the last day of the previous fiscal year. The Insurance
Act also requires LaSalle Re to maintain a minimum solvency margin and minimum
liquidity ratio and prohibits
10K-19
<PAGE>
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 15% or more 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.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Selected Financial Data" contained in the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is a discussion and analysis of the Company's results of
operations and financial condition. This discussion and analysis should be
read in conjunction with the audited consolidated financial statements and
related notes.
RESULTS OF OPERATIONS
Year Ended September 30, 1998 Compared with Year Ended September 30, 1997
Gross premiums written decreased 9.4% to $155.3 million for the year ended
September 30, 1998 from $171.4 million for the year ended September 30, 1997.
The table below summarizes the Company's gross premiums written by line of
business (expressed in millions of dollars)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
TYPE OF REINSURANCE 1998 1997 CHANGE
- ------------------- ------------- ------------- ------
<S> <C> <C> <C>
U.S. property catastrophe.................. $ 55.2 $ 71.6 $(16.4)
International property catastrophe......... 49.0 73.1 (24.1)
------ ------ ------
Total property catastrophe................. 104.2 144.7 (40.5)
Other lines................................ 51.0 37.0 14.0
Reinstatements, adjustments and no claims
bonuses................................... 0.1 (10.3) 10.4
------ ------ ------
Total gross premiums written............... $155.3 $171.4 $(16.1)
====== ====== ======
</TABLE>
The overall decrease in gross premiums written was primarily due to a
reduction in gross premiums written in the Company's core product, property
catastrophe reinsurance, from $144.7 million for the year ended September 30,
1997 to $104.2 million, a decrease of 28.0%. Of this reduction approximately
60.0% related to the international property catastrophe book and 40.0% related
to the United States property catastrophe book. The reduction was greater in
the international property catastrophe book as the Company reduced its line
sizes on certain proportional treaties pursuant to its policy of reducing
aggregate exposures in a declining rate environment. This accounted for
approximately $7.7 million of the decrease in the international property
catastrophe book. Approximately 25% of the decrease in the United States
property catastrophe book related to a multi-year contract which was written
in the year ended September 30, 1997 and hence no written premium was recorded
in the year ended September 30, 1998. The remaining decrease in the total
property catastrophe book was due to continuing competitive rates. Based on
the Company's experience, rates for property catastrophe business written in
the year ended September 30, 1998, were approximately 15% and 10% below those
experienced in the year ended September 30, 1997 for international and United
States property catastrophe business respectively. This led to lower priced
premiums in comparison to those written in the year ended September 30, 1997
and the non-renewal of contracts in certain cases where the Company considered
the business to be under-priced. For the year ended September 30, 1998, the
Company experienced a 6.3% reduction in the number of property catastrophe
contracts written from 1,000 in the year ended September 30, 1997 to 937
contracts for the year ended September 30, 1998.
10K-20
<PAGE>
The decline in gross premiums written by the Company was partially offset by
an increase of $14.0 million in respect of gross premiums written in other
non-property catastrophe lines. The increase was primarily due to increased
gross premiums written by LaSalle Re Capital, which commenced underwriting as
a corporate member of Lloyd's in January 1997, the second quarter of the 1997
fiscal year. For the year ended September 30, 1998, LaSalle Re Capital wrote
gross premiums of $21.0 million compared to $14.1 million for the year ended
September 30, 1997. Also, the Company increased the size of its terrorism and
political risks book which accounted for approximately $1.0 million of gross
premiums written for the year ended September 30, 1997 compared with
approximately $4.4 million for the year ended September 30, 1998.
In addition, for the year ended September 30, 1997, an amount of $10.3
million relating to adjustment premiums, reinstatement premiums and no claims
bonuses produced a reduction in gross premiums written. In the year ended
September 30, 1998, there was a positive adjustment to gross premiums written
of $0.1 million. This was principally due to insignificant premium adjustments
and, due to increased loss activity, to increased reinstatement premiums and
lower no claims bonuses.
Premiums ceded for the year ended September 30, 1998 were $7.8 million
compared to $7.7 million for the year ended September 30, 1997 and related to
reinsurance protection purchased by LaSalle Re with effect from January 1,
1997 and to various reinsurance protections purchased by LaSalle Re Capital.
Ceded premiums amortized increased from $1.9 million in the year ended
September 30, 1997 to $6.1 million for the year ended September 30, 1998. This
increase was due primarily to the reinsurance protections purchased by LaSalle
Re Capital, which were amortized in line with the premiums earned by LaSalle
Re Capital.
Net premiums earned decreased 5.7% to $154.6 million for the year ended
September 30, 1998 from $163.9 million for the year ended September 30, 1997.
This decrease was the result of reduced premiums earned on the Company's core
property catastrophe business that was partially offset by increased earned
premiums on those premiums written by LaSalle Re Capital. Premiums written by
LaSalle Re Capital are earned over a period of 18-24 months from the inception
date of the underlying contracts. Premiums on property catastrophe excess of
loss contracts are earned over the period coverage is provided, which is
generally 12 months. Under proportional property catastrophe contracts, with
the risks underlying the contracts incepting throughout the contract period,
premiums are generally earned over 18 months. Premiums on other lines of
business are earned over the period for which coverage is provided, which
generally ranges between 12 months and 60 months.
Net investment income increased 3.6% to $34.3 million for the year ended
September 30, 1998 from $33.1 million for the year ended September 30, 1997.
This increase was attributable to a larger average investment base compared to
the year ended September 30, 1997. Annualized investment income as a
percentage of the average market value of invested assets was 6.0% for the
year ended September 30, 1998 compared to 6.1% for the year ended September
30, 1997.
Net realized gains on investments were $5.6 million for the year ended
September 30, 1998 compared to $0.6 million for the year ended September 30,
1997. During the year ended September 30, 1998 the Company realized gains on
investments as part of an exercise undertaken to increase the credit quality
of the portfolio. In addition, during the last quarter of the year ended
September 30, 1998, the Company took advantage of market conditions by
realizing some of the large unrealized gains in the portfolio. The proceeds
from this exercise were reinvested in securities with marginally lower yields.
Other income was derived from a contract under which the Company provided
certain reinsurance related services. This contract was not renewed January 1,
1998.
The following table sets forth the Company's combined ratios for the years
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Loss and loss expense ratio......... 61.8% 19.0%
Expense ratio....................... 20.4% 23.6%
Combined ratio...................... 82.2% 42.6%
</TABLE>
10K-21
<PAGE>
Losses and loss expenses incurred increased 206.2% from $31.2 million for
the year ended September 30, 1997 to $95.5 million for the year ended
September 30, 1998. This was due to an increase in the number of worldwide
catastrophic events that affected the Company during the year ended September
30, 1998. The largest loss event to affect the Company was Hurricane Georges,
which occurred in September 1998. The Company established a $25 million loss
provision for this event that represented 26% of the losses incurred for the
year ended September 30, 1998. In addition, throughout the year ended
September 30, 1998, the Company incurred losses in respect of various weather-
related events, notably U.K. Midland floods ($7.0 million), Canadian winter
freeze ($4.3 million) and various U.S. storms ($2.4 million). The Company
sustained a number of claims relating to aggregate stop loss and excess of
loss contracts, which accounted for approximately $16.8 million or 18% of
losses incurred. A large percentage of these aggregate losses incurred in the
year ended September 30, 1998 related to losses that had occurred in prior
years. This was due to the extended loss reporting periods on these contracts,
a number of which had a period of 24 months after the expiry of the contract
within which to report losses. Also, as a result of increasing other lines of
business the Company incurred losses relating to LaSalle Re Capital ($5.0
million), satellite coverages ($3.0 million), various risk excess coverages
($3.0 million) and political risks coverages ($1.7 million). As a result of
the current year loss activity, the Company has increased the level of
incurred but not reported reserves. Losses and loss expenses incurred during
the year ended September 30, 1997 primarily included $12.0 million for floods
in Eastern Europe, $6.1 million in respect of various international windstorms
and winter storm activity in the United States and $4.6 million adverse
development on Hurricane Fran (which occurred in September 1996).
Underwriting expenses decreased 12.9% from $26.0 million for the year ended
September 30, 1997 to $22.7 million for the year ended September 30, 1998. As
a percentage of net premiums earned, underwriting expenses were 14.6% for the
year ended September 30, 1998 compared to 15.9% for the year ended September
30, 1997. Fees accrued pursuant to the Underwriting Services Agreement as a
percentage of net premiums earned decreased to 2.3% for the year ended
September 30, 1998 from 4.0% for the year ended September 30, 1997. This was
due to the higher loss activity and lower premium earnings in the year ended
September 30, 1998 compared with the year ended September 30, 1997. The
Company's level of brokerage fees and ceding commissions increased to 12.3% of
net premiums earned for the year ended September 30, 1998 from 11.8% of net
premiums earned for the year ended September 30, 1997. The increase was partly
due to an increase in earned premiums written by LaSalle Re Capital, whose
expense ratio was approximately 20% and partly due to an increase in the
average cost of writing proportional business.
Operational expenses decreased 29.4% from $12.7 million for the year ended
September 30, 1997 to $8.9 million for the year ended September 30, 1998. As a
percentage of net premiums earned, operational expenses were 5.7% during the
year ended September 30, 1998 compared to 7.7% for the year ended September
30, 1997. Effective October 1, 1997, the Administrative Services Agreement
with ARC was terminated and all of the personnel assigned to the Company by
ARC became employees of the Company, with the Company assuming the functions
previously performed by ARC. This generated a reduction in operational
expenses of approximately $2.3 million, as the fees paid to ARC were in excess
of the additional costs assumed by the Company. In addition, the Company
experienced a reduction in executive compensation of approximately $2.4
million, due partly to a decline in the fair value of stock appreciation
rights and partly to reduced bonus provisions. These decreases were offset by
increased costs of $1.0 million relating to LaSalle Re Capital and fees paid
to directors.
Corporate expenses decreased 72.2% from $1.8 million for the year ended
September 30, 1997 to $0.5 million for the year ended September 30, 1998. The
costs incurred in the year ended September 30, 1998 related to costs
associated with the Company's investigation of potential merger and
acquisition transactions. Corporate expenses for the year ended September 30,
1997 included costs associated with the Secondary Offering, the Preferred
Offering, the Tender Offer, the formation costs of LaSalle Re Capital, the
Company's move to the New York Stock Exchange and fees incurred with respect
to the CatEPut. Corporate expenses do not include the underwriting discounts
associated with the various offerings. These costs were borne by the selling
shareholders in the Secondary Offering. In respect of the Preferred Offering,
the underwriting discount was charged to additional paid in capital.
10K-22
<PAGE>
Interest expense increased 11.8% from $1.7 million in the year ended
September 30, 1997 to $1.9 million for the year ended September 30, 1998. The
increase was due to additional financing charges associated with the deposit
portion of LaSalle Re's ceded reinsurance contract in the year ended September
30, 1998. As the contract incepted January 1, 1997, only three quarters of the
annual charge was included in the year ended September 30, 1997. Other
interest expenses related to the annual administration fee and the ongoing
commitment fees payable on the Company's credit facility. As at September 30,
1998, there were no borrowings under this facility.
Foreign exchange gains in the year ended September 30, 1998 were negligible
at $0.2 million compared to losses of $3.0 million in the year ended September
30, 1997. The losses in the year ended September 30, 1997 resulted from the
unfavorable closing of a sterling forward contract, and an overall
strengthening of the U.S. dollar against the major foreign currencies in which
the Company wrote premiums.
Earnings per Common Share were $3.06 for the year ended September 30, 1998
and $5.55 for the year ended September 30, 1997. Earnings per Common Share
assuming dilution were $2.80 for the year ended September 30, 1998 and $5.14
for the year ended September 30, 1997. The weighted average number of shares
outstanding used in the calculation of earnings assuming dilution decreased
from 22,998,936 for the year ended September 30, 1997 to 20,919,405 for the
year ended September 30, 1998. The decrease in the weighted average number of
shares outstanding resulted primarily from the repurchase of shares in the
Tender Offer in April 1997.
Year Ended September 30, 1997 Compared with Year Ended September 30, 1996
Gross premiums written decreased 9.9% to $171.4 million for the year ended
September 30, 1997 from $190.2 million for the year ended September 30, 1996.
This decrease was due primarily to a reduction in international property
catastrophe premiums to $73.1 million for the year ended September 30, 1997
from $88.9 million for the year ended September 30, 1996. This reduction, in
turn, was a result of the competitive rate environment, which led to a
reduction in the number of international property catastrophe contracts
written. The Company experienced a 5.3% decrease in property catastrophe
premiums written in the United States. The decline in gross premiums written
by the Company was partially offset by an increase of $14.9 million in respect
of other non-property catastrophe lines written. This increase primarily
related to premiums written in the year ended September 30, 1997 by LaSalle Re
Capital, which was accepted into Lloyd's with effect from January 1, 1997.
Further, for the year ended September 30, 1997 compared to the year ended
September 30, 1996, the Company experienced a reduction in reinstatement
premiums of $6.2 million due to more favorable loss experience and an increase
in overall negative premium adjustments of $7.6 million.
Premiums ceded for the year ended September 30, 1997 were $7.7 million
compared to nil in the year ended September 30, 1996. This was primarily
attributable to reinsurance protection purchased by LaSalle Re with effect
from January 1, 1997 and to reinsurance purchased by LaSalle Re Capital. Ceded
premiums amortized were $1.9 million for the year ended September 30, 1997
compared to nil in the year ended September 30, 1996.
Net premiums earned decreased 16.0% to $163.9 million for the year ended
September 30, 1997 from $195.1 million for the year ended September 30, 1996.
This decrease was principally due to the overall decrease in premiums written
in the previous fiscal year and the year ended September 30, 1997.
Net investment income increased 23.5% to $33.1 million for the year ended
September 30, 1997 from $26.8 million for the year ended September 30, 1996.
This increase was principally attributable to an increase in yields during the
year ended September 30, 1997, together with a larger average investment base
compared to the year ended September 30, 1996. Annualized investment income as
a percentage of the average market value of invested assets was 6.07% for the
year ended September 30, 1997 compared to 5.44% for the year ended September
30, 1996.
Net realized gains on investments were $0.6 million during the year ended
September 30, 1997 compared to $0.4 net realized losses during the year ended
September 30, 1996.
10K-23
<PAGE>
Other income was derived from reinsurance related services providing an
annual fee of $0.3 million. As the provision of these services began on
January 1, 1997, there was no corresponding income in the year ended September
30, 1996.
The following table sets forth the Company's combined ratios for the years
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Loss and loss expense ratio................... 19.0% 26.4%
Expense ratio................................. 23.6% 19.6%
Combined ratio................................ 42.6% 46.0%
</TABLE>
Losses and loss expenses incurred decreased 39.4% to $31.2 million for the
year ended September 30, 1997 from $51.5 million for the year ended September
30, 1996. This decrease was a result of the limited number of worldwide
catastrophic events that affected the Company during the year. Losses and loss
expenses incurred during the year ended September 30, 1997 primarily included
$12.0 million for floods in Eastern Europe, $6.1 million in respect of various
international windstorms and winter storm activity in the United States and
$4.6 million adverse development on Hurricane Fran, which occurred in
September 1996. Losses and loss expenses incurred during the year ended
September 30, 1996 included additional reserves of $14.2 million for
Hurricanes Marilyn and Luis and various other losses emanating from the 1996
hurricane season and end of the 1995 hurricane season and international
storms.
Underwriting expenses decreased 4.8% from $27.3 million for the year ended
September 30, 1996 to $26.0 million for the year ended September 30, 1997. As
a percentage of net premiums earned, underwriting expenses were 15.9% for the
year ended September 30, 1997 compared to 14.0% for the year ended September
30, 1996. Of this increase, 0.6% was due to the settlement of significant
profit commissions on one program underwritten in previous fiscal years, which
had better than expected loss ratios, and the provision for profit commission
on contracts underwritten in the current fiscal year. In addition, the
business underwritten by LaSalle Re Capital has higher underwriting costs,
which increases the Company's percentage of underwriting expenses to net
premiums earned. The Company experienced an increase in the fees and profit
commission accrued under the Underwriting Services Agreement from 3.7% of net
premiums earned for the year ended September 30, 1996 to 4.0% net premiums
earned for the year ended September 30, 1997.
Operational expenses increased 14.4% to $12.7 million for the year ended
September 30, 1997 from $11.1 million for the year ended September 30, 1996.
This increase was substantially due to additional executive compensation and
expenses relating to the operation of LaSalle Re Capital.
Corporate expenses were $1.8 million for the year ended September 30, 1997,
compared with $0.9 million for the year ended September 30, 1996. Corporate
expenses for the year ended September 30, 1997 included costs associated with
the Secondary Offering, the Preferred Offering, the Tender Offer, the
formation costs of LaSalle Re Capital, the Company's move to the New York
Stock Exchange and fees incurred with respect to the CatEPut. In 1996,
corporate expenses included costs associated with the initial public offering
and all costs associated with the establishment of the Company's credit
facility. Corporate expenses do not include the underwriting discounts
associated with the various offerings. These costs were borne by the selling
shareholders in the initial public offering and the Secondary Offering. In
respect of the Preferred Offering, the underwriting discount was charged to
additional paid in capital.
Interest expense was $1.7 million during the year ended September 30, 1997
compared to $0.2 million in the year ended September 30, 1996. This increase
was due to financing charges associated with the deposit portion of LaSalle
Re's ceded reinsurance contract. Other interest expenses related to the annual
administration fee and the ongoing commitment fees payable on the Company's
credit facility. As at September 30, 1997, there were no borrowings under this
facility.
10K-24
<PAGE>
Foreign exchange losses in the year ended September 30, 1997 were $3.0
million compared to losses of $1.1 million in the year ended September 30,
1996. The losses in the year ended September 30, 1997 resulted from the
unfavorable closing of a sterling forward contract, and an overall
strengthening of the U.S. dollar since January 1, 1997 against the major
foreign currencies in which the Company writes premiums. The losses for the
year ended September 30, 1996 were the result of several factors, including
the decrease in the value of yen and deutschmarks relative to the U.S. dollar.
Additionally, the Company's sterling foreign exchange contracts precluded
participation in the appreciation of sterling in the third fiscal quarter
above the Company's average forward rate.
Earnings per Common Share were $5.55 for the year ended September 30, 1997
and $5.70 for the year ended September 30, 1996. Earnings per Common Share
assuming dilution were $5.14 for the year ended September 30, 1997 and $5.40
for the year ended September 30, 1996. Following the Tender Offer, the
adjusted weighted average number of Common Shares outstanding decreased from
23,967,870 for the year ended September 30, 1996 to 22,998,936 for the year
ended September 30, 1997. This decrease generated a 6.6% accretive effect on
the Company's 1997 net income per share.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, the Company's assets consist primarily of all of the
outstanding voting stock of LaSalle Re. The Company's cash flows depend
primarily on dividends and other permitted payments from LaSalle Re.
LaSalle Re's sources of funds consist of 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, LaSalle Re is
prohibited from paying dividends of more than 25% of its opening statutory
capital and surplus unless it files an affidavit (at least 7 days before
payment of such dividends) 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 that 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 15% or more without the
approval of the Minister of Finance. LaSalle Re currently meets its
requirements under the Insurance Act. In addition, the payment of dividends by
LaSalle Re is subject to the rights of holders of the Exchangeable Non-Voting
Shares 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 reinsurance
operations.
Operating activities provided net cash of $96.0 million for the year ended
September 30, 1998 and $98.6 million for the year ended September 30, 1997.
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 operating cash flows
between periods. LaSalle Re funds such payments from cash flows from
operations and sales of investments.
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, 1998, 80.1% 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 investment portfolio, including cash, was 3.1 years at
September 30, 1998. At September 30, 1998, the fair value of the Company's
total investment portfolio, including cash, was $606.8 million.
Cash and cash equivalents increased from $54.8 million at September 30, 1997
to $85.3 million at September 30, 1998. The increase was due to proceeds
received on the sale of bonds in late September, which
10K-25
<PAGE>
were not re-invested until post year-end. In addition the Company required
funds for the payment of losses, primarily as a result of Hurricane Georges.
The Company has adopted the Statement of Financial Accounting Standard No.
115 ("SFAS 115") to account for its marketable securities with all of the
Company's investments classified as "available for sale". Under this
classification, investments are recorded at fair market value and any
unrealized gains or losses are reported as "Accumulated other comprehensive
income", a separate component of shareholders' equity. In accordance with SFAS
No. 130 "Reporting of Comprehensive Income", the movement in unrealized gains
or losses on these investments are disclosed as part of other comprehensive
income. The unrealized gain on the investment portfolio net of amounts
attributable to minority interest was $13.8 million at September 30, 1998
compared to an unrealized gain of $2.0 million at September 30, 1997.
At September 30, 1998, 86.5% of the securities held in the Company's
investment portfolio were fixed-income securities rated "AA" or better and
97.9% were fixed-income securities rated "A" or better by S&P or Moody's. No
single investment comprised more than 5% of the overall portfolio. As at
September 30, 1998, issuers from the Far East and Asia represented 5.7% of the
investment portfolio. These securities had a market value of $33.6 million and
an aggregate unrealized gain of $0.4 million. All of these securities had an
average credit rating of AAA as assigned by S&P or Moody's, as at September
30, 1998.
During the year ended September 30, 1998, the Company modified its
investment guidelines to allow the purchase of mortgage backed securities. In
addition during the year ended September 30, 1998 the Company entered into a
swap agreement to provide cash flow to a counterparty in the event of a
defined earthquake activity in Japan. Receipts to the Company are accounted
for as investment income and are based on a percentage of the notional amount
of the swap. The contract exposes LaSalle Re to a maximum cash outflow of the
original notional amount of $3.0 million should the defined earthquake event
occur. In addition, the Company is exposed to credit loss in the event of
nonperformance by the counter-party to the remittance of interest payments as
required by the swap.
Reinsurance balances receivable were $86.8 million at September 30, 1998
compared to $80.0 million at September 30, 1997. This increase was due to the
inclusion of receivable balances relating to the business underwritten by
LaSalle Re Capital. At September 30, 1998, these receivable balances were
$31.2 million compared to $11.3 million as at September 30, 1997. Given the
three-year accounting methodology utilized by Lloyd's, these balances will not
be received until after the year 2000.
Deferred acquisition costs increased from $11.9 million at September 30,
1997 to $13.4 million at September 30, 1998 whereas unearned premiums
decreased from $88.5 million at September 30, 1997 to $83.1 million at
September 30, 1998. Although the volume of gross premiums written has
declined, there has been an increase in the average cost of the business
written due to increased costs associated with proportional business and an
increased level of LaSalle Re Capital business.
Prepaid reinsurance premiums have increased from $5.8 million at September
30, 1997 to $7.6 million at September 30, 1998. The increase primarily related
to an increase in the level of the risk transfer portion of the Company's
reinsurance program and to the level of reinsurance ceded by LaSalle Re
Capital.
Other assets increased from $22.6 million at September 30, 1997 to $31.7
million as at September 30, 1998. This was primarily due to the deposit
portion of the ceded reinsurance contract, which is accounted for in
accordance with SFAS No 113 and the no claims bonus provision of the contract.
In addition, following the termination of the Administrative Services
Agreement the Company paid $1.5 million to purchase the existing fixed assets.
The Company has also purchased additional fixed assets during the year ended
September 30, 1998.
At September 30, 1998, the liability for unpaid losses and loss expenses was
$97.9 million compared to $45.5 million at September 30, 1997. The increase of
$52.4 million from September 30, 1997 was primarily due to the losses which
occurred in the fourth quarter on which the Company made an estimate of its
total liability, notably Hurricane Georges. In addition, the Company increased
its reserves for unpaid losses on other lines of business and the business
written by LaSalle Re Capital which, given the three-year accounting
methodology, will not be paid until after the year 2000.
10K-26
<PAGE>
Other liabilities increased from $22.8 million as at September 30, 1997 to
$29.2 million as at September 30, 1998. The increase of $6.4 million was
primarily due to liabilities established for the purchased reinsurance
protections for both the Company and LaSalle Re Capital and operating expenses
of LaSalle Re Capital. This was offset partially by a reduction in the fees
accrued pursuant to the Underwriting Services Agreement with CNA Bermuda which
was terminated October 1, 1998 and the Administrative Services Agreement with
ARC which was terminated October 1, 1997.
In accordance with the terms of certain reinsurance contracts written by the
Company, the Company has posted letters of credit in the amount of $8.3
million as of September 30, 1998 as compared to $8.7 million as of September
30, 1997 to support outstanding loss reserves. In connection with LaSalle Re
Capital's support of three Lloyd's syndicates, the Company has posted letters
of credit in the amount of $16.6 million (equivalent to (Pounds)9.8 million).
In addition, in connection with the Japanese earthquake swap, the Company has
posted a letter of credit of $3.0 million. All letters of credit 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 paid dividends on its Common Shares of $0.71 per share in
October 1997 and $0.75 per share in January, April and July 1998. The Company
paid a quarterly dividend of $0.5469 per share to holders of its Series A
Preferred Shares in December 1997 and March, June and September 1998. As of
September 30, 1998, dividends due but not yet declared on the Series A
Preferred Shares amounted to $0.5 million.
Based on the Company's net income for the year ended September 30, 1998, the
Company currently expects to declare dividends of $0.375 per Common Share each
quarter during the 1999 fiscal year. The actual amount and timing of any
future Common Share dividends is at the discretion of the Board. The
declaration and payment of any dividends 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 in future periods.
LaSalle Re Capital is committed to provide capital support for the 1999
underwriting year to the same Lloyd's syndicates as it supported in 1998. The
level of support is not expected to change materially from that provided in
1998. 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 that, 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;
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 $300 million or 70% of
net premiums written; maintenance of statutory capital of LaSalle Re of at
least $300 million, increasing to $350 million at the end of calendar year
1998 and $400 million at the end of calendar year 1999 and thereafter; 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. The Company may pay dividends and make other
restricted payments so long as, after giving effect to such restricted
payments, no event of default has occurred. Dividends and restricted payments
are limited to 50% of consolidated net income for its immediately preceding
fiscal year less amounts paid on the Series A preferred shares. In order for
the Company to pay dividends in excess of 50% of consolidated net income, the
Company would have to renegotiate certain terms of its credit facility. As of
September 30, 1998, the credit facility had not been utilized.
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.
10K-27
<PAGE>
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997 and requires the Company to report financial and
descriptive information about its reportable operating segments. This standard
will require additional disclosure and will be adopted by the Company for the
year ended September 30, 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employers' Disclosures about Pensions and other Postretirement Benefits".
This statement is effective for fiscal years beginning after December 15,
1997. As the provisions of the statement need not be applied to immaterial
items, the Company considers it unlikely the statement will change its
disclosures significantly.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Given the limited number of transactions currently entered into by the
Company that are covered by the statement, the Company does not anticipate any
significant changes to its current financial reporting.
Year 2000 Issue
The Company's goal is to ensure that its computer systems and the computer
systems of third parties that are material to the Company's operations (such
as the computer systems of service providers, suppliers and brokers) will be
capable of correctly processing information relating to dates in and after the
year 2000 ("Year 2000 compliant"). The Company does not believe that it faces
any material Year 2000 compliance problems with respect to its non-information
technology systems.
The Company engaged International Business Machines Corporation ("IBM") to
prepare an assessment and strategy report outlining the steps needed to make
the Company's computer systems Year 2000 compliant. IBM's report indicated
that certain of the Company's systems, applications and business interfaces
have Year 2000 date problems which will require an estimated 359 person-days
to correct. The Company has set a target date of March 31, 1999 for the
completion of the necessary conversions to the following systems: (i) the
Senator underwriting management system, (ii) the RSG reinsurance system, (iii)
other software and hardware components and infrastructure, (iv) enterprise-
wide spreadsheet and database files, (v) broker compliance and (vi) supplier
compliance. The Company has budgeted $0.3 million for the overall Year 2000
compliance effort and has expensed $0.06 million to date for the IBM
assessment and strategy report. Given the current level of estimated costs, it
is not anticipated that the costs of Year 2000 compliance will have a material
impact on the Company's future results.
A number of risk factors, including but not limited to the following, could
affect the Company's plans to achieve Year 2000 compliance by March 31, 1999
within the current budget:
. As the Company is currently completing its installation of the Senator
underwriting management system, any delay in completing that installation
could delay the Year 2000 conversion of components of that system. To
provide for that contingency, the Company has contracted with outside
service providers to ensure that the Company's current RSG reinsurance
system is Year 2000 compliant by January 31, 1999.
. The target date of March 31, 1999 for Year 2000 compliance is based on
the December 1998 commencement and timely progress of the actual software
conversions. Any delays in starting or implementing the conversion
process will present a significant hindrance to completing the project by
the target date.
. Information technology ("IT") resources to implement Year 2000
conversions are in short supply and the supply of external contractor
resources is likely to decrease further as the Year 2000 approaches. This
shortage of resources could escalate the cost of performing the
conversion work beyond the current estimates. The Company intends to
maximize internal IT resources by freezing all discretionary changes to
applications during the Year 2000 conversion and does not anticipate that
this will delay other significant IT projects.
10K-28
<PAGE>
. The Company has no control over the timing of Year 2000 compliance by
external brokers and suppliers who interface with the Company. However,
the Company has distributed a Year 2000 compliance questionnaire to its
suppliers and brokers and, as of November 12, 1998, 63.5% of suppliers
and 61.5% of brokers, including the Company's major suppliers and
brokers, had adequately responded to the Company's questionnaire.
The Company also assesses the effect of the Year 2000 issue on the business
it underwrites, considering the exposure to Year 2000 related losses on a
contract by contract basis at the time of underwriting.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's major market risk exposure is changing interest rates,
primarily in the United States as the Company has a portfolio of fixed
maturity investments, of which all except one hedged international bond are
denominated in U.S. dollars. A change in interest rates will affect the fair
value of the Company's investments and will lead to fluctuations in
"Accumulated Other Comprehensive Income" on the balance sheet. The Company
limits this risk by setting a maximum portfolio duration of four years, which
is stipulated in the Company's investment guidelines. The Company does not use
derivative financial instruments to manage market risk in its U.S. dollar
denominated portfolio. In addition, the Company places its investments with
high credit quality issuers and limits the amount of credit exposure with
respect to particular ratings categories and any one issuer or country of
issuer. The table below (expressed in millions of U.S. dollars) presents the
par value amounts and related weighted average interest rates by year of
maturity for the Company's U.S. dollar denominated investment portfolio.
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2013 TOTAL
---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ 55.5 55.5
Weighted average
interest rate.......... 5.8% 5.8%
Investments Fixed
interest............... 23.0 11.7 66.0 60.0 127.5 78.0 15.0 3.0 5.0 14.5 63.0 29.7 496.4
Weighted average
interest rate.......... 5.7% 6.2% 6.0% 6.3% 6.2% 5.8% 6.2% 5.9% 5.9% 5.7% 5.7% 6.4% 6.0%
</TABLE>
Mortgage backed securities are included in the above table by relevant year
of maturity. In addition, unit funds which are included as part of cash and
cash equivalents are included in the above table at par value.
During the year ended September 30, 1998, the Company amended its investment
guidelines to permit investment in hedged international bonds. Under this type
of investment, the currency risk is negated through the use of forward
contracts, with the Company only being exposed to the interest rate risk on
the bond purchased. As at September 30, 1998, only one bond had been purchased
with a par value of Canadian dollars $7 million, an interest rate of 5.3% and
a maturity date of 2007.
The fair value of the cash and cash equivalents and the fixed interest
securities as at September 30, 1998 was $606.8 million.
In addition, the Company has foreign currency risk on both reinsurance
balances receivable and reinsurance balances payable (including payables
relating to losses). The Company does not currently utilize derivative
instruments to manage the Company's exposure to foreign currency movements. In
the past the Company has used forward contracts to eliminate the risk;
however, given the uncertainty in cash flows this was not deemed to be an
efficient management technique. As of September 30, 1998, the majority of the
Company's net receivable/payable position is denominated in U.S. dollars. As
at September 30, 1998, the largest foreign currency exposure is sterling, as
the Company had a net receivable balance of (Pounds)14.1 million. A 5%
increase or decrease in the year-end sterling/U.S. dollar exchange rate would
produce a gain or loss, respectively, of $1.2 million. Given the limited
amount of net receivable balances in other currencies, no other currency
movement has been considered.
10K-29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LASALLE RE HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................. 10K-31
CONSOLIDATED BALANCE SHEETS.............................................. 10K-32
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME........... 10K-33
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY............... 10K-34
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... 10K-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 10K-36
</TABLE>
10K-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
LaSalle Re Holdings Limited
We have audited the consolidated financial statements of LaSalle Re Holdings
Limited and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 that 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 subsidiaries as of September 30, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
October 26, 1998
10K-31
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents..................................... $ 85,281 $ 54,761
Investments held as available for sale at fair value.......... 521,476 498,282
(amortized cost 1998: $503,531; 1997: $495,705)
Accrued investment income..................................... 11,056 12,684
Reinsurance balances receivable............................... 86,779 80,041
(related party 1998: $8,729; 1997: $13,481)
Deferred acquisition costs.................................... 13,444 11,932
Prepaid reinsurance premiums.................................. 7,584 5,837
Other assets.................................................. 31,670 22,551
-------- --------
Total assets.................................................. $757,290 $686,088
======== ========
LIABILITIES
Outstanding losses and loss expenses.......................... $ 97,942 $ 45,491
Unearned premiums............................................. 83,119 88,490
Other liabilities............................................. 29,241 22,823
(related party 1998: $3,831; 1997: $7,975)
Dividend payable.............................................. 11,366 10,703
-------- --------
Total liabilities............................................. 221,668 167,507
-------- --------
Minority Interest............................................. 105,569 93,355
-------- --------
SHAREHOLDERS' EQUITY
Share capital authorized in the aggregate 100,000,000 shares,
par value $1
Preferred shares.............................................. 3,000 3,000
(par value $1, liquidation preference $25 per share, issued &
outstanding,
3,000,000 Series A Preferred Shares)
Common shares................................................. 15,179 15,074
(par value $1 issued & outstanding, 15,178,791; 1997:
15,073,914)
Additional paid in capital.................................... 295,578 299,964
Accumulated other comprehensive income........................ 13,838 2,035
Retained earnings............................................. 102,458 105,153
-------- --------
Total shareholders' equity.................................... 430,053 425,226
-------- --------
Total liabilities, minority interest and shareholders' equity. $757,290 $686,088
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-32
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums written................................. $155,316 $171,386 $190,151
(related party 1998: $16,917; 1997: $21,408;
1996: $24,045)
Premiums ceded................................... (7,815) (7,693) 0
-------- -------- --------
Net premiums written............................. 147,501 163,693 190,151
Change in unearned premiums and prepaid
reinsurance premiums............................ 7,119 240 4,990
-------- -------- --------
Net premiums earned.............................. 154,620 163,933 195,141
Net investment income............................ 34,288 33,109 26,846
Net realized gains (losses) on investments....... 5,575 555 (418)
Other income .................................... 63 188 0
(related party 1998: $63; 1997: $188; 1996: $0)
-------- -------- --------
Total revenues................................... 194,546 197,785 221,569
-------- -------- --------
EXPENSES
Losses and loss expenses incurred................ 95,539 31,199 51,477
Underwriting expenses............................ 22,661 26,018 27,268
(related party 1998: $6,318; 1997: $9,857; 1996:
$10,419)
Operational expenses............................. 8,932 12,656 11,114
(related party 1998: $44; 1997: $6,212; 1996:
$6,500)
Corporate expenses............................... 517 1,770 911
Interest expense................................. 1,881 1,678 222
Exchange (gains) losses.......................... (216) 2,996 1,126
-------- -------- --------
Total expenses................................... 129,314 76,317 92,118
-------- -------- --------
Income before minority interest.................. 65,232 121,468 129,451
Minority interest................................ 13,426 24,391 47,966
-------- -------- --------
Net income....................................... $ 51,806 $ 97,077 $ 81,485
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on securities.......... $ 12,715 $ 3,592 $ (483)
Less: reclassification adjustments for (gains)
losses included in net income................... $ (912) $ 304 $ (339)
-------- -------- --------
Total other comprehensive income................. 11,803 3,896 (822)
-------- -------- --------
Comprehensive income............................. $ 63,609 $100,973 $ 80,633
======== ======== ========
Earnings per common share........................ $ 3.06 $ 5.55 $ 5.70
======== ======== ========
Earnings per common share--assuming dilution..... $ 2.80 $ 5.14 $ 5.40
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-33
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
PREFERRED SHARES PAR VALUE $1
Balance at beginning and end of year............ $ 3,000 $ 3,000 $ 0
======== ======== ========
COMMON SHARES PAR VALUE $1
Balance at beginning of year.................... $ 15,074 $ 14,398 $ 14,398
Issuance of shares.............................. 155 1 0
Share repurchase................................ (50) (3,704) 0
Change in minority interest..................... 0 4,379 0
-------- -------- --------
Balance at end of year.......................... $ 15,179 $ 15,074 $ 14,398
======== ======== ========
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year.................... $299,964 $221,968 $221,968
Issuance of shares.............................. 1,490 70,177 0
Share repurchase................................ (790) (44,990) 0
Change in minority interest..................... (3,274) 54,664 0
Equity put option premium....................... (1,812) (1,855) 0
-------- -------- --------
Balance at end of year.......................... $295,578 $299,964 $221,968
======== ======== ========
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year.................... $ 2,035 $ (1,861) $ (1,039)
Unrealized gain / (loss) in year................ 11,851 4,354 (822)
Change in minority interest..................... (48) (458) 0
-------- -------- --------
Balance at end of year.......................... $ 13,838 $ 2,035 $ (1,861)
======== ======== ========
RETAINED EARNINGS
Balance at beginning of year.................... $105,153 $ 72,943 $ 18,095
Net income...................................... 51,806 97,077 81,485
Common share dividends.......................... (44,641) (44,860) (26,637)
(1998: $3.00 per share; 1997: $2.84 per share;
1996: $0.75 per share)
Preferred share dividends....................... (6,563) (2,807) 0
(1998: $2.19 per share; 1997: $0.94 per share;
1996: $Nil)
Share repurchase................................ (719) (33,807) 0
Option exercise................................. (133) 0 0
Change in minority interest..................... (2,445) 16,607 0
-------- -------- --------
Balance at end of year.......................... $102,458 $105,153 $ 72,943
======== ======== ========
Total shareholders' equity.................. $430,053 $425,226 $307,448
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
10K-34
<PAGE>
LASALLE RE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income................. $ 51,806 $ 97,077 $ 81,485
Adjustments to reconcile
net income to cash
provided by operating
activities:
Minority interest in net
income.................. 13,426 24,391 47,966
Amortization of
investment premium...... 863 1,725 3,280
Net realized
(gains)/losses on sale
of investments........... (5,575) (555) 418
Unrealized (gains)/losses
on foreign exchange...... (594) 937 590
Changes in:
Accrued investment
income.................. 1,628 1,527 1,592
Reinsurance balances
receivable............... (6,590) (10,495) 15,412
Deferred acquisition
costs.................... (1,512) (1,468) 244
Prepaid reinsurance
premiums................. (1,747) (5,837) 0
Other assets.............. (9,156) (20,981) (105)
Outstanding losses and
loss expenses............ 52,218 (4,242) (16,748)
Unearned premiums......... (5,372) 5,596 (4,991)
Other liabilities......... 6,613 10,968 2,294
--------- --------- ---------
Cash provided by operating
activities................ 96,008 98,643 131,437
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments.... (427,283) (364,989) (270,287)
Net sales of short term
investments............... 0 116 47
Proceeds on the sale of
investments............... 389,170 282,449 170,296
Proceeds on the maturity of
investments............... 35,000 79,000 44,500
--------- --------- ---------
Cash applied to investing
activities................ (3,113) (3,424) (55,444)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from
subscriptions to share
capital................... 4,802 72,682 0
Payment of dividends....... (63,267) (54,338) (111,363)
Share repurchase........... (1,560) (103,442) 0
Equity put option premium.. (2,350) (2,350) 0
--------- --------- ---------
Cash applied to financing
activities................ (62,375) (87,448) (111,363)
--------- --------- ---------
Net increase/(decrease) in
cash and cash equivalents. 30,520 7,771 (35,370)
Cash and cash equivalents
at beginning of year...... 54,761 46,990 82,360
--------- --------- ---------
Cash and cash equivalents
at end of year............ $ 85,281 $ 54,761 $ 46,990
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
10K-35
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(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. LaSalle Re is licensed under the Insurance
Act, 1978 as amended by the Insurance Amendment Act, 1995 of Bermuda (the
"Act") 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 endeavors 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., to provide
capital support to selected Lloyd's syndicates.
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, in certain circumstances, exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"). The Exchange Offer was
accounted for as if it were a pooling of interests of combining enterprises
under common control.
On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares. 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 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 liability for unpaid
losses and loss expenses and the amount of ultimate premiums written.
10K-36
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
inter-company balances and transactions have been eliminated in consolidation.
(b) Minority interest
Minority interest represents the Founding Shareholders' ownership of the
Exchangeable Non-Voting Shares in LaSalle Re. These 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
in LaSalle Re are exchangeable, at the option of the holder, for Common Shares
of the Company, 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.
Changes in the minority interest of LaSalle Re as a result of the exchange
of such shares for shares in the Company are recorded at historic cost by
transferring an appropriate portion of the minority interest to the various
components of shareholders' equity. The minority's share of income as recorded
in the income statement is calculated using the minority's ownership
percentage as at the balance sheet date. Minority interest as reported in the
balance sheet represents the minority's current proportionate share of LaSalle
Re and its subsidiaries' net assets.
(c) Premiums earned and deferred acquisition costs
Premiums written are estimated by management based upon reports received
from ceding companies. These estimates are adjusted where a contract contains
a no claims bonus with a provision for the potential liability recorded
simultaneously with the written premium. In addition, 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. Premiums written by LaSalle Re
Corporate Capital Ltd. are derived from reports submitted to the Company by
the syndicates. These premiums are earned in accordance with the related
underlying risk attachment periods, which average between 18-24 months.
Unearned premiums represent the portion of premiums written which are
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.
(d) Reinsurance
In the normal course of business, the Company seeks to reduce its exposure
to losses that may arise from catastrophes and cause unfavorable underwriting
results by reinsuring certain levels of risks with other reinsurers.
10K-37
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with Statement of Financial Accounting Standard ("SFAS") No.
113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", contracts providing indemnification against loss or
liability relating to insurance risk have been accounted for as reinsurance.
Reinsurance premiums are reported as prepaid reinsurance premiums and
amortized over the contract period in proportion to the amount of reinsurance
protection provided. Where the contract provides for return premiums, these
are accrued based on loss experience through to the balance sheet date.
Reinsurance contracts, which do not satisfy the conditions for reinsurance
accounting under SFAS No. 113, are accounted for as deposits.
(e) Losses and loss expenses
The liability for outstanding 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 actuarial analysis. The
amount included as losses incurred in respect of business written by LaSalle
Re Corporate Capital Ltd. is derived from an analysis of expected loss ratios.
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 the
liability 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
the liability, management believes that the Company's recorded amount is
adequate to meet its future obligations.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the underlying liabilities.
Liabilities are recorded without consideration of potential salvage or
subrogation recoveries that are estimated to be immaterial. Such recoveries,
when realized, are reflected as a reduction of losses incurred.
(f) 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 SFAS No. 115 "Accounting and Reporting for Certain Investments in
Debt and Equity Securities". As such, they are reported at fair value with
unrealized gains and losses, net of amounts attributable to the minority
interest, reported as other comprehensive income.
Purchases and sales of investments are accounted for on the trade date of
the transaction.
(g) Investment income
Investment income, net of investment expenses, is accrued to the balance
sheet date and includes amortization of premiums and accretion of 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 in the consolidated statements of
operations and comprehensive income.
10K-38
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(h) 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, as
they arise.
The Company has entered 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 as they arise.
(i) Fair value of financial instruments
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.
(j) Other income
Other income relates to fees earned in respect of reinsurance services
provided.
(k) Corporate expenses
Corporate expenses are recorded on an accruals basis.
(l) Cash and cash equivalents
For the purposes of the consolidated 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.
(m) Stock incentive compensation plans
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". As allowed under this standard, the Company accounts for stock
option grants in accordance with APB opinion No. 25, "Accounting for Stock
Issued to Employees". Compensation expense for stock option grants is
recognized 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.
Pro forma disclosure of net income and earnings per share as if the fair
value based method of SFAS No. 123 had been adopted is provided in Note 10 to
the consolidated financial statements.
(n) Earnings per common share
Earnings per Common Share have been calculated in accordance with SFAS 128
"Earnings per Share". Earnings per Common Share are calculated by dividing net
income available to common shareholders by the weighted average number of
Common Shares outstanding. For the purposes of this calculation, the
exchangeable non-voting shares of LaSalle Re ("Exchangeable Non-Voting
Shares") are considered outstanding Common Shares of the Company due to the
exchangeable nature of the shares. Earnings per Common Share assuming dilution
is computed by dividing net income available to common shareholders by the sum
of the weighted average number of Common Shares outstanding and the dilutive
potential Common Shares outstanding during the period of calculation. Prior
period calculations have been restated to give effect to SFAS 128.
10K-39
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(o) Accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997 and requires the Company to report financial and
descriptive information about its reportable operating segments. This standard
will require additional disclosure and will be adopted by the Company for the
year ended September 30, 1999.
In February 1998, the Financial Standards Board issued SFAS No. 132
"Employers' Disclosures about Pensions and other Postretirement Benefits".
This statement is effective for fiscal years beginning after December 15,
1997. As the provisions of the statement need not be applied to immaterial
items, the Company considers it unlikely the statement will change its
disclosures significantly.
In June 1998, the Financial Standards Board issued SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities". This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Given the limited number of transactions currently entered into by the
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.
3. INVESTMENTS AND INVESTMENT INCOME
(a) Investments
All fixed interest securities and short term investments are considered as
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, 1998
and 1997, the fair values and amortized cost of investments are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies........... $134,832 $ 6,349 $ 0 $141,181
Non U.S. government and agencies....... 37,239 1,233 (90) 38,382
Corporate.............................. 299,101 9,869 (3) 308,967
Mortgage-backed securities............. 29,649 581 0 30,230
Other debt............................. 2,710 10 (4) 2,716
-------- ------- ------- --------
$503,531 $18,042 $ (97) $521,476
======== ======= ======= ========
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- ---- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government and agencies........... $ 88,088 $ 506 $ (195) $ 88,399
Non U.S. government and agencies....... 71,541 456 (207) 71,790
Corporate.............................. 335,076 2,819 (831) 337,064
Other debt............................. 1,000 29 0 1,029
-------- ------- ------- --------
$495,705 $ 3,810 $(1,233) $498,282
======== ======= ======= ========
</TABLE>
The unrealized gain on investments as shown on the consolidated balance
sheet of $13,838 (1997: $2,035) is net of the minority's interest of $4,107
(1997: $542).
Investments held at September 30, 1998 mature as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Less than one year.................................... $ 24,745 $ 24,747
1-5 years............................................. 337,360 348,926
5-10 years............................................ 111,777 117,573
-------- --------
473,882 491,246
Mortgage-backed securities............................ 29,649 30,230
-------- --------
$503,531 $521,476
======== ========
</TABLE>
10K-40
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the composition of the fair value of
available for sale securities by ratings assigned by Standard & Poor's Ratings
Services or Moody's Investors Services Inc. or, with respect to non-rated
issues, as estimated by the Company's investment managers.
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
AAA......................................................... 69.6% 43.2%
AA.......................................................... 16.9% 31.1%
A........................................................... 11.4% 25.5%
BB.......................................................... 1.6% 0.2%
Not rated................................................... 0.5% 0.0%
----- -----
100.0% 100.0%
===== =====
</TABLE>
In the normal course of reinsurance operations, the Company's bankers have
issued letters of credit totaling $8,303 (1997: $8,673) in favor of ceding
insurance companies to secure the Company's obligations under various
reinsurance contracts. In connection with LaSalle Re Corporate Capital Ltd.'s
support of three Lloyd's syndicates, the Company has posted letters of credit
in the amount of $16,616 (1997: $15,974). In addition, in connection with a
swap agreement, the Company has posted a letter of credit of $3,000. At
September 30, 1998, $32,107 (1997: $28,344) of fixed interest securities have
been pledged as collateral for these letters of credit.
(b) Net investment income
Net investment income for the years ended September 30, 1998, 1997 and 1996
was derived from the following sources:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Cash and short term investments.............. $ 3,649 $ 4,342 $ 1,443
U.S. government and agencies
fixed interest securities................... 3,627 5,933 1,631
Non U.S. government and agencies
fixed interest securities................... 7,548 3,531 4,702
Corporate fixed interest securities.......... 19,784 20,456 20,197
Mortgage-backed securities................... 477 0 0
Other........................................ 154 0 0
-------- ------- -------
Gross investment income...................... 35,239 34,262 27,973
Investment expenses (Note 11)................ (951) (1,153) (1,127)
-------- ------- -------
$ 34,288 $33,109 $26,846
======== ======= =======
</TABLE>
Included in gross investment income for the year ended September 30, 1998
was a charge of $863 (1997: $1,725; 1996: $3,280) relating to the amortization
of investment premium.
Net realized gains (losses) comprise $6,085 realized gains and $510 realized
losses (1997: $1,881 and $1,326; 1996: $1,242 and $1,660, respectively).
The change in net unrealized gains on investments, net of the minority's
interest, that has been included as part of other comprehensive income for the
year ended September 30, 1998 was an increase of $11,803 (1997 increase:
$3,896; 1996 decrease: $822).
Proceeds received from the sale of available for sale securities during the
year ended September 30, 1998 were $389,170 (1997: $282,449; 1996: $170,296).
10K-41
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REINSURANCE
Reinsurance premiums ceded are primarily in respect of a multi-year excess
of loss reinsurance program purchased by the Company, and various reinsurance
protections purchased by LaSalle Re Corporate Capital Ltd. The excess of loss
program provides coverage of $100,000 in excess of the first $100,000 of
losses per occurrence for a first loss event and $100,000 excess of $100,000
per occurrence on the second loss event and $100,000 excess of $150,000 per
occurrence on the third loss event over a three-year period ended December 31,
2000, subject to a maximum aggregate recovery of $300,000. The Company is
required to pay reinstatement premiums to reinstate the second and third loss
event coverages. The Company may participate on a co-insurance basis for the
third loss event.
Coverage for the first loss is substantially funded by way of annual and
reinstatement premium obligations. Accordingly, this portion of the coverage
has been recorded as a financing arrangement whereby the consideration paid,
net of associated financing charges, is recorded as a deposit and included as
part of other assets in the consolidated balance sheet. The deposit asset is
adjusted at the balance sheet date to reflect the net present value of
expected future cash flows under that portion of the contract. Interest
expense includes finance charges of $1,666 (1997: $1,470), which are being
amortized over the period of the contract using the interest method.
The reinsurance agreement is secured by a company which currently holds a
rating of "A+" (Superior) from A.M. Best Company, Inc. and a claims-paying
rating of "AAA" (Excellent) from Standard & Poor's Ratings Services.
The ceding of the reinsurance does not legally discharge the Company from
its liability to its reinsureds, since the Company is required to pay losses
and bear collection risk if the reinsurers fail to meet their obligations
under the reinsurance agreements. The effect of reinsurance on premiums
written and earned is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assumed........................... 155,316 160,688 $171,386 $165,789
Ceded............................. (7,815) (6,068) (7,693) (1,856)
-------- -------- -------- --------
Net Premiums...................... $147,501 $154,620 $163,693 $163,933
======== ======== ======== ========
</TABLE>
There were no premiums ceded for the year ended September 30, 1996.
10K-42
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. EARNINGS PER COMMON SHARE
The following earnings per Common Share amounts have been disclosed in
accordance with the requirements of SFAS No. 128:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income.............................. $ 51,806 $ 97,077 $ 81,485
Add back: minority interest............. 13,426 24,391 47,966
Less: Series A preferred share
dividends.............................. (6,563) (3,354) (0)
----------- ----------- -----------
Income available to common shareholders. $ 58,669 $ 118,114 $ 129,451
----------- ----------- -----------
Weighted average number of Common Shares
outstanding:
Common Shares........................... 15,145,112 15,567,521 14,397,720
Exchangeable Non-Voting Shares.......... 4,018,146 5,703,212 8,329,290
----------- ----------- -----------
Weighted average number of Common Shares
outstanding............................ 19,163,258 21,270,733 22,727,010
----------- ----------- -----------
Earnings per Common Share............... $ 3.06 $ 5.55 $ 5.70
=========== =========== ===========
Income available to common shareholders. $ 58,669 $ 118,114 $ 129,451
Weighted average number of Common Shares
outstanding............................ 19,163,258 21,270,733 22,727,010
Plus: incremental shares from assumed:
exercise of options................. 1,653,233 1,661,391 1,210,317
exercise of stock appreciation
rights............................. 80,516 66,812 30,543
contingently issuable shares........ 22,398 0 0
----------- ----------- -----------
Adjusted weighted average number of
Common Shares outstanding.............. 20,919,405 22,998,936 23,967,870
----------- ----------- -----------
Earnings per Common Share assuming
dilution............................... $ 2.80 $ 5.14 $ 5.40
=========== =========== ===========
</TABLE>
As of September 30, 1998, the Company had 1,873,782 options outstanding
(1997: 2,550,537; 1996: 2,499,348) and had granted 340,872 (1997 and 1996:
340,872) stock appreciation rights.
As of September 30, 1998, 10,000 options granted with an exercise price of
$31.63 have not been included in the above computation, as the options have an
antidilutive effect on earnings per Common Share.
6. 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 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.
As discussed in Note 4, other assets also include a deposit relating to
funded reinsurance.
7. MINORITY INTEREST
During the year ended September 30, 1998, 454,500 options to purchase
Exchangeable Non-Voting Shares were exercised. This transaction had the effect
of increasing the minority interest percentage in LaSalle Re to 22.8% from
21.1%.
10K-43
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the movement in minority interest during the
years ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Minority Interest as at October 1.................... $ 93,355 $ 179,470
Share of:
income.............................................. 13,426 24,391
dividends declared.................................. (13,247) (12,503)
exercise of exchangeable non-voting options......... 1,055 0
equity put option premium........................... (538) (495)
share purchase adjustments.......................... 0 (20,941)
change in unrealized position of investments........ 3,517 1,161
preferred offering issue costs...................... 0 (497)
option compensation................................. 208 0
change in minority interest......................... 7,793 (77,231)
-------- ---------
Minority Interest as at September 30................. $105,569 $ 93,355
======== =========
</TABLE>
8. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
The authorized share capital of the Company is 100,000,000 shares of par
value $1 each. This aggregate figure includes both common and preferred
shares. As of September 30, 1998 and 1997, the following Common Shares have
been issued and fully paid.
COMMON SHARES
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Number issued and fully paid..................... 15,178,791 15,073,914
Share capital.................................... $ 15,179 $ 15,074
Additional paid in capital....................... $ 225,295 $ 229,681
</TABLE>
Pursuant to the Employee Stock Purchase Plan (the "Plan") the Company issued
12,687 Common Shares. 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
under the payroll deduction component of the Plan is $25 per calendar year. In
addition, since September 25, 1997, certain employees have been eligible to
use up to 25% of their annual bonus to purchase Common Shares under the bonus
component of the Plan. The Company has recorded the shares issued under the
Plan at fair value. No compensation cost has been recorded on those shares
issued to employees of CNA (Bermuda) Services Limited ("CNA Bermuda") as the
cost was reimbursed pursuant to the service agreement with CNA Bermuda.
Compensation cost of $5 (1997: $Nil; 1996: $Nil) has been recorded on those
shares issued to employees of LaSalle Re.
In addition, during the year ended September 30, 1998, the Company issued
10,000 shares in a private placement for a cash consideration of $360. The
Company also repurchased 50,400 shares through open market purchases for a
total purchase price of $1,560.
During the year ended September 30, 1997, the Company completed a secondary
offering of Common Shares. In connection with the offering, certain Founding
Shareholders of LaSalle Re exchanged 2,199,110 of their Exchangeable Non-
Voting Shares for Common Shares of the Company.
10K-44
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to a tender offer ("Tender Offer") made by the Company in May 1997,
2,163,538 Exchangeable Non-Voting Shares were exchanged for Common Shares of
the Company and 95,679 options for Exchangeable Non-Voting Shares were
exercised and exchanged for Common Shares of the Company. Following these
exchanges, the Company purchased 3,703,703 Common Shares, for cancellation, at
the tender price of $27.00. The par value of the shares canceled has been
deducted from share capital. The additional paid in capital arising from the
original subscription to shares, subject to the Tender Offer, has been
eliminated from additional paid in capital and the difference between the
subscription price received for the shares and the price paid in the Tender
Offer has been deducted from retained earnings.
PREFERRED SHARES
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Number issued and fully paid....................... 3,000,000 3,000,000
---------- ----------
Share capital...................................... $ 3,000 $ 3,000
Additional paid in capital......................... $ 70,283 $ 70,283
</TABLE>
Series A Preferred Shares, have a par value $1.00 per share and are entitled
to a liquidation preference of $25.00 per share. Dividends are cumulative at
8.75% of the liquidation preference per annum (equivalent to an annual rate of
$2.1875 per share). On or after March 27, 2007, these shares will be
redeemable, in whole or in part, at the option of the Company at a redemption
price of $25.00 per share.
9. CATASTROPHE EQUITY PUT
Effective July 1, 1997, the Company entered into a $100 million multi-year
Catastrophe Equity Put ("CatEPut") option program. The CatEPut option enables
the Company to sell up to $100 million of equity, through the issue of
convertible Series B Preferred Shares to the option writers. The preferred
shares can be redeemed by the Company at any time over the three years
following their issue. In addition, the option writers can convert their
preferred shares into Common Shares of the Company at any time after they have
been outstanding for three years. Conversion is at the greater of the book
value of the Company at the date of conversion or the market value of the
Common Shares based on the 30-day trading average prior to conversion. The
Company is obligated to pay an option premium of $2,350 per annum. The option
premium is charged to additional paid in capital, net of the minority's
interest of $538. Of the option premium, $422 is payable to affiliates of
shareholders of the Company.
10. 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 and LaSalle Re has issued options to
purchase 2,199,780 Exchangeable Non-Voting Shares. These options became
exercisable on October 1, 1996 and may be exercised until November 22, 2003.
During the year ended September 30, 1998, a total number of 177,255 options
were exercised in cashless transactions resulting in the issuance of 132,588
Common Shares. In addition, 454,500 options were exercised at an exercise
price of $6.78, which resulted in the issuance of 454,500 Exchangeable Non-
Voting Shares. As at September 30, 1998, LaSalle Re had 1,472,346 options to
purchase Exchangeable Non-Voting Shares outstanding.
During the year ended September 30, 1997, 95,679 options were exercised at a
price of $9.74. In addition, 136,350 options to purchase Exchangeable Non-
Voting Shares were bought by the Company at a price of $24.97 and subsequently
canceled. As at September 30, 1997, the Company and LaSalle Re had 136,350
options to purchase Common Shares and 1,967,751 options to purchase
Exchangeable Non-Voting Shares outstanding respectively.
10K-45
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $6.78. 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 (the "Executive") 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 value of the SARs as of
the exercise date. Alternatively, at the Company's sole discretion, the SARs
will entitle the Executive to either (i) the number of Special Non-Voting
Shares of LaSalle Re 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 Special Non-Voting Shares of LaSalle Re
equal to the number of SARs exercised.
The value of each SAR equals the fair market value of a Common Share 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 at the time of issuance was $16.67, minus dividend
adjustments. The current base value is $6.78.
The number of SARs which can be exercised is dependent upon 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 exercisable unless a targeted internal rate of return of at least 18% per
annum is achieved during the entire measurement period. The internal rate of
return is based upon the financial performance of LaSalle Re from inception to
November 27, 1995 and LaSalle Re Holdings Limited's consolidated performance
from that date forward. As at September 30, 1998, the number of SARs vested is
92,035, of which 68,174 became exercisable on January 1, 1997 and 23,861 on
January 1, 1998. The remaining balance of SARs may become exercisable on
January 1, 1999 if the Company's internal rate of return exceeds 18% through
to December 31, 1998. At September 30, 1998, the Company's internal rate of
return has exceeded 18%. During the fiscal year ended September 30, 1998, the
fair value of the SARs has decreased and therefore the Company has recorded a
reduction in the total liability relating to the SARs of $548 (1997: charge
$1,611; 1996: charge $909).
(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 options granted vest ratably in five annual
installments over 5 years from the grant date, except for 85,218 options
granted in 1997 which vest ratably in three annual installments over 3 years
from the date of grant. The options can be exercised over a 10-year period,
commencing on the vesting date. The Plan has an anti-dilution provision, which
awards the option holder a number of shares of restricted stock in the event
that a dividend, when added to the value of all cash dividends previously paid
within the same fiscal year, exceeds 5% of the average book value per share
for the prior four quarters. During the year ended September 30, 1998, 26,995
shares of restricted stock (1997: 19,362) were awarded. The restricted stock
vests when the underlying options are exercised and is forfeited if the
options expire unexercised. The Company has charged an expense of $374 (1997:
$264; 1996: $268) relating to compensation on these options. The following
table is a summary of the options granted and outstanding during 1998, 1997
and 1996.
10K-46
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------ ------------------------
NUMBER NUMBER NUMBER
OF WEIGHTED AVERAGE OF WEIGHTED AVERAGE OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
--beginning of year... 446,436 $ 25.28 163,218 $19.25 0 $ 0.00
Granted................. 10,000 $ 31.63 283,218 $28.75 163,218 $19.25
Forfeited............... (55,000) $(28.75) 0 $ 0.00 0 $ 0.00
------- ------- -------
Outstanding
--end of year......... 401,436 $ 24.96 446,436 $25.28 163,218 $19.25
======= ======= =======
</TABLE>
Of the 401,436 options outstanding, 65,287 options are presently exercisable
at an exercise price of $19.25 and 81,006 are presently exercisable at an
exercise price of $28.75. The remaining options are not presently exercisable
and have a weighted average vesting period of 2.64 years.
The weighted average fair value of options granted during 1998 is $12.21
(1997: $8.18; 1996: $5.85) per share. The fair value of the option grant in
1998 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield of 0% per annum; expected
volatility of 20%; expected life of 7 1/2 years; and a risk free interest rate
of 5.4%.
The Company applies APB Opinion 25 and Related Interpretations in accounting
for the Incentive Plan. Accordingly, a compensation cost has been recognized
based on the intrinsic value of the options at the measurement date. The net
income and earnings per Common Share would have been reduced to the pro forma
amounts indicated below had compensation cost been determined based on the
fair value of the options at the grant date consistent with the method of SFAS
No 123:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C> <C>
Net income..................... As reported $ 51,806 $ 97,077 $ 81,485
Pro forma $51,350 $96,647 $81,390
Earnings per Common Share,
assuming dilution............. As reported $ 2.80 $ 5.14 $ 5.40
Pro forma $ 2.78 $ 5.12 $ 5.40
</TABLE>
11. RELATED PARTY TRANSACTIONS
In addition to the CatEPut transaction discussed in Note 9 and share
purchase options discussed in Note 10, 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, 1998, LaSalle Re assumed premiums
written of approximately $16,917 (1997: $21,408; 1996: $24,045) from a ceding
company related to a shareholder of LaSalle Re. In addition, LaSalle Re
assumed premiums totaling $27,190 (1997: $28,450; 1996: $23,577) through
brokers related to a shareholder of LaSalle Re. Brokerage fees incurred in
respect of this business were approximately $2,719 (1997: $2,845; 1996:
$2,357). All such transactions were undertaken on normal commercial terms.
Reinsurance balances receivable at the balance sheet date include $8,729
(1997: $13,481) due from such related parties.
(b) Underwriting services
LaSalle Re was party to an underwriting services agreement with CNA Bermuda
during the period from the incorporation of LaSalle Re until September 30,
1998 at which date the agreement was terminated. Under this
10K-47
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreement, LaSalle Re 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 agreed to pay fees, during
this period, to CNA Bermuda as follows:
Prior to October 1, 1998 but on or after 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 $2,535 (1997: $2,526; 1996: $3,081) for
underwriting services provided for the year ended September 30, 1998, of which
$3,658 (1997: $2,903) was payable at September 30, 1998.
The Company has incurred $1,059 (1997: $4,061; 1996: $4,140) for
underwriting profit commission for the year ended September 30, 1998, of which
$Nil (1997: $2,890) was payable at September 30, 1998.
Following the termination of the agreement, all personnel assigned to the
Company by CNA Bermuda became employees of the Company and all underwriting
functions performed by CNA Bermuda are now performed in-house.
Commencing October 1, 1998, LaSalle Re entered into an underwriting support
services agreement with CNA Re Services Company ("CNA Services"). Under this
Agreement, CNA Services will provide certain underwriting support functions to
LaSalle Re but no longer underwrite insurance or reinsurance as agents for
LaSalle Re.
With effect from October 1, 1998:
LaSalle Re has agreed to pay fees to CNA Services as follows:
(i) An annual retainer of $333; and
(ii) An underwriting profit commission equal to 1.67% of the aggregate
net underwriting profits of LaSalle Re, where certain conditions are met.
The agreement provides for additional fees to be payable if services
provided exceed the retainer. Fees in excess of the retainer are calculated at
competitive commercial daily or hourly rates to be agreed between the parties.
(d) Administrative services
LaSalle Re was party to an agreement with Aon Risk Consultants (Bermuda)
Ltd. ("ARC Bermuda") during the period from the incorporation of LaSalle Re
until September 30, 1997 at which date the agreement was terminated. Under
this agreement, ARC Bermuda performed certain actuarial and administrative
services on behalf of the Company. The management fees payable to ARC Bermuda
were as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------
<C> <S>
1995 $5,000
1996 $7,000
1997 $3,300 and an underwriting profit commission equal to 2.75%
of the aggregate net underwriting profit of LaSalle Re,
where certain conditions were met.
</TABLE>
10K-48
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended September 30, 1998, the Company incurred $44 in
respect of an adjustment to the profit commission accrued for the year ended
September 30, 1997. The Company incurred $6,212 and $6,500 for administrative
services for the years ended September 30, 1997 and 1996 respectively. As of
September 30, 1998, $Nil was payable (1997: $1,987) in respect of services
performed under the agreement.
(e) Investment management services
LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon
UK") to provide investment management services. Fees are based on a flat fee
structure. Prior to July 1997, fees were based on the average daily balance of
the investment portfolio of the preceding quarter. The average daily balance
was split into various bands, with fees calculated by applying a sliding scale
of basis points to each band.
The Company has incurred $850 (1997: $1,057; 1996: $1,028) for services
provided for the year ended September 30, 1998, of which $215 (1997: $215) was
payable at September 30, 1998.
(f) Claims handling services
LaSalle Re was party to an agreement with Integrated Runoff Insurance
Services Corporation ("IRISC") whereby IRISC performed certain claims handling
services for LaSalle Re. The contract expired December 31, 1996.
The Company has incurred $Nil (1997: $16; 1996: $92) for services provided
for the year ended September 30, 1998. No balance was payable at September 30,
1998 (1997: Nil).
(g) Reinsurance services
Effective January 1, 1997, LaSalle Re was party to a fronting agreement with
Hedge Financial Products, an affiliate of CNA. CNA reinsured LaSalle Re 100%
for the business fronted. LaSalle Re received an administration fee of $63
(1997: $250) for the services provided. The agreement was not renewed on
January 1, 1998.
As at September 30, 1998, no fees were due to the Company (1997: $60).
12. CONCENTRATION OF CREDIT RISK
The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 20% of the total portfolio and only
10% of the total portfolio can be invested in "BBB" grade rating. The Company
is allowed to invest up to $10,000 in risk based investments and these bonds
may carry a rating below "BBB". 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 17% of the
Company's premiums written for the year ended September 30, 1998 (1997: 15%;
1996: 16%). Another broker, who is unrelated to the Company, arranged more
than 9% of the Company's premiums written for the year ended September 30,
1998 (1997: 10%; 1996: 10%). A broker, who is related to the Company, arranged
17% of the Company's premiums written for the year ended September 30, 1998
(1997: 16%; 1996: 12%). Approximately 14% (1997: 8%; 1996: Nil) of the
Company's gross premiums written are derived from its participation as a
corporate member of Lloyd's.
10K-49
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OUTSTANDING LOSSES AND LOSS EXPENSES
Activity in liability for losses and loss expenses during the years ended
September 30, 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance as of October 1........................... $ 45,491 $ 49,875 $ 66,654
-------- -------- --------
Incurred related to:
Current year.................................... 79,014 22,095 31,910
Prior year events............................... 16,525 9,104 19,567
-------- -------- --------
95,539 31,199 51,477
======== ======== ========
Paid related to:
Current year.................................... (12,934) (3,216) (10,222)
Prior year...................................... (30,154) (32,367) (58,034)
-------- -------- --------
(43,088) (35,583) (68,256)
-------- -------- --------
Balance as of September 30........................ $ 97,942 $ 45,491 $ 49,875
======== ======== ========
</TABLE>
The reserves for outstanding losses and loss expenses at September 30, 1998
include an amount of $25,000 in respect of claims arising from Hurricane
Georges. Hurricane Georges occurred in late September and significantly
impacted certain parts of the Caribbean and southern United States. Management
believes that the amount of reserves established will be sufficient to provide
for claims arising from this event. However, the event occurred close to the
Company's fiscal year end and few loss notifications have been received to
date. Given the nature of the event and its proximity to the year end, there
is considerable uncertainty underlying this estimate.
The prior year development in 1998 was primarily due to a loss reported
during the year on a 1996 aggregate stop loss contract. This contract had a
period of 24 months after the expiry of the contract within which to report
losses. Following this notification the Company also established reserves for
the 1997 renewal of this contract. The prior year development in 1997 relates
primarily to an additional liability on Hurricane Fran, which occurred in
September 1996. 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 the provision of additional liabilities.
This impact was mitigated by the collection of additional reinstatement
premiums. As at September 30, 1998 the Company's total reserve for incurred
but not reported losses was $52,200 compared to $19,648 at September 30, 1997.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
LaSalle Re has entered into a swap agreement to provide cash flow to a
counterparty in the event of defined earthquake activity in Japan. Receipts to
LaSalle Re which are accounted for as investment income are based on the
notional amount of the swap at 375 basis points. As at September 30, 1998, the
Company had recorded $58 (1997: $Nil) of investment income. The contract
exposes LaSalle Re to a maximum cash outflow of the same notional amount
should the defined seismic event occur. The Company is also exposed to credit
loss in the event of nonperformance by the counterparty to the remittance of
interest payments as required by the swap. The Company does not anticipate
nonperformance by counterparty. At September 30, 1998, the total notional
principal amount of the swap was $3,000 which is supported by a letter of
credit.
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.
10K-50
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
To manage the Company's exposure to these risks, the Company may enter 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. The Company has a notional principal amount
outstanding of approximately $5,518 (1997: $Nil; 1996: $25,192) in a contract
to sell foreign currencies. The fair value of these contracts, based on quoted
forward rates available for the maturity of the contracts as at September 30,
1998 is insignificant (1997: $Nil; 1996: ($571). Losses of $Nil (1997: $1,906,
1996: $294) are included in the consolidated statements of operations and
comprehensive income with respect to foreign exchange contracts.
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 September 30,
1998.
15. COMMITMENTS
The Company has rented space for its principal executive offices under lease
agreements, which expire up to 2001. Total rent expense for the year ended
September 30, 1998 was approximately $365 (1997: $Nil; 1996: $Nil). Future
minimum rental payments under the leases are expected to be as follows:
<TABLE>
<S> <C>
Year ending September 30, 1998...................................... $365
Year ending September 30, 1999...................................... 260
Year ending September 30, 2000...................................... 269
Year ending September 30, 2001...................................... 95
----
Total minimum future rentals........................................ $989
====
</TABLE>
16. YEAR 2000
The Year 2000 issue faced by the Company revolves around the extent to which
the Company's computer systems and third parties' computer systems (that are
material to the Company's operations such as the computer systems of service
providers, suppliers and brokers) are capable of correctly processing
information relating to dates in and after the Year 2000. The Company has
utilized the services of IBM to perform an assessment and strategy phase for
its Year 2000 issue. This assessment has indicated that the Company's systems,
applications and business interfaces have some degree of Year 2000 date
problems. In addition, the assessment has developed a strategy and series of
plans to implement solutions to the Company's Year 2000 problems. It is
anticipated that 359 effort days will be required and estimated costs are
currently budgeted at approximately $300 but are subject to change due to the
cost of external resources. A target date of March 31, 1999 has been set for
full Year 2000 compliance, however, this may not be achieved as there are a
number of external factors which are beyond the Company's control. The Company
intends to retain the services of IBM who will take responsibility for the co-
ordination of the project, however, overall responsibility for Year 2000
compliance remains with the Company.
17. CREDIT FACILITY
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 that, 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. As at September 30, 1998, the facility
had not been utilized.
10K-51
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The line of credit contains various covenants, including limitations on
incurring additional indebtedness; 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 $300 million or 70% of net premiums written; maintenance of
statutory capital of LaSalle Re of at least $300 million, increasing to $350
million at the end of calendar year 1998 and $400 million at the end of
calendar year 1999 and thereafter; 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. The
Company may pay dividends and make other restricted payments so long as, after
giving effect to such restricted payments, no event of default has occurred.
Dividends are limited to 50% of consolidated net income for its immediately
preceding fiscal year less amounts paid on the Series A preferred shares. In
order for the Company to pay dividends in excess of 50% of consolidated net
income, the Company would have to renegotiate certain terms of its credit
facility. As of September 30, 1998, the credit facility had not been utilized
and the Company was in compliance with all covenants under the facility.
18. 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 Act, 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, 1998 was
approximately $506,000 (1997: $490,000) and the minimum required statutory
capital and surplus required by its license as a Class 4 insurer was $100,000
(1997: $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, 1998, there were no
restrictions on the distribution of retained earnings.
19. SEGMENTAL INFORMATION
The following table sets forth the Company's gross premiums written and the
percentage thereof allocated to the zone of exposure for the years ended
September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- --------------
PREMIUMS PREMIUMS PREMIUMS
WRITTEN % WRITTEN % WRITTEN %
--------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
United States................ $ 64,352 41.4% $ 75,338 44.0% $ 79,357 41.7%
Europe (excluding the U.K.).. 14,477 9.3 18,553 10.8 21,959 11.6
United Kingdom............... 11,726 7.6 15,165 8.8 16,310 8.6
Japan........................ 3,166 2.0 6,949 4.1 7,998 4.2
Australasia.................. 3,263 2.1 6,472 3.8 11,038 5.8
Worldwide.................... 21,784 14.0 20,872 12.2 22,049 11.6
Worldwide (excluding U.S.)... 7,499 4.8 12,579 7.3 11,451 6.0
Other........................ 7,935 5.1 11,628 6.8 16,433 8.6
Lloyd's syndicates........... 21,039 13.6 14,125 8.2 0 0.0
Reinstatements, adjustment
premiums and no claim
bonuses..................... 75 0.1 (10,295) (6.0) 3,556 1.9
--------- ----- -------- ----- -------- -----
$ 155,316 100.0% $171,386 100.0% $190,151 100.0%
========= ===== ======== ===== ======== =====
</TABLE>
10K-52
<PAGE>
LASALLE RE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. 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.
Other than with respect to its Lloyd's business, 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.
LaSalle Re Corporate Capital Ltd. is a corporate member of Lloyd's. Pursuant
to a Closing Agreement between Lloyd's and the IRS, LaSalle Re Corporate
Capital Ltd. will be treated as engaged in business in the U.S. and is subject
to U.S. corporate income tax on its net income from U.S. sources.
LaSalle Re Corporate Capital Ltd. is also subject to U.K. corporation tax,
with the assessment made at the end of thirty six months. Given the inherent
uncertainty in the results of the supported syndicates, the Company has not
included a deferred tax asset or liability in these financial statements.
21. UNAUDITED QUARTERLY FINANCIAL DATA
Year ended September 30, 1998
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net premiums earned........................... $37,919 $41,906 $42,053 $32,742
Net investment income and realized gains
(losses)..................................... 8,856 10,196 9,247 11,564
Losses and loss expenses incurred............. 8,698 19,938 23,607 43,296
Net income (loss) (before minority interest).. 29,679 22,023 18,173 (4,643)
Earnings (loss) per common share--assuming
dilution..................................... $ 1.34 $ 0.97 $ 0.78 $ (0.33)
</TABLE>
Year ended September 30, 1997
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net premiums earned............................ $43,123 $41,400 $45,903 $33,507
Net investment income and realized gains
(losses)...................................... 8,179 8,535 7,904 9,046
Losses and loss expenses incurred.............. 10,837 6,886 4,475 9,001
Net income (before minority interest).......... 28,047 32,698 37,685 23,038
Earnings per common share--assuming dilution... $ 1.16 $ 1.34 $ 1.639 $ 1.02
</TABLE>
10K-53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
For information regarding the Company's executive officers, see "Executive
Officers of the Company" in Part I. The other information required by this
Item 10 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 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference to the
information contained under the caption "Management" in the 1999 Proxy
Statement.
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 1999 Proxy
Statement.
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 1999
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements
See Index to Financial Statements on page 10K-30 of this report, which
is incorporated herein by reference.
2. Financial Statement Schedules:
Schedules have been omitted since the required information is
presented elsewhere in this report or is not applicable.
3. Exhibits
See Index to Exhibits on pages 10K-57 to 10K-60 of this report, which
is incorporated herein by reference.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed in the Index
to Exhibits on pages 10K-57 to 10K-60 of this report, which is incorporated
herein by reference. These Exhibits have been omitted from the copies of this
Form 10-K that are being distributed to shareholders. The Company will furnish
a copy of any Exhibit to any shareholder upon written request and upon payment
of a fee to cover the Company's reasonable expenses in furnishing such
Exhibit. Such requests may be made to: Investor Relations Department, LaSalle
Re Holdings Limited, Continental Building, 25 Church Street, Hamilton HM 12,
Bermuda.
10K-54
<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 17TH DAY OF DECEMBER, 1998.
LaSalle Re Holdings Limited
/s/ Andrew Cook
By: _________________________________
Name: Andrew Cook
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS VICTOR H.
BLAKE, ANDREW COOK, CLARE MORAN AND IVAN BERK, OR ANY OF THEM, AS SUCH
PERSON'S TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, TO SIGN ANY AND ALL AMENDMENTS TO THIS
REPORT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 17TH DAY OF DECEMBER,
1998.
<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 Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial Officer)
Andrew Cook
/s/ Clare Moran Vice President--Finance
___________________________________________ (Principal Accounting Officer)
Clare Moran
/s/ William J. Adamson, Jr. Director
___________________________________________
William J. Adamson, Jr.
/s/ Ivan P. Berk Director
___________________________________________
Ivan P. Berk
/s/ Clement S. Dwyer, Jr. Director
___________________________________________
Clement S. Dwyer, Jr.
/s/ Donald P. Koziol, Jr. Director
___________________________________________
Donald P. Koziol, Jr.
</TABLE>
10K-55
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Tim I. Madden Director
___________________________________________
Tim I. Madden
/s/ Lester Pollack Director
___________________________________________
Lester Pollack
/s/ Peter J. Rackley Director
___________________________________________
Peter J. Rackley
/s/ Paul J. Zepf Director
___________________________________________
</TABLE> Paul J. Zepf
10K-56
<PAGE>
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and
Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <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
3.2 to Form 10-Q for the quarterly
period ended March 31, 1998 (File No.
1-12823)
10.1 Excess Ownership Agreement dated Incorporated by reference to Exhibit
November 27, 1995 among the Company, 10.3 to Form 10-Q for the quarterly
LaSalle Re and the Founding period ended December 31, 1995 (File
Shareholders No. 0-27216)
10.2 Amended and Restated Shareholders Incorporated by reference to Exhibit
Agreement dated November 27, 1995 10.1 to Form 10-Q for the quarterly
among the Company, LaSalle Re and the period ended December 31, 1995 (File
Founding Shareholders No. 0-27216)
10.3 Amended and Restated Option Agreement Incorporated by reference to Exhibit
dated November 27, 1995 among the 10.2 to Form 10-Q for the quarterly
Company, LaSalle Re and certain of the period ended December 31, 1995 (File
Founding Shareholders No. 0-27216)
10.4 Conversion Agreement dated November Incorporated by reference to Exhibit
27, 1995 among the Company, LaSalle Re 10.4 to Form 10-Q for the quarterly
and holders of Exchangeable Non-Voting period ended December 31, 1995 (File
Shares No. 0-27216)
10.5 Amended and Restated Underwriting Incorporated by reference to Exhibit
Services Agreement dated September 21, 10.6 to Form 10-Q for the quarterly
1995 among the Company, LaSalle Re and period ended December 31, 1995 (File
CNA Bermuda No. 0-27216)
10.6 First Amendment dated July 1, 1996 to Incorporated by reference to Exhibit
Amended and Restated Underwriting 10.15 to Registration Statement on
Services Agreement dated as of Form S-1 (No. 333-14861)
September 21, 1995 between CNA
(Bermuda) Services Limited and LaSalle
Re
10.7 Underwriting Support Services Filed with this document
Agreement dated October 1, 1998 among
LaSalle Re, CRSC and CNA Bermuda
10.8 Amended and Restated Investment Incorporated by reference to Exhibit
Management Agreement dated September 10.8 to Registration Statement on Form
21, 1995 among the Company, LaSalle Re S-1 (No. 333-14861)
and Aon Advisors
10.9 Agreement, dated September 9, 1997, Incorporated by reference to Exhibit
terminating the Amended and Restated 10.34 to Form 10-K for the fiscal year
Administrative Services Agreement ended September 30, 1997 (File No. 1-
dated September 21, 1995 among the 12823)
Company, LaSalle Re and ARC
</TABLE>
10K-57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
10.10 Amended and Restated Employment Incorporated by reference to Exhibit
Agreement dated October 1, 1995 10.5 to Form 10-Q for the quarterly
between Victor H. Blake and LaSalle period ended December 31, 1995 (File
Re* No. 0-27216)
10.11 Amendment of Amended and Restated Incorporated by reference to Exhibit
Employment Agreement dated as of 10.25 to Registration Statement on
October 1, 1996 between Victor H. Form S-1 (No. 333-14861)
Blake and the Company*
10.12 Employment Agreement dated October 1, Filed with this document
1998 between Guy D. Hengesbaugh and
LaSalle*
10.13 Employment Agreement dated October 1, Filed with this document
1998 between Andrew Cook and LaSalle*
10.14 LaSalle Re Holdings Limited 1996 Long- Incorporated by reference to Exhibit
Term Incentive Plan* 10.13 to Registration Statement on
Form S-1 (No. 333-14861)
10.15 First Amendment to LaSalle Re Holdings Incorporated by reference to Exhibit
Limited 1996 Long-Term Incentive Plan, 4.4 to Registration Statement on Form
dated September 25, 1997* S-8 (No. 333-38653)
10.16 Second Amendment to LaSalle Re Filed with this document
Holdings Limited 1996 Long-Term
Incentive Plan, dated September 25,
1998 *
10.17 LaSalle Re Holdings Limited Employee Incorporated by reference to Exhibit
Stock Purchase Plan* 10.14 to Registration Statement on
Form S-1 (No. 333-14861)
10.18 First Amendment to LaSalle Re Holdings Incorporated by reference to Exhibit
Limited Employee Stock Purchase Plan, 4.4 to Registration Statement on Form
dated September 25, 1997 * S-8 (No. 333-38655)
10.19 Second Amendment to LaSalle Re Filed with this document
Holdings Limited Employee Stock
Purchase Plan, dated September 25,
1998*
10.20 Credit Agreement dated as of December Incorporated by reference to Exhibit
1, 1995 among the Company, several 10.9 to Form 10-Q for the quarterly
banks and Chemical Bank, as period ended December 31, 1995 (File
administrative agent No. 0-27216)
10.21 First Amendment, dated September 25, Incorporated by reference to Exhibit
1996, among the Company, several banks 10.12 to Registration Statement on
and Chase Manhattan Bank as Form S-1 (No. 333-14861)
administrative agent, to Credit
Agreement dated as of December 1, 1995
among the Company, several banks and
Chemical Bank, as administrative agent
</TABLE>
- --------
* Management contract or compensatory plan.
10K-58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
10.22 Second Amendment, dated March 13, Incorporated by reference to Exhibit
1997, among the Company, several banks 10.30 to Form 10-K for the fiscal year
and Chase Manhattan Bank as ended September 30, 1997 (File No. 1-
administrative agent, to Credit 12823)
Agreement dated as of December 1, 1995
among the Company, several banks and
Chemical Bank, as administrative agent
10.23 Third Amendment, dated March 16, 1998, Incorporated by reference to Exhibit
among the Company, several banks and 10.1 to Form 10-Q for the quarterly
Chase Manhattan Bank as administrative period ended March 31, 1998 (File No.
agent, to Credit Agreement dated as of 1-12823)
December 1, 1995 among the Company,
several banks and Chemical Bank, as
administrative agent
10.24 Catastrophe Equity Securities Issuance Incorporated by reference to Exhibit
Option Agreement, dated as of July 1, 10.31 to Form 10-K for the fiscal year
1997 between the Company on the one ended September 30, 1997 (File No. 1-
hand and European Reinsurance Company 12823)
of Zurich, Allianz Aktiengesellschaft,
Continental Casualty Company and CIC-
Hilldale, Inc. on the other hand
10.25 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.17 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1994 underwriting year of account
(London office)
10.26 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10. 18 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1995 underwriting year of account
(London office)
10.27 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.19 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1996 underwriting year of account
(London office)
10.28 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.27 to Form 10-K for the fiscal year
Limited and LaSalle Re in respect of ended September 30, 1997 (File No. 1-
1997 underwriting year of account 12823)
(London office)
10.29 Quota Share Treaty between CNA Filed with this document
International Reinsurance Company
Limited and LaSalle Re in respect of
1998 underwriting year of account
(London office)
10.30 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.20 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1994 underwriting year of account
(Amsterdam office)
10.31 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.21 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1995 underwriting year of account
(Amsterdam office)
</TABLE>
10K-59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
10.32 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.22 to Registration Statement on
Limited and LaSalle Re in respect of Form S-1 (No. 333-14861)
1996 underwriting year of account
(Amsterdam office)
10.33 Quota Share Treaty between CNA Incorporated by reference to Exhibit
International Reinsurance Company 10.28 to Form 10-K for the fiscal year
Limited and LaSalle Re in respect of ended September 30, 1997 (File No. 1-
1997 underwriting year of account 12823)
(Amsterdam office)
10.34 Quota Share Treaty between CNA Filed with this document
International Reinsurance Company
Limited and LaSalle Re in respect of
1998 underwriting year of account
(Amsterdam office)
10.35 LMX Quota Share Retrocessional Incorporated by reference to Exhibit
Agreement between Continental Casualty 10.23 to Registration Statement on
Company and LaSalle Re for the 1995 Form S-1 (No. 333-14861)
underwriting year of account
10.36 LMX Quota Share Retrocessional Incorporated by reference to Exhibit
Agreement between Continental Casualty 10.24 to Registration Statement on
Company and LaSalle Re for the 1996 Form S-1 (No. 333-14861)
underwriting year of account
10.37 LMX Quota Share Retrocessional Incorporated by reference to Exhibit
Agreement between Continental Casualty 10.29 to Form 10-K for the fiscal year
Company and LaSalle Re for the 1997 ended September 30, 1997 (File No. 1-
underwriting year of account 12823)
10.38 LMX Quota Share Retrocessional Filed with this document
Agreement between Continental Casualty
Company and LaSalle Re for the 1998
underwriting year of account
12.1 Statement re computation of ratio of Filed with this document
earnings to combined fixed charges and
preferred share dividends
13.1 Portions of the Annual Report to Filed with this document
Shareholders for the fiscal year ended
September 30, 1998
21.1 Subsidiaries of the Registrant Incorporated by reference to Exhibit
21.1 to Registration Statement on Form
S-1 (No. 333-14861)
23.1 Consent of KPMG Peat Marwick Filed with this document
24.1 Power of Attorney Included on signature page
27.1 Financial Data Schedule Filed with this document
</TABLE>
10K-60
<PAGE>
EXHIBIT 10.7
------------
EXECUTION COPY
--------------
UNDERWRITING SUPPORT SERVICES AGREEMENT
This Agreement (this "Agreement") is made and entered into as of October 1,
1998 by and among LaSalle Re Limited, an insurance company incorporated and
organized under the laws of Bermuda ("LASALLE"), CNA Re Services Company, a
company incorporated and organized under the laws of the State of Illinois
("CRSC"), and CNA (Bermuda) Services Limited, a company incorporated and
organized under the laws of Bermuda ("CNA BERMUDA").
WHEREAS, pursuant to that certain Amended and Restated Underwriting Services
Agreement entered into on September 21, 1995 by and between LASALLE and CNA
BERMUDA, as amended by the First Amendment thereto dated as of July 1, 1996
(such Amended and Restated Underwriting Services Agreement as thus amended being
hereinafter referred to as the "Underwriting Services Agreement"), CNA BERMUDA
has provided underwriting and marketing services and has underwritten all
classes of insurance and reinsurance as agent for LASALLE;
WHEREAS, the parties hereto have agreed that the underwriting and marketing
services heretofore performed by CNA BERMUDA on behalf of LASALLE shall
henceforth be performed by LASALLE directly, with CRSC, through itsself and its
affiliates, providing certain underwriting support services as requested by
LASALLE;
WHEREAS, the parties hereto also desire to reaffirm the strategic alliance and
community of interest between LASALLE and the CNA Insurance Group ("CNA"), which
has been an important component of LASALLE's success since its formation, and in
light of CNA's desire to continue to provide support and bring business
opportunities to LASALLE in the form of quota share reinsurance business, joint
ventures and otherwise; and
WHEREAS, the parties hereto accordingly desire to terminate the Underwriting
Services Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
<PAGE>
I. TERMINATION OF UNDERWRITING SERVICES AGREEMENT.
The parties agree that the Underwriting Services Agreement shall
terminate as of the close of business on September 30, 1998, subject to
the following provisions:
A. LASALLE's payment obligations under Section III of the
Underwriting Services Agreement shall continue, subject to the
following modifications:
(1) For purposes of this Section I(A), the term "Underwriting
Year" shall have the meaning set forth in Section III(A)(1)
of the Underwriting Services Agreement and the term "1998
Underwriting Year" shall mean the Underwriting Year
beginning on January 1, 1998 and ending on December 31,
1998.
(2) No payments shall be due pursuant to Section III(B)(1) of
the Underwriting Services Agreement with respect to any
gross premium written after September 30, 1998.
(3) No payments shall be due pursuant to Section III(B)(2) or
Section III(C) of the Underwriting Services Agreement with
respect to any Underwriting Year that begins after December
31, 1998.
(4) All calculations of payments due pursuant to Section
III(B)(2) or Section III(C) of the Underwriting Services
Agreement with respect to the 1998 Underwriting Year shall
be multiplied by .75 in order to take account of the fact
that the Underwriting Services Agreement was in effect for
only 9 months of the 1998 Underwriting Year.
B. The provisions of Section VII(D) of the Underwriting Services
Agreement shall not be applicable, but the provisions of Section
VII(E) of the Underwriting Services Agreement shall continue in
effect until payment in full is made thereunder.
II. TERM.
This Agreement shall be effective as of the date hereof (the "Effective
Date") and shall terminate at the close of business on September 30, 2001
unless terminated earlier pursuant to Section V hereof.
Page 2 of 11
<PAGE>
III. DUTIES OF CRSC AND CNA BERMUDA.
A. CNA BERMUDA agrees that it shall use its best efforts to
facilitate a smooth transition in the carrying on of LASALLE's
underwriting operations, including taking all steps necessary to
enable all employees of CNA BERMUDA who have performed services
for LASALLE pursuant to the Underwriting Services Agreement to
become employees of LASALLE on the Effective Date.
B. Beginning on the Effective Date and continuing throughout the term
of this Agreement, CRSC and CNA BERMUDA (together, the "CNA
Parties") shall provide such underwriting support services to
LASALLE as LASALLE may reasonably request. Underwriting support
services shall include:
(1) assigning underwriting personnel to assist LASALLE's
underwriting staff on a temporary basis as reasonably
requested by LASALLE;
(2) assisting LASALLE with actuarial, financial and statistical
analysis and reporting;
(3) providing support to LASALLE on data processing and other
technical matters;
(4) providing LASALLE with access to the CNA Parties'
reinsurance underwriting database and technology as
pertinent to LASALLE's business;
(5) advising LASALLE on insurance industry customs and
practices;
(6) providing advice to LASALLE's human resources department;
and
(7) any other services reasonably requested by LASALLE.
C. For services rendered hereunder, LASALLE shall pay CNA BERMUDA,
for each Fiscal Year (as hereinafter defined) that this Agreement
shall be in effect, an annual retainer of $US 333,333.33. Such
retainer shall be paid quarterly in arrears throughout the term of
this Agreement and shall be credited against CRSC's charges for
consulting services rendered hereunder (at a competitive
commercial daily or hourly rate to be agreed to between the
parties hereto) and CRSC's reasonable associated travel expenses.
In the event that the foregoing charges and expenses exceed the
sum of said retainer in any Fiscal Year, LASALLE shall pay CNA
BERMUDA, within 60
Page 3 of 11
<PAGE>
days after the end of such Fiscal Year, the total amount of such
excess.
D. The CNA Parties agree to act in good faith and to put forward
their best efforts to perform their duties hereunder in a
competent and professional manner.
IV. PROFIT COMMISSION.
A. For purposes of this Agreement,
(1) "Fiscal Year" shall mean the 12-month period which begins
on October 1 of a calendar year and ends on September 30 of
the following calendar year.
(2) "Net Underwriting Profit" shall mean an amount equal to (i)
net earned premiums, less (ii) commissions, brokerage and
other acquisition costs, less (iii) excise tax, less (iv)
actual administrative expenses, less (v) underwriting
expenses (including but not limited to any amounts payable
pursuant to Section III(C) hereof, less (vi) actual general
corporate expenses of LASALLE, less (vii) incurred losses;
in all cases, as determined in accordance with the
consolidated financial statements of LaSalle Re Holdings
Limited, as filed with the United States Securities and
Exchange Commission (the "LaSalle Financial Statements").
(3) "Nominal Profit Share Deficit" shall be equal to zero at
the inception of this Agreement. Thereafter, for purposes
of carrying over to each succeeding Fiscal Year, Nominal
Profit Share Deficit shall be the greater of (a) zero and
(b) the Nominal Profit Share Deficit at the beginning of
the Fiscal Year plus incurred losses for that year minus
70% of LASALLE's earned premium for that year.
B. In consideration for all the obligations and services to be
performed by the CNA Parties under this Agreement, LASALLE agrees,
with respect to each Fiscal Year during the term of this
Agreement, to pay CNA BERMUDA, if for any Fiscal Year the sum of
incurred losses and the Nominal Profit Share Deficit at the
beginning of the Fiscal Year is equal to or less than 70% of
LASALLE's earned premium, an underwriting profit commission (the
"Underwriting Profit Commission") equal to 1.67% of the Net
Underwriting Profit of LASALLE during the period beginning after
the end of the Fiscal Year for which
Page 4 of 11
<PAGE>
CNA BERMUDA last received an Underwriting Profit Commission
pursuant to this Agreement and ending at the end of the Fiscal
Year for which the calculation is being made.
C. Calculations of Net Underwriting Profit, Underwriting Profit
Commission and Nominal Profit Share Deficit hereunder shall be
made each year in connection with the LaSalle Financial
Statements, and payment with respect to Section IV(B) hereof will
be made within 30 days after completion of such calculation.
V. TERMINATION.
A. For purposes of this Section V, (i) in any reference to CRSC's or
CNA BERMUDA's termination rights, the term "other party" shall
mean LASALLE and (ii) in any reference to LASALLE's termination
rights, the term "other party" shall mean either CRSC or CNA
BERMUDA.
B. For purposes of this Section V,
(1) "Change in Control" of an entity (the "Subject Company")
shall mean the earlier to occur of (a) the date of a public
announcement that a Person or group of affiliated Persons
(an "Acquiring Person") has acquired, or has obtained the
right to acquire, legal or beneficial ownership of more
than 50% of the voting power of the issued and outstanding
shares of the Subject Company, (b) the date of any
amalgamation, consolidation or merger of the Subject
Company with, or the transfer of all or substantially all
of the Subject Company's assets to, any Acquiring Person or
(c) any reorganization, recapitalization or other
transaction as a result of which either (i) 40% or more in
value of the Subject Company is beneficially owned,
directly or indirectly, by Persons who were not holders of
the voting shares of capital stock of the Subject Company
immediately prior to such reorganization, recapitalization
or other transaction or (ii) those persons who immediately
prior to such reorganization, recapitalization or other
transaction constituted the board of directors of, as
applicable, LaSalle Re Holdings Limited or CNA Financial
Corporation cease to consitute a majority of such board of
directors. For purposes hereof, the term "Acquiring
Person" shall not include the Subject Company, any of its
affiliates or any employee benefit plan
Page 5 of 11
<PAGE>
(or related trust) sponsored or maintained by the Subject
Company or any of its affiliates.
(2) "Early Termination Fee" shall mean an amount equal to the
net present value, using a discount rate of 10%, on the
date as of which LASALLE elects to terminate this Agreement
pursuant to Section V(F) hereof, of a payment on September
30, 2001 of an amount equal to the difference between $US
4,000,000 and the aggregate of Underwriting Profit
Commissions previously paid by LASALLE to CNA BERMUDA
pursuant to Section IV(B) hereof.
(3) "Person" shall mean any individual, firm, partnership,
corporation, limited liability company or other entity, and
shall include any successor (by merger or otherwise) of
such entity.
C. LASALLE, CRSC or CNA BERMUDA may terminate this Agreement
immediately if the other party (i) is placed in receivership,
makes an assignment for the benefit of creditors, is placed in a
proceeding for the purpose of winding up or liquidating its
business affairs or is the subject of any proceeding based upon
its insolvency or (ii) loses any license or permit which is then
required in order to engage in the business contemplated by this
Agreement.
D. LASALLE, CRSC or CNA BERMUDA may terminate this Agreement
immediately upon written notice based upon (i) fraud upon the
terminating party by the other party or (ii) a material breach of
this Agreement by the other party which has not been corrected
after thirty days' written notice.
E. LASALLE, CRSC or CNA BERMUDA may terminate this Agreement upon
ninety days' written notice to the other party in the event that
there has been a Change in Control of the other party.
F. In the event that there has been a Change in Control of LASALLE,
LASALLE (or its successor) may terminate this Agreement as of any
date on which LASALLE pays the Early Termination Fee to CNA
BERMUDA. Notwithstanding any other provision of this Agreement,
upon payment of the Early Termination Fee pursuant to this Section
V(F), LASALLE shall have no further obligation to pay Underwriting
Profit Commissions pursuant to Section IV(B) hereof.
Page 6 of 11
<PAGE>
G. Termination of this Agreement shall not relieve either party of
its liability for performance under the Agreement to the date of
termination. Following any termination, the parties will cooperate
with each other to provide a smooth transition of services and to
satisfy any reasonable requests for information concerning actions
taken during the term of this Agreement.
VI. CONFIDENTIALITY.
A. The CNA Parties agree that they will not disclose or use for any
purpose outside the scope of this Agreement proprietary or
confidential information provided to it by LASALLE unless and
until such information (i) becomes public knowledge other than
through disclosure by either of the CNA Parties or (ii) is
subpoenaed or otherwise required by an authorized governmental
authority. In the event that either of the CNA Parties determines
that it is required to provide any such information, it shall
promptly provide notice to LASALLE.
B. LASALLE agrees that it will not disclose or use for any purpose
outside the scope of this Agreement proprietary or confidential
information provided to it by either of the CNA Parties unless and
until such information (i) becomes public knowledge other than
through disclosure by LASALLE or (ii) is subpoenaed or otherwise
required by an authorized governmental authority. In the event
that LASALLE determines that it is required to provide any such
information, it shall promptly provide notice to the CNA Parties.
C. The obligations of the parties hereto under this Section VI shall
continue after this Agreement terminates.
VII. INDEPENDENT CONTRACTOR.
Each of the CNA Parties shall act as an independent contractor.
Nothing contained herein shall be construed to create the relation
of partners or employer and employee between LASALLE and either of
the CNA Parties.
Page 7 of 11
<PAGE>
VIII. NON-EXCLUSIVITY.
This Agreement shall not in any way prevent the CNA Parties from
performing for other insurers services of the type described
herein, provided that the CNA Parties faithfully perform their
obligations under this Agreement and that the performance of
services for others does not create any conflict of interest. The
CNA Parties agree, however, that they shall promptly notify
LASALLE in writing, as soon as reasonably practicable but in any
event prior to execution, of any arrangement entered into by
either of them involving the performance by such party for another
Bermuda-based insurer of services similar to those to be performed
by the CNA Parties for LASALLE under this Agreement.
IX. ASSIGNMENT.
A. Except as is otherwise specifically provided hereinabove, LASALLE
may not assign, pledge, hypothecate, transfer, delegate or
subcontract this Agreement or any of its rights, benefits or
obligations hereunder, in whole or in part, whether by operation
of law or otherwise, without the prior written consent of the CNA
Parties.
B. Except as is otherwise specifically provided hereinabove, neither
of the CNA Parties may assign, pledge, hypothecate, transfer,
delegate or subcontract this Agreement or any of its rights,
benefits or obligations hereunder, in whole or in part, whether by
operation of law or otherwise, without the prior written consent
of LASALLE.
X. SUCCESSORS.
This Agreement shall be binding upon the successors, legal
representatives or assigns of the parties hereto.
XI. NO WAIVER.
The failure of any party at any time to require another party's strict
performance of any particular obligation under this Agreement shall not
affect such party's right to require strict performance of that
obligation in the future. Any waiver by any party of any breach of any
provision hereof shall not be construed as a waiver of any continuing or
succeeding breach of such provision, or a waiver or modification of the
provision itself, or a waiver or modification of any other right under
this Agreement.
XII. CAPTIONS.
Page 8 of 11
<PAGE>
The captions of the several sections of this Agreement are inserted
solely for convenience of reference, and are neither a part of nor
intended to govern, limit or aid in the construction of any term or
provision hereof.
XIII. AMENDMENTS AND CHOICE OF LAW.
A. This Agreement may be amended only by an instrument in writing and
executed by the parties to this Agreement.
B. This Agreement shall be construed according to the laws of
Bermuda.
XIV. NOTICES.
Any notice required under this Agreement shall be sent, in writing, by
certified or registered mail, postage prepaid, return receipt requested,
by facsimile, by courier service or shall be hand delivered to the
respective parties as follows:
If to LASALLE:
LaSalle Re Limited
Attention: Victor H. Blake
25 Church Street
P.O. Box HM 1502
Hamilton HM FX, Bermuda
with a copy to:
Richard W. Shepro, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
If to CRSC:
CNA Re Services Company
Attention: William J. Adamson, Jr.
200 South Wacker Drive, 11th Floor
Chicago, Illinois 60606
with a copy to:
Marvin J. Cashion, Esq.
Group Vice President & Deputy General Counsel
CNA
CNA Plaza
Chicago, Illinois 60685
Page 9 of 11
<PAGE>
If to CNA BERMUDA:
CNA (Bermuda) Services Ltd.
Attention: William J. Adamson, Jr.
25 Church Street
P.O. Box HM 1502
Hamilton HM FX, Bermuda
with a copy to:
Marvin J. Cashion, Esq.
Group Vice President & Deputy General Counsel
CNA
CNA Plaza
Chicago, Illinois 60685
XV. COMPLETE AGREEMENT.
This Agreement sets forth the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof and supersedes
any and all prior agreements, arrangements and understandings among the
parties relating to the subject matter hereof.
XVI. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same instrument.
Page 10 of 11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
CNA (BERMUDA) SERVICES LIMITED
By: /s/ W. J. Adamson
--------------------------------
CNA RE SERVICES COMPANY
By: /s/ W. J. Adamson
--------------------------------
LASALLE RE LIMITED
By: /s/ Victor H. Blake
--------------------------------
Page 11 of 11
<PAGE>
EXHIBIT 10.12
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of October 1, 1998 (the "Effective
Date"), by and between Guy Hengesbaugh (the "Executive") and LaSalle Re Limited
(the "Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Performance of Services. The Executive's employment with the Company
-----------------------
shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees to
employ the Executive as the President and Chief Operating Officer of the
Company and the Executive Vice President and Chief Operating Officer of
LaSalle Re Holdings Limited (the "Holding Company") during the Agreement
Term (as defined below), and the Executive hereby agrees to remain in the
employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote, subject to paragraph 1(f), his full time,
energies and talents to performing his duties under this Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors (the
"Board") and the Chief Executive Officer (the "CEO") of the Company. The
Executive's duties may include providing services for the Company, the
Holding Company, and the Subsidiaries (as defined below), as determined by
the CEO; provided that the Executive shall not, without his consent, be
assigned tasks that would be inconsistent with his position at the Company.
The Executive will have such authority and power as are inherent to the
undertakings applicable to his position and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to the
duties that reasonably apply to the Company's officers and employees
(including, without limitation, the duty of loyalty to the Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that the
Executive shall have a senior
1
<PAGE>
executive position at all times during the Agreement Term while he is
employed by the Company.
(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required under this Agreement, including the supervision
of his personal investments, and activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership of the boards of directors of other
organizations, and similar type of activities, to the extent that such
other activities do not inhibit or prohibit the performance of the
Executive's duties under this Agreement, or conflict in any material way
with the business of the Company, the Holding Company, or any Subsidiary;
provided, however, that except as otherwise expressly provided in this
Agreement, the Executive shall not serve on the board of any business, or
hold any position with any business without the consent of the Board and
the CEO of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda work
permit for the Executive. The Executive shall cooperate with the Company
and the appropriate authorities in maintaining such permit. The
Executive's employment by the Company is conditioned upon the Company's
ability to keep current all required work permits, and except as provided
in this paragraph 1(h), the Company shall have no further obligation to the
Executive if, after employing its reasonable best efforts, it is unable to
maintain such permits. If despite the Company's best efforts to maintain
the Bermuda work permit, the work permit is terminated or revoked by the
Government of Bermuda through no fault of the Executive, then the Executive
shall be deemed to have received written notice from the Company that his
Date of Termination is the date on which the termination or revocation of
his or her work permit is effective, and the Executive shall be entitled to
the benefits provided for Termination by the Company under Section 3(g). In
addition, the Company shall reimburse the Executive for reasonable costs
actually incurred by the Executive and the members of his or her immediate
family to relocate to the nation in which the Executive maintains
citizenship; provided, however, that such reimbursement shall be made only
if such relocation occurs within a reasonable time following such Date of
Termination. The reasonableness of the cost and time of relocation shall
be determined by the Board of Directors of the Company.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any
period in which he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing
2
<PAGE>
physician of the Company's choice, and the Executive agrees to submit to
such tests and examination as such physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on the second anniversary of the Effective Date; provided,
however, that beginning on the first anniversary of the Effective Date,
such Agreement Term shall automatically be renewed daily, such that at any
time on or after the first anniversary of the Effective Date, the remaining
term shall equal one year. However, such additional day-to-day renewals
may be terminated by either party be delivering written notice of such
termination to the other party, in accordance with the requirements of
paragraph 18. The cessation of the automatic renewals shall be effective
on the date such written notice is deemed to be given to the other party in
accordance with paragraph 18, such that the Agreement term shall end on the
one-year anniversary of the date such written notice is deemed given to the
other party. For purposes of this Agreement, a Notice of Termination, as
described in paragraph 3(i), shall be deemed to be a notice to terminate
day-to-day renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which 50%
or more of the total combined voting power of all classes of stock (or
other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during the
------------
Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month period
------
beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual base
salary of $400,000 (the "Salary"). In no event shall the Salary of the
Executive be reduced to an amount that is less than the amount specified in
this paragraph (a), or to an amount that is less than the amount that he
was previously receiving, except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and to
the same extent, as the restoration that applies to the other officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the Company
-----
in accordance with the provisions of Exhibit A, which is attached to and
forms a part of this Agreement.
(c) Disability. The Executive shall receive from the Company disability income
----------
replacement coverage which will provide for replacement of income at a
commercially reasonable rate during any period in which the Executive is
Disabled if the disability arose during the Agreement Term and prior to the
Executive's Date of Termination. During any period while the Executive is
Disabled, and is otherwise entitled to receive Salary under this Agreement,
any Salary payments to the Executive shall be reduced by the amount of any
3
<PAGE>
benefits paid for the same period of time under the Company's disability
income replacement coverage.
(d) Pension. The Company will provide the Executive with a defined
-------
contribution savings plan, into which the Company will make a contribution
for each fiscal year equal to 10% of the Salary paid to the Executive for
such fiscal year. The plan will also provide that the Executive may make
annual contributions equal to or less than the Company's contribution.
(e) Automobile. The Company will provide the Executive with an allowance toward
----------
the cost of an automobile in Bermuda, the amount of which will be approved
by the CEO. The Company will assume responsibility for the cost of
insurance, maintenance and similar items. The Executive's personal use of
the automobile will be permitted. This perquisite shall be governed by the
rules and limitations set down from time to time by the Company.
(f) Club. The Company will reimburse the Executive for periodic dues for his
----
membership in clubs located in Bermuda in an amount not to exceed $2,400
per fiscal year. The Company will not reimburse initiation fees for club
membership under this Agreement, in light of reimbursements made by the
Company to the Executive's prior employer with respect to initiation fees
for club membership for the period during which the Executive performed
services for the Company but was employed by the prior employer.
(g) Housing/Living Allowance. The Company shall provide the Executive with a
------------------------
housing and living expense allowance at the annual rate of $120,000 for the
Agreement Term, with such allowance to be payable to the Executive in
monthly instalments.
(h) Tax, Accounting and Financial Planning. The Company will reimburse the
--------------------------------------
Executive for reasonable expenses, not to exceed $5,000 per fiscal year,
for tax, accounting, and financial planning services.
(i) Other Benefits. Except as otherwise specifically provided to the contrary
--------------
in this Agreement, the Executive shall be provided with the welfare
benefits and other fringe benefits to the same extent and on the same terms
as those benefits are provided by the Company from time to time to the
Company's other senior management employees. However, the Company shall not
be required to provide a benefit or perquisite under this paragraph 2(i) if
such benefit or perquisite would duplicate (or otherwise be the same type
as) a benefit or perquisite specifically required to be provided under
another provision of this Agreement.
(j) Expenses. Upon approval by the CEO, the Company will reimburse the
--------
Executive for reasonable expenses for entertainment, traveling, meals,
lodging and similar items in promoting the Company's business which the
Executive documents on a form used by the Company to report business
expenses.
4
<PAGE>
(k) Indemnification. The Company shall maintain officers liability insurance
---------------
in commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company. The Executive shall
be eligible for indemnification by the Company under the Company's bye-laws
as currently in effect. The Company agrees that it shall not take any
action that would impair the Executive's rights to indemnification under
the Company's bye-laws, as currently in effect.
(l) Holiday/Vacation. The Executive shall be subject to the holiday and
----------------
vacation policy that applies to other senior executives of the Company.
(m) Dollar Amounts. As used in this Agreement, "dollars" or numbers preceded
--------------
by the symbol "$" shall mean amounts in United States Dollars.
3. Termination. The Executive's employment during the Agreement Term may
-----------
be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(g):
(a) Death. The Executive's employment will terminate upon his death.
-----
(b) Permanently Disabled. The Company may terminate the Executive's employment
--------------------
if he is Permanently Disabled. "Permanently Disabled" means that the
Executive is eligible for benefits under the Company's long-term disability
plan.
(c) Cause. The Company may terminate the Executive's employment at any time
-----
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to substantially
perform his duties with the Company (other than any such failure
resulting from the Executive's being Disabled), within a reasonable
period of time after a written demand for substantial performance is
delivered to the Executive by the CEO, which demand specifically
identifies the manner in which the CEO believes that the Executive
has not substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or the Holding
Company, monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the CEO, the Executive's credibility and reputation no
longer conform to the standard of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith
5
<PAGE>
and without reasonable belief that the Executive's action or omission was
in the best interest of the Company or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
----------------------
the Company of the occurrence of a material breach of this Agreement by the
Company, which specifically identifies the manner in which the Executive
believes that the breach has occurred; (ii) the Company fails to correct
such breach within a reasonable time after such notice; and (iii) the
Executive resigns within the 60-day period following the occurrence of such
breach, then the Executive shall be considered to have been constructively
discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
------------------------
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e) only
if he has not been constructively discharged under paragraph 3(d).
(f) Mutual Agreement. This Agreement may be terminated at any time by the
----------------
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by an
agreement which is reduced in writing and signed by the Executive and the
CEO or other duly appointed officer of the Company.
(g) Termination by Company. The Company may terminate the Executive's
----------------------
employment at any time for any reason by giving the Executive prior written
notice, except the Executive's employment will not be treated as having
been terminated under this paragraph 3(g) if the termination is for reasons
of being Permanently Disabled or for Cause.
(h) Date of Termination. "Date of Termination" means the last day the
-------------------
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(i) Notice of Termination. Any termination of the Executive's employment by the
---------------------
Company or the Executive (other than a termination pursuant to paragraph
3(a) or paragraph 3(f)) must be communicated by a written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" means a dated notice which indicates the specific
termination provision in this Agreement relied on and which sets forth in
reasonable detail the facts and circumstances, if any, claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
-----------------------
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive payment
------------------------------------
of accrued but unpaid Salary, vacation pay and, if expressly provided for
in paragraph 4(d),
6
<PAGE>
a pro rata portion of his bonus (if any), in each case for the period
ending with the Executive's Date of Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
---------------------
during or after the end of the Agreement Term, or because of (i) the
Executive's death, (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his termination for Cause (paragraph 3(c)), or (iv) his resignation
(paragraph 3(e)), then, except as otherwise expressly provided for in this
Agreement, no payments shall be due to the Executive under this Agreement
for periods after the Date of Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs during
-------------------
the Agreement Term because of (i) his discharge by the Company for reasons
other than Cause (described in paragraph 3(c)), or (ii) his constructive
discharge (described in paragraph 3(d)), the Executive shall continue to
receive Salary payments (at the rate in effect on the Date of Termination)
in monthly or more frequent instalments through the earliest of: (i) the
last day of the Agreement Term; (ii) the date of the Executive's death, or
(iii) the date, if any, of the breach by the Executive of the non-
competition requirements of paragraph 7, the confidentiality requirements
of paragraph 8 or the non-disparagement requirements of paragraph 9.
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d), the
--------------
Executive shall not receive a bonus for the fiscal year in which the
Executive's Date of Termination occurs. If the Executive's Date of
Termination occurs during the Agreement Term as a result of (i) the
Executive's death (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his discharge by the Company for reasons other than Cause (described
in paragraph 3(c)), or (iv) his constructive discharge (described in
paragraph 3(d)), the Executive shall receive a pro rata portion of the
bonus which would have been paid pursuant to Exhibit A for the fiscal year
in which the Executive's Date of Termination occurs. Such portion, if any,
shall be calculated for the period ending on the Date of Termination and
shall be paid to the Executive (or his estate) within a reasonable period
of time after the Company calculates the bonus amount, if any, for all
employees for the fiscal year.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled to
-----------------------------------------
Salary Continuation payments pursuant to paragraph 4(c), the Executive
shall receive a housing and living expense allowance (described in
paragraph 2(g)) and may continue to participate in the medical and dental
plans in which he participated on the day before his Date of Termination
through the earlier of: (i) the last day for which the Executive receives
Salary Continuation payments pursuant to paragraph 4(c); or (ii) three (3)
months after the Executive's Date of Termination. Participation in the
medical and dental plans is subject to the Executive's payment of the
applicable employee portion of the monthly premium cost, if any. If the
Company ceases offering the medical and dental plans in which the Executive
participated on the day before his Date of Termination to Company employees
during this time, the Executive may elect to participate in any other
medical or dental plan offered by the Company to its employees, provided
however, that the Executive shall be responsible for paying the applicable
employee portion of the monthly premium cost.
7
<PAGE>
(f) Other Programs. No benefits shall be payable to the Executive under any
--------------
other severance pay arrangement or similar arrangement maintained by the
Company or any Subsidiary. Except as otherwise expressly provided in this
Agreement, no other payments or benefits shall be due to the Executive
following the Date of Termination (except as otherwise specifically
provided under the terms of an employee benefit plan or arrangement).
5. Duties on Termination. Subject to the provisions of this Agreement,
---------------------
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Set-Off. If the Executive's employment with the Company is terminated
-------
for any reason and, under the terms of this Agreement, the Executive is
otherwise entitled to receive Salary and bonus payments, such payments will be
reduced by the amount of any salary and bonus payments the Executive receives in
connection with other employment.
7. Non-competition. While the Executive is employed by the Company, and
---------------
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or indirectly perform services in an underwriting-related
or consulting-related position in Bermuda for a direct competitor of the
Company. A related position shall include, but is not limited to, a chief
operating officer or executive vice president.
For purposes of this paragraph 7:
"Non-Competition Period" shall be determined as follows:
(1) If the Executive's Date of Termination occurs under circumstances
other than those described in paragraph 3(d) (relating to constructive
discharge) or paragraph 3(g) (relating to certain terminations by the
Company), the Non-Competition Period shall be the period beginning on
the Date of Termination, and ending on the twenty-four-month (24)
anniversary of the Date of Termination.
(2) If the Executive's Date of Termination occurs under circumstances
described in paragraph 3(d) (relating to constructive discharge) or
paragraph 3(g) (relating to certain terminations by the Company), the
Non-Competition Period shall be the period beginning on the Date of
Termination, and ending
8
<PAGE>
on the earlier to occur of the last day of the Agreement Term or the
twenty-four-month (24) anniversary of the Date of Termination.
However, under this paragraph (B), the Company, in its discretion, by
notice provided to the Executive not later than fifteen (15) days
after the Date of Termination, may extend the Non-Competition Period
beyond the end of the Agreement Term, to a date specified in such
notice (but not later than the twenty-four-month anniversary of the
Date of Termination), but only if the Company agrees to provide the
salary continuation payments described in paragraph 4(c) during such
Non-Competition Period.
Nothing in this paragraph 7, paragraph 8 or paragraph 9 shall be construed as
limiting the Executive's duty of loyalty to the Company while he is employed by
the Company or any other duty he may otherwise have to the Company while he is
employed by the Company.
8. Confidential Information. Except as may be required by the lawful
------------------------
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 10), and not to disclose the same, either
directly or indirectly, to any other person, firm, or business entity, or to use
it in any way. To the extent that the Executive obtains information on behalf of
the Company, the Holding Company, or any of the Subsidiaries that may be subject
to attorney-client privilege as to the Company's attorneys, the Executive shall
take reasonable steps to maintain the confidentiality of such information and to
preserve such privilege. Nothing in the foregoing provisions of this paragraph 8
shall be construed so as to prevent the Executive from using, in connection with
his employment for himself or an employer other than the Company, the Holding
Company, or any of the Subsidiaries, knowledge which was acquired by him during
the course of his employment with the Company, the Holding Company, and the
Subsidiaries, and which is generally known to persons of his experience in other
companies in the same industry.
9. Non-Disparagement. The Executive agrees that, while he is employed by
-----------------
the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
9
<PAGE>
10. Defense of Claims. The Executive agrees that, for the period
-----------------
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company, the Holding Company and the Subsidiaries in defense
of any claims that may be made against the Company, the Holding Company and the
Subsidiaries, and will cooperate with the Company, the Holding Company or the
Subsidiaries in the prosecution of any claims that may be made by the Company,
the Holding Company or the Subsidiaries, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform the Company if he becomes aware of any lawsuits
involving such claims that may be filed against the Company, the Holding Company
or the Subsidiaries. The Company agrees to reimburse the Executive for all of
the Executive's reasonable out-of-pocket expenses associated with such
cooperation, including travel expenses. For periods after the Executive's
employment with the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such cooperation. The determination of the
reasonableness of such compensation shall take into account information provided
to the Company by the Executive or otherwise known to the Company, which may
include, without limitation, (a) the Executive's rate of compensation at the
time he ceased employment with the Company, and whether he is then receiving
other compensation payments from the Company; (b) the Executive's rate of
compensation at the time of such cooperation; (c) the amount of time required of
the Executive for such cooperation; (d) difficulty of the issues as to which the
cooperation is required; (e) the amount of inconvenience to the Executive
resulting from such cooperation (including consideration of factors such as the
amount of travel required of the Executive, the effect on other commitments of
the Executive, and the amount of advance notice provided to the Executive); and
(f) whether such cooperation would be legally required in the absence of the
requirements of this paragraph 10. The Executive also agrees to promptly inform
the Company if he is asked to assist in any investigation of the Company, the
Holding Company or the Subsidiaries (or their actions) that may relate to
services performed by the Executive for the Company, regardless of whether a
lawsuit has then been filed against the Company, the Holding Company or the
Subsidiaries with respect to such investigation.
11. Remedies. The Executive acknowledges that the Company or the Holding
--------
Company would be irreparably injured by a violation of paragraph 7, paragraph 8,
or paragraph 9, and he agrees that the Company, in addition to any other
remedies available to it for such breach or threatened breach, shall be entitled
to a preliminary injunction, temporary restraining order, or other equivalent
relief, restraining the Executive from any actual or threatened breach of either
paragraph 7, paragraph 8 or paragraph 9. The Company acknowledges that the
Executive would be irreparably injured by a violation of paragraph 9, and the
Company agrees that the Executive, in addition to any other remedies available
to him for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Company from any actual or threatened breach of paragraph 9. If a bond is
required to be posted in order for the Company or the Executive to secure an
injunction or other equitable remedy, the parties agree that said bond need not
be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
-------------
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
10
<PAGE>
13. Amendment. This Agreement may be amended or canceled only by mutual
---------
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Applicable Law. The provisions of this Agreement shall be construed
--------------
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
----------------
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
17. Successors. This Agreement shall be binding upon, and inure to the
----------
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
18. Notices. Notices and all other communications provided for in this
-------
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five days
after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the mail or by overnight service are to be delivered to
the addresses set forth below:
11
<PAGE>
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX, Bermuda
or to the Executive:
Guy Hengesbaugh
25 Church Street
Hamilton, HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out of
---------------------------
or relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Bermuda by three arbitrators. Except
as otherwise expressly provided in this paragraph 19, the arbitration shall be
conducted in accordance with the Arbitration Act 1986 as then in effect. One of
the arbitrators shall be appointed by the Company, one shall be appointed by the
Executive, and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the third arbitrator within 30 days of
the appointment of the second arbitrator, then the third arbitrator shall be
appointed by the President of the Bermuda Bar Council.
20. Survival of Agreement. Except as otherwise expressly provided in this
---------------------
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
----------------
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the Company
---------------------------
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
the terms of this Agreement, he has been given a reasonable time to review it,
to consult with counsel of his choice, and to negotiate at arm's-length with the
Company as to the contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto. The
12
<PAGE>
Executive represents and warrants that he is not, and will not become a party to
any agreement, contract, arrangement or understanding, whether of employment or
otherwise, that would in any way restrict or prohibit him from undertaking or
performing his duties in accordance with this Agreement.
23. Titles and Headings. Titles and headings in this Agreement are for
-------------------
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Guy Hengesbaugh
------------------------
Guy Hengesbaugh
LASALLE RE LIMITED
By: /s/ Victor H. Blake
---------------------
Victor H. Blake
13
<PAGE>
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
-------
employment agreement (the "Agreement") between Guy Hengesbaugh (the "Executive")
and LaSalle Re Limited (the "Company"). The purpose of this Exhibit A is to set
forth the terms of the bonus program described in paragraph 2(b) of the
Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
----------
following guidelines:
. A discretionary bonus may be awarded annually by the Board of the Company
after considering the recommendation of the CEO of the Company.
. A non-discretionary bonus shall be earned and paid annually based upon the
Company's Return on Equity (defined below) achieved for each fiscal year of
the Company, while the Executive is employed by the Company.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 15%, the bonus will be paid according to the
following formula:
. For each 1% improvement in Return on Equity above 15%, an amount equal
to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an amount
equal to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but above
15%), the percentage of Salary awarded will be increased by
interpolation.
. The "Return on Equity" for any fiscal year shall be equal to the net
income of the Company for the fiscal year, divided by shareholders'
equity at the beginning of the period (as determined on the basis of
U.S. generally accepted accounting principles). For purposes of this
calculation any unrealized appreciation or depreciation of the
Company's investments shall be disregarded (both as to the numerator
and the denominator). Payments made to CNA Financial Corporation or
its affiliates under the Underwriting Support Services Agreement will
not reduce net income in determining the Return on Equity.
14
<PAGE>
EXHIBIT 10.13
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of October 1, 1998 (the "Effective
Date"), by and between Andrew Cook (the "Executive") and LaSalle Re Limited (the
"Company");
WITNESSETH THAT:
---------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
continued employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Performance of Services. The Executive's continued employment with
-----------------------
the Company shall be subject to the following:
(a) Subject to the provisions of this Agreement, the Company hereby agrees to
continue to employ the Executive as the Senior Vice President, Chief
Financial Officer and Treasurer of the Company and LaSalle Re Holdings
Limited (the "Holding Company") during the Agreement Term (as defined
below), and the Executive hereby agrees to remain in the employ of the
Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote, subject to paragraph 1(f), his full time,
energies and talents to performing his duties under this Agreement.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board of Directors (the
"Board") and the Chief Executive Officer (the "CEO") of the Company. The
Executive's duties may include providing services for the Company, the
Holding Company, and the Subsidiaries (as defined below), as determined by
the CEO; provided that the Executive shall not, without his consent, be
assigned tasks that would be inconsistent with his position at the Company.
The Executive will have such authority and power as are inherent to the
undertakings applicable to his position and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) While the Executive is employed by the Company, he shall be subject to the
duties that reasonably apply to the Company's officers and employees
(including, without limitation, the duty of loyalty to the Company).
(e) The Company may change the Executive's title and duties in the event of
reorganization, restructuring, or similar circumstances, except that the
Executive shall have a senior executive position at all times during the
Agreement Term while he is employed by the Company.
<PAGE>
(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required under this Agreement, including the supervision
of his personal investments, and activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership of the boards of directors of other
organizations, and similar type of activities, to the extent that such
other activities do not inhibit or prohibit the performance of the
Executive's duties under this Agreement, or conflict in any material way
with the business of the Company, the Holding Company, or any Subsidiary;
provided, however, that except as otherwise expressly provided in this
Agreement, the Executive shall not serve on the board of any business, or
hold any position with any business without the consent of the Board and
the CEO of the Company.
(g) The Executive will be required to maintain a residence in Bermuda while
employed by the Company.
(h) The Company will use its reasonable best efforts to maintain a Bermuda work
permit for the Executive. The Executive shall cooperate with the Company
and the appropriate authorities in maintaining such permit. The
Executive's employment by the Company is conditioned upon the Company's
ability to keep current all required work permits, and except as otherwise
provided in this paragraph 1(h), the Company shall have no further
obligation to the Executive if, after employing its reasonable best
efforts, it is unable to maintain such permits. If despite the Company's
best efforts to maintain the Bermuda work permit, the work permit is
terminated or revoked by the Government of Bermuda through no fault of the
Executive, then the Executive shall be deemed to have received written
notice from the Company that his Date of Termination is the date on which
the termination or revocation of his or her work permit is effective, and
the Executive shall be entitled to the benefits provided for Termination by
the Company under Section 3(g). In addition, the Company shall reimburse
the Executive for reasonable costs actually incurred by the Executive and
the members of his or her immediate family to relocate to the nation in
which the Executive maintains citizenship; provided, however, that such
reimbursement shall be made only if such relocation occurs within a
reasonable time following such Date of Termination. The reasonableness of
the cost and time of relocation shall be determined by the Board of
Directors of the Company.
(i) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any
period in which he has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his duties under
this Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing physician
of the Company's choice, and the Executive agrees to submit to such tests
and examination as such physician shall deem appropriate.
(j) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on the second anniversary of the Effective Date; provided,
however, that beginning on
2
<PAGE>
the first anniversary of the Effective Date, such Agreement Term shall
automatically be renewed daily, such that at any time on or after the first
anniversary of the Effective Date, the remaining term shall equal one year.
However, such additional day-to-day renewals may be terminated by either
party be delivering written notice of such termination to the other party,
in accordance with the requirements of paragraph 18. The cessation of the
automatic renewals shall be effective on the date such written notice is
deemed to be given to the other party in accordance with paragraph 18, such
that the Agreement term shall end on the one-year anniversary of the date
such written notice is deemed given to the other party. For purposes of
this Agreement, a Notice of Termination, as described in paragraph 3(i),
shall be deemed to be a notice to terminate day-to-day renewals.
(k) For purposes of this Agreement, the term "Subsidiary" shall mean any
company (regardless of whether incorporated) during any period in which 50%
or more of the total combined voting power of all classes of stock (or
other ownership interest) entitled to vote is owned, directly or
indirectly, by the Company.
2. Compensation. Subject to the provisions of this Agreement, during the
------------
Agreement Term, while he is employed by the Company, the Company shall
compensate the Executive for the Executive's services as follows:
(a) Salary. The Executive shall receive, for each 12-consecutive month period
------
beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual base
salary of $275,000 (the "Salary"). In no event shall the Salary of the
Executive be reduced to an amount that is less than the amount specified in
this paragraph (a), or to an amount that is less than the amount that he
was previously receiving, except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and to
the same extent, as the restoration that applies to the other officers.
(b) Bonus. The Executive shall be entitled to receive bonuses from the Company
-----
in accordance with the provisions of Exhibit A, which is attached to and
forms a part of this Agreement.
(c) Disability. The Executive shall receive from the Company disability income
----------
replacement coverage which will provide for replacement of income at a
commercially reasonable rate during any period in which the Executive is
Disabled if the disability arose during the Agreement Term and prior to the
Executive's Date of Termination. During any period while the Executive is
Disabled, and is otherwise entitled to receive Salary under this Agreement,
any Salary payments to the Executive shall be reduced by the amount of any
benefits paid for the same period of time under the Company's disability
income replacement coverage.
(d) Pension. The Company will provide the Executive with a defined
-------
contribution savings plan, into which the Company will make a contribution
for each fiscal year equal to 10% of the Salary paid to the Executive for
such fiscal year. The plan will also provide that
3
<PAGE>
the Executive may make annual contributions equal to or less than the
Company's contribution.
(e) Automobile. The Company will provide the Executive with an allowance
----------
toward the cost of an automobile in Bermuda, the amount of which will be
approved by the CEO. The Company will assume responsibility for the cost
of insurance, maintenance and similar items. The Executive's personal use
of the automobile will be permitted. This perquisite shall be governed by
the rules and limitations set down from time to time by the Company.
(f) Club. The Company will reimburse the Executive for periodic dues for his
----
membership in clubs located in Bermuda in an amount not to exceed $2,400
per fiscal year.
(g) Housing/Living Allowance. The Company shall provide the Executive with a
------------------------
housing and living expense allowance at the annual rate of $90,000 for the
Agreement Term, with such allowance to be payable to the Executive in
monthly instalments.
(h) Professional Dues. The Company will reimburse the Executive for reasonable
-----------------
professional dues to maintain his professional standing as a Chartered
Accountant.
(i) Tax, Accounting and Financial Planning. The Company will reimburse the
--------------------------------------
Executive for reasonable expenses, not to exceed $5,000 per fiscal year,
for tax, accounting, and financial planning services.
(j) Other Benefits. Except as otherwise specifically provided to the contrary
--------------
in this Agreement, the Executive shall be provided with the welfare
benefits and other fringe benefits to the same extent and on the same terms
as those benefits are provided by the Company from time to time to the
Company's other senior management employees. However, the Company shall not
be required to provide a benefit or perquisite under this paragraph 2(j) if
such benefit or perquisite would duplicate (or otherwise be the same type
as) a benefit or perquisite specifically required to be provided under
another provision of this Agreement.
(k) Expenses. Upon approval by the CEO, the Company will reimburse the
--------
Executive for reasonable expenses for entertainment, traveling, meals,
lodging and similar items in promoting the Company's business which the
Executive documents on a form used by the Company to report business
expenses.
(l) Indemnification. The Company shall maintain officers liability insurance
---------------
in commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company. The Executive shall
be eligible for indemnification by the Company under the Company's bye-laws
as currently in effect. The Company agrees that it shall not take any
action that would impair the Executive's rights to indemnification under
the Company's bye-laws, as currently in effect.
4
<PAGE>
(m) Holiday/Vacation. The Executive shall be subject to the holiday and
----------------
vacation policy that applies to other senior executives of the Company.
(n) Dollar Amounts. As used in this Agreement, "dollars" or numbers preceded
--------------
by the symbol "$" shall mean amounts in United States Dollars.
3. Termination. The Executive's employment during the Agreement Term may
-----------
be terminated by the Company or the Executive without any breach of this
Agreement only under the circumstances described in paragraphs 3(a) through
3(g):
(a) Death. The Executive's employment will terminate upon his death.
-----
(b) Permanently Disabled. The Company may terminate the Executive's employment
--------------------
if he is Permanently Disabled. "Permanently Disabled" means that the
Executive is eligible for benefits under the Company's long-term disability
plan.
(c) Cause. The Company may terminate the Executive's employment at any time
-----
for Cause. "Cause" shall mean:
(i) the wilful and continued failure by the Executive to substantially
perform his duties with the Company (other than any such failure
resulting from the Executive's being Disabled), within a reasonable
period of time after a written demand for substantial performance is
delivered to the Executive by the CEO, which demand specifically
identifies the manner in which the CEO believes that the Executive
has not substantially performed his duties;
(ii) the wilful engaging by the Executive in conduct which is demonstrably
and materially injurious to the Company or the Holding Company,
monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the CEO, the Executive's credibility and reputation no
longer conform to the standard of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the Executive's action or omission was in the best interest of the Company
or the Holding Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
----------------------
the Company of the occurrence of a material breach of this Agreement by the
Company, which specifically identifies the manner in which the Executive
believes that the breach has occurred; (ii) the Company fails to correct
such breach within a reasonable time after such notice; and (iii) the
Executive resigns within the 60-day period following the
5
<PAGE>
occurrence of such breach, then the Executive shall be considered to have
been constructively discharged.
(e) Resignation by Executive. The Executive may resign for any reason by
------------------------
giving the Company ninety (90) days prior written notice, except the
Executive will be treated as having resigned under this paragraph 3(e) only
if he has not been constructively discharged under paragraph 3(d).
(f) Mutual Agreement. This Agreement may be terminated at any time by the
----------------
mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties will be memorialized by an
agreement which is reduced in writing and signed by the Executive and the
CEO or other duly appointed officer of the Company.
(g) Termination by Company. The Company may terminate the Executive's
----------------------
employment at any time for any reason by giving the Executive prior written
notice, except the Executive's employment will not be treated as having
been terminated under this paragraph 3(g) if the termination is for reasons
of being Permanently Disabled or for Cause.
(h) Date of Termination. "Date of Termination" means the last day the
-------------------
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(i) Notice of Termination. Any termination of the Executive's employment by
---------------------
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written Notice
of Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" means a dated notice which indicates the specific
termination provision in this Agreement relied on and which sets forth in
reasonable detail the facts and circumstances, if any, claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
4. Rights Upon Termination. This paragraph 4 describes the payments and
-----------------------
benefits to be provided to the Executive after his Date of Termination:
(a) Payment of Previously Earned Amounts. The Executive shall receive payment
------------------------------------
of accrued but unpaid Salary, vacation pay and, if expressly provided for
in paragraph 4(d), a pro rata portion of his bonus (if any), in each case
for the period ending with the Executive's Date of Termination.
(b) No Severance Payments. If the Executive's Date of Termination occurs
---------------------
during or after the end of the Agreement Term, or because of (i) the
Executive's death, (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his termination for Cause (paragraph 3(c)), or (iv) his resignation
(paragraph 3(e)), then, except as otherwise expressly provided for
6
<PAGE>
in this Agreement, no payments shall be due to the Executive under this
Agreement for periods after the Date of Termination.
(c) Salary Continuation. If the Executive's Date of Termination occurs during
-------------------
the Agreement Term because of (i) his discharge by the Company for reasons
other than Cause (described in paragraph 3(c)), or (ii) his constructive
discharge (described in paragraph 3(d)), the Executive shall continue to
receive Salary payments (at the rate in effect on the Date of Termination)
in monthly or more frequent instalments through the earliest of: (i) the
last day of the Agreement Term; (ii) the date of the Executive's death, or
(iii) the date, if any, of the breach by the Executive of the non-
competition requirements of paragraph 7, the confidentiality requirements
of paragraph 8 or the non-disparagement requirements of paragraph 9.
(d) Pro rata Bonus. Except as otherwise provided in this paragraph 4(d), the
--------------
Executive shall not receive a bonus for the fiscal year in which the
Executive's Date of Termination occurs. If the Executive's Date of
Termination occurs during the Agreement Term as a result of (i) the
Executive's death (ii) his being Permanently Disabled (paragraph 3(b)),
(iii) his discharge by the Company for reasons other than Cause (described
in paragraph 3(c)), or (iv) his constructive discharge (described in
paragraph 3(d)), the Executive shall receive a pro rata portion of the
bonus which would have been paid pursuant to Exhibit A for the fiscal year
in which the Executive's Date of Termination occurs. Such portion, if any,
shall be calculated for the period ending on the Date of Termination and
shall be paid to the Executive (or his estate) within a reasonable period
of time after the Company calculates the bonus amount, if any, for all
employees for the fiscal year.
(e) Housing/Living Expenses, Medical Benefits. If the Executive is entitled to
-----------------------------------------
Salary Continuation payments pursuant to paragraph 4(c), the Executive
shall receive a housing and living expense allowance (described in
paragraph 2(g)) and may continue to participate in the medical and dental
plans in which he participated on the day before his Date of Termination
through the earlier of: (i) the last day for which the Executive receives
Salary Continuation payments pursuant to paragraph 4(c); or (ii) three (3)
months after the Executive's Date of Termination. Participation in the
medical and dental plans is subject to the Executive's payment of the
applicable employee portion of the monthly premium cost, if any. If the
Company ceases offering the medical and dental plans in which the Executive
participated on the day before his Date of Termination to Company employees
during this time, the Executive may elect to participate in any other
medical or dental plan offered by the Company to its employees, provided
however, that the Executive shall be responsible for paying the applicable
employee portion of the monthly premium cost.
(f) Other Programs. No benefits shall be payable to the Executive under any
--------------
other severance pay arrangement or similar arrangement maintained by the
Company or any Subsidiary. Except as otherwise expressly provided in this
Agreement, no other payments or benefits shall be due to the Executive
following the Date of Termination (except as otherwise specifically
provided under the terms of an employee benefit plan or arrangement).
7
<PAGE>
5. Duties on Termination. Subject to the provisions of this Agreement,
---------------------
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Company and the Holding Company as are necessary and appropriate for a
smooth transition to the Executive's successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Company may suspend the Executive
from performing his duties under this Agreement following the delivery of a
Notice of Termination providing for the Executive's resignation, or delivery by
the Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Set-Off. If the Executive's employment with the Company is terminated
-------
for any reason and, under the terms of this Agreement, the Executive is
otherwise entitled to receive Salary and bonus payments, such payments will be
reduced by the amount of any salary and bonus payments the Executive receives in
connection with other employment.
7. Non-competition. While the Executive is employed by the Company, and
---------------
during the Non-Competition Period (as defined below), the Executive agrees that
he will not directly or indirectly perform services in a financial-related
position in Bermuda for a direct competitor of the Company. A financial-related
position shall include, but is not limited to, a financial officer or
comptroller.
For purposes of this paragraph 7:
"Non-Competition Period" shall be determined as follows:
(1) If the Executive's Date of Termination occurs under circumstances
other than those described in paragraph 3(d) (relating to constructive
discharge) or paragraph 3(g) (relating to certain terminations by the
Company), the Non-Competition Period shall be the period beginning on
the Date of Termination, and ending on the twenty-four-month (24)
anniversary of the Date of Termination.
(2) If the Executive's Date of Termination occurs under circumstances
described in paragraph 3(d) (relating to constructive discharge) or
paragraph 3(g) (relating to certain terminations by the Company), the
Non-Competition Period shall be the period beginning on the Date of
Termination, and ending on the earlier to occur of the last day of the
Agreement Term or the twenty-four-month (24) anniversary of the Date
of Termination. However, under this paragraph (B), the Company, in
its discretion, by notice provided to the Executive not later than
fifteen (15) days after the Date of Termination, may extend the Non-
Competition Period beyond the end of the Agreement Term, to a date
specified in such notice (but not later than the twenty-four-month
anniversary of the Date of Termination), but only if
8
<PAGE>
the Company agrees to provide the salary continuation payments
described in paragraph 4(c) during such Non-Competition Period.
Nothing in this paragraph 7, paragraph 8 or paragraph 9 shall be construed
as limiting the Executive's duty of loyalty to the Company while he is employed
by the Company or any other duty he may otherwise have to the Company while he
is employed by the Company.
8. Confidential Information. Except as may be required by the lawful
------------------------
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely all non-public information
(including, without limitation, information regarding litigation and pending
litigation) concerning the Company, the Holding Company, and the Subsidiaries
which was acquired by or disclosed to the Executive during the course of his
employment with the Company, or during the course of his consultation with the
Company following his termination of employment (regardless of whether
consultation is pursuant to paragraph 10), and not to disclose the same, either
directly or indirectly, to any other person, firm, or business entity, or to use
it in any way. To the extent that the Executive obtains information on behalf of
the Company, the Holding Company, or any of the Subsidiaries that may be subject
to attorney-client privilege as to the Company's attorneys, the Executive shall
take reasonable steps to maintain the confidentiality of such information and to
preserve such privilege. Nothing in the foregoing provisions of this paragraph 8
shall be construed so as to prevent the Executive from using, in connection with
his employment for himself or an employer other than the Company, the Holding
Company, or any of the Subsidiaries, knowledge which was acquired by him during
the course of his employment with the Company, the Holding Company, and the
Subsidiaries, and which is generally known to persons of his experience in other
companies in the same industry.
9. Non-Disparagement. The Executive agrees that, while he is employed by
-----------------
the Company, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Company, the Holding Company, the
Subsidiaries, or the officers or directors of the Company, the Holding Company,
or the Subsidiaries that are reasonably likely to cause material damage to the
Company, the Holding Company, the Subsidiaries, or their officers or directors.
While the Executive is employed by the Company, and after his Date of
Termination, the Company agrees, on behalf of itself, the Holding Company, and
the Subsidiaries, that neither the officers nor the directors of the Company,
the Holding Company, or the Subsidiaries shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to Executive.
10. Defense of Claims. The Executive agrees that, for the period
-----------------
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
cooperate with the Company, the Holding Company and the Subsidiaries in defense
of any claims that may be made against the Company, the Holding Company and the
Subsidiaries, and will cooperate with the Company, the Holding Company or the
Subsidiaries in the prosecution of any claims that may be made by the Company,
the Holding Company or the Subsidiaries, to the extent that such claims may
relate to services performed by the Executive for the Company. The Executive
agrees to promptly inform
9
<PAGE>
the Company if he becomes aware of any lawsuits involving such claims that may
be filed against the Company, the Holding Company or the Subsidiaries. The
Company agrees to reimburse the Executive for all of the Executive's reasonable
out-of-pocket expenses associated with such cooperation, including travel
expenses. For periods after the Executive's employment with the Company
terminates, the Company agrees to provide reasonable compensation to the
Executive for such cooperation. The determination of the reasonableness of such
compensation shall take into account information provided to the Company by the
Executive or otherwise known to the Company, which may include, without
limitation, (a) the Executive's rate of compensation at the time he ceased
employment with the Company, and whether he is then receiving other compensation
payments from the Company; (b) the Executive's rate of compensation at the time
of such cooperation; (c) the amount of time required of the Executive for such
cooperation; (d) difficulty of the issues as to which the cooperation is
required; (e) the amount of inconvenience to the Executive resulting from such
cooperation (including consideration of factors such as the amount of travel
required of the Executive, the effect on other commitments of the Executive, and
the amount of advance notice provided to the Executive); and (f) whether such
cooperation would be legally required in the absence of the requirements of this
paragraph 10. The Executive also agrees to promptly inform the Company if he is
asked to assist in any investigation of the Company, the Holding Company or the
Subsidiaries (or their actions) that may relate to services performed by the
Executive for the Company, regardless of whether a lawsuit has then been filed
against the Company, the Holding Company or the Subsidiaries with respect to
such investigation.
11. Remedies. The Executive acknowledges that the Company or the Holding
--------
Company would be irreparably injured by a violation of paragraph 7, paragraph 8,
or paragraph 9, and he agrees that the Company, in addition to any other
remedies available to it for such breach or threatened breach, shall be entitled
to a preliminary injunction, temporary restraining order, or other equivalent
relief, restraining the Executive from any actual or threatened breach of either
paragraph 7, paragraph 8 or paragraph 9. The Company acknowledges that the
Executive would be irreparably injured by a violation of paragraph 9, and the
Company agrees that the Executive, in addition to any other remedies available
to him for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Company from any actual or threatened breach of paragraph 9. If a bond is
required to be posted in order for the Company or the Executive to secure an
injunction or other equitable remedy, the parties agree that said bond need not
be more than a nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
-------------
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment. This Agreement may be amended or canceled only by mutual
---------
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
10
<PAGE>
14. Applicable Law. The provisions of this Agreement shall be construed
--------------
in accordance with the laws of Bermuda, without regard to the conflict of law
provisions of any jurisdiction. All disputes shall be arbitrated or litigated
(whichever is applicable) in Bermuda.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
----------------
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
17. Successors. This Agreement shall be binding upon, and inure to the
----------
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
18. Notices. Notices and all other communications provided for in this
-------
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified, registered or similar mail delivery, five days
after deposit in the local mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that
are to be delivered by the mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company:
LaSalle Re Limited
25 Church Street
Hamilton HMFX, Bermuda
11
<PAGE>
or to the Executive:
Andrew Cook
25 Church Street
Hamilton HMFX, Bermuda
All notices to the Company shall be directed to the attention of the chief
executive officer of the Company, with a copy to the Secretary of the Company.
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out of
---------------------------
or relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Bermuda by three arbitrators. Except
as otherwise expressly provided in this paragraph 19, the arbitration shall be
conducted in accordance with the Arbitration Act 1986 as then in effect. One of
the arbitrators shall be appointed by the Company, one shall be appointed by the
Executive, and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the third arbitrator within 30 days of
the appointment of the second arbitrator, then the third arbitrator shall be
appointed by the President of the Bermuda Bar Council.
20. Survival of Agreement. Except as otherwise expressly provided in this
---------------------
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
21. Entire Agreement. Except as otherwise noted herein, this Agreement,
----------------
including any Exhibit(s) attached hereto, constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior and contemporaneous agreements, if any, between the parties relating to
the subject matter hereof. The enforceability of this Agreement shall not cease
or otherwise be adversely affected by the termination of the Executive's
employment with the Company.
22. Acknowledgment by Executive. The Executive represents to the Company
---------------------------
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
the terms of this Agreement, he has been given a reasonable time to review it,
to consult with counsel of his choice, and to negotiate at arm's-length with the
Company as to the contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto. The Executive represents and warrants that he is not,
and will not become a party to any agreement, contract, arrangement or
understanding, whether of employment or otherwise, that would in any way
restrict or prohibit him from undertaking or performing his duties in accordance
with this Agreement.
12
<PAGE>
23. Titles and Headings. Titles and headings in this Agreement are for
-------------------
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ Andrew Cook
------------------------------
Andrew Cook
LASALLE RE LIMITED
By: /s/ Victor H. Blake
----------------------------
Victor H. Blake
13
<PAGE>
EXHIBIT A
---------
BONUS COMPUTATION
-----------------
A-1. Purpose. This Exhibit A is attached to and forms a part of the
-------
employment agreement (the "Agreement") between Andrew Cook (the "Executive") and
LaSalle Re Limited (the "Company"). The purpose of this Exhibit A is to set
forth the terms of the bonus program described in paragraph 2(b) of the
Agreement.
A-2. Guidelines. The bonus shall be determined in accordance with the
----------
following guidelines:
. A discretionary bonus may be awarded annually by the Board of the Company
after considering the recommendation of the CEO of the Company.
. A non-discretionary bonus shall be earned and paid annually based upon the
Company's Return on Equity (defined below) achieved for each fiscal year of
the Company, while the Executive is employed by the Company.
. The non-discretionary annual bonus calculation will be based on the
Company's Return on Equity earned each year. If the Company's Return on
Equity for any year exceeds 15%, the bonus will be paid according to the
following formula:
. For each 1% improvement in Return on Equity above 15%, an amount
equal to 10.0 % of The Executive's Salary will be paid.
. For each 1% improvement in Return on Equity above 22.5%, an amount
equal to 15.0 % of The Executive's Salary will be paid.
. For Return on Equity results between whole percentages (but above
15%), the percentage of Salary awarded will be increased by
interpolation.
. The "Return on Equity" for any fiscal year shall be equal to the net
income of the Company for the fiscal year, divided by shareholders'
equity at the beginning of the period (as determined on the basis of
U.S. generally accepted accounting principles). For purposes of this
calculation any unrealized appreciation or depreciation of the
Company's investments shall be disregarded (both as to the numerator
and the denominator). Payments made to CNA Financial Corporation or
its affiliates under the Underwriting Support Services Agreement will
not reduce net income in determining Return on Equity.
<PAGE>
EXHIBIT 10.16
-------------
SECOND AMENDMENT
TO THE
LASALLE RE HOLDINGS LIMITED
1996 LONG-TERM INCENTIVE PLAN
-----------------------------
WHEREAS, LaSalle Re Holdings Limited (the "Company") maintains the LaSalle
Re Holdings Limited 1996 Long-Term Incentive Plan (the "Plan");
WHEREAS, the Plan provides that the Board of Directors of the Company (the
"Board") may amend the Plan at any time;
NOW, THEREFORE, BE IT RESOLVED, that the Plan be and is hereby amended,
effective September 25, 1998, by adding the following new section 7A to the Plan
as a part thereof:
"SECTION 7A
----------
FIFTH ANNIVERSARY STOCK AWARD
-----------------------------
Each Eligible Individual who has completed five years of service
with the Company or a Related Company (including service performed as
an employee of CNA (Bermuda) Services Limited or Aon Risk Consultants
(Bermuda) Ltd.) who has not previously been granted an award under the
Plan shall be granted Stock on the earlier of (i) the fifth
anniversary of such Eligible Individual's date of hire by the Company
or a Related Company or (ii) in the case of an Eligible Individual who
performed services for the Company or a Related Company prior to such
date of hire, the fifth anniversary of the date on which such Eligible
Individual began performing such services, subject in each case to
approval of such award by the Committee. The amount of Stock granted
to the Eligible Individual shall be equal to 10% of his or her base
salary as of such anniversary date, divided by the Fair Market Value
of a share of Stock on the business day coincident with such
anniversary date, or if such anniversary date is not a business day,
the first business day immediately prior to such anniversary date;
provided that such Eligible Individual is employed by the Company or a
Related Company on such anniversary date."
<PAGE>
EXHIBIT 10.19
-------------
SECOND AMENDMENT
TO THE
LASALLE RE HOLDINGS LIMITED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
WHEREAS, LaSalle Re Holdings Limited (the "Company") maintains the LaSalle
Re Holdings Limited Employee Stock Purchase Plan (the "Plan");
WHEREAS, the Plan provides that the Board of Directors of the Company (the
"Board") may amend the Plan at any time; and
WHEREAS, the Board has determined that it is desirable and in the best
interests of the Company to amend the Plan;
NOW, THEREFORE, BE IT RESOLVED, that the Plan be and is hereby amended in
the following particulars, effective September 25, 1998:
1. By substituting the following for subsection 1.1:
"1.1. Purpose. The LaSalle Re Holdings Limited Employee Stock
-------
Purchase Plan (the 'Plan') has been established by LaSalle Re Holdings
Limited (the 'Company') to provide Eligible Associates of the Company and
the Related Companies and Directors of the Company with an opportunity to
acquire a proprietary interest in the Company through the purchase of
common shares of the Company ('Stock')."
2. By substituting the following for subsection 2.1:
"2.1. Eligibility. Plan participation shall be available to
-----------
(and shall be limited to): (a) any person who is an Eligible Associate and
who has completed one continuous year as an Eligible Associate, and (b) any
person who is a Director. Notwithstanding the foregoing provisions of this
subsection 2.1, an individual described in clause (a) immediately above may
participate in the Plan for any calendar year only if he is an Eligible
Associate on the first day of that year; provided, however, that for the
Subscription Periods (as defined below) beginning on July 1, 1996 and
October 1, 1996, an individual may participate in the Plan for such
Subscription Period if he is an Eligible Associate on the first day of that
period; and an individual described in clause (b) immediately above may
participate in the Plan for any Subscription Period only if he is a
Director on the date on which he makes payment to the Company for the
purchase of Stock
<PAGE>
pursuant to paragraph 2.2(c) and he continues as Director from such date
continuously through the last day of such Subscription Period."
3. By adding the following new paragraph (c) to subsection 2.2 as a part
thereof:
"(c) A Director may elect to purchase Stock during a Subscription
Period and by such election become a Participant for such
Subscription Period by filing with the Committee, at such time
and in such form as required by the Committee, but in any case
not later than the Price Date applicable to such Subscription
Period, a written election specifying the dollar amount to be
used to purchase Stock, subject to the limitations of subsection
2.4, accompanied by a cash payment equal to such amount."
4. By substituting the following for subsection 2.4:
"2.4 Purchase of Stock. With respect to each Subscription
-----------------
Period, a Participant shall be deemed to purchase the number of whole
shares of Stock as his accumulated payroll deductions for the Subscription
Period will purchase, or with respect to a Participant who is a Director,
the number of whole shares of Stock as his payment made pursuant to
subsection 2.2(c) will purchase, subject to the following:
(a) The purchase price per share shall be equal to 85% of the Fair
Market Value of Stock on the Price Date; provided, however, that
in no event shall such price per share be less than the par value
of the Stock.
(b) A Participant shall be deemed to have purchased the shares of
Stock on the third business day following the applicable Price
Date (the 'Purchase Date').
(c) Any accumulated payroll deductions of a Participant or payments
made by a Director that are not used to purchase full shares of
Stock under the Plan shall be held and applied toward the
purchase of Stock in the next following Subscription Period.
Notwithstanding the foregoing, the Participant may request that
such amount be paid to the Participant by filing a written
application with the Committee in such form and at such time as
the Committee may require, in which case such amount shall be
paid to the Participant without interest as soon as practicable
following the Committee's receipt of the request.
(d) No Participant shall have the right to purchase more than $25,000
in value of Stock under the Plan (and any other employee stock
purchase plan maintained by the Company or any Related Company)
through payroll deductions of salary pursuant to paragraph 2.2(a)
in any calendar year
2
<PAGE>
($12,500 for the period beginning July 1, 1996 and ending December 31,
1996), such value being based on the Fair Market Value of Stock (as
adjusted pursuant to paragraph 2.4(a)) as of the Price Date
immediately preceding the Purchase Date on which the Participant is
deemed to purchase Stock under the terms of the Plan, as such terms
are defined for purposes of paragraph 2.2(a).
(e) No Participant shall have the right to purchase more than an
amount equal to 25% of the Participant's bonus payment in value
of Stock under the Plan (and any other employee stock purchase
plan maintained by the Company or any Related Company) through
payroll deduction pursuant to paragraph 2.2(b) in any calendar
year, such value being based on the Fair Market Value of Stock
(as adjusted pursuant to paragraph 2.4(a)) as of the Price Date
immediately preceding the Purchase Date on which the Participant
is deemed to purchase Stock under the terms of the Plan, as such
terms are defined for purposes of paragraph 2.2(b).
(f) No Participant who is a Director shall have the right to purchase
more than $25,000 in value of Stock under the Plan (and any other
stock purchase plan maintained by the Company or any Related
Company) through payment made pursuant to paragraph 2.2(c) in any
calendar year, such value being based on the Fair Market Value of
Stock (as adjusted pursuant to paragraph 2.4(a)) as of the Price
Date immediately preceding the Purchase Date on which the
Participant is deemed to purchase Stock under the terms of the
Plan, as such terms are defined for purposes of paragraph
2.2(c)."
5. By substituting the following for subsection 2.5:
"2.5 Termination of Participation. A Participant who is an
----------------------------
Eligible Associate may discontinue his participation in the Plan for
any Subscription Period, by notifying the Committee of such
discontinuance in writing, in such form and at such time as the
Committee may require. Upon any such discontinuance, no further
payroll deductions under the Plan will be made from the Participant's
pay or bonus payments for that calendar year, and all of the
Participant's payroll deductions for the Subscription Period in which
he or she discontinues participation will be used to purchase Stock
for that Subscription Period in accordance with the requirements of
subsection 2.4. A Participant who has discontinued participation in
the Plan in accordance with the foregoing provisions of this
subsection 2.5 during a calendar year may not again participate in the
Plan until the next following calendar year, by filing a written
payroll deduction authorization with the Committee in accordance with
the requirements of subsection 2.2; provided, that he will be eligible
to participate during the next such calendar year only if he is an
Eligible Associate on the first day of such
3
<PAGE>
calendar year. If a Participant's Date of Termination occurs during a
Subscription Period for any reason, all payroll deductions accumulated
by the Participant under the Plan and all payments made by a
Participant who is a Director for the period that have not then been
applied to the purchase of Stock shall be paid to the Participant
without interest."
6. By substituting the following for paragraph (a) of subsection 3.4:
"(a) Except as set forth herein, Stock sold to Participants may not
be sold, assigned, transferred, pledged or otherwise encumbered,
except as hereinafter provided, for a period of one year after
the Purchase Date on which such shares were purchased (the
'Restricted Period'). Except for such restrictions, the
Participant as owner of such shares shall have all the rights of
a shareholder, including but not limited to the right to vote
such shares and the right to receive all dividends paid on such
shares."
7. By substituting the following for paragraph (d) of subsection 3.4:
"(d) If a Participant sells shares of Stock prior to the Restricted
Date in accordance with subparagraph (c) above, then, as of the
date on which he or she elects to sell such shares, no further
payroll deductions with respect to such Participant will be made
for that Subscription Period, no further payment toward the
purchase of Stock may be made by a Participant who is Director
for that Subscription Period, the Participant will not be
eligible to purchase shares for that Subscription Period, all
amounts which have been deducted with respect to such Participant
or paid by such Participant who is a Director during the
Subscription Period in which he or she makes the election to sell
will be promptly paid to him or her without interest, and the
Participant may not again participate in the Plan until the next
following calendar year, by filing a written payroll deduction
authorization with the Committee or, with respect to a
Participant who is a Director, by submitting payment to the
Committee, in accordance with the requirements of subsection 2.2;
provided, however, that an individual (other than a Director)
will be eligible to participate during the next such calendar
year only if he or she is an Eligible Associate on the first day
of such calendar year, and an individual who is a Director will
be eligible to participate during any Subscription Period in the
next such calendar year only if he or she is a Director on the
date on which he or she makes payment to the Company for the
purchase of Stock pursuant to paragraph 2.2(c) and he or she
continues as a Director from such date continuously through the
last day of such Subscription Period."
8. By substituting the following for paragraph (b) of subsection 3.8:
4
<PAGE>
"(b) The Plan does not constitute a contract of employment, and
participation in the Plan will not give any Eligible Associate or
Director the right to be retained in the employ of an Employer or
any Related Company, the right to continue to otherwise perform
services for an Employer or Related Company, the right to
continue serving as a Director, nor any right or claim to any
benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Except as
otherwise provided in the Plan, no right to purchase shares under
the Plan shall confer upon the holder thereof any right as a
shareholder of the Company prior to the date on which the shares
of Stock are purchased pursuant to the terms of the Plan."
9. By substituting the following for paragraph (d) of section 6:
"(d) Date of Termination. A Participant's "Date of Termination"
-------------------
shall be, with respect to an individual other than a Director,
the date on which his or her position as an Eligible Associate
terminates for any reason, and with respect to a Director, the
date immediately following the last day on which he or she serves
as a Director; provided, that a Date of Termination shall not be
deemed to occur by reason of a transfer of the Participant
between two entities as an Eligible Associate; further provided
that a Date of Termination shall not be deemed to occur by reason
of a Participant's cessation of service as a Director if
immediately following such cessation of service he becomes or
continues to be an Eligible Associate nor by reason of a
Participant's cessation as an Eligible Associate if immediately
following such cessation he becomes or continues to be a
Director; and provided, further, that a Participant's Date of
Termination shall not be deemed to occur while the Participant is
on a leave of absence as an Eligible Associate, which leave of
absence has been approved by an Employer."
10. By redesignating paragraphs (f), (g), (h), (i), (j), (k), (l), (m),
(n), and (o) of section 6 as paragraphs (g), (h), (i), (j), (k), (l),
(m), (n), (o) and (p) of section 6, respectively, and adding the
following new paragraph (f) to section 6:
"(f) Director. The term 'Director' means a member of the Board, who
--------
may or may not be an employee of the Company or a Related
Company."
11. By substituting the following for paragraph (i) of section 6, as
redesignated by this Second Amendment of the Plan:
(i) Eligible Associate. The term "Eligible Associate" means any
-------------------
individual who is an employee of an Employer, and any other
individual who is performing services for an Employer as an
employee of Aon Risk
5
<PAGE>
Consultants (Bermuda) Limited, CNA Bermuda Services Limited, or
such other entity designated by the Board. Notwithstanding the
foregoing, an executive officer of the Company may not be an
Eligible Associate, unless otherwise approved by the Board,
provided that an executive officer designated as an Eligible
Associate will have his service as an executive officer prior to
designation as an Eligible Associate taken into account in
determining continuous service as an Eligible Associate."
12. By substituting the following for paragraph (l) of section 6, as
redesignated by this Second Amendment of the Plan:
"(l) Fair Market Value. The 'Fair Market Value' of a share of Stock
-----------------
as of any date (including, without limitation, any Price Date
with respect to shares purchased pursuant to paragraph 2.2(a)
with funds accumulated through payroll deductions from salary and
any Price Date with respect to shares purchased pursuant to a
Director's payment of funds pursuant to paragraph 2.2(c)) shall
be the closing sale price for the Stock as reported on The New
York Stock Exchange for such date or, if Stock is not traded on
that date, on the next preceding date on which Stock was traded;
provided, however, that the 'Fair Market Value' of a share of
Stock as of any Price Date with respect to shares purchased
pursuant to paragraph 2.2(b) through payroll deduction from any
bonus payment shall be the lesser of (i) the closing sale price
for the Stock as reported on The New York Stock Exchange for such
Price Date or, if Stock is not traded on that date, on the next
preceding date on which Stock was traded, or (ii) the average of
the daily closing sale prices for the Stock as reported on The
New York Stock Exchange (or the Nasdaq National Market with
respect to dates prior to April 11, 1997) for each date on which
the Stock was traded during the fiscal year to which such bonus
payment relates."
13. By substituting the following for paragraph (m) of section 6, as
redesignated by this Second Amendment of the Plan:
"(m) Participant. The term "Participant" means any Eligible Associate
-----------
or Director who is eligible and elects to participate in the Plan
pursuant to the provisions of Section 2. Nothwithstanding the
foregoing, a U.S. Person may only be a Participant with respect
to Stock purchased in accordance with the provisions of
subsection 1.3(a)."
14. By substituting the following for paragraph (n) of section 6, as
redesignated by this Second Amendment of the Plan:
"(n) Price Date. The "Price Date" shall be (i) with respect to shares
----------
purchased pursuant to paragraph 2.2(a) with funds accumulated
through payroll
6
<PAGE>
deductions from salary during any Subscription Period and with
respect to shares purchased pursuant to paragraph 2.2(c) with
funds paid to the Company by a Director during any Subscription
Period, the last business day of such Subscription Period; and
(ii) with respect to shares purchased pursuant to paragraph
2.2(b) through payroll deduction from any bonus payment, the last
day of the Company's fiscal year to which such bonus payment
relates."
7
<PAGE>
EXHIBIT 10.29
CNA REFERENCE :44 FIR 1998
- --------------------------
REASSURED:- CNA REINSURANCE COMPANY LIMITED -
INTERNATIONAL TREATY DEPARTMENT, LONDON, ENGLAND.
PERIOD:- Continuous contract in respect of all business written
by the Reassured and signed into their 1994 and
subsequent Underwriting Years of Account
Subject to three months prior notice of cancellation to
expire at 31st December any year.
HEREON: SIGNING FOR 1998 UNDERWRITING YEAR OF ACCOUNT.
TYPE:- 40% Quota Share Treaty
CLASS:- The Reassured's Account of PROPERTY CATASTROPHE EXCESS
OF LOSS TREATIES (including specific peril aggregate
excess of loss business underwritten for a single
territory).
Excluding the Reinsured's interest whether direct or by
way of reinsurance in loss arising from claim or claims
against an Insured by another party or parties.
Notwithstanding the foregoing this reinsurance shall
not exclude:
a) Workers' Compensation and/or Employers' Liability
losses arising from the following perils:-
Fire, Lightning, Explosion, Structural Collapse,
Windstorm, Hail, Flood, Seismic Activity, Volcanic
Eruption, Collision, Riots, Strikes, Civil Commotion,
Malicious Damage.
b) Any Physical Damage and/or Consequential loss coverage
contingent thereon effected by an Insured on behalf of
another party.
TERRITORIAL SCOPE:- Worldwide excluding USA & Canada, other than
incidental.
TREATY DETAIL:- To take 40% Quota Share of the Reassureds participation
subject to a maximum cession hereon of GBP 1,600,000
($2,400,000) any one programme. Cessions in currencies
other than sterling at rates of exchange as used in the
books of the Reassured.
RATE:- Original Net Premium as Original.
ADMINISTRATIVE
PROCESSING FEE:- 4.00% on Original Net Rate.
TAXES:- As may be applicable on the original business.
<PAGE>
CNA REFERENCE: 44 FIR 1998
- --------------------------
PREMIUM RESERVE:- Not applicable.
LOSS RESERVE:- As may be applicable on the original business.
PORTFOLIO:- Agreed, if and when requested by the Reassured, to
close each Underwriting Year of Account at any time
after the end of the third year at an amount sufficient
to cover all outstanding losses as may be mutually
agreed.
CASH LOSS:- At Reassured's discretion, Minimum GBP 2,666,666
($4,000,000).
ACCOUNTS:- Quarterly Accounts in GBP and US$ separately on each
year of account. Presentation within 45 days of end of
quarter with settlement due within 30 days thereafter.
GENERAL CONDITIONS:- Monthly bordereaux of risks ceded
Full Reinsurance Clause
War Exclusion G51
Nuclear Energy Risks Exclusion Clause
(Reinsurance) 1984, NMA 1975 (Japanese Amendment)
Nuclear Incident Exclusion Clauses - Physical
Damage Reinsurance - USA & Canada
Excluding Financial Guarantee and Insolvency
Maximum Net Premium ceded hereon GBP 14,600,000
Normal maximum aggregate cession per country or
territorial zone hereon GBP 24,000,000 with exception
of the United Kingdom where the maximum aggregate
to be ceded is GBP 40,000,000.
Special cessions to be agreed by Reinsurers prior to
binding. Multi-year policies accepted by annual re-
signing.
WORDING:- As before as far as applicable, any amendments to be
agreed.
INFORMATION:- 1998 E.N.P.I. GBP 6,500,000 FOR 40% Hereon.
N.B. net of original brokerage
HEREON: 100% LASALLE RE LIMITED
Signed /s/ Graham Waite Dated 8th Dec. 1997
------------------------------ -------------
on behalf of LaSalle Re Limited
<PAGE>
CNA REFERENCE :44 FIR 1998 09/01/1998
- -------------------------- ----------
ADDENDUM TO COVER NOTE
----------------------
CNA RE - INTERNATIONAL TREATY DEPARTMENT
----------------------------------------
PROPERTY CATASTROPHE 40% QUOTA SHARE TREATY
-------------------------------------------
1998 UNDERWRITING YEAR OF ACCOUNT
---------------------------------
ACCOUNTS: Quarterley Accounts in US$ only on each year of account.
Presentation within 45 days of end of quarter with
settlement due within 30 days thereafter.
All other terms and conditions remain unaltered.
SIGNED: /s/ Graham Waite DATED: 19th Jan 1998
------------------------------- ----------------
on behalf of LaSalle Re Limited
<PAGE>
TITLE: NON-OBLIGATORY QUOTA SHARE
REINSURANCE AGREEMENT
BETWEEN: CNA INTERNATIONAL REINSURANCE
COMPANY LIMITED
AND
LA SALLE RE LTD
COMMENCING: 1ST JANUARY, 1994
<PAGE>
NON-OBLIGATORY QUOTA SHARE REINSURANCE AGREEMENT
------------------------------------------------
made between
CNA INTERNATIONAL REINSURANCE COMPANY LIMITED
(hereinafter referred to as 'the Reassured')
and
LA SALLE RE LTD
(hereinafter referred to as 'the Reinsurers')
PREAMBLE
- --------
This Agreement is made and entered into between CNA International Reinsurance
Company Ltd (hereinafter referred to as "the Reassured") and La Salle Re Ltd
(hereinafter referred to as "the Reinsurers"), on the following terms and
conditions.
ARTICLE 1
---------
BUSINESS REINSURED
- ------------------
This Agreement applies to policies and/or contracts of insurance and/or
reinsurance allocated by the Reassured to its account of Property Catastrophe
Excess of Loss Treaties (including specific peril aggregate excess of loss
written for a single territory) written or renewed by the Reassured in its
London Office.
ARTICLE 2
---------
COVER, LIMIT AND RETENTION
- --------------------------
The Reassured may cede and the Reinsurers shall accept by way of reinsurance
under this Agreement, 50% Quota Share of all cessions coming within the scope of
this Agreement, subject to a maximum Quota Share of cessions hereto of
(pounds)2,000,000 or US$3,000,000 for any one programme.
The Reassured shall retain the remaining 50% Quota Share for its own account
but, without prejudice to the above, shall be at liberty to protect that
retention by way of reinsurance for its own account and benefit.
The maximum aggregate cession hereto per country or territorial zone is
(pounds)30,000,000.
<PAGE>
- 2 -
ARTICLE 3
---------
TERRITORIAL SCOPE
- -----------------
This Agreement shall cover wherever cessions hereto cover other than losses
occurring in the United States of America and/or Canada except where such loss
exposures are incidental to the main hazard.
ARTICLE 4
---------
PERIOD
- ------
This Agreement takes effect on 1st January 1994 and applies to all business
written or renewed by the Reassured and signed into its 1994 and/or subsequent
Underwriting Years of Account.
This Agreement shall remain in full force and effect unless and until terminated
on 31st December 1994 or on any subsequent 31st December by either party giving
to the other not less than three months prior written notice.
For the purposes of this Agreement, the term of and participations in this
Agreement shall be divided into separate Underwriting Years, each for twelve
months commencing on 1st January.
Each cession made by the Reassured and all accounting transactions relating
thereto, shall be allocated by the Reassured to One Underwriting Year.
In the event of cancellation, all cessions in force at Midnight on the date of
cancellation shall remain covered under this Agreement until their individual
natural expiration or termination whichever occurs first.
Notwithstanding anything to the contrary contained in this Article, either party
shall have the right to terminate this Agreement by giving the other party
notice:-
(a) if the performance of the whole or any part of this Agreement be prohibited
or rendered impossible de jure or de facto in particular and without
prejudice to the generality of the preceding words in consquence of any law
or regulation which is or shall be in force in any country or territory or
if any law or regulation shall prevent directly or indirectly the
remittance of any or all or any part of the balance of payments due to or
from either party;
(b) if the other party has become insolvent or unable to pay its debts or has
lost the whole or any part of its paid up capital;
<PAGE>
- 3 -
(c) if there is any material change in the ownership or control
of the other party;
(d) if the country or territory in which the other party resides or has its
head office or is incorporated shall be involved in armed hostilities with
any other country whether war be declared or not or is partly or wholly
occupied by another power;
(e) if the other party shall have failed to comply with any of
the terms and conditions of this Agreement.
All notices of termination in accordance with any of the provisions of this
Article shall be by Telex or telegram and shall be deemed to be served upon
despatch or, where communications between the parties are interrupted, upon
attempted despatch.
All notices of termination served in accordance with any of the provisions of
this Article shall be addressed to the party concerned at its head office or at
any other address previously designated by that party.
In the event of this Agreement being terminated at any date other than its
natural expiry then the premium due to the Reinsurers shall be calculated upon
the Original Net Premium income of the Reassured up to the date of termination.
ARTICLE 5
---------
FOLLOW THE FORTUNES
- -------------------
The Reinsurers' liability to the Reassured in respect of all cessions under
this Agreement shall follow the liability of the Reassured to its reinsureds.
ARTICLE 6
---------
FULL REINSURANCE
- ----------------
The Reinsurers agree to follow and abide by all agreements, actions and/or
settlements made by the Reassured and to agree, with or without notice, all
alterations and/or additions and/or extensions made under the original cessions
subsequent to the effecting of this Agreement, subject to the conditions of this
Agreement.
The Reinsurers expressly agree to pay in all respects as may be paid on the
original cessions liable or not liable, including in addition where applicable a
pro rata share of legal and/or other special expenses when incurred by the
Reassured.
<PAGE>
- 4 -
ARTICLE 7
---------
EXCLUSIONS
- ----------
This Agreement does not cover:
A. any liability assumed by the Reassured for loss or damage directly or
indirectly occasioned by, happening through or in consequence of war,
invasion, acts of foreign enemies, hostilities or war-like operations
(whether war be declared or not), civil war, mutiny, civil commotion
assuming the proportions of or amounting to a popular rising, insurrection,
rebellion, revolution, military or usurped power, martial law, confiscation
or nationalisation or requisition or destruction of or damage to property
by or under the order of any Government or public or local authority.
However, the foregoing exclusion shall not apply to those classes of
business which are written in accordance with the War and Civil War
Exclusion Agreement and/or the War and Civil War Risk Exclusion Agreement
nor to business outside the scope of such Agreements unless such classes of
business are not covered by this Agreement.
In respect of losses arising in the United Kingdom only (other than in
respect of losses arising under those classes of business covered hereunder
which contain a War Inclusion Clause and such other classes of business
covered hereunder for which there is no Market requirement for such other
classes of business to contain a War Exclusion Clause by virtue of the
operation of the War and Civil War Exclusion Agreement and/or the War and
Civil War Risk Exclusion Agreement), this Agreement shall not cover any
liability assumed by the Reassured for loss or damage directly or
indirectly occasioned by, happening through or in consequence of any act of
any person or persons acting on behalf of or in connection with any
organisation the objects of which are to include the overthrowing or
influencing of any de jure or de facto government by terrorism or by any
violent means;
B. the Reassured's interest whether direct or by way of reinsurance in loss
arising from claim or claims against an insured by another party or
parties.
<PAGE>
- 5 -
Notwithstanding the foregoing this Agreement shall not exclude:
1) Workers' Compensation and/or Employers' Liability losses arising from
the following perils:-
Fire, Lightning, Explosion, Structural Collapse, Windstorm, Hail,
Flood, Seismic Activity, Volcanic Eruption, Collision, Riots, Strikes,
Civil Commotion, Malicious Damage;
2) Any Physical Damage and/or Consequential loss coverage contingent
thereon effected by an insured on behalf of another party.
C. Financial Guarantee and Insolvency.
D. Nuclear Risks for those applicable classes of business and territories as
appropriate in accordance with the clause referred to below and which shall
form an integral part hereof, copies of which are on file with the
Reassured:-
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1984) - WORLDWIDE
EXCLUDING U.S.A. AND CANADA - NMA 1975
Notwithstanding the provisions this Clause, in respect of Japanese business
certain liabilities, the type of which by market practice and custom have
not been declared to the Japanese Nuclear Pool shall not fall within the
scope of this exclusion.
ARTICLE 8
---------
PREMIUM
- -------
In consideration of the liabilities undertaken by the Reinsurers in accordance
with the terms of this Agreement, the Reassured shall pay to the Reinsurers
their 50% Quota Share proportion of the Reassured's Original Net Premium in
respect of all cessions hereto.
The term "Original Net Premium" shall, for all purposes of this Agreement, be
understood to mean the full gross amount of the premiums paid to the Reassured
under the original cessions by their original insureds or reinsureds, less all
original commissions, brokerage and taxes.
The maximum Original Net Premium to be ceded to this Agreement for any one
Underwriting Year shall be $18,000,000.
<PAGE>
- 6 -
ARTICLE 9
---------
ADMINISTRATIVE PROCESSING FEE
- -----------------------------
The Reinsurers agree to allow the Reassured to deduct and retain for its own
benefit as administrative processing fee 2.5% of the Original Net Premium
payable to the Reinsurers in accordance with the terms of Article 8, "Premium".
ARTICLE 10
----------
LOSSES AND LOSS EXPENSES
- ------------------------
All loss settlements made by the Reassured, whether under strict policy
conditions or by compromise, shall be unconditionally binding upon the
Reinsurers who shall be liable for their Quota Share proportion thereof and of
all expenses (other than the salaries of employees and office expenses of the
Reassured) incurred by the Reassured in connection therewith.
The Reinsurers shall benefit in their Quota Share proportion from any salvage or
recoveries effected by the Reassured for the benefit of itself and the
Reinsurers.
Losses which the Reassured has paid shall be debited to the Reinsurers in the
quarterly accounts rendered in accordance with Article 11, "Accounts, Reports
and Payments" but, in the event of the Reassured sustaining a loss in respect of
which the 100% Quota Share proportion amounts to or exceeds $5,000,000 any one
occurrence, the Reassured shall have the option of requiring the Reinsurers to
effect payment as soon as practicable upon submission of proof of loss.
ARTICLE 11
----------
ACCOUNTS, REPORTS AND PAYMENTS
- ------------------------------
The Reassured shall render a separate quarterly statement of account for each
Underwriting Year of Account during which this Agreement is in force showing a
total of all premiums ceded to this Agreement during such quarter. The Reassured
shall also furnish a separate quarterly loss statement for each such
Underwriting Year of Account, showing losses paid, loss expenses and salvages
coming within the terms of this Agreement and entered into the Reassured's books
during such quarter.
<PAGE>
- 7 -
The quarterly accounts shall be rendered within forty-five days after the end of
each quarter. All accounts shall be rendered and settled in Sterling.
Balances due to the Reinsurers shall be paid on delivery of the accounts,
balances due to the Reassured shall be paid together with the confirmation but
not later than thirty days after the receipt of the accounts. In case of
objections, however, the amount not in dispute shall be paid at once and the
difference as soon as agreement has been reached.
The Reassured shall furnish quarterly bordereaux of cessions hereto.
ARTICLE 12
----------
COMMUTATION
- -----------
If mutually agreed by the Reassured and the Reinsurers, at thirty-six months
following the commencement of any Underwriting Year of this Agreement, or at any
time thereafter, the Reassured may discharge the Reinsurers from all and/or
further liability in respect of such Underwriting Year. The Reassured will
prepare a report evaluating loss reserves and liabilities to establish a basis
for the discussion of commutation. The payment by the Reinsurers of an amount
mutually agreed will constitute a complete and final release of the Reinsurers
in respect of all liability relating to such Underwriting Year.
ARTICLE 13
----------
LOSS RESERVES
- -------------
Where required by original ceding companies, outstanding loss reserves will be
established by the Reassured and reference thereto shall be included in the
quarterly bordereaux referred to in Article 11 "Accounts, Reports and Payments".
ARTICLE 14
----------
CURRENCY
- --------
The currency to be used for all purposes of this Agreement shall be Pounds
Sterling. Cessions in currencies other than Pounds Sterling shall be converted
to Pounds Sterling at the rates of exchange used in the Reassured's books.
<PAGE>
- 8 -
ARTICLE 15
----------
INSOLVENCY OF THE REASSURED
- ---------------------------
Amounts due to the Reassured under this Agreement shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the cessions
hereto without diminution because of the insolvency of the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the Reinsurers
of the pendency of any claim against the insolvent Reassured on the cessions
hereto within a reasonable time after such claim is filed in the insolvency
proceedings. During the pendency of such claim the Reinsurers may investigate
such claim and intervene, at their own expense, in the proceedings where such a
claim is to be adjudicated and interpose any defence or defences which they may
deem available to the Reassured or its Liquidator or Receiver or Statutory
Successor. The expense thus incurred by the Reinsurers shall be chargeable,
subject to court approval, against the insolvent Reassured as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Reassured solely as a result of the defence so
undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or interpose defence to such claim,
the expense shall be apportioned in accordance with the terms of the above
paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Agreement any sums which are due to the
Reinsurers from the Reassured under this Agreement and which are payable at a
fixed or stated date, as well as any other sums due to the Reinsurers which are
permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Agreement shall be payable by the Reinsurers directly to
the Reassured or to its Liquidator, Receiver or Statutory Successor.
<PAGE>
- 9 -
ARTICLE 16
----------
DELAYS, ERRORS OR OMISSIONS
- ---------------------------
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Agreement
if such delay, error or omission had not been made, provided that rectification
is made immediately upon discovery.
ARTICLE 17
----------
AMENDMENTS AND ALTERATIONS
- --------------------------
The terms herein contained comprise the whole Agreement between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 18
----------
ACCESS TO RECORDS
- -----------------
All documents and records in the possession of the Reassured concerning this
Agreement shall be made available upon reasonable notice at the request of the
Reinsurers for inspection by the Reinsurers or their nominated representatives
for the purposes of obtaining information concerning this Agreement or the
subject matter hereof.
For the avoidance of doubt, the rights given to the Reinsurers by this Article
shall continue in effect notwithstanding the termination of this Agreement and
shall be exercised at the Reinsurers' own expense.
ARTICLE 19
----------
OFFSET
- ------
Each party hereto shall have and may exercise in the event of the insolvency of
the other or the non-payment by the other of obligations where due hereunder,
the right to offset any balance or balances whether on account or premiums,
commissions, claims or losses, adjustment expenses, salvage or any other amount
due from that party to the other party hereto under this Agreement against the
balance or balances due or to become due to the offsetting party from the other
party under this Agreement.
<PAGE>
- 10 -
ARTICLE 20
----------
ARBITRATION
- -----------
1. All matters in difference between the parties arising under, out of or in
connection with this Agreement, including formation and validity, and
whether arising during or after the period of this Agreement, shall be
referred to an arbitration tribunal in the manner hereinafter set out.
2. Unless the parties appoint a sole arbitrator within 14 days of one
receiving a written request from the other for arbitration, the claimant
(the party requesting arbitration) shall appoint his arbitrator and give
written notice thereof to the respondent. Within 30 days of receiving such
notice the respondent shall appoint his arbitrator and give written notice
thereof to the claimant, failing which the claimant may apply to the
appointor hereafter named to nominate an arbitrator on behalf of the
respondent.
3. Before they enter upon a reference the two arbitrators shall appoint a
third arbitrator. Should they fail to appoint such a third arbitrator
within 30 days of the appointment of the respondent's arbitrator then
either of them or either of the parties may apply to the appointor for the
appointment of the third arbitrator. The three arbitrators shall decide by
majority. If no majority can be reached the verdict of the third arbitrator
shall prevail. He shall also act as chairman of the tribunal.
4. Unless the parties otherwise agree the arbitration tribunal shall consist
of persons (including those who have retired) with not less than ten years
experience of insurance or reinsurance as persons engaged in the industry
itself or as lawyers or other professional advisers.
5. The arbitration tribunal shall, so far as is permissible under the law and
practice of the place of arbitration, have power to fix all procedural
rules for the holding of the arbitration including discretionary power to
make orders as to any matters which it may consider proper in the
circumstances of the case with regard to pleadings, discovery, inspection
of the documents, examination of witnesses and any other matter whatsoever
relating to the conduct of the arbitration and may receive and act upon
such evidence whether oral or written strictly admissible or not as it
shall in its discretion think fit.
<PAGE>
-11-
6. The appointor shall be the Chairman for the time being of ARIAS (UK) or if
he is unavailable or it is inappropriate for him to act for any reason,
such person as may be nominated by the Committee of ARIAS (UK). If for any
reason such persons decline or are unable to act, then the appointor shall
be the Judge of the appropriate Courts having jurisdiction at the place of
arbitration.
7. All costs of the arbitration shall be determined by the arbitration
tribunal who may, taking into account the law and practice of the place of
arbitration, direct to and by whom and in what manner they shall be paid.
8. The place of arbitration may be chosen by the parties, but in default of
such choice, the place of arbitration shall be London, England.
9. The proper law of this Agreement shall be the law of England.
10. The award of the arbitration tribunal shall be in writing and binding upon
the parties who consent to carry out the same.
ARTICLE 21
----------
PARTICIPATION
- -------------
This Agreement obligates the Reinsurers for their proportion of the interests
and liabilities set forth in this Agreement.
<PAGE>
- 12 -
IN WITNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Agreement as follows:
Signed in London, England, this 11th day of April 1994
For and on behalf of the Reassured: /s/ H. Simons
CNA INTERNATIONAL REINSURANCE CO. LTD
And
Signed in Hamilton, Bermuda, this 26th day of September 1994.
For and on behalf of the Reinsurers. /s/ Guy Hengesbaugh
Guy Hengesbaugh
Chief Underwriter
LASALLE RE LIMITED
<PAGE>
EXHIBIT 10.34
CNA Ref: 45 FIR
- ---------------
REASSURED:- CNA REINSURANCE COMPANY LIMITED -
AMSTERDAM, ZURICH AND MILAN BRANCHES
PERIOD:- Continuous contract in respect of all business written
by the Reassured and signed into their 1994 and
subsequent Underwriting Years of Account
Subject to three months prior notice of cancellation to
expire at 31st December any year.
HEREON: SIGNING 1998 UNDERWRITING YEAR OF ACCOUNT.
TYPE:- 50% Quota Share Treaty
CLASS:- The Reassured's Account of PROPERTY CATASTROPHE EXCESS
OF LOSS TREATIES (including specific peril aggregate
excess of loss written for a single territory).
Excluding the Reinsured's interest whether direct or by
way of reinsurance in loss arising from claim or claims
against an Insured by another party or parties.
Notwithstanding the foregoing this reinsurance shall
not exclude:
a) Workers' Compensation and/or Employers' Liability
losses arising from the following perils:-
Fire, Lightning, Explosion, Structural Collapse,
Windstorm, Hail, Flood, Seismic Activity, Volcanic
Eruption, Collision, Riots, Strikes, Civil Commotion,
Malicious Damage.
b) Any Physical Damage and/or Consequential loss coverage
contingent thereon effected by an Insured on behalf of
another party.
TERRITORIAL SCOPE:- Worldwide excluding USA & Canada, other than
incidental.
TREATY DETAIL:- To take 50% Quota Share of the Reassured's
participation subject to a maximum cession hereon of
GBP 2,000,000 ($3,000,000) any one programme. Cessions
in currencies other than sterling at rates of exchange
as used in the books of the Reassured.
RATE:- Original Net Premium as Original.
ADMINISTRATIVE
PROCESSING FEE:- 4.0% on Original Net Rate.
TAXES:- As may be applicable on the original business.
<PAGE>
CNA REF: 45 FIR
- ---------------
PREMIUM RESERVE:- Not applicable.
LOSS RESERVE:- As may be applicable on the original business.
PORTFOLIO:- Agreed, if and when requested by the Reassured, to
close each Underwriting Year of Account at any
time after the end of the third year at an amount
sufficient to cover all outstanding losses as may
be mutually agreed.
CASH LOSS:- At Reassured's discretion, Minimum GBP 888,888
($1,333,333).
ACCOUNTS:- Quarterly Accounts in GBP and US$ seperately on
each year of account. Presentation within 45 days
of end of quarter with settlement due within 30
days thereafter.
GENERAL CONDITIONS:- Monthly bordereaux of risks ceded January,
February and March, quarterly thereafter.
Full Reinsurance Clause
War Exclusion G51
Nuclear Energy Risks Exclusion Clause
(Reinsurrance) 1984, NMA 1975 (Japanese Amendment)
Nuclear Incident Exclusion Clauses - Physical
Damage Reinsurance - USA & Canada
Excluding Financial Guarantee and Insolvency
Maximum Net Premium ceded hereon US$ 10m
Maximum aggregate cession per country or
territorial zone hereon GBP 20,000,000
Insolvency Clause G86.
Special cessions to be agreed by Reinsurers prior
to binding.
Multi year policies accepted by annual re-signing.
WORDING:- As before as far as applicable, any amendments to
be agreed.
INFORMATION:- 1998 E.N.P.I. GBP 2,600,000 for 50% Hereon.
N.B. Net of original brokerage
HEREON : 100% LASALLE RE LIMITED.
Signed /s/ Graham Waite Dated 8th Dec.1997
------------------------ ------------
ON BEHALF OF LASALLE RE
<PAGE>
CNA REFERENCE: 45 FIR 1998 09/01/1998
- -------------------------- ----------
ADDENDUM TO COVER NOTE
----------------------
CNA RE-AMSTERDAM, ZURICH AND MILAN BRANCHES
-------------------------------------------
PROPERTY CATASTROPHE 50% QUOTA SHARE TREATY
-------------------------------------------
1998 UNDERWRITING YEAR OF ACCOUNT
---------------------------------
ACCOUNTS: Quarterley Accounts in US$ only on each year account.
Presentation within 45 days of end of quarter with
settlement due within 30 days thereafter.
All other terms and conditions remain unaltered.
Signed: /s/ Graham Waite Dated: 19th. Jan 1998
------------------------------- --------------
on behalf of LaSalle Re Limited
<PAGE>
TITLE: NON-OBLIGATORY QUOTA SHARE REINSURANCE AGREEMENT
BETWEEN: CNA INTERNATIONAL REINSURANCE COMPANY LIMITED
AND
LA SALLE RE LTD
COMMENCING: 1ST JANUARY, 1994
<PAGE>
NON-OBLIGATORY QUOTA SHARE REINSURANCE AGREEMENT
------------------------------------------------
made between
CNA INTERNATIONAL REINSURANCE COMPANY LIMITED
(hereinafter referred to as "the Reassured")
and
LA SALLE RE LTD
(hereinafter referred to as "the Reinsurers")
PREAMBLE
- --------
This Agreement is made and entered into between CNA International Reinsurance
Company Ltd (hereinafter referred to as "the Reassured") and La Salle Re Ltd
(hereinafter referred to as "the Reinsurers"), on the following terms and
conditions.
ARTICLE 1
---------
BUSINESS REINSURED
- ------------------
This Agreement applies to policies and/or contracts of insurance and/or
reinsurance allocated by the Reassured to its account of Property Catastrophe
Excess of Loss Treaties (including specific catastrophe peril aggregate excess
written for a single territory) written or renewed by the Reassured in its
Amsterdam Branch Office.
ARTICLE 2
---------
COVER, LIMIT AND RETENTION
- --------------------------
The Reassured may cede and the Reinsurers shall accept by way of reinsurance
under this Agreement, 75% Quota Share of all cessions coming within the scope of
this Agreement, subject to a maximum Quota Share of cessions hereto of
(pound-sterling)3,000,000 or US$4,500,000 for any one programme.
The Reassured shall retain the remaining 25% Quota Share for its own account
but, without prejudice to the above, shall be at liberty to protect that
retention by way of reinsurance for its own account and benefit.
The maximum aggregate cession hereto per country or territorial zone is
(pound-sterling)30,000,000.
<PAGE>
- 2 -
ARTICLE 3
---------
TERRITORIAL SCOPE
- -----------------
This Agreement shall cover wherever cessions hereto cover other than losses
occurring in the United States of America and/or Canada except where such loss
exposures are incidental to the main hazard.
ARTICLE 4
---------
PERIOD
- ------
This Agreement takes effect on 1st January 1994 and applies to all business
written or renewed by the Reassured and signed into its 1994 and/or subsequent
Underwriting Years of Account.
This Agreement shall remain in full force and effect unless and until terminated
on 31st December 1994 or on any subsequent 31st December by either party giving
to the other not less than three months prior written notice.
For the purposes of this Agreement, the term of and participations in this
Agreement shall be divided into separate Underwriting Years, each for twelve
months commencing on 1st January.
Each cession made by the Reassured and all accounting transactions relating
thereto, shall be allocated by the Reassured to one Underwriting Year.
In the event of cancellation, all cessions in force at Midnight on the date of
cancellation shall remain covered under this Agreement until their individual
natural expiration or termination whichever occurs first.
Notwithstanding anything to the contrary contained in this Article, either party
shall have the right to terminate this Agreement by giving the other party
notice:-
(a) if the performance of the whole or any part of this Agreement be prohibited
or rendered impossible de jure or de facto in particular and without
prejudice to the generality of the preceding words in consequence of any
law or regulation which is or shall be in force in any country or territory
or if any law or regulation shall prevent directly or indirectly the
remittance of any or all or any part of the balance of payments due to or
from either party;
<PAGE>
- 3 -
(b) if the other party has become insolvent or unable to pay its debts or has
lost the whole or any part of its paid up capital;
(c) if there is any material change in the ownership or control of the other
party;
(d) if the country or territory in which the other party resides or has its
head office or is incorporated shall be involved in armed hostilities with
any other country whether war be declared or not or is partly or wholly
occupied by another power;
(e) if the other party shall have failed to comply with any of the terms and
conditions of this Agreement.
All notices of termination in accordance with any of the provisions of this
Article shall be by Telex or telegram and shall be deemed to be served upon
despatch or, where communications between the parties are interrupted, upon
attempted despatch.
All notices of termination served in accordance with any of the provisions of
this Article shall be addressed to the party concerned at its head office or at
any other address previously designated by that party.
In the event of this Agreement being terminated at any date other than its
natural expiry then the premium due to the Reinsurers shall be calculated upon
the Original Net Premium income of the Reassured up to the date of termination.
ARTICLE 5
---------
FOLLOW THE FORTUNES
- -------------------
The Reinsurers' liability to the Reassured in respect of all cessions under
this Agreement shall follow the liability of the Reassured to its reinsureds.
ARTICLE 6
---------
FULL REINSURANCE
- ----------------
The Reinsurers agree to follow and abide by all agreements, actions and/or
settlements made by the Reassured and to agree, with or without notice, all
alterations and/or additions and/or
<PAGE>
- 4 -
extensions made under the original cessions subsequent to the effecting of this
Agreement, subject to the conditions of this Agreement.
The Reinsurers expressly agree to pay in all respects as may be paid on the
original cessions liable or not liable, including in addition where applicable a
pro rata share of legal and/or other special expenses when incurred by the
Reassured.
ARTICLE 7
---------
EXCLUSIONS
- ----------
This Agreement does not cover:
A. any liability assumed by the Reassured for loss or damage directly or
indirectly occasioned by, happening through or in consequence of war,
invasion, acts of foreign enemies, hostilities or war-like operations
(whether war be declared or not), civil war, mutiny, civil commotion
assuming the proportions of or amounting to a popular rising, insurrection,
rebellion, revolution, military or usurped power, martial law, confiscation
or nationalisation or requisition or destruction of or damage to property
by or under the order of any Government or public or local authority.
However, the foregoing exclusion shall not apply to those classes of
business which are written in accordance with the War and Civil War
Exclusion Agreement and/or the War and Civil War Risk Exclusion Agreement
nor to business outside the scope of such Agreements unless such classes of
business are not covered by this Agreement.
In respect of losses arising in the United Kingdom only (other than in
respect of losses arising under those classes of business covered hereunder
which contain a War Inclusion Clause and such other classes of business
covered hereunder for which there is no Market requirement for such other
classes of business to contain a War Exclusion Clause by virtue of the
operation of the War and Civil War Exclusion Agreement and/or the War and
Civil War Risk Exclusion Agreement), this Agreement shall not cover any
liability assumed by the Reassured for loss or damage directly or
indirectly occasioned by, happening through or in consequence of any act of
any person or persons acting on behalf of or in connection with any
organisation the objects of which are to include the overthrowing or
influencing of any de jure or de facto government by terrorism or by any
violent means.
<PAGE>
- 5 -
B. the Reassured's interest whether direct or by way of reinsurance in loss
arising from claim or claims against an insured by another party or
parties.
Notwithstanding the foregoing this Agreement shall not exclude:
1) Workers' Compensation and/or Employers' Liability losses arising from
the following perils:-
Fire, Lightning, Explosion, Structural Collapse, Windstorms, Hail,
Flood, Seismic Activity, Volcanic Eruption, Collision, Riots, Strikes,
Civil Commotion, Malicious Damage;
2) Any Physical Damage and/or Consequential loss coverage contingent
thereon effected by an insured on behalf of another party.
C. Financial Guarantee and Insolvency.
D. Nuclear Risks for those applicable classes of business and territories as
appropriate in accordance with the clause referred to below and which shall
form an integral part hereof, copies of which are on file with the
Reassured:-
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1984) - WORLDWIDE
EXCLUDING U.S.A. AND CANADA - NMA 1975
Notwithstanding the provisions of this Clause, in respect of Japanese
business certain liabilities, the type of which by market practice and
custom have not been declared to the Japanese Nuclear Pool shall not fall
within the scope of this exclusion.
ARTICLE 8
---------
PREMIUM
- -------
In consideration of the liabilities undertaken by the Reinsurers in accordance
with the terms of this Agreement, the Reassured shall pay to the Reinsurers
their 75% Quota Share proportion of the Reassured's Original Net Premium in
respect of all cessions hereto.
<PAGE>
- 6 -
The term "Original Net Premium" shall, for all purposes of this Agreement, be
understood to mean the full gross amount of the premiums paid to the Reassured
under the original cessions by their original insureds or reinsureds, less all
original commissions, brokerage and taxes.
The maximum Original Net Premium to be ceded to this Agreement for any one
Underwriting Year shall be $7,000,000.
ARTICLE 9
---------
ADMINISTRATIVE PROCESSING FEE
- -----------------------------
The Reinsurers agree to allow the Reassured to deduct and retain, for its own
benefit as administrative processing fee 2.5% of the Original Net Premium
payable to the Reinsurers in accordance with the terms of Article 8, "Premium".
ARTICLE 10
----------
LOSSES AND LOSS EXPENSES
- ------------------------
All loss settlements made by the Reassured, whether under strict policy
conditions or by compromise, shall be unconditionally binding upon the
Reinsurers who shall be liable for their Quota Share proportion thereof and of
all expenses (other than the salaries of employees and office expenses of the
Reassured) incurred by the Reassured in connection therewith.
The Reinsurers shall benefit in their Quota Share proportion from any salvage or
recoveries effected by the Reassured for the benefit of itself and the
Reinsurers.
Losses which the Reassured has paid shall be debited to the Reinsurers in the
quarterly accounts rendered in accordance with Article 11, "Accounts, Reports
and Payments" but, in the event of the Reassured sustaining a loss in respect of
which the 100% Quota Share proportion amounts to or exceeds $2,000,000 any one
occurrence, the Reassured shall have the option of requiring the Reinsurers to
effect payment as soon as practicable upon submission of proof of loss.
<PAGE>
- 7 -
ARTICLE 11
----------
ACCOUNTS, REPORTS AND PAYMENTS
The Reassured shall render a separate quarterly statement of account for each
Underwriting Year of Account during which this Agreement is in force showing a
total of all premiums ceded to this Agreement during such quarter. The Reassured
shall also furnish a separate quarterly loss statement for each such
Underwriting Year of Account, showing losses paid, loss expenses and salvages
coming within the terms of this Agreement and entered into the Reassured's books
during such quarter.
The quarterly accounts shall be rendered within forty-five days after the end of
each quarter. All accounts shall be rendered and settled in Sterling.
Balances due to the Reinsurers shall be paid on delivery of the accounts,
balances due to the Reassured shall be paid together with the confirmation but
not later than thirty days after the receipt of the accounts. In case of
objections, however, the amount not in dispute shall be paid at once and the
difference as soon as agreement has been reached.
The Reassured shall furnish quarterly bordereaux of cessions hereto.
ARTICLE 12
----------
COMMUTATION
If mutually agreed by the Reassured and the Reinsurers, at thirty-six months
following the commencement of any Underwriting Year of this Agreement, or at any
time thereafter, the Reassured may discharge the Reinsurers from all and/or
further liability in respect of such Underwriting Year. The Reassured will
prepare a report evaluating loss reserves and liabilities to establish a basis
for the discussion of commutation. The payment by the Reinsurers of an amount
mutually agreed will constitute a complete and final release of the Reinsurers
in respect of all liability relating to such Underwriting Year.
ARTICLE 13
----------
LOSS RESERVES
Where required by original ceding companies, outstanding loss reserves will be
established by the Reassured and reference thereto shall be included in the
quarterly bordereaux referred to in Article 11 "Accounts, Reports and Payments".
<PAGE>
-8-
ARTICLE 14
----------
CURRENCY
- --------
The currency to be used for all purposes of this Agreement shall be Pounds
Sterling. Cessions in currencies other than Pounds Sterling shall be converted
to Pounds Sterling at the rates of exchange used in the Reassured's books.
ARTICLE 15
----------
INSOLVENCY OF THE REASSURED
- ---------------------------
Amounts due to the Reassured under this Agreement shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the cessions
hereto without diminution because of the insolvency of the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the Reinsurers
of the pendency of any claim against the insolvent Reassured on the cessions
hereto within a reasonable time after such claim is filed in the insolvency
proceedings. During the pendency of such claim the Reinsurers may investigate
such claim and intervene, at their own expense, in the proceedings where such a
claim is to be adjudicated and interpose any defence or defences which they may
deem available to the Reassured or its Liquidator or Receiver or Statutory
Successor. The expense thus incurred by the Reinsurers shall be chargeable,
subject to court approval, against the insolvent Reassured as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Reassured solely as a result of the defence so
undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or interpose defence to such claim,
the expense shall be apportioned in accordance with the terms of the above
paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Agreement any sums which are due to the
Reinsurers from the Reassured under this Agreement and which are payable at a
fixed or stated date, as well as any other sums due to the Reinsurers which are
permitted to be offset under applicable law.
<PAGE>
- 9 -
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Agreement shall be payable by the Reinsurers directly to
the Reassured or to its Liquidator, Receiver or Statutory Successor.
ARTICLE 16
----------
DELAYS, ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Agreement
if such delay, error or omission had not been made, provided that rectification
is made immediately upon discovery.
ARTICLE 17
----------
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Agreement between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf of
both parties.
ARTICLE 18
----------
ACCESS TO RECORDS
All documents and records in the possession of the Reassured concerning this
Agreement shall be made available upon reasonable notice at the request of the
Reinsurers for inspection by the Reinsurers or their nominated representatives
for the purposes of obtaining information concerning this Agreement or the
subject matter hereof.
For the avoidance of doubt, the rights given to the Reinsurers by this Article
shall continue in effect notwithstanding the termination of this Agreement and
shall be exercised at the Reinsurers' own expense.
ARTICLE 19
----------
OFFSET
Each party hereto shall have and may exercise in the event of the insolvency of
the other or the non-payment by the other of obligations where due hereunder,
the right to offset any balance or balances whether on account or premiums,
commissions, claims or losses, adjustment expenses, salvage or any other amount
due from that party to the other party hereto under this Agreement against the
balance or balances due or to become due to the offsetting party from the other
party under this Agreement.
<PAGE>
- 10 -
ARTICLE 20
----------
ARBITRATION
1. All matters in difference between the parties arising under, out of or in
connection with this Agreement, including formation and validity, and
whether arising during or after the period of this Agreement, shall be
referred to an arbitration tribunal in the manner hereinafter set out.
2. Unless the parties appoint a sole arbitrator within 14 days of one
receiving a written request from the other for arbitration, the claimant
(the party requesting arbitration) shall appoint his arbitrator and give
written notice thereof to the respondent. Within 30 days of receiving such
notice the respondent shall appoint his arbitrator and give written notice
thereof to the claimant, failing which the claimant may apply to the
appointor hereafter named to nominate an arbitrator on behalf of the
respondent.
3. Before they enter upon a reference the two arbitrators shall appoint a
third arbitrator. Should they fail to appoint such a third arbitrator
within 30 days of the appointment of the respondent's arbitrator then
either of them or either of the parties may apply to the appointor for the
appointment of the third arbitrator. The three arbitrators shall decide by
majority. If no majority can be reached the verdict of the third arbitrator
shall prevail. He shall also act as chairman of the tribunal.
4. Unless the parties otherwise agree the arbitration tribunal shall consist
of persons (including those who have retired) with not less than ten years'
experience of insurance or reinsurance as persons engaged in the industry
itself or as lawyers or other professional advisers.
5. The arbitration tribunal shall, so far as is permissible under the law and
practice of the place of arbitration, have power to fix all procedural
rules for the holding of the arbitration including discretionary power to
make orders as to any matters which it may consider proper in the
circumstances of the case with regard to pleadings,
<PAGE>
- 11 -
discovery, inspection of the documents, examination of witnesses and any
other matter whatsoever relating to the conduct of the arbitration and may
receive and act upon such evidence whether oral or written strictly
admissible or not as it shall in its discretion think fit.
6. The appointer shall be the Chairman for the time being of ARIAS (UK) or if
he is unavailable or it is inappropriate for him to act for any reason,
such person as may be nominated by the Committee of ARIAS (UK). If for any
reason such persons decline or are unable to act, then the appointor shall
be the Judge of the appropriate Courts having jurisdiction at the place of
arbitration.
7. All costs of the arbitration shall be determined by the arbitration
tribunal who may, taking into account the law and practice of the place of
arbitration, direct to and by whom and in what manner they shall be paid.
8. The place of arbitration may be chosen by the parties, but in default of
such choice, the place of arbitration shall be Amsterdam.
9. The proper law of this Agreement shall be the law of the Netherlands.
10. The award of the arbitration tribunal shall be in writing and binding upon
the parties who consent to carry out the same.
ARTICLE 21
----------
PARTICIPATION
This Agreement obligates the Reinsurers for their proportion of the interests
and liabilities set forth in this Agreement.
<PAGE>
-12-
IN WITNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Agreement as follows:
Signed in Amsterdam, the Netherlands this 7th day of April 1994
For and on behalf of the Reassured: /s/ P. Van Nek
CNA INTERNATIONAL REINSURANCE CO. LTD.
And
Signed in Hamilton, Bermuda, this 26th day of September 1994.
For and on behalf of the Reinsurers. /s/ Guy Hengesbaugh
Guy Hengesbaugh
Chief Underwriter
LASALLE RE LIMITED
<PAGE>
EXHIBIT 10.38
LMX CATASTROPHE QUOTA SHARE RETROCESSIONAL
REINSURANCE PLACEMENT SLIP
--------------------------
COMPANY: Continental Casualty Company Illinois
EFFECTIVE: Losses occurring on original contracts written or renewed
with effective dates during the 12 month term beginning
January 1, 1998
Cessions in force to run off until natural expiry, plus an
additional 12 month period should an original contract be
renewed at original reinsured's option. In addition,
Retrocessionaires will remain liable as respects run-off
obligations under each original cession in force at the time
of expiration.
In the event a Retrocessionaire opts not to continue its
participation on the agreement replacing this Agreement, it
will remit to the Retrocedent 90% of the Retrocessionaire's
share of the positive balance of premium received, less
losses paid, and less ceding commission and other
commissions paid within 30 days after Agreement expiration.
This provision will not apply in the event that this
Agreement is not renewed.
BUSINESS
COVERED: London Market Catastrophe Excess of Loss business, where
100% of the layer is written by the Retrocedent and coded
Product Type 6308.
EXCLUSIONS: As per original contracts.
TERRITORY: Losses wheresoever arising
LIMIT: LAYER A
-------
33.33% Quota Share of $20,000,000 (or $6,666,000) of
aggregate cover any one occurrence. Subject to a maximum of
up to 33.33% of $5,000,000 (or $1,666,500) any one
occurrence, any one original reinsured. Minimum net
retention of 66.67% of $5,000,000 (or $3,333,500) of all
cessions to Agreement.
AR 1846 -- Effective 1/1/98
(Issued 9/16/97) DMH Page 1 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
LIMIT:
(CON'T.) LAYER B
-------
33.33% Quota Share of $17,500,00 (or $5,832,750) of
aggregate cover any one occurrence. Subject to a
maximum of up to 33.33% of $5,000,000 (or $1,666,500)
any one occurrence, any one original reinsured. Minimum
net retention of 66.67% of $5,000,000 (or $3,333,500)
of all cessions to Agreement.
RATE: Original Gross Reinsurance Premium less any commissions
paid under reinsured original contracts and ceding
commission.
CEDING
COMMISSION: 3.0% (FLAT)
WARRANTY: The Retrocedent and Retrocessionaires hereunder will
retain all business subject to this Agreement net and
unreinsured in any way, subject to limits in Limit
Section.
FUNDING OF RESERVES: Letters of Credit (Citibank Scheme) as required by
Retrocedent, in respect of unearned premium and known
outstanding losses reported to Retrocessionaires,
excluding losses incurred but not reported to
Retrocessionaires, in compliance with
statutory/regulatory requirements from non-admitted
Retrocessionaires only.
CASH LOSSES: $250,000 (on a 100% basis).
REPORTS & REMITTANCES: As attached.
CURRENCY: All transactions hereunder to be in U.S. Dollars.
Losses in other currencies to be converted to U.S.
Dollars at the same rates of exchange used by the
Retrocedent in its own books.
WORDING: As expiring.
AR 1846-98 -- Effective 1/1/98
Issued 9/16/97) Page 2 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
GENERAL
CONDITIONS: Retrocessionaires will be subject to the same terms, rates,
and conditions as original and will follow original
settlements made by the Retrocedent.
Arbitration Clause
Inter-Company Pooling Clause
Confidentiality Clause (per attached)
Salvage and Subrogation Clause
Settlements Clause (per attached)
Offset Clause (this Agreement only, except that in the event
of insolvency, offset will be allowed per applicable
regulation)
ECO Clause
Delays, Errors, or Ommissions Clause
Amendments Clause
Access to Records Clause (per attached)
Interest Penalty Clause (per attached)
Insolvency Clause
Arbitration Clause
Taxes Clause
Federal Excise Tax Clause
Service of Suit Clause
Aon Re Inc. Intermediary Clause
AR 1846-98 -- Effective 1/1/98
(Issued 9/16/97) DMH Page 3 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
We ask that you review the terms and conditions set forth hereinabove. Assuming
that you find everything to be in order, please indicate your acceptance and
approval by signing and returning one copy of this Final Placement Slip to Aon
Re Inc.
[LOGO OF LASALLE RE LIMITED APPEARS HERE]
REINSURER: LaSalle Re Limited
--------------------------------------------------------------
THRU:____________________________________________________________________
SIGNED REFERENCE
LINE: 47.5% NUMBER: 1739/98
------------------------------------------- --------------
(LAYER A)
SIGNED REFERENCE
LINE: 31.43% NUMBER: 2790/98
------------------------------------------- --------------
(LAYER B)
ACCEPTED &
APPROVED BY: /s/ Graham Waite DATED: 14th November, 1998
----------------------------------- -------------------
Graham Waite - Vice President
(FOR PROCESSING PURPOSES IT IS IMPORTANT THAT YOU PROVIDE YOUR COMPANY'S
REFERENCE NUMBER FOR THIS PROGRAM.)
AR 1846-98 -- Effective 1/1/98
(Issued 9/16/97) DMH Page 4 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
REPORTS AND REMITTANCES
-----------------------
Within 30 days after the close of each quarter, the Retrocedent shall furnish
the Retrocessionaires with a report summarizing the gross premium, commission
allowed on the gross premium, premium ceded less return premium and commission,
losses paid, loss expenses paid, salvage recovered, and net balance due either
party. The quarterly report also shall contain a statement showing the total
reserves for outstanding losses including loss expenses and a list of all
catastrophic code numbers assigned by the Property Claims Services division of
the American Insurance Services Group, Inc. for paid and outstanding catastrophe
losses and expenses incurred during the quarter. All amendments or adjustments,
including reinstatement premium, shall be accounted for on a year-of-account
basis. Amounts due the Retrocessionaires shall be remitted with said report.
Amounts due the Retrocedent shall be remitted within 30 days following receipt
of report.
Within 60 days following the expiration of the Agreement, the Retrocedent shall
furnish the Retrocessionaires with a report detailing the unearned premium,
calculated on a monthly pro rata basis, as well as the December 31st state of
losses. The Retrocedent shall also furnish the Retrocessionaires with any
additional information they may require to prepare their financial statements.
Should payment due from the Retrocessionaires exceed their share of $250,000,
the Retrocedent may give the Retrocessionaires notice of payment made or its
intention to make payment on a certain date. If the Retrocedent has paid the
loss, payment shall be made by the Retrocessionaires immediately. If the
Retrocedent intends to pay the loss by a certain date and has submitted a proof
of loss or similar document, payment shall be due from the Retrocessionaires 24
hours prior to that date, provided the Retrocessionaires have a period of five
working days after receipt of said notice to dispatch the payment. Cash loss
amounts specifically remitted by the Retrocessionaires as set forth herein shall
be credited to their next quarterly account.
CONFIDENTIALITY
---------------
It is a condition precedent to any indemnification under this Agreement that the
Retrocedent shall not disclose any details of this Agreement at any time to any
third party without the approval of the Retrocessionaires. Notwithstanding the
foregoing, the Retrocedent may disclose details of this Agreement to Names and
their agents, auditors, accountants, and other third parties as may be required
in order to comply with law or with the bylaws of Lloyd's, provided that they
themselves respect the confidentiality of this undertaking.
AR 1846-98 -- Effective 1/1/98
(Issued 9/16/97) DMH Page 5 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
SETTLEMENTS
-----------
The Retrocedent shall have the right to settle all claims under its original
contracts. All settlements, provided they are within the terms of this
Agreement, shall be unconditionally binding on the Retrocessionaires in
proportion to their participation in the Agreement, upon provision by the
Retrocedent of the following: identification of loss including date and
documented settlement/loss amounts and expenses received by the Retrocedent
subject to this Agreement.
Inadvertent omission in dispatching the aforementioned documentation will in no
way affect the obligation of the Retrocessionaires under Retrocedent informs the
Retrocessionaires of such omission promptly upon discovery.
ACCESS TO RECORDS
-----------------
The Retrocessionaires, or their duly accredited representatives, shall have
access to the books and records of the Retrocedent on matters reasonably
relating to this reinsurance at all reasonable times for the purpose of
obtaining information concerning this Agreement or the subject matter hereof.
Except as provided in the following sentence, access to premium records is
restricted to within four years of the expiration of this Agreement. A
Retrocessionaire shall be permitted access to premium records subsequent to the
aforementioned period only on the condition that either a) there are no balances
payable hereunder by the Retrocessionaire which are overdue as provided in the
Interest Penalty Article of this Agreement, or b) the Retrocessionaire has
funded all balances due hereunder in an interest-bearing trust fund or with a
Letter of Credit as hereinafter provided.
Should the Retrocessionaire choose option b) of the foregoing paragraph, the
Retrocessionaire agrees to provide the Retrocedent a Trust Agreement established
at Morgan Guaranty Trust Company of New York, New York, or at a mutually agreed
successor Trustee, or a clean, irrevocable, and evergreen Letter of Credit,
issued by Morgan Guaranty Trust Company of New York, New York, or by a mutually
agreed bank, of which the Retrocedent shall be the beneficiary, which shall
secure in full all balances due from the Retrocessionaire to the Retrocedent
with respect to this Agreement. Such Trust Agreement and/or Letter of Credit
shall be established under the laws of the state of New York and shall meet all
requirements of the state regulatory authorities applicable to the Retrocedent.
The Retrocessionaire is responsible for all costs associated with providing such
Trust Agreement and/or Letters of Credit as required under this Article.
AR 1846-98 -- Effective 1/1/98
(Issued 9/16/97) DMH Page 6 of 7
<PAGE>
CONTINENTAL CASUALTY COMPANY LMX QUOTA SHARE RETRO
INTEREST PENALTY
----------------
The interest amounts provided for in this Article will apply to the
Retrocessionaires or to the Retrocedent in the following circumstances:
A. Loss payment owed by the Retrocessionaires to the Retrocedent shall
have a due date to the Retrocedent of 90 calendar days following the
date of the billing/proof of loss.
B. Payment of any premium shall be due to the Retrocessionaires within 90
calendar days of the date specified in this Agreement. Any premium
adjustments shall be due by the debtor party within 150 calendar days
of the expiry of this Agreement.
C. Payment on return of premiums, commissions, profit sharing, or any
amounts not provided in paragraphs A. or B. above, shall have the due
date as specified in this Agreement. If no due date is specified,
the due date shall be 90 days following the date of billing.
D. Failure by the Retrocessionaire or the Retrocedent to comply with
their respective payment obligations within the time periods as herein
provided will result in a compound interest penalty payable at a rate
equal to the 90-day Treasury Bill rate as published in the Money Rate
Section or any successor section of The Wall Street Journal on the
-----------------------
first business day following the date a remittance becomes due, plus
1% per annum, to be compounded and adjusted quarterly. Any interest
which occurs pursuant to this Article shall be calculated by the party
to which it is owed. The accumulation of the number of days that any
payment is past due will stop on the date that the Intermediary, where
applicable, receives payment.
E. The validity of any claim or payment may be contested under the
provisions of this Agreement. If the debtor party prevails in an
arbitration or any other proceeding, there shall be no interest
penalty due. Otherwise, any interest will be calculated and due as
outlined above.
F. If a Retrocessionaire advances payment of any claim it is contesting,
and prevails in the contest, the Retrocedent shall return such payment
plus pay interest on same, calculated as per the provisions of this
Article.
G. Any interest that occurs pursuant to this Article may be waived by the
party to which it is owed. Further, any interest which is calculated
pursuant to this Article that is $100 or less shall be waived. Waiver
of such interest, however, shall not affect the waiving party's rights
to similar interest for any other failure by the other party to make
payment when due under this Article.
H. Nothing in this Article shall diminish any legal remedies that either
party may have against the other.
AR 1846-98 -- Effective 1/1/98
(Issues 9/16/97) DMH Page 7 of 7
<PAGE>
LMX CATASTROPHE QUOTA SHARE RETROCESSIONAL AGREEMENT
----------------------------------------------------
ARTICLE PAGE
------- ----
COVERAGE I 2
TERM II 3
TERRITORY III 4
EXCLUSIONS IV 4
DEFINITIONS V 4
REINSURANCE PREMIUM AND CEDING COMMISSION VI 5
EXTRA CONTRACTUAL OBLIGATIONS VII 6
REPORTS AND REMITTANCES VIII 6
RESERVES AND FUNDING IX 7
INTEREST PENALTY X 10
SETTLEMENTS XI 11
OFFSET XII 11
SALVAGE AND SUBROGATION XIII 12
WARRANTY XIV 12
DELAYS, ERRORS, OR OMISSIONS XV 12
AMENDMENTS XVI 13
ACCESS TO RECORDS XVII 13
CONFIDENTIALITY XVIII 14
INSOLVENCY XIX 14
ARBITRATION XX 16
TAXES XXI 18
FEDERAL EXCISE TAX XXII 18
CURRENCY XXIII 18
SERVICE OF SUIT XXIV 19
INTER-COMPANY POOLING ARRANGEMENT XXV 20
INTERMEDIARY XXVI 21
AR 1846-A-99 -- 1/1/98
(12/11/97) 1
<PAGE>
LMX CATASTROPHE QUOTA SHARE RETROCESSIONAL AGREEMENT
----------------------------------------------------
THIS AGREEMENT is made and entered into by and between CONTINENTAL
CASUALTY COMPANY, an Illinois corporation, (hereinafter called the
"Retrocedent") of the one part, and the various Retrocessionaires as identified
by the attached Interests and Liabilities Agreements (hereinafter called the
"Retrocessionaires") of the other part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
---------
COVERAGE
- --------
The Retrocedent shall cede to the Retrocessionaires, and the
Retrocessionaires shall accept, a 33.33% of $5, 000,000 (i.e, $1,666,500) quota
share participation in respect to all original contracts written or renewed by
the Retrocedent with an effective date during the term of this Agreement and
classified by the Retrocedent as "London Market Catastrophe Excess of Loss
Reinsurance," where 100% of the layer is written by the Retrocedent and coded
Product Type 6308.
The limit of liability to the Retrocessionaires shall not exceed 33.33% of
$5,000,000 (i.e., $1,666,500) any one occurrence, any one original reinsured,
subject to an aggregate limitation of no more than 33.33% of $20,000,000 (i.e.,
$6,666,000) any one occurrence. Should any loss involve this reinsurance, the
obligation of the Retrocessionaires shall be automatically reinstated as to any
subsequent loss for the full
AR 1846-A-98 -- 1/1/98
(12/11/97) 2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
amount of reinsurance as set forth above. The Retrocedent shall retain
a minimum of 66.67% of $5,000,000 (i.e., $3,333,500) of all cessions
to this Agreement net.
All reinsurance for which the Retrocessionaires shall be obligated by
virtue of this Agreement shall be subject to the same terms, rates,
conditions, interpretations, waivers, modifications, and alterations as the
respective original contracts of the Retrocedent to which this reinsurance
applies. Nothing herein shall in any manner create any obligations or
establish any rights against the Retrocessionaires in favor of any third
parties or any persons not parties to this Agreement except as provided in
the Insolvency Article. The Retrocedent shall be the sole judge of what
constitutes any one occurrence, any one original reinsured.
ARTICLE II
----------
TERM
----
This Agreement shall apply to all losses occurring on original
contracts written or renewed with an effective date during the 12-month
period commencing January 1, 1998, 12:01 a.m. Standard Time. The
Retrocessionaires shall remain liable for all losses under original
contracts in force until their expiration or renewal dates, whichever come
first, plus an additional 12 month period should an original contract be
renewed at an original reinsured's option. In addition, the
Retrocessionaires shall remain liable as respects any run-off obligations
under the original contracts covered hereunder.
In the event a Retrocessionaire opts not to continue its participation
on the agreement replacing this Agreement, the Retrocessionaire shall remit
to the Retrocedent 90% of the Retrocessionaire's share of the positive
balance of premium received, less
AR 1846-A-98 -- 1/1/98
(12/11/97)
3
<PAGE>
losses paid, and less ceding and other commissions within 30 days after the
termination of the Agreement. This provision shall not apply in the event
this Agreement is not renewed.
Notwithstanding the cancellation of this Agreement as hereinabove
provided, its provisions shall continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each
party hereunder prior to such termination shall be fully performed and
discharged.
ARTICLE III
-----------
TERRITORY
---------
This Agreement shall apply to losses wheresoever arising.
ARTICLE IV
----------
EXCLUSIONS
----------
No indemnity shall be provided hereunder for any liability excluded
under the Retrocedent's original contracts.
ARTICLE V
---------
DEFINITIONS
-----------
"Original contracts" as used in this Agreement shall mean reinsurance
treaties, binders, cover notes, slips, policies, contracts, or agreements,
whether written or oral.
"Occurrence" as used in this Agreement is defined as on the original
contracts covered hereunder.
AR 1846-A-98 -- 1/1/98
(12/11/97) 4
<PAGE>
"Loss" as used in this Agreement shall mean the amount of any settlement,
award, or judgment paid by the Retrocedent or for which the Retrocedent has
become liable to pay after deduction of all recoveries, salvages, subrogations,
and other reinsurances whether recovered or not. Loss shall not include loss
expense, unless the original contracts reinsured hereunder define loss as
including loss expense.
"Loss expense" as used in this Agreement shall mean all expenses incurred
by the Retrocedent in the investigation, appraisal, adjustment, litigation
and/or defense of claims under original contracts reinsured hereunder, including
court costs and interest accrued before and after final judgment, but excluding
internal office expenses, salaries, and other remuneration of regular employees
(other than staff field adjusters) of the original reinsureds or the
Retrocedent. The Retrocessionaires shall bear their pro rata shares of all such
loss expense (unless defined as part of loss in reinsured original contracts)
and shall benefit pro rata in all salvages, subrogations, discounts, and other
recoveries.
ARTICLE VI
----------
REINSURANCE PREMIUM AND CEDING COMMISSION
- -----------------------------------------
The Retrocedent shall cede to the Retrocessionaires their proportionate
share of the original premium on all contracts written or renewed with an
effective date on or after the inception of this Agreement for the business
described in the Coverage Article, less the ceding commission set forth below.
The Retrocessionaires shall allow the Retrocedent a 3% flat ceding
commission in addition to any commissions being paid under the original
contracts reinsured hereunder.
AR 1846-A-98 -- 1/1/98
(12/11/97)
5
<PAGE>
ARTICLE VII
-----------
EXTRA CONTRACTUAL OBLIGATIONS
- -----------------------------
This Agreement shall protect the Retrocedent, within the limits hereof,
for liability incurred in accordance with the provisions of the extra
contractual obligations clauses contained in the original contracts covered
hereunder.
ARTICLE VIII
------------
REPORTS AND REMITTANCES
- -----------------------
Within 30 days after the close of each quarter, the Retrocedent shall
furnish the Retrocessionaires with a report summarizing the gross premium,
commission allowed on the gross premium, premium ceded less return premium and
commission, losses paid, loss expenses paid, salvage recovered, and net balance
due either party. The quarterly report also shall contain a statement showing
the total reserves for outstanding losses including loss expenses and a list of
all catastrophe code numbers assigned by the Property Claim Services division of
American Insurance Services Group, Inc. for paid and outstanding catastrophe
losses and loss expense incurred during the quarter. All amendments or
adjustments, including reinstatement premium, shall be accounted for on a year-
of-account basis. Amounts due the Retrocessionaires shall be remitted with said
report. Amounts due the Retrocedent shall be remitted within 30 days following
receipt of the report.
Within 60 days following the expiration of this Agreement, the Retrocedent
shall furnish the Retrocessionaires with a report detailing the unearned
premium, calculated on a monthly pro rata basis, as well as the December 31st
state of losses. The Retrocedent
AR 1846-A-98 -- 1/1/98
(12/11/97) 6
<PAGE>
shall also furnish the Retrocessionaires with any additional information they
may require to prepare their financial statements.
Should payment due from the Retrocessionaires exceed their share of
$250,000, the Retrocedent may give the Retrocessionaires notice of payment made
or its intention to make payment on a certain date. If the Retrocedent has paid
the loss, payment shall be made by the Retrocessionaires immediately. If the
Retrocedent intends to pay the loss by a certain date and has submitted a proof
of loss or similar document, payment shall be due from the Retrocessionaires 24
hours prior to that date, provided the Retrocessionaires have a period of five
working days after receipt of said notice to dispatch the payment. Cash loss
amounts specifically remitted by the Retrocessionaires as set forth herein shall
be credited to their next quarterly account.
ARTICLE IX
----------
RESERVES AND FUNDING
- --------------------
(This Article is only applicable to those Retrocessionaires who cannot
qualify for credit by each governmental authority having jurisdiction over
the Retrocedent's reserves.)
As regards original contracts issued by the Retrocedent coming within the
scope of this Agreement, the Retrocedent agrees that, when it files with the
Insurance Department or sets up on its books reserves for known losses that have
been reported to the Retrocessionaires (including loss and loss expense paid by
the Retrocedent and loss and loss expense reported and outstanding) and/or
reserves for unearned premium, which it is required by law to set up, it shall
forward to the Retrocessionaires a statement showing the proportion of such loss
reserves applicable to them. The Retrocessionaires hereby
AR 1846-A98 -- 11/1/98
(12/11/97)
7
<PAGE>
agree that they shall fund such reserves by claims advances, Letters of Credit,
or a combination thereof. The Retrocessionaires shall have the option of
determining the method of funding, provided it is acceptable to the Retrocedent
and the applicable regulatory authorities.
If the Retrocessionaires' choice of funding is or includes a Letter of
Credit, the Retrocessionaires hereby agree that they shall apply for and secure
delivery to the retrocedent of a clean, irrevocable, and unconditional Letter of
Credit, dated on or before December 31 of the year in which the request is made,
and issued by Citibank, N.A., and containing provisions acceptable to the
insurance regulatory authorities having jurisdiction over the Retrocedent's
reserves, in an amount equal to the Retrocessionaire's proportion of such
reserves applicable to them as shown in the statement prepared by the
Retrocedent. Under no circumstances shall any amount relating to reserves in
respect of Incurred But Not Reported losses be included in the amount of the
Letter of Credit.
The Letter of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from its date of
expiration or any future expiration date unless 30 days prior to any expiration
date Citibank N.A. notifies the Retrocedent by registered mail that it elects
not to consider the Letter of Credit extended for any additional period.
Notwithstanding any other provisions of this Agreement, the Retrocedent or
its court-appointed successor in interest may draw upon the claims advances
and/or Letters of Credit at any time without diminution because of the
insolvency of the Retrocedent or of any Retrocessionaire for one or more of the
following purposes only:
AR 1846-A-98 -- 1/1/98
(12/11/97) 8
<PAGE>
A. To reimburse the Retrocedent for the Retrocessionaire's share of
unearned premium on original contracts reinsured hereunder or account
of cancellations of such original contracts.
B. To pay the Retrocessionaires share or to reimburse the Retrocedent for
the Retrocessionaire's share of any loss reinsured by this Agreement,
which has not been otherwise paid.
C. To make refund of any sum in excess of the actual amount required to
pay the Retrocessionaire's share of any liability reinsured by this
Agreement.
D. In the event of non-extension of the Letter of Credit as provided for
above, to establish deposit of the Retrocessionaire's share for
unearned premium and/or losses, including reserves for incurred but
not reported losses under this Agreement. Such cash deposit shall be
held in an interest bearing account separate from the Retrocedent's
other assets, and interest thereon shall accrue to the benefit of the
Retrocessionaires.
Citibank, N.A. shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Retrocedent or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Retrocedent.
At annual intervals, or more frequently as agreed but never more frequently
than semi-annually, the Retrocedent shall prepare and forward to the
Retrocessionaires a statement to reflect the Retrocessionaires' share of
reserves for losses and/or unearned premium. If the statement shows that the
Restrocessionaires' share of such reserves exceeds the balance available through
claims advances and/or Letters of Credit as of the statement date, the
Retrocessionaires shall, within 30 days after receipt of notice of such excess,
make an adjustment to increase the amount available. If, however, the statement
shows that the Retrocessionaires' share of such reserves is less than the
balance available through the chosen method of funding as of the statement date,
the Retrocedent shall,
AR 1846-A-98 -- 1/1/98
(12/11/97)
9
<PAGE>
within 30 days after receipt of written request from the Retrocessionaires,
release such excess credit by making the appropriate adjustment.
ARTICLE X
---------
INTEREST PENALTY
- ----------------
The interest amounts provided for in this Article will apply to the
Retrocessionaires or to the Retrocedent in the following circumstances:
A. Loss payments owned by the Retrocessionaires to the Retrocedent shall
have a due date to the Retrocedent of 90 calendar days following the
date of the billing/proof of loss.
B. Payment of any premium shall be due the Retrocessionaires within 90
calendar days of the date specified in this Agreement. Any premium
adjustments will be due by the debtor party within 150 calendar days
of the expiry of this Agreement.
C. Payment on return of premiums, commissions, profit sharing, or any
amounts not provided in paragraphs A. or B. above, shall have the due
date as specified in this Agreement. If no due date is specified, the
due date shall be 90 days following the date of billing.
D. Failure by a Retrocessionaire or the Retrocedent to comply with their
respective payment obligations within the time periods as herein
provided will result in a compound interest penalty payable at a rate
equal to the 90-day Treasury Bill rate as published in the Money Rate
Section or any successor section of The Wall Street Journal on the
-----------------------
first business day following the date a remittance becomes due, plus
1% per annum, to be compounded and adjusted quarterly. Any interest
which occurs pursuant to this Article shall be calculated by the party
to which it is owed. The accumulation of the number of days that any
payment is past due will stop on the date that the Intermediary, where
applicable, receives payment.
E. The validity of any claim or payment may be contested under the
provisions of this Agreement. If the debtor party prevails in an
arbitration or any other proceeding, there shall be no interest
penalty due. Otherwise, any interest will be calculated and due as
outlined above.
F. If a Retrocessionaire advances payment of any claim it is contesting,
and prevails in the contest, the Retrocedent shall return such payment
plus pay interest on same, calculated as per the provisions of this
Article.
AR 1846-A-98 -- 1/1/98
(12/11/97)
10
<PAGE>
G. Any interest that occurs pursuant to this Article may be waived by the
party to which it is owed. Further, any interest which is calculated
pursuant to this Article that is $100 or less shall be waived. Waiver
of such interest, however, shall not affect the waiving party's rights
to similar interest for any other failure by the other party to make
payment when due under this Article.
H. Nothing in this Article shall diminish any legal remedies that either
party may have against the other.
ARTICLE XI
----------
SETTLEMENTS
- -----------
The Retrocedent shall have the right to settle all claims under its
original contracts. All settlements, provided they are within the terms of this
Agreement, shall be unconditionally binding on the Retrocessionaires in
proportion to their participation in the Agreement, upon provision by the
Retrocedent of the following: identification of loss including date and
documented settlement/loss amounts and expenses received by the Retrocedent
subject to this Agreement.
Inadvertent omission in dispatching the aforementioned documentation will
in no way affect the obligation of the Retrocessionaires under this Agreement,
provided the Retrocedent informs the Retrocessionaires of such omission promptly
upon discovery.
ARTICLE XII
-----------
OFFSET
- ------
The Retrocedent or any Retrocessionaire hereunder shall be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement; however, in the event of the
insolvency of any party hereto, offset shall be in accordance with applicable
law.
AR 1846-A-98 -- 1/1/98
(12/11/97) 11
<PAGE>
ARTICLE XIII
------------
SALVAGE AND SUBROGATION
- -----------------------
The Retrocessionaires shall be credited with their share of salvage and/or
subrogation in respect of claims and settlements under this Agreement, less
their share of recovery expense. Unless the Retrocedent and the
Retrocessionaires agree to the contrary, the Retrocedent shall enforce its
right to salvage and/or subrogation and shall prosecute all claims arising out
of such right.
ARTICLE XIV
-----------
WARRANTY
- --------
It is hereby warranted that the Retrocedent and the Retrocessionaires
hereon shall retain all business subject to this Agreement net and unreinsured
in any way, subject to the limits expressed in the Coverage Article.
ARTICLE XV
----------
DELAYS, ERRORS, OR OMISSIONS
- -----------------------------
Inadvertent delays, errors, or omissions made in connection with this
Agreement shall not relieve either party from any liability which should have
attached to either party had such delay, error, omission not occurred, provided
always that such error or omission is rectified immediately upon discovery.
AR-1846-A-98 --1/1/98
(12/11/97)
12
<PAGE>
ARTICLE XVI
-----------
AMENDMENTS
- ----------
This Agreement may be altered or amended in any of its terms and conditions
by mutual consent of the Retrocedent and the Retrocessionaires by addenda hereto
which will then constitute a part of this Agreement.
ARTICLE XVII
------------
ACCESS TO RECORDS
- -----------------
The Retrocessionaires, or their duly accredited representatives, shall have
access to the books and records of the Retrocedent on matters reasonably
relating to this reinsurance at all reasonable times for the purpose of
obtaining information concerning this Agreement or the subject matter hereof.
Except as provided in the following sentence, access to premium records is
restricted to within four years of the expiration of this Agreement. A
Retrocessionaire shall be permitted access to premium records subsequent to the
aforementioned period only on the condition that either: a) there are no
balances payable hereunder by the Retrocessionaire which are overdue as provided
in the Interest Penalty Article of this Agreement, or b) the Retrocessionaire
has funded all balances due hereunder in an interest-bearing trust fund or with
a Letter of Credit as hereinafter provided.
Should a Retrocessionaire choose option b) of the foregoing paragraph, the
Retrocessionaire agrees to provide the Retrocedent a Trust Agreement established
at Morgan Guaranty Trust Company of New York, New York, or at a mutually agreed
successor Trustee, or a clean, irrevocable, and evergreen Letter of Credit,
issued by
AR 1846-A-98 -- 1/1/98
(12/11/97) 13
<PAGE>
Morgan Guaranty Trust Company of New York, New York, or by a mutually agreed
bank, of which the Retrocedent shall be the beneficiary, which shall secure in
full all balances due from the Retrocessionaire to the Retrocedent with respect
to this Agreement. Such Trust Agreement and/or Letter of Credit shall be
established under the laws of the state of New York and shall meet all
requirements of the state regulatory authorities applicable to the Retrocedent.
The Retrocessionaires is responsible for all costs associated with providing
such Trust Agreement and/or Letters of Credit as required under this Article.
ARTICLE XVIII
-------------
CONFIDENTIALITY
- ---------------
It is a condition precedent to any indemnification under this Agreement
that the Retrocedent shall not disclose any details of this Agreement at any
time to any third party without the approval of the Retrocessionaires.
Notwithstanding the foregoing, the Retrocedent may disclose details of this
Agreement to Names and their agents, auditors, accountants, and other third
parties as may be required in order to comply with law or with the bylaws of
Lloyd's, provided that they themselves respect the confidentiality of this
undertaking.
ARTICLE XIX
-----------
INSOLVENCY
- ----------
In the event of the Retrocedent's insolvency, the reinsurance afforded by
this Agreement shall be payable by the Retrocessionaires on the basis of the
Retrocedent's liability under the original contracts reinsured without
diminution because of the Retrocedent's insolvency or because its liquidator,
receiver, conservator, or statutory
AR 1846-A-98 -- 1/1/98
(12/11/97) 14
<PAGE>
successor has failed to pay all or a portion of any claims, subject however to
the right of the Retrocessionaires to offset against such funds due hereunder,
any sums that may be payable to them by said insolvent Retrocedent in accordance
with the Offset Article. The reinsurance shall be payable by the
Retrocessionaires directly to the Retrocedent, its liquidator, receiver,
conservator, or statutory successor except (a) where this Agreement specifically
provides another payee of such reinsurance in the event of the Retrocedent's
insolvency or (b) where the Retrocessionaires, with the consent of the direct
insured or insureds, have assumed such policy obligations of the Retrocedent as
direct obligations of themselves to the payees under such policies in
substitution for the Retrocedent's obligation to such payees.
The Retrocedent's liquidator, receiver, conservator, or statutory successor
shall give written notice of the pendency of a claim against the Retrocedent
under the original contracts within a reasonable time after such claim is filed
in the insolvency proceeding. During the pendency of such claim, the
Retrocessionaires may investigate said claim and interpose in the proceeding
where the claim is to be adjudicated, at their own expense, any defense that
they may deem available to the Retrocedent, its liquidator, receiver,
conservator, or statutory successor. The expense thus incurred by the
Retrocessionaires shall be chargeable against the Retrocedent, subject to court
approval, as part of the expense of conservation or liquidation to the extent
that such proportionate share of the benefit shall accrue to the Retrocedent
solely as a result of the defense undertaken by the Retrocessionaires. Where two
or more Retrocessionaires are involved in the same claim, and a majority in
interest elect to interpose defense to such claim, the expense shall be
AR 1846-A-98 -- 1/1/98
(12/11/97) 15
<PAGE>
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Retrocedent.
In the event of insolvency of the Retrocedent, the Retrocessionaires
under this Agreement shall have all rights, as more fully set forth in Section
173 of Illinois Insurance Code, as amended.
ARTICLE XX
----------
ARBITRATION
- -----------
In the event of any arbitration between the Retrocedent and its
reinsureds under the terms of any original contract, the Retrocessionaires agree
unreservedly to abide by the result of such arbitration.
As a condition precedent to any right of action hereunder, any dispute
arising out of this Agreement, whether arising before or after termination,
shall be submitted to the decision of a board of arbitration composed of two
arbitrators and an umpire, meeting in Chicago, Illinois unless otherwise agreed.
The members of the board of arbitration shall be active or retired,
disinterested officials of insurance or reinsurance companies or Underwriters at
Lloyd's, London. Each party shall appoint its arbitrator, and the two
arbitrators shall choose an umpire before instituting the hearing. If the
respondent fails to appoint its arbitrator within four weeks after being
requested to do so by the claimant, the claimant shall also appoint the second
arbitrator. If the two arbitrators fail to agree upon the appointment of an
umpire within four weeks after their nominations, they shall request the
American Arbitration Association to appoint an umpire. Both parties shall be
promptly notified, in writing, of the appointment of the umpire.
AR 1846-A-98--1/1/98
(12/11/97)
16
<PAGE>
The claimant shall submit its initial brief within 20 days from the
appointment of the umpire. The respondent shall submit its brief within 20 days
thereafter, and the claimant may submit a reply brief within 10 days after
filing of the respondent's brief.
The board shall make its decision with due regard to the custom and
usage of the insurance and reinsurance business. The board shall issue its
decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding upon
all parties to the proceeding. Judgment may be entered upon the award of the
board in any court having jurisdiction thereof.
If more than one Retrocessionaire is involved in the same dispute, all
such Retrocessionaires shall constitute and act as one party for purposes of
this Article, and communications shall be made by the Retrocedent to each of the
Retrocessionaires constituting the one party, provided that nothing therein
shall impair the rights of the Retrocessionaires to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of the
Retrocessionaires under the terms of this Agreement from several to joint.
Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the board.
AR 1846-A-98 -- 1/1/98
(12/11/97) 17
<PAGE>
ARTICLE XXI
-----------
TAXES
- -----
The Retrocedent shall pay all taxes (except for Federal Excise Tax) on
premiums reported to the Retrocessionaires on this Agreement.
ARTICLE XXII
------------
FEDERAL EXCISE TAX
- ------------------
(This Article applies to Retrocessionaires domiciled outside the United
States of America, excepting Lloyd's London Underwriters and other
Retrocessionaires exempt from Federal Excise Tax).
The Retrocessionaires shall allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Service Code) to the extent such
premium is subject to such tax. In the event of any return of premium, the
Retrocessionaires shall deduct the applicable percentage of the return premium
payable hereon and the Retrocedent or its agent shall recover such tax from the
United States government.
ARTICLE XXIII
-------------
CURRENCY
- --------
The sign "$" in this Agreement refers to United States of America Dollars
and all payments hereunder shall be made in that currency. All amounts paid or
received by the Retrocedent in any other currency shall be converted into
United States of America Dollars at the rate of exchange on the Retrocedent's
books when such payment is made or received.
AR 1846-A -- 1/1/98
(12/11/97)
18
<PAGE>
ARTICLE XXIV
------------
SERVICE OF SUIT
- ---------------
(This Article applies to Retrocessionaires domiciled outside the United
States of America and/or unauthorized in any state, territory, or district
of the United States of America that has jurisdiction over the Retrocedent
and in which a subject suit has been instituted. This Article is not
intended to conflict with or override the parties' obligation to arbitrate
their disputes in accordance with the Arbitration Article.)
In the event any Retrocessionaire hereon fails to pay any amount or perform
any obligation claimed due hereunder, such Retrocessionaire, at the request of
the Retrocedent, shall submit to the jurisdiction of any court of competent
jurisdiction within the United States and shall comply with all requirements
necessary to give that court jurisdiction. Nothing in this Article constitutes
or should be understood to constitute a waiver of the Retrocessionaire's right
to commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a
transfer of a case to another court as permitted by the laws of the United
States or of any state in the United States. Service of process in such suit
may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York
10019-6829, or another party specifically designated in the applicable Interests
and Liabilities Agreement attached hereto. In any suit instituted against it
upon this Agreement, the Retrocessionaire shall abide by the final decision of
such court or of any appellate court in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of the Retrocessionaire in any such suit and/or upon request of the
Retrocedent to give a written undertaking to the Retrocedent that they shall
enter a general appearance on the Retrocessionaire's behalf in the event such a
suit is instituted.
AR 1846-A-98 -- 1/1/98
(12/11/97)
19
<PAGE>
Further, pursuant to any statute of any state, territory, or district of
the United States that makes provisions therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent or any beneficiary hereunder arising out of this Agreement,
and hereby designates above named as the person to whom said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXV
-----------
INTER-COMPANY POOLING ARRANGEMENT
- ---------------------------------
It is understood and agreed that the Retrocedent has entered into the CNA
Reinsurance Pooling Agreement whereby it assumes 100% of the liability of the
other participants in the CNA Reinsurance Pooling Agreement. This present
Agreement protect such assumed liability and attaches prior to redistribution,
if any, within the participating companies. Such redistribution shall be
disregarded for all purposes of this present Agreement. For all purposes of this
Agreement, other member companies of the CNA Reinsurance Pooling Agreement are:
National Fire Insurance Company of Hartford, American Casualty Company of
Reading Pennsylvania, Transportation Insurance Company, Transcontinental
Insurance Company, Valley Forge Insurance Company, CNA Casualty of California,
CNA Lloyd's of Texas and Columbia Casualty Company.
It is also understood and agreed that the Retrocedent shall include the
insurance companies of the Continental Corporation which are affiliated with,
controlled by or under the common management of CNA.
AR 1846-A-98-- 1/1/98
(12/11/97) 20
<PAGE>
It is further agreed that notice shall be given to the Retrocessionaires
within 45 days of the acquisition of a company, not previously a participant in
either of the above-referenced, having in-force business that the Retrocedent
wishes to have covered by this Agreement. In the event either party hereto
maintains that the inclusion hereunder of some portion of the in force business
of any such new acquisition calls for alteration in the existing terms of this
Agreement, and the parties are unable to negotiate terms that are mutually
acceptable, then that portion of the newly acquired in force business not
considered mutually acceptable shall be covered for an additional period of 45
days from the date the dissenting party gives to the other written notice that
said portion of the newly acquired in force business is unacceptable.
ARTICLE XXVI
------------
INTERMEDIARY
- ------------
Aon Re Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices, statements, premiums, return premiums, commissions, taxes,
losses, loss adjustment expense, salvages, and loss settlements) relating
thereto shall be transmitted to the Retrocedent or the Retrocessionaires through
Aon Re Inc., 123 N. Wacker Drive, Chicago, Illinois 60606. Payments by the
Retrocedent to the Intermediary shall be deemed payment to the
Retrocessionaires. Payment by the Retrocessionaires to the Intermediary shall be
deemed payment to the Retrocedent only to the extent that such payments are
actually received by the Retrocedent.
AR 1846-A-98 -- 1/1/98
(12/11/97)
21
<PAGE>
INTERESTS AND LIABILITIES AGREEMENT
attaching to and forming a part of
LMX CATASTROPHE QUOTA SHARE
RETROCESSIONAL AGREEMENT
between
CONTINENTAL CASUALTY COMPANY
(hereinafter called the "Retrocedent")
and
LASALLE RE LIMITED
(hereinafter called the "Subscribing Retrocessionaire")
It is hereby mutually understood and agreed by and between the Retrocedent
and the Subscribing Retrocessionaire that effective 12:01 a.m., Standard Time,
January 1, 1998 to 12:01 a.m., Standard Time, January 1, 1999 the Subscribing
Retrocessionaire's share in the interests and liabilities of the
Retrocessionaires on the attached Agreement will be 47.50%.
------
The share of the Subscribing Retrocessionaire will be separate and apart
from the shares of the other Retrocessionaires and will not be joint with those
of the other Retrocessionaires, and the Subscribing Retrocessionaire will in no
event participate in the interests and liabilities of the other
Retrocessionaires.
If the Subscribing Retrocessionaire wishes to designate an alternate party
to that named in the Service of Suit Article contained in the attached
Agreement, then service of process will be made upon the party hereinafter
named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
Signed at CHICAGO, ILLINOIS
CONTINENTAL CASUALTY COMPANY
Signature: /s/ M. J. Laughlin Title: Assistant Vice President,
------------------------- -------------------------
CNA Re
------
Attest: /s/ Albert Moy Date: 2-11-98
------------------------- --------------------------
AR 1846-A-98--1/1/98
1
<PAGE>
Exhibit 12.1
LaSalle Re Holdings Limited
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
(Expressed in thousands of United States Dollars except for
number of shares and earnings per share)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, 1998 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Earnings available for fixed charges
and preferred share dividends
Net income before minority interest 65,232 121,468 129,451
Interest expense 1,881 1,678 222
Preferred share dividends (1) 0 0 0
------ ------- -------
Total earnings available for fixed
charges and preferred dividends 67,113 123,146 129,673
====== ======= =======
Fixed charges and preferred share
dividends
Interest expense 1,881 1,678 222
------ ------- -------
Total fixed charges 1,881 1,678 222
------ ------- -------
Preferred share dividends 6,563 3,354 0
------ ------- -------
Combined fixed charges and
preferred dividends 8,444 5,032 222
====== ======= =======
Ratio of earnings to combined fixed
charges and preferred share dividends 7.9 24.5 584.1
====== ======= =======
</TABLE>
(1) Not deducted from net income before minority interest.
<PAGE>
EXHIBIT 13.1
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA Pg 9
- --------------------------------------------------------------------------------
Expressed in thousands of United States Dollars,
except per share and operational data.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD OCTOBER
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 26, 1993 TO
1998 1997 1996 1995 SEPTEMBER 30
1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Premiums written $ 155,316 $ 171,386 $ 190,151 $ 201,916 $ 133,327
Net premiums earned 154,620 163,933 195,141 170,370 76,989
Net investment income (including
realized gains and losses) 39,863 33,664 26,428 25,066 15,739
Loss and loss expenses incurred 95,539 31,199 51,477 60,397 49,801
Underwriting expenses 22,661 26,018 27,268 22,988 8,686
Operational expenses 8,932 12,656 11,114 6,218 4,066
Income before minority interest 65,232 121,466 129,451 104,448 29,899
Minority interest/(1)/
(1998: 23%, 1997: 21%, all other periods: 37%) 13,426 24,391 47,966 38,774 10,958
Net income 51,806 97,077 81,485 65,674 18,941
Earnings per Common Share - assuming dilution/(2)/ $ 2.80 $ 5.14 $ 5.40 $ 4.51 $ 1.31
Adjusted weighted average number of Common
Shares outstanding/(3)/ 20,919,405 22,998,936 23,967,870 23,170,680 22,852,910
Dividends declared per Common Share $ 3.00 $ 2.84 $ 0.75 $ 5.72 $ 0.00
OTHER DATA
Loss ratio 61.8% 19.0% 26.4% 35.5% 64.7%
Expense ratio 20.4% 23.6% 19.6% 17.1% 16.6%
Combined ratio 82.2% 42.6% 46.0% 52.6% 81.3%
Return on average equity/(4)/ 13.0% 25.4% 29.2% 26.6% 9.3%
BALANCE SHEET DATA (AT END OF PERIOD)
Total investments and cash $ 608,757 $ 553,043 $ 537,504 $ 522,504 $ 409,738
Total assets 757,290 686,088 634,374 636,547 481,424
Reserve for losses and loss expenses 97,942 45,491 49,875 66,654 37,789
Minority Interest 105,569 93,355 179,470 147,389 140,838
Total shareholders' equity 430,053 425,226 307,448 253,422 243,446
Book value per share/(5)/ $ 23.39 $ 23.23 $ 21.42 $ 17.64 $ 16.91
</TABLE>
/(1)/ Minority interest represents those shares in LaSalle Re Limited that are
held as Exchangeable Non-Voting Shares. These shares are exchangeable, at
the option of the holder, for Common Shares of the Company on a one-for-
one basis.
/(2)/ Earnings per Common Share - assuming dilution equals income before
minority interest and after preferred dividends declared and in
arrears divided by the adjusted weighted average number of
Common Shares outstanding.
/(3)/ The adjusted weighted average number of Common Shares outstanding include
Common Shares and the Exchangeable Non-Voting Shares and the dilutive
effect of stock options and stock appreciation rights using the treasury
stock method.
/(4)/ Return on average equity is calculated by dividing net income before
minority interest and after preferred dividends declared and in arrears by
the average of the opening and closing sum of common shareholders' equity
and minority interest. The adjustment in respect of the minority interest
reflects the exchangeable nature of the Exchangeable Non-Voting Shares.
/(5)/ Book value per share is based on the sum of closing common shareholders'
equity and minority interest divided by Common Shares and Exchangeable
Non-Voting Shares.
LaSalle Re Holdings Limited
<PAGE>
Exhibit 23.1
[Letterhead of KPMG Peat Marwick]
The Board of Directors
LaSalle Re Holdings Limited
We consent to incorporation by reference in the registration statement (No.
333-64543) on Form S-3 and registration statements (No. 333-38653) and (No.
333-38655) on Forms S-8 of LaSalle Re Holdings Limited of our report dated
October 26, 1998, relating to the consolidated balance sheets of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations and comprehensive income, changes
in shareholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1998, and all related schedules, which report appears
in the September 30, 1998, annual report on Form 10-K of LaSalle Re Holdings
Limited, and to the reference to our firm under the heading "Experts".
/s/ KPMG PEAT MARWICK
Hamilton, Bermuda Chartered Accountants
December 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 521,476
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 521,476
<CASH> 85,281
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 13,444
<TOTAL-ASSETS> 757,290
<POLICY-LOSSES> 97,942
<UNEARNED-PREMIUMS> 83,119
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
3,000
<COMMON> 15,179
<OTHER-SE> 411,874<F2>
<TOTAL-LIABILITY-AND-EQUITY> 757,290
147,501
<INVESTMENT-INCOME> 34,288
<INVESTMENT-GAINS> 5,575
<OTHER-INCOME> 63
<BENEFITS> 95,539
<UNDERWRITING-AMORTIZATION> 22,661
<UNDERWRITING-OTHER> 11,114
<INCOME-PRETAX> 65,232
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,232
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 2.80
<RESERVE-OPEN> 0<F1>
<PROVISION-CURRENT> 0<F1>
<PROVISION-PRIOR> 0<F1>
<PAYMENTS-CURRENT> 0<F1>
<PAYMENTS-PRIOR> 0<F1>
<RESERVE-CLOSE> 0<F1>
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1> Amounts for Securities Act Industry Guide 6 and Exchange Act Industry
Guide & disclosures are not provided because the Company's loss reserves do
not exceed one half of the consolidated common shareholders equity.
<F2> Includes minority interest.
</FN>
</TABLE>
